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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 2001.
FILE NO. 333-70068
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EME Homer City Generation L.P.
(Exact name of registrant as specified in its charter)
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Pennsylvania 4991 33-0826938
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</Table>
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1750 Power Plant Road
Homer City, Pennsylvania 15748-8009
(724) 479-9011
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Steven D. Eisenberg, Esq.
Edison Mission Energy
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
(949) 752-5588
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Robert M. Chilstrom, Esq.
Harold F. Moore, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
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If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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THIS PRELIMINARY CONSENT SOLICITATION STATEMENT AND THE INFORMATION CONTAINED
HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY THEM BE ACCEPTED, PRIOR TO THE TIME THE
CONSENT SOLICITATION STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO
CIRCUMSTANCES SHALL THIS PRELIMINARY CONSENT SOLICITATION STATEMENT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY
SALE OF, THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION, QUALIFICATION OR FILING UNDER
THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
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SUBJECT TO COMPLETION, DATED NOVEMBER 16, 2001
CONSENT SOLICITATION STATEMENT
Solicitation of Consents to Amendments and Waivers
With Respect to the Indenture Governing the
8.137% Senior Secured Bonds due 2019 (CUSIP No. 28102Q AC 4) and
8.734% Senior Secured Bonds due 2026 (CUSIP No. 28102Q AF 7) of Edison Mission
Holdings Co.
EME Homer City Generation L.P.
Edison Mission Holdings Co.
This consent solicitation will expire at 5:00 p.m., New York City time, on
, 2001, unless extended by Edison Mission Holdings. Consents may be
revoked at any time up to the earlier of (a) 5:00 p.m. New York City time on
, 2001 and (b) the time and date on which Edison Mission Holdings
receives the requisite consents with respect to the outstanding bonds. Only
registered holders who validly deliver consents before the expiration date will
be entitled to receive any consent payment. If the requisite consents are not
received by December 6, 2001, the sale-leaseback transaction described in this
consent solicitation statement may not occur, and if it does not occur, all
terms and provisions of the outstanding bonds will remain unchanged.
We are EME Homer City Generation L.P., an indirect wholly-owned subsidiary
of Edison Mission Holdings and, along with all the other subsidiaries of Edison
Mission Holdings, a guarantor on the outstanding bonds. Edison Mission Holdings
is soliciting your consent to effectuate a sale-leaseback transaction of three
coal-fired electric generating units and related facilities owned by us. We
currently generate all the revenue from the operation of the facilities and
provide, directly or indirectly, all payments to meet Edison Mission Holdings'
debt service obligations under the outstanding bonds. Following the
sale-leaseback transaction, we would continue to operate the facilities,
generate all project revenue and be obligated to pay lease rent in an aggregate
amount sufficient to meet all debt service obligations under the pass-through
bonds which will be issued and will replace the outstanding bonds. The
pass-through bonds will be rated at least "BBB-" by Standard & Poor's Ratings
Services and "Baa3" by Moody's Investors Services, Inc.
Specifically, Edison Mission Holdings is soliciting your consent to the
following proposals:
- the amendment and waiver of several provisions of the Indenture, dated as
of May 27, 1999, between Edison Mission Holdings and The Bank of New York,
as successor trustee to United States Trust Company of New York, and the
execution of an amended and restated indenture under which the
pass-through bonds described below will be issued;
- the release of the guarantees of the outstanding bonds currently given by
each subsidiary of Edison Mission Holdings and the release of Edison
Mission Holdings' obligations under the outstanding bonds;
- the amendment of several security documents entered into in connection
with the issuance of the outstanding bonds;
- the substitution of a revised collateral package for the existing
collateral and credit support package supporting the outstanding bonds;
and
- the authorization of the trustee to take other actions as may be necessary
to effectuate the sale-leaseback transaction.
Edison Mission Holdings is also soliciting your consent to waive provisions
of the existing indenture and security documents entered into in connection with
the issuance of the outstanding bonds.
Upon receipt of consents in respect of at least a majority in aggregate
principal amount of the outstanding bonds voting as a single class, all the
outstanding bonds would become pass-through bonds. Therefore, $830,000,000
aggregate principal amount of pass-through bonds is being offered in this
consent solicitation statement. If you do not consent to the proposals, you will
still be bound by the proposals and will hold new pass-through bonds.
The nominal issuer of the pass-through bonds would be a special purpose
entity which would be entitled to receive payments made in respect of secured
lease obligation notes. The secured lease obligation notes would be issued by
eight Delaware limited liability companies, which would purchase the facilities
from us. We would be the lessee under the sale-leaseback transaction and,
through our rental payments to the limited liability companies, we would
continue indirectly to provide all debt service payments on the pass-through
bonds. We would not be directly obligated on the pass-through bonds.
The interest rate, payment dates and maturity date of the pass-through bonds
would be identical to the terms of the outstanding bonds. Interest on the
pass-through bonds would be paid on April 1 and October 1 of each year. The
pass-through bonds would be subject to the same redemption provisions as the
outstanding bonds. However, the pass-through bonds would be secured by a new
collateral package. The pass-through bonds will not be listed on any national
securities exchange or the NASDAQ Stock Market.
If the conditions described in this consent solicitation statement are
satisfied or waived and the requisite consents are received and the
sale-leaseback transaction is consummated, Edison Mission Holdings will pay to
each holder who has validly consented a consent payment of $13.75 for each
$1,000 in principal amount of outstanding Series A bonds and $16.25 for each
$1,000 in principal amount of outstanding Series B bonds in respect of which a
consent has been validly delivered.
See "Risk Factors" beginning on page 21 for a discussion of the risks that
you should consider before consenting to our entering into the sale-leaseback
transaction.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this consent solicitation statement. Any representation
to the contrary is a criminal offense.
Credit Suisse First Boston Lehman Brothers
The date of this consent solicitation statement is , 2001.
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TABLE OF CONTENTS
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<Caption>
PAGE
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SUMMARY..................................................... 1
RISK FACTORS................................................ 21
FORWARD-LOOKING STATEMENTS.................................. 26
USE OF PROCEEDS............................................. 26
CAPITALIZATION.............................................. 27
SELECTED FINANCIAL DATA..................................... 28
DESCRIPTION OF THE PASS-THROUGH BONDS....................... 30
DESCRIPTION OF THE PRINCIPAL SALE-LEASEBACK TRANSACTION
DOCUMENTS................................................. 43
DESCRIPTION OF THE OUTSTANDING BONDS........................ 86
DESCRIPTION OF EXISTING FINANCING DOCUMENTS................. 90
DESCRIPTION OF THE PROPOSED AMENDMENTS...................... 106
THE CONSENT SOLICITATION.................................... 116
OUR MANAGEMENT.............................................. 122
INTERCOMPANY RELATIONSHIPS AND RELATED TRANSACTIONS......... 124
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.... 126
ACCOUNTING TREATMENT........................................ 128
LEGAL MATTERS............................................... 128
EXPERTS..................................................... 128
AVAILABLE INFORMATION....................................... 128
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 129
MISCELLANEOUS............................................... 129
</Table>
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This consent solicitation statement incorporates important business and
financial information about us that is not included in or delivered with this
consent solicitation statement. This information is available to you without
charge upon written or oral request. You should direct your request to Edison
Mission Holdings Co., 18101 Von Karman Avenue, Suite 1700, Irvine, CA 92612,
Attn: General Counsel. The telephone number is: 949-752-5588. IN ORDER TO OBTAIN
TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS
DAYS BEFORE THE EXPIRATION DATE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
CONSENT SOLICITATION STATEMENT AND, IF GIVEN OR MADE, THE INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US, EDISON
MISSION HOLDINGS, THE TRUSTEE, CREDIT SUISSE FIRST BOSTON CORPORATION OR LEHMAN
BROTHERS INC., THE SOLICITATION AGENTS, OR D. F. KING & CO., INC., THE
INFORMATION AGENT. THIS CONSENT SOLICITATION STATEMENT IS NOT BEING MADE TO, AND
NO CONSENTS ARE BEING SOLICITED FROM, THE HOLDERS IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE A SOLICITATION OR GRANT A CONSENT. THE DELIVERY OF THIS
CONSENT SOLICITATION STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
IN THIS CONSENT SOLICITATION STATEMENT IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
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SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS CONSENT
SOLICITATION STATEMENT AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS CONSENT SOLICITATION STATEMENT OR
INCORPORATED IN THIS CONSENT SOLICITATION STATEMENT BY REFERENCE. THIS CONSENT
SOLICITATION STATEMENT INCLUDES SPECIFIC TERMS OF THE OUTSTANDING BONDS AND THE
PASS-THROUGH BONDS. WE ENCOURAGE YOU TO READ THIS CONSENT SOLICITATION STATEMENT
AND THE DOCUMENTS INCORPORATED BY REFERENCE IN ITS AND THEIR ENTIRETY. IN THIS
CONSENT SOLICITATION STATEMENT, THE WORDS "WE," "OUR," "OURS" AND "US" REFER TO
EME HOMER CITY GENERATION L.P. YOU SHOULD PAY SPECIAL ATTENTION TO THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 21 OF THIS CONSENT SOLICITATION STATEMENT.
OVERVIEW
Edison Mission Holdings Co. is currently the primary obligor on
$300 million aggregate principal amount of 8.137% Senior Secured Bonds due 2019
and $530 million aggregate principal amount of 8.734% Senior Secured Bonds due
2026, which we refer to collectively as the outstanding bonds. We, EME Homer
City Generation L.P., along with the other direct and indirect subsidiaries of
Edison Mission Holdings, are currently guarantors of Edison Mission Holdings'
obligations on the outstanding bonds. Following the effectiveness of the
amendments and waivers and the consummation of the sale-leaseback transaction,
as described in this consent solicitation statement, the outstanding bonds will
become pass-through bonds entitled to receive payments made in respect of
secured lease obligation notes and will be issued by a newly formed special
purpose entity. However, based on the interpretations by the staff of the SEC,
as detailed in a series of no-action letters issued by the SEC to third parties,
we, as the lessee in the sale-leaseback transaction, will be deemed to be the
issuer of the pass-through bonds for purposes of U.S. securities laws. This
consent solicitation statement therefore also serves as our prospectus for the
pass-through bonds.
THE SALE-LEASEBACK TRANSACTION
SALE-LEASEBACK TRANSACTION STRUCTURE
We currently own and operate three coal-fired electric generating units and
related facilities located near Pittsburgh, Pennsylvania with an aggregate
capacity of 1,884 megawatts (MW), which we collectively refer to as the
facilities. We currently generate all the revenue from the operation of the
facilities and provide, directly or indirectly, all payments to meet Edison
Mission Holdings' debt service obligations under the outstanding bonds.
Following the sale-leaseback transaction, we would continue to operate the
facilities, generate all project revenue and be obligated to pay lease rent in
an aggregate amount sufficient to meet all debt service obligations under the
secured lease obligation notes and, in turn, the pass-through bonds. However, we
would not be directly obligated on the pass-through bonds.
The pass-through bonds would be the sole obligations of Homer City Funding
LLC, a newly formed Delaware limited liability company, which has been formed
solely to take part in the sale-leaseback transaction. Homer City Funding's sole
purpose is to receive debt service payments on secured lease obligation notes
issued by the owner lessors, which have the same interest rates and amortization
schedules as the pass-through bonds, and use these payments to make debt service
payments on the pass-through bonds. Homer City Funding is not affiliated with
any party to the sale-leaseback transaction and would not be permitted to engage
in activities unrelated to the servicing of the pass-through bonds.
A large, multi-national investor, whose senior, unsecured debt is rated
"AAA" by Standard & Poor's Ratings Services, who we refer to as Standard &
Poor's, and "Aaa" by Moody's Investors Service, Inc., who we refer to as
Moody's, but who would not be obligated in any way on the pass-through bonds,
would be the equity investor in the sale-leaseback transaction. The equity
investor would invest approximately $798 million in the owner participants.
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The equity investor has formed eight Delaware special purpose limited
liability companies, which we refer to as the owner lessors. As is customary in
sale-leaseback transactions of this magnitude, the equity investor has chosen to
form several owner lessors in order to facilitate the transferability of
interests in the facilities. We refer to the entities that currently hold the
membership interests in, and who would fund the owner lessors, as the owner
participants. The owner participants must meet specified credit requirements or
be guaranteed by entities meeting these credit requirements. Each owner lessor
is subject to restrictions which are intended to isolate it from any credit risk
of its respective owner participant. In each of the owner lessor limited
liability company agreements, each owner lessor agrees to specified covenants
intended to establish its corporate existence separate from that of its parent,
the owner participant. This is done in order to avoid the risk that in a
bankruptcy it would be disregarded as an entity separate from its parent and its
liabilities would be consolidated with those of its parent. These covenants
include covenants to observe all Delaware law corporate formalities such as
maintaining its own books, records and bank accounts, holding title to its
assets in its own name and maintaining an independent manager. Because there
would be eight owner lessors, the sale-leaseback transaction would be structured
as eight separate transactions with separate, but commercially identical,
documentation.
The following steps would take place in order to implement the
sale-leaseback transaction:
- We would assume all obligations of Edison Mission Holdings under the
outstanding bonds and existing indenture.
- Each owner lessor would acquire an undivided interest in the facilities.
The aggregate purchase price paid by the owner lessors for these interests
would be approximately $1.6 billion as set forth in "--Sources and Uses of
Funds." The owner participants would fund the owner lessors in an amount
equal to approximately $798 million, and the owner lessors would apply
those funds to the purchase price of the facilities. The balance of the
purchase price, equal to approximately $830 million, would be satisfied
through the agreement of the owner lessors to assume all obligations under
the outstanding bonds and existing indenture.
- Homer City Funding would assume, on behalf of the owner lessors, all
obligations under the outstanding bonds and existing indenture, as amended
by the proposals described in this consent solicitation statement. In
connection with its assumption of these obligations, Homer City Funding
would execute an amended and restated indenture, which would replace the
existing indenture.
- Each owner lessor would issue secured lease obligation notes in favor of
Homer City Funding. These secured lease obligation notes would function as
consideration for Homer City Funding's assumption of the obligations under
the existing indenture and outstanding bonds and would be in the same
amount as the obligations on the outstanding bonds assumed by Homer City
Funding. The secured lease obligation notes would be issued in two series
matching those of the outstanding bonds. The owner lessors' aggregate
payments on the secured lease obligation notes would be sufficient for
Homer City Funding to pay the principal of, premium, if any, and interest
on the pass-through bonds. See "Description of the Principal
Sale-Leaseback Transaction Documents--The Lease Indenture and Secured
Lease Obligation Notes."
- We would lease from each owner lessor, under eight facility leases, each
owner lessor's undivided interest in the facilities. Our obligation to pay
rent under the facility leases would be in an aggregate amount at least
sufficient to pay all debt service in respect of the secured lease
obligation notes and, in turn, the pass-through bonds. We refer to the
portion of rent equal to the amount reserved to pay debt service on the
secured lease obligation notes, and in turn, the pass-through bonds, as
the debt portion of lease rent. We would also be obligated under the
facility leases to pay rent in respect of the equity interests of the
owner lessors. We refer to this portion of the total rental payments as
the equity portion of lease rent. Payments and rights with
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respect to the equity portion of lease rent would be subordinated to
payments and rights with respect to the debt portion of lease rent.
Payment of the equity portion of lease rent under each facility lease
would also be subject to the satisfaction of a coverage ratio test and
other equity release requirements. See "Description of the Proposed
Amendments--The Proposed Amendments--Deletion of Section 4.7 of the
Existing Indenture (Limitation on Restricted Payments)." Payments of the
debt portion of lease rent would not be subject to any release
requirements. See "Description of the Principal Sale-Leaseback Transaction
Documents--Lease Subordination Agreements."
- As is customary in sale-leaseback transactions, we would also enter into
site leases under which we would lease to each owner lessor an interest in
the parcel of land on which the facilities are located, which we refer to
as a ground interest. Each owner lessor would sublease its ground interest
back to us. The payments under the site leases and site subleases would
equal or offset each other, so no payments would be made as a result of
the lease and sublease of the ground interests.
- We, Edison Mission Holdings and the other subsidiary guarantors would be
released from our and their respective obligations under the existing
indenture and the outstanding bonds.
COLLATERAL PACKAGE AND CREDIT SUPPORT BEFORE THE SALE-LEASEBACK TRANSACTION
Currently, the outstanding bonds are secured by a collateral package
consisting of the following:
- a pledge of all the equity interests in Edison Mission Holdings and each
subsidiary guarantor, including us;
- a lien on substantially all the assets of Edison Mission Holdings and each
subsidiary guarantor, including us;
- a lien on revenues and right, title and interest in the existing
collateral accounts;
- a mortgage on our property;
- a credit support guarantee by Edison Mission Energy, which expires on
December 31, 2001; and
- a security interest in insurance proceeds received by us.
COLLATERAL PACKAGE AND CREDIT SUPPORT FOLLOWING THE SALE-LEASEBACK TRANSACTION
If the sale-leaseback transaction is consummated, in order to reflect the
leveraged-lease structure, the existing security for the outstanding bonds will
be released and the collateral package supporting the pass-through bonds will
consist of the following collateral. Please also refer to the chart set forth
below.
THE LESSEE SECURITY. As security for our obligations under each facility
lease, we will grant the following rights, which we collectively refer to as the
lessee security, to the collateral agent for the benefit of each respective
owner lessor. Each owner lessor will then grant a security interest in the
lessee security, among other things, to Homer City Funding as holder of the
secured lease obligation notes. The pledge of the secured lease obligation notes
by Homer City Funding will pass the benefit of the lessee security to holders of
the pass-through bonds.
The lessee security will consist of the following:
- a security interest in specified collateral accounts described in
"Description of the Principal Sale-Leaseback Transaction Documents--The
Amended Security Deposit Agreement," not to exceed at any time the sum of
all rent due and unpaid and the average of the next two aggregate rent
payments LESS $1 million;
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- a pledge by Edison Mission Holdings of the equity in Mission Energy
Westside, our general partner; and
- a security interest in our general intangibles, other than the following:
emission allowances and credits, insurance policies and all our contracts,
agreements, instruments and indentures.
For more information on the lessee security, see "Description of the
Principal Sale-Leaseback Transaction Documents--The Amended and Restated
Guarantee and Collateral Agreement and Changes to the Collateral Package."
THE LESSOR ESTATES. In addition, as security for the secured lease
obligation notes issued to Homer City Funding, each owner lessor will grant the
following rights, which we collectively refer to as the lessor estate or the
indenture estate, to the security agent for the benefit of Homer City Funding as
the holder of the secured lease obligation notes:
- a security interest in most of its rights under its related facility
lease, including its rights to payment of all scheduled rents and its
rights in the lessee security;
- a security interest in its undivided interest in the facilities;
- a mortgage on all improvements and a leasehold mortgage on its ground
interest, including all appurtenances;
- a security interest in insurance proceeds;
- a security interest in contracts related to the facilities assigned or
pledged to it; and
- a security interest in the debt service reserve account, which account may
be funded by a letter of credit, which we refer to as the debt service
reserve letter of credit, from an acceptable credit provider with a
combined capital surplus of at least $1 billion and whose long-term
unsecured debt is rated "A" or higher by Standard & Poor's or "A2" or
higher by Moody's.
THE DEBT SERVICE RESERVE LETTER OF CREDIT. The security interest in the
lessor estate will also secure the issuer of the debt service reserve letter of
credit. The security agent will hold a security interest for the benefit of
Homer City Funding as the holder of the secured lease obligation notes and for
the issuer of the debt service reserve letter of credit.
HOMER CITY FUNDING COLLATERAL. Finally, as security for the pass-through
bonds, which will constitute obligations of Homer City Funding, Homer City
Funding will pledge its interest in the secured lease obligation notes to the
trustee for the benefit of the holders of the pass-through bonds. As a result,
the holders of the pass-through bonds will obtain the indirect benefit in the
lessee security and the lessor estate described above. See "Description of the
Principal Sale-Leaseback Transaction Documents--Amended and Restated Guarantee
and Collateral Agreement and Changes to the Collateral Package" for a more
detailed explanation of the new collateral package.
In addition, aside from changes necessary to adapt the current collateral
package to a sale-leaseback structure, the collateral related to the mortgage on
the facility site will remain substantially the same after the sale-leaseback
transaction.
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CHARTS OF SECURITY INTERESTS BEFORE AND AFTER THE SALE-LEASEBACK TRANSACTION
SECURITY INTERESTS BEFORE THE SALE-LEASEBACK TRANSACTION
[CHART DEPICTING EXISTING SECURITY PACKAGE]
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SECURITY INTERESTS AFTER THE SALE-LEASEBACK TRANSACTION
[CHART DEPICTING SECURITY PACKAGE AFTER THE SALE-LEASEBACK TRANSACTION]
6
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SALE-LEASEBACK CASH FLOW STRUCTURE
We will be obligated to pay rent under each facility lease to the collateral
agent for the applicable owner lessor. However, as a result of the security
assignment of each facility lease to the security agent, we will be required to
make rental payments directly to the security agent. The security agent will
transfer the amount necessary to pay debt service on the secured lease
obligation notes to the lease indenture trustee under the lease indentures
governing the issuance of the secured lease obligation notes. From these lease
rental payments, the security agent will first make payments of principal,
interest and premium, if any, due on the secured lease obligation notes issued
under the lease indentures and held by Homer City Funding. The secured lease
obligation notes, in the aggregate, will be in principal amounts, bear interest
rates and otherwise have financial terms consistent with the payment obligations
of Homer City Funding under the pass-through bonds. After it distributes the
debt portions of lease rent and subject to satisfaction of specified conditions,
the security agent will pay any remaining balance to the owner lessors for the
benefit of the owner participants as the equity portion of lease rent. For each
rent payment period, the equity portion of lease rent will not be payable until
all debt service obligations then due under the lease indentures have been
satisfied in full. The Bank of New York will act as lease indenture trustee and
security agent under each of the lease indentures. The following diagram
illustrates the cash flow structure in the sale-leaseback-transaction:
[LOGO]
THE ACCOUNT STRUCTURE
Under the sale-leaseback transaction structure, we will deposit all revenues
into accounts established under the amended security deposit agreement between
us and The Bank of New York, as successor to United States Trust Company of New
York, as the collateral agent for the benefit of the owner lessors. This account
structure, which will be different from the current account structure, is more
fully described in "Description of the Principal Sale-Leaseback Transaction
Documents--The Amended Security Deposit Agreement." This account structure will
provide that the senior rent payment account, the account which services the
secured lease obligation notes, will be funded immediately after the funding of
our operating account. After the senior rent payment account is funded, a
permitted indebtedness account established for the benefit of persons providing
permitted indebtedness will be funded. An equity account will also be
established. Funds in the equity account will be available for payments of the
equity portion of lease rent, so long as a coverage ratio test and other
specified release conditions, which we refer to as equity payment requirements,
are satisfied. In
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addition, in the event either the senior rent service coverage ratio or the
projected senior rent service coverage ratio test, as described below, is not
satisfied, an additional reserve will be set aside in an amount equal to the
lesser of six months of senior rent service and amounts otherwise available for
payment of the equity portion of rent or distribution to us, but for our failure
to satisfy such coverage ratio test (which in combination with the six months
debt service reserve will cause up to twelve months debt service to be set aside
for the payment of principal and interest on the secured lease obligation notes
or senior rent payment in respect thereof). We will satisfy the senior rent
service coverage ratio test if our senior rent service coverage ratio for the
preceding four quarters, taken as one accounting period, is equal to or greater
than 1.5 to 1.0 for periods ending on or prior to December 31, 2001 or 1.7 to
1.0 for periods ending after December 31, 2001. We will satisfy the projected
senior rent service coverage ratio test if our projected senior rent service
coverage ratio for each four-quarter period, taken as one accounting period, for
the next two consecutive four-quarter periods, is equal to or greater than 1.5
to 1.0 for periods ending on or prior to December 31, 2001 or 1.7 to 1.0 for
periods ending after December 31, 2001. If all accrued rent has been paid and
all required conditions have been met with respect to a facility lease, amounts
remaining in the equity account allocable to that facility lease will be
available for distribution to Edison Mission Holdings, subject to the
restrictions on distributions described below. A separate reserve account will
be funded at closing in an amount of approximately $134 million, which amount
will be available for payments of the equity portion of lease rent unless there
is a default in the payment of debt portion of rent in which case such amounts
will be available for the holders of the secured lease obligation notes. The
release of funds from the reserve account will not be subject to any conditions
except that no event of default shall have occurred or be continuing. For more
detail regarding the restrictions on our ability to distribute amounts to Edison
Mission Holdings, see "--Summary of the Proposals--Description of the Proposed
Amendments--Limitation on Restricted Payments Covenant."
ACCOUNTING TREATMENT
We plan to record the sale-leaseback transaction as a lease financing under
generally accepted accounting principles. In addition, we plan to record an
extraordinary gain or loss related to the assumption of the outstanding bonds
equal to the difference between our book value, which was $819.3 million at
September 30, 2001, and the fair market value of the outstanding bonds on the
date of the consummation of the sale-leaseback transaction. See "Accounting
Treatment" below.
REGULATORY APPROVALS
Both we and the facilities are subject to extensive energy and environmental
regulation by federal, state and local authorities, and we require various
governmental permits for the sale-leaseback transaction. We have sought and
received approval for the sale-leaseback transaction from the Federal Energy
Regulatory Commission. Various environmental permits must also be transferred or
modified as a result of the sale-leaseback transaction. The Pennsylvania
Department of Environmental Protection has been notified of the sale-leaseback
transaction and has identified the relevant permits and approvals that must be
transferred or modified. The necessary applications and notices are being
prepared, and these environmental permits and approvals will be transferred or
modified shortly after the consummation of the sale-leaseback transaction.
SUMMARY OF THE PROPOSALS
In addition to this "Summary of the Proposals," you should read and
carefully consider the information in "Description of the Proposed Amendments."
The covenants restricting our conduct will be set forth in the participation
agreements and the facility leases. In addition, Homer City Funding will assume
Edison Mission Holdings' obligations under the existing indenture, as it will be
amended by the proposed amendments, and will become the successor obligor under
the amended and restated indenture. In the amended and restated indenture, the
covenants of the existing indenture will be amended to apply to Homer City
Funding and reflect its
8
<Page>
special limited purpose nature. For a more detailed description of the proposed
amendments, see "Description of the Proposed Amendments."
DESCRIPTION OF THE PROPOSED AMENDMENTS
In the event the sale-leaseback transaction is consummated, among other
things, Edison Mission Holdings and all the subsidiary guarantors, including us,
will be released from our and their respective obligations under the existing
indenture and the guarantee and collateral agreement, and all outstanding bonds
will become pass-through bonds. Edison Mission Holdings is soliciting the
requisite consents to amend the existing indenture and related security and
collateral agreements to reflect the changes to the structure necessary to
convert the outstanding bonds into pass-through bonds in connection with the
sale-leaseback transaction. However, after the amendments have been effected,
our conduct will continue to be limited by covenants of the type currently
contained in the indenture, including the following:
LIMITATION ON RESTRICTED PAYMENTS COVENANT
Currently, this covenant limits the ability of Edison Mission Holdings to
make restricted distributions if, among other things, it does not meet specified
financial ratios.
If the sale-leaseback transaction is consummated, similar covenants will
limit our ability to pay the equity portion of lease rent or make other
customary restricted distributions to our partners. See "Description of the
Principal Sale-Leaseback Transaction Documents--The Participation Agreements"
and "Description of the Proposed Amendments--The Proposed Amendments--Deletion
of Section 4.7 of the Existing Indenture (Limitation on Restricted Payments)."
LIMITATION ON INCURRENCE OF INDEBTEDNESS COVENANT
Currently, this covenant limits the ability of Edison Mission Holdings to
incur additional debt, other than as specifically permitted. There is no cap on
the total amount of the permitted indebtedness that can be incurred.
If the sale-leaseback transaction is consummated, we will be restricted by a
substantially similar but more restrictive covenant, which will limit permitted
indebtedness to only deeply subordinated debt to our affiliates, and a total of
$50 million of any combination of the following: working capital financing,
indebtedness represented by interest rate hedging obligations, so long as the
interest rate hedging obligations do not exceed $20 million and relate to
indebtedness that is otherwise permitted, and other ordinary course letters of
credit, surety bonds or performance bonds.
THE PROPOSED AUTHORIZATION
Edison Mission Holdings is also soliciting your consent to authorize the
trustee, as your representative under the existing collateral agency and
intercreditor agreement, to give its consent or make any appropriate waivers, in
connection with the proposed sale-leaseback transaction, to amend the existing
intercreditor agreement, the security deposit agreement, the guarantee and
collateral agreement and other related security documents entered into in
connection with the issuance of the outstanding bonds to:
- release the guarantees made by the subsidiary guarantors, including us;
- release the pledges of the equity interests in Edison Mission Holdings and
the equity interests or limited partnership interests, as the case may be,
in the subsidiary guarantors including us;
- release the blanket lien on our assets and the assets of Edison Mission
Holdings and the other subsidiary guarantors, except for the lien on
Mission Energy Westside, Inc. which will be pledged to the owner lessors;
- release the lien on all revenues and right, title and interest in our
accounts and the accounts of Edison Mission Holdings and the other
subsidiary guarantors, except as set forth in the next bullet point below;
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<Page>
- release the lien on our equity account, but only to the extent the funds
on deposit in all pledged accounts exceed the sum of (1) all due and
unpaid basic and renewal lease rent and (2) the average of the next two
semi-annual rent payments, LESS $1 million;
- release the $42 million credit support guarantee given by Edison Mission
Energy, which, under the terms of the existing guarantee, will expire on
December 31, 2001;
- amend the collateral agency and intercreditor agreement;
- release the existing mortgages and grant new mortgages, as further
described in "Description of the Principal Sale-Leaseback Transaction
Documents--Amended and Restated Guarantee and Collateral Agreement and
Changes to the Collateral Package;"
- enter into new agreements; and
- take all other action necessary to consummate the sale-leaseback
transaction.
The existing indenture and the existing intercreditor agreement and related
security documents currently contain covenants that, among other things,
restrict the ability of Edison Mission Holdings and the subsidiary guarantors,
including us, to enter into and consummate the sale-leaseback transaction.
Edison Mission Holdings is soliciting this consent to waive provisions of the
existing agreements in order to permit the sale-leaseback transaction.
BENEFITS TO HOLDERS OF THE OUTSTANDING BONDS
We believe that the benefits of the sale-leaseback transaction to the
holders of the outstanding bonds include the following:
- the sale-leaseback transaction will result in the repayment of Edison
Mission Holding's $250 million senior secured bank facility and the
termination of its $250 million and $50 million senior secured bank
facilities. This senior secured bank debt is currently secured equally and
ratably with the outstanding bonds;
- because of the termination of the senior secured bank facilities described
immediately above, and assuming unchanged cash flow available for debt
service for the nine months ended September 30, 2001, senior debt service
coverages of Edison Mission Holdings would have improved by more than 30%,
calculated as if the sale-leaseback transaction had occurred on
January 1, 2001;
- ratings reaffirmations of the pass-through bonds of "BBB-" by Standard &
Poor's and "Baa3" by Moody's are conditions precedent to the
sale-leaseback transaction; and
- if you consent before the expiration date and we consummate the
sale-leaseback transaction, you will receive payment of the consent fee.
IMPORTANT CONSIDERATIONS FOR HOLDERS OF THE OUTSTANDING BONDS
We believe that you should consider the following factors before consenting
to the proposals. For a more detailed discussion of these factors see "Risk
Factors" and "Material United States Federal Income Tax Considerations." These
factors include the following:
- the exchange of the outstanding bonds for pass-through bonds will
constitute a taxable exchange for United States federal income tax
purposes, and may also be a taxable transaction for applicable state,
local and foreign tax purposes;
- the characterization of the facility leases and site leases under
section 502(b)(6) of the bankruptcy code could affect the amount of claims
against us; and
- the collateral package offered to the holders of pass-through bonds will
not be exactly the same as the collateral securing the outstanding bonds,
and the proceeds from the sale of the collateral may be insufficient to
repay the entire amount outstanding on the pass-through bonds.
10
<Page>
SOURCES AND USES OF FUNDS
The following table states the approximate sources and uses of funds in
connection with the sale-leaseback transaction:
<Table>
<Caption>
(IN MILLIONS) %
------------- --------
SOURCES OF FUNDS TO OWNER LESSORS:
Secured lease obligation notes (acquired by Homer City
Funding)................................................ $ 830 51.0%
Lease equity (contributed by the owner participants)...... 798 49.0%
------ -----
TOTAL................................................... $1,628 100.0%
====== =====
USE OF FUNDS BY OWNER LESSORS:
Purchase of ownership interests in the facilities (1)..... $1,612 99.02%
Transaction costs (2)..................................... 16 0.98%
------ -----
TOTAL................................................... $1,628 100.0%
====== =====
USE OF NET PROCEEDS:
FUNDS RETAINED BY US:
Restricted cash (3)....................................... $ 134
USE OF FUNDS BY EDISON MISSION HOLDINGS:
Repayment of senior secured bank debt (4)................. $ 250
Our transaction costs..................................... $ 5
------
SUBTOTAL................................................ $ 255
------
USE OF FUNDS BY EDISON MISSION ENERGY:
Repayment of borrowings under lines of credit (5)......... $ 393
------
TOTAL USES OF NET PROCEEDS.................................. $ 782
======
</Table>
- --------------------------
(1) Consists of $782 million in cash and $830 million of assumed debt.
(2) Transaction costs paid by the owner lessors include the consent payment and
the estimated legal, accounting and financial advisory fees incurred in
connection with the sale-leaseback transaction.
(3) Represents the amount of sale proceeds deposited into the reserve account as
described in "Description of the Principal Sale-Leaseback Transaction
Documents--The Amended Security Deposit Agreement."
(4) Consists of a $250 million senior secured bank facility which matures in
March 2004, of which $250 million is outstanding. The average interest rate
on the senior secured bank facility to be replaced is 5.0%.
(5) This $393 million will be derived from the following sources:
- $133 million from a $138 million distribution for the transfer of funds
made by us to Mission Energy Westside (in the amount of
$136.6 million) and to Chestnut Ridge Energy (in the amount of
$1.4 million). Mission Energy Westside and Chestnut Ridge Energy will
dividend these amounts in full to Edison Mission Holdings. Edison
Mission Holdings will use $5 million of the funds received from Mission
Energy Westside and Chestnut Ridge Energy to pay transaction costs and
will distribute $133 million of the funds received as a dividend from
Mission Energy Westside and Chestnut Ridge Energy as part of its
$320 million dividend to Edison Mission Energy;
- $187 million from a distribution for the transfer of funds from Edison
Mission Finance to Edison Mission Holdings. This distribution from
Edison Mission Finance will be financed through a $187 million paydown
by us on our subordinated intercompany revolving loan facility with
Edison Mission Finance. Edison Mission Holdings will distribute the
$187 million it receives as a distribution for the transfer of funds
from Edison Mission Finance as part of a $320 million distribution for
the transfer of funds to Edison Mission Energy; and
- $73 million directly from us as a payment of intercompany tax payable
to Edison Mission Energy. Sale of the facility will result in a tax
liability that will be owed by us. We and the member of our
consolidated group are party to a tax sharing agreement, under this tax
sharing agreement we are included on the consolidated federal income
tax and combined state franchise tax returns of
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Edison International, our ultimate parent. Upon consummation of the
sale-leaseback transaction, we will use part of the proceeds of the
sale to pay intercompany tax payable to Edison Mission Energy. Further
adjustments to this amount will take place through the tax sharing
agreement.
DEBT STRUCTURE
BEFORE CONSUMMATION OF THE SALE-LEASEBACK TRANSACTION
EDISON MISSION HOLDINGS
Edison Mission Holdings currently has a $250 million senior secured bank
facility and a $50 million senior secured bank facility, both of which mature in
March 2004. Currently, the $250 million facility is fully drawn. In addition,
Edison Mission Holdings is the obligor on the $830 million outstanding bonds.
EDISON MISSION FINANCE
Edison Mission Finance has entered into a subordinated intercompany loan
agreement with Edison Mission Holdings. The maximum aggregate principal amount
under this agreement is $1.13 billion, of which $1.08 billion is currently
outstanding.
EME HOMER CITY GENERATION L.P.
We have entered into a subordinated intercompany loan agreement that mirrors
the subordinated intercompany loan agreement between Edison Mission Finance and
Edison Mission Holdings. The maximum aggregate principal amount under this
agreement is $1.13 billion, of which $1.08 billion is currently outstanding. We
also have a subordinated intercompany revolving loan agreement with Edison
Mission Finance which is unsecured and further subordinated to our other
subordinated intercompany loan agreements with Edison Mission Finance.
AFTER THE CONSUMMATION OF THE SALE-LEASEBACK TRANSACTION
EDISON MISSION HOLDINGS
A portion of the proceeds from the sale-leaseback transaction will be used
to repay the $250 million senior secured bank facility of Edison Mission
Holdings. The $250 million and $50 million senior secured bank facilities will
be terminated. Edison Mission Holdings will no longer be obligated under the
$830 million outstanding bonds.
EDISON MISSION FINANCE
Edison Mission Finance will use $250 million to repay a portion of the
amount outstanding under its subordinated intercompany loan agreement with
Edison Mission Holdings. Edison Mission Holdings will terminate Edison Mission
Finance's obligations under this subordinated intercompany loan agreement in
consideration for Edison Mission Finance's assumption of Edison Mission
Holdings' obligations under the outstanding bonds and the existing indenture.
EME HOMER CITY GENERATION L.P.
We will use $250 million of the proceeds from the sale-leaseback transaction
to repay a portion of the amount outstanding under our subordinated intercompany
loan agreement with Edison Mission Finance. Edison Mission Finance will
terminate our obligations under the subordinated intercompany loan agreement in
consideration for our assumption of Edison Mission Finance's obligations under
the outstanding bonds and the existing indenture. We will also pay down
$187 million of our outstanding debt under our subordinated intercompany
revolving loan agreement so that our remaining amount outstanding under this
agreement will be approximately $590.8 million. Our remaining intercompany debt
will be unsecured and subordinated to our obligations under each facility lease,
the secured lease obligation notes and, in turn, the pass-through bonds.
12
<Page>
THE CONSENT SOLICITATION
<Table>
Expiration Date.............. , 2001, which is the 20th business day from the date of this consent
solicitation statement, unless extended by Edison Mission Holdings.
Consent Date................. The earlier of:
- the expiration date; and
- the time and date on which Edison Mission Holdings receives the
requisite consents.
Requisite Consents........... The trustee under the existing indenture must receive consents
representing at least a majority in aggregate principal amount of the
outstanding bonds, voting as a single class. As of the date of this
consent solicitation statement, $830 million aggregate principal amount
of the bonds are outstanding under the terms of the existing indenture.
Non-Consenting Bondholders... If the trustee receives the requisite consents and we effect the
sale-leaseback transaction, but you do not consent to the proposals or
you revoke your consent, you will not receive the consent payment but you
will still be bound by the proposals and will hold new pass-through
bonds.
Consent Payment.............. Edison Mission Holdings will cause to be paid $13.75 in cash for each
$1,000 principal amount of outstanding Series A bonds and $16.25 in cash
for each $1,000 principal amount of outstanding Series B bonds for which
unrevoked consents have been received on or before the expiration date.
Each owner lessor will pay its percentage of the consent payment. The
consent payment will not be made if the requisite consents are not
received, if the consent solicitation is terminated, if the
sale-leaseback transaction is not consummated or if the amended and
restated indenture is not executed or does not otherwise become effective
for any reason.
Acceptance of Consents....... Edison Mission Holdings may accept all properly completed and executed
consent forms received and not revoked on or before the expiration date.
If the requisite consents are not received by the expiration date, Edison
Mission Holdings may extend this consent solicitation, and the trustee
will continue to accept consent forms. Edison Mission Holdings may,
however, elect at any time to terminate the consent solicitation. Edison
Mission Holdings reserves the right to accept any consent received by us,
Edison Mission Holdings, the solicitation agents or the information
agent.
Procedure for Consents....... Consent forms, to be effective, must be properly completed and executed
in accordance with the instructions contained in this consent
solicitation statement and in the accompanying consent form. Only holders
of record of the outstanding bonds on November 16, 2001, or duly
authorized agents of those holders, are entitled to consent.
Revocation of Consents....... Any holder of outstanding bonds desiring to revoke a consent must send a
written revocation of the consent to the trustee. The trustee must
receive the written revocation before the date the sale-leaseback
transaction is consummated, even if the consent solicitation continues
beyond that time.
</Table>
13
<Page>
<Table>
Effectiveness of Proposals... The proposals will become effective upon receipt of the requisite
consents and the consummation of the sale-leaseback transaction. The
sale-leaseback transaction will be consummated upon satisfaction of
specified conditions precedent, including reaffirmation of the ratings of
the pass-through bonds of "BBB-" by Standard & Poor's and "Baa3" by
Moody's and customary conditions precedent to similar leveraged lease
transactions. If the sale-leaseback transaction has not been consummated,
none of the proposals will become effective.
Delivery of Consents......... Executed consent forms should be sent by mail, first class postage
prepaid, overnight courier, hand delivery or by facsimile, confirmed by
physical delivery, to the trustee at the address set forth below:
By hand before 4:30 p.m. New York City time on the expiration date:
The Bank of New York
c/o United States Trust Company of New York
30 Broad Street
B-Level
New York, New York 10004
By hand after 4:30 p.m. New York City time on the expiration date:
The Bank of New York
c/o United States Trust Company of New York
30 Broad Street
14th Floor
New York, New York 10004
By first class, registered or certified mail:
The Bank of New York
c/o United States Trust Company of New York
P.O. Box 112
Bowling Green Station
New York, New York 10274
Attention: Corporate Trust Services
By facsimile transmission:
(212) 422-0183
Attention: Corporate Trust Services
For information:
(800) 548-6565 (call toll free)
Consent forms delivered by facsimile will be binding only if the original
consent form is subsequently physically delivered on or before the
expiration date.
CONSENT FORMS SHOULD NOT BE DELIVERED DIRECTLY TO US, EDISON MISSION
HOLDINGS, THE SOLICITATION AGENTS OR THE INFORMATION AGENT. IN NO EVENT
SHOULD YOU TENDER OR DELIVER YOUR OUTSTANDING BONDS. IF AND WHEN EDISON
MISSION HOLDINGS RECEIVES THE REQUISITE CONSENTS AND THE SALE-LEASEBACK
TRANSACTION IS CONSUMMATED, WE WILL REPLACE
</Table>
14
<Page>
<Table>
CERTIFICATES REPRESENTING ALL OUTSTANDING BONDS WITH NEW CERTIFICATES
REPRESENTING A LIKE AMOUNT OF PASS-THROUGH BONDS.
Solicitation Agents.......... Credit Suisse First Boston Corporation and Lehman Brothers Inc. will act
as solicitation agents in connection with this consent solicitation.
Information.................. You should direct any questions or requests for assistance regarding this
consent solicitation or in completing and delivering consents, or for
additional copies of this consent solicitation statement and the consent
form and other related documents to D.F. King & Co., Inc., the
information agent, or to Credit Suisse First Boston Corporation or Lehman
Brothers Inc., the solicitation agents, at the addresses and numbers
below.
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers:
(212) 269-5550 (call collect)
All Others:
(800) 290-6427 (call toll free)
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Telephone: (212) 538-8474 (call collect)
(800) 820-1653 (call toll free)
Attention: Liability Management Group
Lehman Brothers Inc.
101 Hudson Street
Jersey City, New Jersey 07302
Telephone: (212) 455-3328
(212) 681-2265 (call collect)
Attention: Steve Delaney
Risk Factors................. You should carefully consider all the information contained, or
incorporated by reference, in this consent solicitation statement. See
"Risk Factors" for a discussion of factors that you should consider prior
to consenting to the sale-leaseback transaction and the related
amendments and waivers to the existing indenture and security and
collateral agreements to enable the outstanding bonds to become
pass-through bonds.
Material United States
Federal Income Tax
Considerations............. The adoption of the proposed amendments will be treated as a taxable
exchange of "old" outstanding bonds for "new" pass-through bonds for U.S.
federal income tax purposes. See "Material United States Federal Income
Tax Considerations."
</Table>
------------------------
Our principal executive offices are located at 1750 Power Plant Road, Homer
City, Pennsylvania 15748-8009, and our telephone number is (724) 479-9011. For a
more detailed description of Edison Mission Holdings, us, the other subsidiary
guarantors and the facilities, you should refer to the documents which have been
incorporated by reference in this consent solicitation statement. See
"Incorporation of Documents By Reference."
15
<Page>
<Table>
- -----------------------------------------------------------------------------------------------------
SUMMARY OF MATERIAL DIFFERENCES BETWEEN THE TERMS OF THE OUTSTANDING
BONDS
AND THE TERMS OF THE PASS-THROUGH BONDS
THE FOLLOWING CHART CONTAINS A SUMMARY OF THE MATERIAL DIFFERENCES BETWEEN THE TERMS OF THE
OUTSTANDING BONDS AND THE TERMS OF THE PASS-THROUGH BONDS. THE STATEMENTS IN THIS CHART ARE A SUMMARY
ONLY AND DO NOT PURPORT TO BE COMPLETE. THE SUMMARY MAKES USE OF TERMS MORE FULLY DEFINED IN AND IS
SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE PROVISIONS IN THE EXISTING INDENTURE,
THE EXISTING GUARANTEE AND COLLATERAL AGREEMENT, THE CREDIT SUPPORT GUARANTEE, THE LEASE INDENTURES,
THE SECURITY DEPOSIT AGREEMENT, THE AMENDED SECURITY DEPOSIT AGREEMENT, THE FACILITY LEASES, THE
PARTICIPATION AGREEMENTS AND THE AMENDED AND RESTATED INDENTURE.
- -----------------------------------------------------------------------------------------------------
TERMS OF THE OUTSTANDING BONDS TERMS OF THE PASS-THROUGH BONDS
- -----------------------------------------------------------------------------------------------------
ISSUER: Edison Mission Holdings Co. The nominal issuer will be Homer City
Funding. However, based on the
interpretations by the staff of the
SEC, as detailed in a series of
no-action letters issued by the SEC to
third parties, we, as the lessee in
the sale-leaseback transaction, will
be deemed to be the issuer of the
pass-through bonds for purposes of
U.S. securities laws.
See: American Airlines, Inc., SEC no-
action letter (available August 28,
1987), General Electric Company, SEC
no-action letter (available
January 23, 1987), National
Cooperative Services Corporation, SEC
no-action letter (available April 3,
1986), National Cooperative Services
Corporation, SEC no-action letter
(available May 3, 1985), Colorado-Ute
Electric Association, Inc., SEC
no-action letter (available
September 7, 1984), American Airlines,
Inc., SEC no-action letter (available
July 18, 1983), Comdisco Inc., SEC no-
action letter (available
September 17, 1982), World Airways,
Inc., SEC no-action letter (available
August 12, 1977), Pan American World
Airways, Inc., SEC no-action letter
(available May 11, 1971), and Trans
World Airlines, Inc., SEC no-action
letter (available May 11, 1971).
- -----------------------------------------------------------------------------------------------------
SUBSIDIARY The outstanding bonds are guaranteed None
GUARANTEES: by each of Edison Mission Holdings'
wholly-owned subsidiaries, including
us. If Edison Mission Holdings cannot
make payments on the outstanding bonds
when they are due, the subsidiary
guarantors are obligated to make them
instead.
- -----------------------------------------------------------------------------------------------------
CREDIT SUPPORT If at any time before December 31, None
GUARANTEE: 2001 neither Edison Mission Holdings
nor the subsidiary guarantors can make
payments on the outstanding bonds or
its other senior secured debt and
there is not
- -----------------------------------------------------------------------------------------------------
</Table>
16
<Page>
<Table>
enough money in the revenue and other
accounts to make the payments, Edison
Mission Energy is obligated to make up
to $42 million of these payments.
Edison Mission Energy is required to
make payments on the outstanding bonds
before money in the debt service
reserve account for the outstanding
bonds or the acceptable credit support
contained in the debt service reserve
account can be used.
- -----------------------------------------------------------------------------------------------------
COLLATERAL: Please see chart on page 5. Please see chart on page 6.
Please see "Risk Factors--It may be
difficult to realize the value of the
collateral supporting the pass-through
bonds, and the proceeds received from
a sale of the collateral may be
insufficient to repay the pass-through
bonds."
- -----------------------------------------------------------------------------------------------------
DEBT SERVICE RESERVE Edison Mission Holdings is required to Homer City Funding will not be subject
ACCOUNT: establish a debt service reserve to a similar covenant, but under each
account for the benefit of the holders lease indenture, each owner lessor
of the outstanding bonds. This account will be required to establish and
is required to be funded with maintain a debt service reserve
sufficient funds to pay the projected account equal to 100% of the projected
debt service on the outstanding bonds debt service on the secured lease
due in the next six months (currently, obligation notes for the next six-
this amount is approximately month period for the benefit of the
$35 million). Edison Mission Holdings holders of the secured lease
does not have to fund this account obligation notes. The amount in the
with cash if it provides acceptable debt service reserve account may be
debt service credit support, which may satisfied by a letter of credit from
be satisfied by either an Edison an acceptable credit provider, which
Mission Energy undertaking (if Edison is an entity with a combined capital
Mission Energy is rated "Baa1" or surplus of at least $1 billion, which
higher by Moody's and "BBB+" or higher is exempt from SEC registration under
by Standard & Poor's) or a letter of the Securities Act and whose long term
credit provided by a bank or trust unsecured debt is rated "A" or higher
company rated "A2" or higher by by Standard & Poor's or "A2" or higher
Moody's and "A" or higher by Standard by Moody's.
& Poor's. The collateral agent In addition, in the event the senior
disburses funds from this account or rent service coverage ratio test or
calls upon the credit support only to the projected senior rent service
pay principal and interest on the coverage ratio test set forth in the
outstanding bonds that is past due. equity payment requirements is not
satisfied, an additional reserve will
be set aside in an amount equal to the
lesser of six months senior rent
service and amounts otherwise
available for payment of the equity
portion of rent or distribution to us,
but for our failure to satisfy such
coverage ratio test. See "Description
of the Principal Sale--Leaseback
Transaction Documents--Amended
Security Deposit Agreement" for more
information.
</Table>
17
<Page>
<Table>
OPERATING FLOW OF Edison Mission Holdings is required to See "The Account Structure" on
FUNDS: deposit all of its revenues into the page 7.
revenue account established for the
benefit of the holders of the
outstanding bonds and for the benefit
of the holders of its other senior
secured debt. These revenues are used
to pay operating expenses,
administrative fees and expenses and
debt service and to fund the debt
service reserve account for the
outstanding bonds and Edison Mission
Holdings' other senior secured debt.
Any money remaining after Edison
Mission Holdings makes these payments
is transferred into an equity account
in order to make distributions if
Edison Mission Holdings satisfies the
distribution conditions described
below under "Restrictions on
distributions." For more information,
see "Description of Existing
Documents--Security Deposit
Agreement."
- -----------------------------------------------------------------------------------------------------
RESTRICTIONS ON Edison Mission Holdings can only make The proposed amendments to the
DISTRIBUTIONS: distributions with funds in the equity existing indenture will split the
account if the following conditions limitation on our restricted payments
are satisfied on the quarterly into two parts: limitations on
distribution date: restricted payments and limitations on
- no default or event of default under payments of the equity portion of
the existing indenture exists or would lease rent. For more information, see
result from the distribution; "Description of the Proposed
- Edison Mission Holdings has paid all Amendments--The Proposed
amounts due on its senior debt and Amendments--Deletion of Section 4.7 of
all reimbursement obligations due in the Existing Indenture (Limitation on
respect of its letters of credit; if Restricted Payments)."
any, and has fully funded or
provided acceptable debt service
credit support for its debt service
reserve account;
- Edison Mission Holdings certifies
that the debt service coverage ratio
for the previous four quarters was
at least 1.50 to 1.0 for any period
ending on or before December 31,
2001 or 1.70 to 1.0 for any period
ending after December 31, 2001; and
- Edison Mission Holdings certifies
that the projected debt service
coverage ratio for each four-quarter
period during the next eight
quarters is at least 1.50 to 1.0 for
any period ending on or before
December 31, 2001 or 1.70 to 1.0 for
any period ending after
December 31, 2001.
</Table>
18
<Page>
<Table>
COVENANTS OF ISSUER: The terms of the outstanding bonds As a part of the sale-leaseback
require Edison Mission Holdings to, transaction, Homer City Funding will
among other things: (1) provide assume all of the obligations of
financial statements, default notices Edison Mission Holdings under the
and other notices to the trustee and indenture, as amended and restated,
the rating agencies; (2) comply with and the subsidiary guarantors,
applicable laws; (3) obtain all including us, will be released from
necessary governmental approvals; and our and their respective obligations
(4) pay taxes and maintain books and under the existing indenture.
records. The proposed amendments will move all
The terms of the outstanding bonds of the operational covenants and
restrict Edison Mission Holdings' events of default from the existing
ability to, among other things: indenture to the participation
(1) incur additional debt; (2) incur agreements and the facility leases,
liens on its property; (3) sell where they will apply to us. The
assets; (4) enter into transactions proposed amendments will also add
with affiliates; and (5) create new covenants that will bind us. For more
subsidiaries. information, see "Description of the
Proposed Amendments--The Proposed
Amendments."
- -----------------------------------------------------------------------------------------------------
CHANGE OF CONTROL: It is an event of default under the It will be an event of default under
outstanding bonds if Edison Mission each facility lease if, without the
Energy's direct or indirect beneficial prior written consent of the owner
ownership in us is reduced to less lessor, the owner participant, and so
than 50% at any time, unless either: long as the secured lease obligation
- the outstanding bonds are rated at notes are outstanding and the lien of
least investment grade by each rating the applicable lease indenture has not
agency rating the outstanding bonds been discharged or terminated, Homer
at that time and Edison Mission City Funding or the trustee, Edison
Holdings receives a confirmation of Mission Energy ceases to own directly
the ratings of the outstanding or indirectly in excess of 50% of the
bonds; or ownership interests in us, unless
- the reduction in Edison Mission either;
Energy's voting interest is approved - a reaffirmation of the pass-through
by holders of outstanding bonds bonds has been obtained; or
holding at least 66 2/3% in - the reduction in Edison Mission
aggregate principal amount of the Energy's ownership interest is
outstanding bonds. approved by at least 66 2/3% of the
holders of the aggregate principal
amount of its secured lease
obligation notes.
- -----------------------------------------------------------------------------------------------------
OWNER LESSOR'S RIGHT Not applicable Each owner lessor will be obligated to
TO REDEEM THE SECURED redeem its secured lease obligation
LEASE OBLIGATION notes in the event of a recovery event
NOTES: or due to an event of loss described
in the first, second and third bullet
points under the definition of event
of loss in "Description of Principal
Sale-Leaseback Transaction
Documents--The Facility Leases--Events
of Loss." Mandatory redemption of the
secured lease obligation notes will be
without make-whole premium. The
secured lease obligation notes will be
subject to optional redemption at any
time, with make-whole premium. For
more information, see "Description of
the Principal Sale-Leaseback
Transaction Documents--The Lease
Indentures and Secured Lease
Obligation Notes--Redemption of
Secured Lease Obligation Notes."
</Table>
19
<Page>
<Table>
- -----------------------------------------------------------------------------------------------------
OWNER LESSOR'S RIGHT Not applicable Each owner lessor will be obligated to
TO PREPAY THE SECURED prepay the unpaid principal and
LEASE OBLIGATION accrued interest on its secured lease
NOTES: obligation notes, with make-whole
premium, as a result of the
termination of the applicable facility
lease for burdensome events or the
economic or technological obsolescence
of the facilities. The owner lessors
will be obligated to prepay the unpaid
principal and accrued interest on the
secured lease obligation notes,
without make-whole premium due to an
event of loss described in the first,
second and third bullet points of the
definition of event of loss.
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
ISSUER'S RIGHT TO Not applicable In connection with the purchase by us
ASSUME THE SECURED of the facilities following a
LEASE OBLIGATION regulatory event of loss or an event
NOTES: of loss described in the fifth bullet
point of the definition of event of
loss, we may assume the secured lease
obligation notes in whole, but not in
part, subject to some conditions.
Please see "Description of the
Principal Sale-Leaseback Transaction
Documents--The Facility Leases--Events
of Loss."
</Table>
20
<Page>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER ALL INFORMATION CONTAINED IN THIS CONSENT
SOLICITATION STATEMENT, THE EXHIBITS TO THIS CONSENT SOLICITATION STATEMENT AND
THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS CONSENT SOLICITATION STATEMENT,
AND IN PARTICULAR THE FOLLOWING RISK FACTORS.
IT MAY BE DIFFICULT TO REALIZE THE VALUE OF THE COLLATERAL SUPPORTING THE
PASS-THROUGH BONDS, AND THE PROCEEDS RECEIVED FROM A SALE OF THE COLLATERAL MAY
BE INSUFFICIENT TO REPAY THE PASS-THROUGH BONDS.
The secured lease obligation notes issued by each owner lessor, which will
be pledged by Homer City Funding to secure the pass-through bonds, will be
secured by a collateral package which will include an assignment of that owner
lessor's rights and interests in the facility lease to which it is a party. For
a more detailed description of the collateral securing the secured lease
obligation notes, see "Description of the Principal Sale-Leaseback Transaction
Documents--The Amended and Restated Guarantee and Collateral Agreement and
Changes to the Collateral Package." If a default occurs with respect to the
secured lease obligation notes, we cannot assure you that an exercise of
remedies by the lease indenture trustee, acting on behalf of Homer City Funding,
as the holder of the secured lease obligation notes, including foreclosure on
the related collateral, would provide sufficient funds to repay all amounts due
on the secured lease obligation notes and, accordingly, the pass-through bonds.
The facility leases contain cross-default provisions; however, as is
customary in sale-leaseback transactions of the type contemplated in this
consent solicitation statement, the facility leases and other operative
documents do not contain cross-collateralization provisions. Accordingly, each
security agent's security interest in the lessor estate of the respective owner
lessor, which includes that owner lessor's undivided interest and the collateral
pertaining to that undivided interest, is separate and secures separate amounts.
If the security agent were to exercise its right to foreclose on and sell the
collateral, the proceeds from the sale of the collateral pertaining to each
undivided interest would be separately applied against the amount secured by
that particular undivided interest and could not be used to satisfy any
deficiency in the proceeds from the sale of the collateral pertaining to the
other undivided interests, and by operation of law, any excess proceeds would be
remitted to the applicable owner lessor. As a result, the amount of sale
proceeds from the foreclosure on the collateral related to a particular
undivided interest may be less than the amount required to pay all amounts
payable on the secured lease obligation notes secured by that collateral even
though aggregate sale proceeds from the foreclosure on the collateral related to
all other undivided interests would have been sufficient for that purpose.
As described in "Summary--The Sale-Leaseback Transaction--Collateral Package
and Credit Support Following the Sale-Leaseback Transaction," the pass-through
bonds will be secured by a collateral package composed of security interests in
the lessee security and the lessor estate. The collateral package supporting the
pass-through bonds will not be the same as the existing collateral package,
including a different account structure as described in "Description of the
Principal Sale-Leaseback Documents--Amended Security Deposit Agreement" and may
not be sufficient to repay the pass-through bonds secured by that collateral.
BANKRUPTCY LAW CONSIDERATIONS COULD LIMIT CLAIMS AGAINST US OR THE OWNER
LESSORS.
BANKRUPTCY CLAIM LIMITATIONS WITH RESPECT TO THE LEASES
The pass-through bonds will not be our direct obligations. The facility
leases and site leases, which we refer to as the leases, and the site subleases
have been structured as "true leases." If we were to become the subject of a
case under title 11 of the United States Code, 11 U.S.C. SectionSection
101-1330, as amended, which we refer to as the bankruptcy code, and the
bankruptcy court were to uphold this characterization of the leases and site
subleases as true leases, it would likely also hold that the leases and site
subleases, including the facility leases, are leases of real property rather
than of personal property. If the bankruptcy court were to hold that the leases
and site subleases are true leases of real
21
<Page>
property, we, as debtor-in-possession, or a bankruptcy trustee appointed for us,
would have the right to reject each lease and site sublease under section 365 of
the bankruptcy code. If we or our bankruptcy trustee were to reject the facility
leases or the site subleases, section 502(b)(6) of the bankruptcy code would
limit the owner lessors' claims against us for damages resulting from the
rejection or other termination, whether occurring before or after the
commencement of our bankruptcy case. The owner lessors' claims for damages would
be limited in this case to the greater of one year's rent under each lease and
site sublease or 15% of the remaining rent due under the each facility lease and
site sublease, which remaining rent could not exceed three years' rent. If we or
our bankruptcy trustee were to reject the site leases, the owner lessors could
elect to remain in possession of the ground interests, subject to conditions.
Furthermore, if we were a debtor under the bankruptcy code, we could elect
to cure any defaults under the facility leases and site subleases and assume and
assign those leases to third parties. If we were to assign the facility leases
or the site subleases, the ultimate source of payments under those leases, and
thus on the pass-through bonds, would be an entity other than us. Although any
assignee would have to demonstrate to the bankruptcy court its ability to
perform under the assumed facility leases and site subleases, there can be no
definitive assurance that an assignee would satisfy our obligations under the
leases and site subleases.
If the bankruptcy court were to hold that the facility leases and site
subleases are not true leases, section 502(b)(6) of the bankruptcy code would
not limit the owner lessors' claims against us. In that event, we would not be
required to make post-petition payments to the owner lessors in respect of the
site subleases and the facility leases, however, and the owner lessors' rights
to exercise virtually all remedies against us would be stayed. Moreover, the
owner lessors' ability to foreclose upon their security interest in the
collateral securing our obligations to the owner lessors under the facility
leases and site subleases would be stayed. The bankruptcy court could permit us
to use or dispose of collateral for purposes other than making payments on the
facility leases and site subleases, and could reduce the amount of, and modify
the time for making, payments due under the facility leases and site subleases,
subject to procedural and substantive safeguards for the benefit of the owner
lessors. Similarly, if the owner lessors, as a result of our non-payment, were
to default in payment on the secured lease obligation notes, and the security
agent were to foreclose upon the owner lessors' interests in the facilities, the
ground interests and the owner lessors' interests in the leases and site
subleases, the security agent's rights to exercise virtually all remedies
against us would be stayed. Regardless of how a bankruptcy court characterizes
the facility leases and site subleases, however, there can be no assurance as to
the timing or amount of the owner lessors' ultimate recovery, if any, upon their
claims against us.
BANKRUPTCY CLAIM LIMITATIONS WITH RESPECT TO THE SECURED LEASE OBLIGATION NOTES
Similarly, if any owner lessor were to become a debtor in a case under the
bankruptcy code, and the bankruptcy court were to uphold the characterization of
the facility leases and site subleases as true leases, each owner lessor as
debtor-in-possession, or its bankruptcy trustee, would have the right to reject
the leases and site subleases. Our damages claim against any owner lessor in
respect of the site lease would be limited by section 502(b)(6) of the
bankruptcy code to the amounts described above. If an owner lessor as
debtor-in-possession, or its bankruptcy trustee, were to reject its respective
site sublease or facility lease, we could elect to remain in possession of the
ground interest and undivided interest.
Furthermore, if any owner lessor were a debtor under the bankruptcy code, it
could elect to cure any defaults under the facility leases and site subleases
and assume and assign the facility leases and site subleases to third parties.
If any owner lessor were to assign its respective site lease, the ultimate
source of payments under the site lease would be an entity other than the owner
lessor. Although any assignee would have to demonstrate to the bankruptcy court
its ability to perform under the assumed
22
<Page>
leases and site subleases, there can be no definitive assurance that an assignee
would satisfy any of the owner lessors' obligations under the site leases.
If the bankruptcy court were to hold that the facility leases and site
subleases are not true leases, section 502(b)(6) of the bankruptcy code would
not limit our claims against the owner lessors in connection with the site
leases. In that event, the owner lessors would not be required to make
post-petition payments to us in respect of the site leases, and our right to
exercise virtually all remedies against the owner lessors would be stayed.
Moreover, our right to foreclose upon the facilities and the owner lessors'
interests in the ground interests would be stayed. The bankruptcy court could
permit an owner lessor to use or dispose of payments made to it under the
facility lease and site sublease for purposes other than making payments on the
secured lease obligation notes, and could reduce the amount of, and modify the
time for making, payments due on the secured lease obligation notes, subject to
procedural safeguards for our benefit. Regardless of how a bankruptcy court
characterizes the facility leases and site subleases, however, there can be no
assurance as to the timing or amount of our ultimate recovery, if any, upon our
claims against the owner lessors.
RESTRICTIONS IN THE PARTICIPATION AGREEMENTS AND FACILITY LEASES WILL LIMIT
OR PROHIBIT US FROM ENTERING INTO SOME TRANSACTIONS THAT WE OTHERWISE MIGHT
ENTER INTO.
The participation agreements will contain covenants restricting our ability
to enter into specified transactions and to engage in specified business
activities, as well as financing and investment covenants. These restrictions
could affect, and in some cases significantly limit or prohibit, our ability to,
among other things, merge, consolidate or sell our assets, create liens on our
properties or assets, enter into non-permitted trading activities, enter into
transactions with our affiliates, incur indebtedness, create, incur, assume or
suffer to exist guarantees or contingent obligations, pay the equity portion of
rent, make restricted payments to our partners, make capital expenditures, own
subsidiaries, liquidate or dissolve, engage in non-permitted business
activities, sublease the undivided interests or make improvements to the
undivided interests.
RATINGS OF THE PASS-THROUGH BONDS DO NOT ADDRESS MARKET PRICE OR SUITABILITY
FOR A PARTICULAR INVESTOR; RATINGS ARE SUBJECT TO CHANGE.
It is a condition precedent to the consummation of the sale-leaseback
transaction that Standard & Poor's and Moody's reaffirm the ratings of the
pass-through bonds. A rating is not a recommendation to purchase, hold or sell
pass-through bonds because a rating does not address market price or suitability
for a particular investor. There can be no assurance that a rating will remain
for any given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if, in its judgment, circumstances in the future so
warrant.
RISKS RELATED TO OUR BUSINESS
OUR ABILITY TO MAKE PAYMENTS OF LEASE RENT UNDER THE FACILITY LEASES AND,
ACCORDINGLY, ON THE PASS-THROUGH BONDS IS DEPENDENT ON THE MARKET CONDITIONS FOR
THE SALE OF CAPACITY AND ENERGY.
Our ability to make payments of lease rent on the facility leases and
accordingly, the ability of each owner lessor to service debt obligations on the
secured lease obligation notes and, in turn, the ability of Homer City Funding
to service debt obligations on the pass-through bonds is dependent on revenues
generated by the facilities, which depend on their performance level and on
market conditions for the sale of capacity and energy. These market conditions
are beyond our control.
GENERAL OPERATING RISKS MAY DECREASE OR ELIMINATE THE REVENUES GENERATED BY
THE FACILITIES OR INCREASE THEIR OPERATING COSTS.
The operation of power generation facilities involves many operating risks,
including:
- performance below expected levels of output or efficiency;
23
<Page>
- interruptions in fuel supply;
- disruptions in the transmission of electricity;
- breakdown or failure of equipment or processes;
- imposition of new regulatory requirements;
- violation of permit requirements; and
- operator error or catastrophic events like fires, earthquakes, explosions,
floods or other similar occurrences affecting power generation facilities.
Although we employ experienced operating personnel to operate the facilities
and will maintain insurance, including business interruption insurance, to
mitigate the effects of the operating risks described above, we cannot assure
you that the occurrence of one or more of the events listed above would not
significantly decrease or eliminate revenues generated by the facilities or
significantly increase the costs of operating them. A decrease or elimination in
revenues generated by the facilities or an increase in the costs of operating
them could decrease or eliminate funds available to make lease rent payments in
an aggregate amount sufficient to service the debt obligations under the secured
lease obligation notes and, in turn, the pass-through bonds.
THE REVENUES GENERATED BY THE OPERATION OF THE FACILITIES ARE SUBJECT TO
MARKET DEMAND FOR ENERGY, CAPACITY AND ANCILLARY SERVICES, WHICH IS BEYOND OUR
CONTROL.
We derive revenue from the sale of energy and capacity into the
Pennsylvania-New Jersey-Maryland power market, which we refer to as PJM, and the
New York independent system operator, which we refer to as NYISO, and from
bilateral contracts with power marketers and load serving entities within PJM,
NYISO and the surrounding markets. Participants in PJM and NYISO are not
guaranteed any specified rate of return on their capital investments through
recovery of mandated rates payable by purchasers of electricity. Therefore, with
the exception of nominal revenue, our revenues and results of operations are
dependent upon prevailing market prices for energy, capacity and ancillary
services in the PJM, NYISO and other competitive markets.
Among the factors that influence the market prices for energy, capacity and
ancillary services in PJM and NYISO are:
- prevailing market prices for fuel oil, coal and natural gas and associated
transportation costs;
- the extent of additional supplies of capacity, energy and ancillary
services from current competitors or new market entrants, including the
development of new generation facilities that may be able to produce
electricity less expensively;
- transmission congestion in PJM and/or NYISO;
- the extended operation of nuclear generating plants in PJM and NYISO
beyond their presently expected dates of decommissioning;
- weather conditions prevailing in PJM and NYISO from time to time; and
- the possibility of a reduction in the projected rate of growth in
electricity usage as a result of factors like regional economic conditions
and the implementation of conservation programs.
All of the factors listed above are beyond our control.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL REGULATIONS AND PERMITTING
REQUIREMENTS, AND OUR REVENUES MAY DECREASE OR OUR OPERATING COSTS MAY INCREASE
BECAUSE OF OUR INABILITY TO COMPLY WITH EXISTING REGULATIONS OR REQUIREMENTS OR
CHANGES IN APPLICABLE REGULATIONS OR REQUIREMENTS.
Our business is subject to extensive energy and environmental regulation by
federal, state and local authorities. We are, and in some instances the owner
lessor will be, required to comply with numerous
24
<Page>
laws and regulations, and to obtain numerous governmental permits, in the
operation or ownership of the facilities, as the case may be. We cannot assure
you that existing regulations will not be revised or reinterpreted, that new
laws and regulations will not be adopted or become applicable to us or the
facilities or that future changes in laws and regulations will not have a
detrimental effect on our business.
We believe that we have obtained all material energy-related federal, state
and local approvals currently required to operate the facilities. Although not
currently required, additional regulatory approvals may be required in the
future due to a change in laws and regulations, a change in our customers or for
other reasons. We cannot assure you that we will be able to obtain all required
regulatory approvals that we do not yet have or that we may require in the
future, or that we will be able to obtain any necessary modifications to
existing regulatory approvals or maintain all required regulatory approvals. If
there is a delay in obtaining any required regulatory approvals or if we fail to
obtain and comply with any required regulatory approvals, the operation of the
facilities or the sale of electricity to third parties could be prevented or
subject to additional costs.
We are required to comply with numerous statutes, regulations and ordinances
relating to the safety and health of employees and the public, the protection of
the environment and land use. We believe that we have obtained all material
environmental and land use permits and approvals currently required to operate
the facilities. The environmental, land use and health and safety statutes,
regulations and ordinances are constantly changing. We may incur significant
additional costs to comply with new requirements. If we fail to comply with
existing or new requirements, we could be subject to civil or criminal liability
and the imposition of clean-up liens or penalties. In acquiring the facilities,
we assumed, subject to some limited exceptions, all on-site liabilities
associated with the environmental condition of the facilities, regardless of
when the liabilities arose and whether known or unknown, and generally agreed to
indemnify the former owners of the facilities for these liabilities. We cannot
assure you that we will at all times be in compliance with all applicable
environmental laws and regulations or that steps to bring the facilities into
compliance would not materially and adversely affect our ability to make
payments of lease rent under the facility leases and, accordingly, the ability
of the owner lessors to service debt obligations on the secured lease obligation
notes and, in turn, the ability of Homer City Funding to service debt
obligations on the pass-through bonds.
One of our strategies for compliance with federal regulations regarding
emissions of sulfur dioxide and federal and state regulations regarding
emissions of nitrogen oxide is the construction of the environmental capital
improvements to the units. A delay in the completion of these improvements or
the failure of the improvements to perform to their technical specifications
could adversely affect our compliance strategy and require us to purchase
emissions allowances or reduce the expected levels of operation of the units.
Although our contract for the construction of these environmental capital
improvements contains customary performance and completion guarantees, we cannot
assure you that the improvements will be completed when anticipated or whether
those systems will perform at the expected levels.
THE INSURANCE COVERAGE FOR THE FACILITIES MAY NOT BE ADEQUATE.
We are required to have insurance for the facilities, including all-risk
property damage insurance, commercial general public liability insurance, boiler
and machinery coverage and business interruption insurance. We cannot assure you
that the insurance coverage for the facilities will be available in the future
on commercially reasonable terms. We also cannot assure you that the insurance
proceeds received for any loss of the facilities or any damage to the facilities
will be sufficient to permit us to make any payments of rent under the facility
leases and, accordingly, to permit each owner lessor to service debt obligations
on the secured lease obligation notes and, in turn, to permit Homer City Funding
to service debt obligations on the pass-through bonds.
25
<Page>
FORWARD-LOOKING STATEMENTS
This consent solicitation statement and the documents incorporated by
reference in this consent solicitation statement include forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events based upon our knowledge of
facts as of the date of this consent solicitation statement and our assumptions
about future events. These forward-looking statements are subject to various
risks and uncertainties that may be outside our control, including, among other
things:
- governmental, statutory, regulatory or administrative initiatives
affecting us, the facilities or the United States electricity industry
generally;
- demand for electric capacity and energy in the markets served by the
facilities;
- competition from other power plants, including new plants that may be
developed in the future;
- operating risks, including equipment failure, dispatch levels,
availability, heat rate and output; and
- the cost and availability of fuel and fuel transportation services for the
facilities.
We use words like "believe," "expect," "anticipate," "intend," "may,"
"will," "should," "estimate," "projected" and similar expressions to help
identify forward-looking statements in this consent solicitation statement and
in the documents incorporated by reference in this consent solicitation
statement.
For additional factors that could affect the validity of our forward-looking
statements, you should read "Risk Factors" beginning on page 21. In light of
these and other risks, uncertainties and assumptions, actual events or results
may be very different from those expressed or implied in the forward-looking
statements in this consent solicitation statement or in the incorporated
documents or may not occur. We have no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
The aggregate purchase price for the facilities will be approximately
$1.612 billion, which includes lessor funded transaction costs totaling
approximately $16 million. We will receive approximately $782 million in cash as
a portion of the purchase price for the facilities. We will deposit
approximately $134 million into the reserve account for future payments of the
equity portion of lease rent, repay $437 million in intercompany indebtedness to
Edison Mission Finance, pay approximately $73 million to Edison Mission Energy
as intercompany tax payable, and distribute approximately $138 million to our
general partner, Mission Energy Westside and our limited partner, Chestnut Ridge
Energy. Edison Mission Finance will repay $250 million of intercompany
indebtedness and loan or make a distribution of $187 million to Edison Mission
Holdings, and our general partner and our limited partner, will loan or make a
distribution totaling $138 million to Edison Mission Holdings. Edison Mission
Holdings will repay its $250 million senior secured bank facility and then
terminate its $250 million and $50 million senior secured bank facilities, pay
transaction costs of $5 million and loan or make a distribution estimated to be
$320 million, to Edison Mission Energy. Edison Mission Energy intends to repay
borrowings under its lines of credit with a portion of the distributions
received from Edison Mission Holdings.
The remainder of the purchase price for the facilities, totaling
$830 million, will consist of Homer City Funding's assumption, on behalf of the
owner lessors, of our obligations under the outstanding bonds and the existing
indenture, which we will have assumed from Edison Mission Holdings.
26
<Page>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2001,
on a historical basis and as adjusted to give effect to the sale-leaseback
transaction and the application of proceeds as described in "Summary--The
Sale-Leaseback Transaction--Sources and Uses of Funds." The information in the
table is qualified in its entirety by the more detailed information included in
the documents incorporated by reference in this consent solicitation statement
and should be read in conjunction with our financial statements incorporated by
reference in this consent solicitation statement. See "Incorporation of
Documents by Reference."
<Table>
<Caption>
SEPTEMBER 30, 2001
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN MILLIONS)
Long-term debt to affiliate................................. $1,857.8 $ 590.8
Lease financing............................................. -- 1,612.0
Partners' equity............................................ 231.6 93.6
-------- --------
Total capitalization...................................... $2,039.4 $2,296.4
======== ========
</Table>
- ------------------------
(1) The estimated proceeds from the sale-leaseback transaction, net of the
assumption of debt by the owner lessors and transaction costs, will be:
<Table>
- --Retained by us as restricted cash......................... $134.0
- -- Paid to Edison Mission Finance to retire intercompany
debt under the subordinated intercompany loan agreement
and pay down a portion of the subordinated intercompany
revolving loan agreement (2).............................. 437.0
- -- Paid to EME as intercompany tax payable (3).............. 73.0
- -- Distributed to our general partner, Mission Energy
Westside, and our limited partner, Chestnut Ridge Energy
(4)....................................................... 138.0
------
Total..................................................... $782.0
======
</Table>
Upon the repayment of intercompany debt with the proceeds of the
sale-leaseback transaction, Edison Mission Finance will repay $250 million of
intercompany indebtedness and will make a distribution of $187 million to Edison
Mission Holdings, and our partners, Mission Energy Westside and Chestnut Ridge
Energy, will make a distribution of $138 million to Edison Mission Holdings.
Edison Mission Holdings will repay its $250 million senior secured bank
facility, then terminate its $250 million and $50 million senior secured bank
facilities and loan or make a distribution, estimated to be $320 million, to
Edison Mission Energy. Edison Mission Energy intends to repay borrowings under
its lines of credit with a portion of the dividend received from Edison Mission
Holdings.
The remaining intercompany debt under the subordinated intercompany
revolving loan agreement we will owe to Edison Mission Finance, which will
consist of $590.8 million, will be unsecured and subordinated to our obligations
under each facility lease.
(2) The $437.0 million will consist of the following repayments of intercompany
debt:
- $250 million under our subordinated intercompany loan agreement with
Edison Mission Finance.
- $187 million under our subordinated intercompany revolving loan agreement
with Edison Mission Finance. Following our repayment of this
$187 million, the amount outstanding under the subordinated intercompany
revolving loan agreement will be $590.8 million.
(3) Sale of the facilities will result in a tax liability that will be owed by
us. We and the members of our consolidated group party to a tax sharing
agreement, under this tax sharing agreement we are included on the
consolidated federal income tax and combined state franchise tax returns of
Edison International, our ultimate parent. Upon consummation of the
sale-leaseback transaction, we will use part of the proceeds of the sale to
pay intercompany tax payable to Edison Mission Energy. Further adjustments
to this amount will take place through the tax sharing agreement.
(4) Our $138 million distribution for the transfer of funds between our general
partner, Mission Energy Westside, and our limited partner, Chestnut Ridge
Energy, will be in turn distributed as a distribution for the transfer of
funds to Edison Mission Holdings. Edison Mission Holdings will apply
$5 million of the funds it receives from Mission Energy Westside and
Chestnut Ridge Energy to pay transaction costs, and will distribute the
remaining $133 million as part of its $320 million distribution for the
transfer of funds to Edison Mission Energy.
27
<Page>
SELECTED FINANCIAL DATA
The following table includes a summary of our selected financial data as at
and for the years ended December 31, 1999 and 2000 and for the nine months ended
September 30, 2000 and 2001 and as at September 30, 2001. We were formed on
October 31, 1998 and had no significant activity during 1998. On March 18, 1999,
we acquired the facilities for a purchase price of $1.8 billion. Accordingly,
the selected financial data for 1999 pertains to our activities from March 18,
1999 through December 31, 1999. The selected financial data for the nine months
ended September 30, 2000 and 2001 were derived from our unaudited financial
statements. The selected financial data for the years ended December 31, 1999
and 2000 were derived from our audited financial statements. The selected
financial data are qualified in their entirety by the more detailed information
and financial statements, including notes to the financial statements,
incorporated by reference in this consent solicitation statement.
<Table>
<Caption>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- ---------------------
1999 2000 2000 2001
--------- --------- --------- ---------
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
INCOME STATEMENT DATA
Operating revenues...................................... $ 325.8 $ 421.8 $ 331.7 $ 388.2
Operating expenses...................................... 218.7 290.5 219.3 226.7
--------- --------- --------- ---------
Income from operations.................................. 107.1 131.3 112.4 161.5
Interest expense from affiliates........................ (103.8) (138.7) (104.3) (102.6)
Interest and other income (expense)..................... 1.0 3.8 1.4 (1.3)
--------- --------- --------- ---------
Income before income taxes and extraordinary item....... 4.3 (3.6) 9.5 57.6
Provision (benefit) for income taxes before
extraordinary item.................................... 2.2 (0.4) 4.7 22.8
--------- --------- --------- ---------
Income before extraordinary item........................ 2.1 (3.2) 4.8 34.8
Extraordinary loss on extinguishment of debt, net of
tax................................................... (2.9) -- -- --
--------- --------- --------- ---------
Net income.............................................. $ (0.8) $ (3.2) $ 4.8 $ 34.8
========= ========= ========= =========
CASH FLOW DATA AND
FIXED CHARGE COVERAGE RATIO
Cash provided by operating activities................... $ 84.6 $ 17.0 $ 95.5 $ 146.0
Cash used in investing activities....................... (1,923.6) (141.6) (100.1) (74.0)
Cash provided by financing activities................... 1,883.5 99.2 83.1 56.6
Ratio of earnings to fixed charges (1).................. 1.02 (2) 1.02 1.43
Pro forma ratio of earnings to fixed charges (5)........ (6)
</Table>
<Table>
<Caption>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1999 2000 2001
---------- ---------- --------------
(UNAUDITED)
(IN MILLIONS)
BALANCE SHEET DATA
Assets.................................................. $2,021.9 $2,156.6 $2,290.7
Current liabilities..................................... 74.7 81.8 101.8
Long-term debt to affiliates............................ 1,700.8 1,801.2 1,857.8
Other long-term obligations............................. 46.4 76.8 99.5
Partners' equity........................................ 200.0 196.8 231.6
</Table>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, NINE MONTHS
----------------------- ENDED SEPTEMBER 30,
1999 2000 2001
---------- ---------- --------------------
OTHER DATA (unaudited)
Senior debt coverage ratio (3)..................... 3.52 1.77 3.80
Pro forma senior debt coverage ratio (4)........... -- 2.02 4.94
</Table>
- ------------------------
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. "Earnings" represent the aggregate of our
income (loss) before income taxes and fixed charges (net of capitalized
interest). "Fixed charges" represent interest expense (prior to
capitalization) and the interest portion of rent expense.
28
<Page>
(2) For the year ended December 31, 2000, there was a fixed charge deficiency of
$13.8 million.
(3) We have entered into a subordinated intercompany loan agreement with Edison
Mission Finance which mirrors the associated senior debt of Edison Mission
Holdings, including both the outstanding bonds and the senior bank debt of
Edison Mission Holdings. The senior debt coverage ratio represents interest
costs related to both the bond portion and senior bank debt portions of the
intercompany loan divided by net operating margin as defined in the existing
indenture. This coverage ratio is not prepared in accordance with generally
accepted accounting principles. This ratio should not be used for comparison
to similarly titled captions of other companies due to differences in method
of calculations. The calculation of the senior debt coverage ratio is shown
below:
<Table>
<Caption>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- --------------------
1999 2000 2001
-------- -------- --------------------
(IN MILLIONS, EXCEPT RATIOS)
Revenues on a cash basis....................... $ 298.4 $ 412.0 $ 391.8
Operating costs on a cash basis................ (167.0) (244.9) (191.6)
Maintenance capital expenditures on a cash
basis........................................ (7.0) (21.7) (25.2)
Net operating margin on a cash basis........... 124.4 145.5 175.0
Interest expense related to intercompany
loan......................................... 35.4 82.2 46.0
Senior debt coverage ratio..................... 3.52 1.77 3.80
</Table>
(4) The pro forma senior debt coverage ratio represents, after giving effect to
the repayment of the senior bank debt of Edison Mission Holdings, interest
costs related to the bond portion of the intercompany loan under the
intercompany loan agreement divided by net operating margin as defined in
the existing indenture. This coverage ratio is not prepared in accordance
with generally accepted accounting principles. This ratio should not be used
for comparison to similarly titled captions of other companies due to
differences in method of calculations. The calculation of the pro forma
senior debt coverage ratio is shown below:
<Table>
<Caption>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------ --------------------
2000 2001
------------ --------------------
(IN MILLIONS, EXCEPT RATIOS)
Revenues on a cash basis............................ $ 412.0 $ 391.8
Operating costs on a cash basis..................... (244.9) (191.6)
Maintenance capital expenditures on a cash basis.... (21.7) (25.2)
Net operating margin on a cash basis................ 145.5 175.0
Interest expense related to the bond portion of the
intercompany loan................................. 72.2 35.4
Pro forma senior debt coverage ratio................ 2.02 4.94
</Table>
The above pro forma senior debt coverage ratio is presented to measure the
cash available to meet debt service under the existing indenture. Upon
completion of the sale-leaseback transaction subject to this consent
solicitation, the senior rent coverage ratio will be computed in the same manner
as the above pro forma senior debt coverage ratio. The pro forma rent coverage
ratio under the lease, including both the senior rent and estimated equity
portion of the rent would have been greater than 1.0 during the pro forma
periods presented.
(5) For purposes of computing the pro forma ratio of earnings to fixed charges,
earnings are divided by fixed charges. Pro forma "earnings" represent the
aggregate of our income (loss) before income taxes and fixed charges. Pro
forma "fixed charges" represent interest expense prior to capitalization,
assuming the $250 million subordinated intercompany loan is repaid at the
beginning of the applicable period and the interest portion of the rent.
(6) For the year ended December 31, 2000, there was a "pro forma" fixed charge
deficiency of $3.6 million.
29
<Page>
DESCRIPTION OF THE PASS-THROUGH BONDS
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE PASS-THROUGH BONDS
AND IS NOT TO BE CONSIDERED TO BE A FULL STATEMENT OF THE TERMS OF THE
PASS-THROUGH BONDS AND THE AMENDED AND RESTATED INDENTURE. THE SUMMARY MAKES USE
OF TERMS MORE FULLY DEFINED IN AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY
BY, REFERENCE TO ALL THE PROVISIONS OF THE PASS-THROUGH BONDS, THE PARTICIPATION
AGREEMENTS, THE FACILITY LEASES, THE SITE LEASES, THE SITE SUBLEASES, MEMORANDA
OF THE FACILITY SITE LEASE AND FACILITY SITE SUBLEASE, THE OWNER LESSOR LIMITED
LIABILITY COMPANY AGREEMENT, THE TAX INDEMNITY AGREEMENT, THE ASSIGNMENT AND
ASSUMPTION AGREEMENT, THE BILL OF SALE, THE OWNERSHIP AND OPERATION AGREEMENT,
THE OWNER LESSOR SUBORDINATION AGREEMENT, THE LEASE SUBORDINATION AGREEMENT, THE
HOMER CITY SUBORDINATION AGREEMENT, THE PLEDGE AND COLLATERAL AGREEMENT, THE
AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT, THE AMENDED SECURITY
DEPOSIT AGREEMENT, THE DESIGNATED ACCOUNT REPRESENTATIVE AGREEMENT, ANY
QUALIFYING CREDIT SUPPORT, ANY DEBT SERVICE RESERVE LETTER OF CREDIT (AND ANY
RELATED APPLICATION OR REIMBURSEMENT AGREEMENT), AND, WHEN EXECUTED AND
DELIVERED, ANY OWNER PARTICIPANT GUARANTEE OR ANY AGREEMENT WITH RESPECT TO
SUPPORT ARRANGEMENTS, THE LEASE INDENTURES, THE SECURED LEASE OBLIGATION NOTES
AND THE AMENDED AND RESTATED INDENTURE, WHICH WE COLLECTIVELY REFER TO AS THE
OPERATIVE DOCUMENTS. COPIES OF SOME OF THESE AGREEMENTS HAVE BEEN FILED AS
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS CONSENT SOLICITATION
STATEMENT FORMS A PART. SEE "DESCRIPTION OF THE PRINCIPAL SALE-LEASEBACK
TRANSACTION DOCUMENTS."
GENERAL
Homer City Funding will issue the pass-through bonds according to an amended
and restated indenture between Homer City Funding and The Bank of New York, as
successor trustee to United States Trust Company of New York, in place of the
outstanding bonds issued by Edison Mission Holdings under the existing indenture
dated May 27, 1999. Except as otherwise indicated, the following summary relates
to the amended and restated indenture and the pass-through bonds to be issued
under the amended and restated indenture. The pass-through bonds will be issued
in fully registered form without coupons.
The property of Homer City Funding will consist solely of:
- the secured lease obligation notes held by Homer City Funding;
- all monies at any time paid on the related secured lease obligation notes;
- all monies due and to become due under the related secured lease
obligation notes;
- funds from time to time deposited with Homer City Funding in its accounts;
and
- proceeds from the sale by Homer City Funding of any secured lease
obligation notes.
Each pass-through bond will correspond to a pro rata share of the
outstanding principal amount of the secured lease obligation notes held by Homer
City Funding and will be issuable in minimum denominations of $100,000 or
integral multiples of $1,000 in excess of $100,000.
The pass-through bonds will be the obligations of Homer City Funding and
will not be the obligations of any other party to the sale-leaseback transaction
or their affiliates. The only source of funds for Homer City Funding to make
payments on the pass-through bonds will consist of the payments received by it
on the secured lease obligation notes. The pass-through bonds are recourse only
to the secured lease obligation notes. The pass-through bonds will be subject to
prepayment when and to the extent that the related secured lease obligation
notes are redeemed, prepaid or purchased. See "Description of the Principal
Sale-Leaseback Transaction Documents--The Lease Indentures and Secured Lease
Obligation Notes--Redemption and Repurchase."
DESCRIPTION OF COLLATERAL
All the existing security for the outstanding bonds will be released upon
the consummation of the sale-leaseback transaction and immediately after this
release a new collateral package will be set up for
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<Page>
the pass-through bonds. The collateral package supporting the pass-through bonds
will be composed of security interests described below.
As security for our obligations under each facility lease, we will grant the
following rights, which we collectively refer to as the lessee security, to the
collateral agent for the benefit of each respective owner lessor. Each owner
lessor will then grant, among other things, a security interest in the lessee
security, which we collectively refer to as the lessor estate, to the security
agent for the benefit of Homer City Funding to support its obligations on the
secured lease obligation notes. Through the pledge of the secured lease
obligation notes described below to the trustee for the benefit of the
bondholders, the holders of the pass-through bonds will have the indirect
benefit of all the security interests and pledges granted.
The following constitutes the lessee security:
- a security interest in specified collateral accounts described in
"Description of the Principal Sale-Leaseback Transaction Documents--The
Amended Security Deposit Agreement" not to exceed at any time the sum of
all rent due and unpaid and the average of the next two aggregate rent
payments, less $1 million;
- a pledge by Edison Mission Holdings of the equity in Mission Energy
Westside, our general partner; and
- a security interest in our general intangibles, other than the following:
emission allowances and credits, insurance policies and all our contracts,
agreements, instruments and indentures.
For more information on the lessee security, see "Description of the
Principal Sale-Leaseback Transaction Documents--The Amended and Restated
Guarantee and Collateral Agreement and Changes to the Collateral Package."
As security for the secured lease obligation notes issued to Homer City
Funding, each owner lessor will grant the following rights, collectively
referred to as the lessor estate, to the security agent for the benefit of Homer
City Funding as the holder of the secured lease obligation notes:
- a security interest in most of its rights under its related facility
lease, including its rights to payment of all scheduled rents listed above
and its rights in the lessee security;
- a security interest in its undivided interest in the facilities;
- a mortgage on all improvements and a leasehold mortgage on its ground
interest, including all appurtenances;
- a security interest in insurance proceeds;
- a security interest in contracts related to the facilities assigned or
pledged to it; and
- a security interest in the debt service reserve account for the benefit of
the pass-through bonds, which account will be funded by the debt service
reserve letter of credit, from an acceptable credit provider with a
combined capital surplus of at least $1 billion and whose long-term
unsecured debt is rated "A" and higher by Standard & Poor's or "A2" or
higher by Moody's.
The lessor estate of each owner lessor will not include customary excepted
payments, including indemnities, insurance proceeds separately maintained by the
owner lessor or owner participant, any part of the purchase price, fees and
other amounts owed to the owner lessor, and excepted rights, including rights in
connection with appraisal procedure, events of loss or insurance, all rent
adjustment rights and in some instances, rights of the owner lessor to terminate
or renew the facility lease.
The security interest in the lessor estate will also secure the debt service
reserve letter of credit for the benefit of the pass-through bonds that is in
the name of each owner lessor, and therefore the security interest will be
granted to a security agent for both secured parties. The security agent will
31
<Page>
hold the security interest for the benefit of Homer City Funding as the holder
of the secured lease obligation notes and for the issuer of the debt service
reserve letter of credit.
Finally, as security for the pass-through bonds, Homer City Funding will
pledge the secured lease obligation notes to the trustee for the benefit of the
holders of the pass-through bonds. The liens created under this pledge will have
first priority over any other liens on the same collateral, except for liens
that arise by operation of law under federal or state statutes or liens that
arise by any third parties obtaining possession of the collateral. The pledge of
the secured lease obligation notes will include the lessee security and the
lessor estate. See "Description of the Principal Sale-Leaseback Transaction
Documents--Amended and Restated Guarantee and Collateral Agreement and Changes
to the Collateral Package" for a more detailed explanation of the new collateral
package.
FORM OF PASS-THROUGH BONDS
No person acquiring a beneficial interest in the pass-through bonds, which
we refer to as a bond owner, will be entitled to receive a definitive
pass-through bond representing that person's interest in the pass-through bonds,
except as set forth below under "--Book-Entry; Delivery and Form." A definitive
pass-through bond is a physical pass-through bond in fully registered form
without interest coupons.
Unless and until definitive pass-through bonds are issued under the limited
circumstances described in this consent solicitation statement, all references
to actions by registered holders of pass-through bonds refer to actions taken by
The Depository Trust Company, which we refer to as DTC, upon instructions from
any organization that is a participant in the DTC system, and all references in
this consent solicitation statement to distributions, notices, reports and
statements to holders of pass-through bonds refer, as the case may be, to
distributions, notices, reports and statements to DTC or its nominee, Cede &
Co., as the registered holder of pass-through bonds, or to any organization that
is a participant in the DTC system for distribution to holders of pass-through
bonds in accordance with DTC procedures. See "--Book-Entry; Delivery and Form."
PAYMENTS AND DISTRIBUTIONS
The payment terms of the pass-through bonds will remain the same as the
payment terms of the outstanding bonds. We refer to scheduled payments of
principal and interest on the secured lease obligation notes in this consent
solicitation statement as scheduled payments, and each April 1 and October 1 of
each year as regular distribution dates. Each holder of pass-through bonds will
be entitled to receive a pro rata share of any distribution in respect of
scheduled payments of principal and interest made on the secured lease
obligation notes on the same date as payment is made to the secured lease
obligation notes. All scheduled payments of principal and interest on the
secured lease obligation notes payable to Homer City Funding will be paid by the
security agent directly to the trustee and will be distributed to holders of
pass-through bonds on the date that receipt is confirmed. The rights to receive
payments on the secured lease obligation notes will be assigned by Homer City
Funding to the trustee for the benefit of the holders of the pass-through bonds.
Accordingly, all payments on the secured lease obligation notes will be paid to
the trustee rather than Homer City Funding.
INTEREST. Payments of interest on the unpaid principal amount of the
secured lease obligation notes are scheduled to be received by Homer City
Funding and, accordingly by the trustee, to service the pass-through bonds on
each April 1 and October 1 of each year if that date is a business day, and on
the next succeeding business day if that date is not a business day, commencing
April 1, 2002, at the annual rate of 8.137% for the pass-through bonds due 2019
and 8.734% for the pass-through bonds due 2026, until the final distribution
date. Interest will be paid to holders of pass-through bonds at the applicable
annual rate, calculated on the basis of a 360-day year of twelve 30-day months.
32
<Page>
PRINCIPAL. The initial principal amount of the pass-through bonds will be
as follows:
<Table>
Pass-Through Bonds due 2019................................. $300,000,000
Pass-Through Bonds due 2026................................. $530,000,000
</Table>
Scheduled principal payments on secured lease obligation notes, and thus the
pass-through bonds, will commence on April 1, 2004 if that date is a business
day, and on the next succeeding business day if that date is not a business day,
and are as follows, rounded to the third decimal place:
<Table>
<Caption>
PERCENTAGE OF PRINCIPAL PERCENTAGE OF PRINCIPAL
AMOUNT PAYABLE ON AMOUNT PAYABLE ON
PRINCIPAL PAYMENT DATES PASS-THROUGH BONDS DUE 2019 PASS-THROUGH BONDS DUE 2026
- ----------------------- --------------------------- ---------------------------
April 1 and October 1, 2004............. 1.000% 0.055%
April 1 and October 1, 2005............. 2.000% 0.480%
April 1 and October 1, 2006............. 2.000% 0.590%
April 1 and October 1, 2007............. 2.500% 0.375%
April 1 and October 1, 2008............. 3.000% 0.375%
April 1 and October 1, 2009............. 3.000% 0.415%
April 1 and October 1, 2010............. 3.000% 1.000%
April 1 and October 1, 2011............. 3.000% 1.750%
April 1 and October 1, 2012............. 3.000% 2.000%
April 1 and October 1, 2013............. 3.000% 1.250%
April 1 and October 1, 2014............. 3.000% 1.500%
April 1 and October 1, 2015............. 4.000% 2.000%
April 1 and October 1, 2016............. 4.000% 2.000%
April 1 and October 1, 2017............. 5.000% 2.000%
April 1 and October 1, 2018............. 5.000% 2.000%
April 1 and October 1, 2019............. 3.500% 2.500%
April 1 and October 1, 2020............. -- 3.500%
April 1 and October 1, 2021............. -- 3.500%
April 1 and October 1, 2022............. -- 3.500%
April 1 and October 1, 2023............. -- 4.000%
April 1 and October 1, 2024............. -- 4.000%
April 1 and October 1, 2025............. -- 5.000%
April 1 and October 1, 2026............. -- 6.210%
</Table>
GENERAL. Holders of record of pass-through bonds will receive all scheduled
payments on each regular distribution date if the trustee, on behalf of Homer
City Funding, receives the scheduled payments due on that date by 10:00 a.m. New
York City time. If a scheduled payment is received after 10:00 a.m. New York
City time, it will be distributed on the next business day. The record date for
each distribution of scheduled payments will be the fifteenth day preceding the
regular distribution date, subject to specified exceptions. If a scheduled
payment is not received by the trustee on behalf of Homer City Funding on a
regular distribution date but is received within five business days after a
regular distribution date, it will be distributed on the date received to the
holders of record of pass-through bonds, if received by 10:00 a.m. New York City
time on that date.
Each lease indenture will require that the applicable owner lessor establish
and maintain with the security agent, for the related benefit of the holders of
the secured lease obligation notes and thus the pass-through bonds, an account
for the deposit of payments received from us. This account will be called the
security agent's account. Under each lease indenture, the applicable owner will
be required to immediately deposit any scheduled payments received by it in the
security agent's account. All amounts so deposited will be distributed pro rata
by the security agent to the secured lease obligation notes payment account and
to the issuer of the debt service letter of credit for the benefit of the pass-
through bonds if any amount is due and payable. The lease indenture trustee will
distribute debt service on the secured lease obligation notes from the monies on
deposit in the secured lease obligation notes payment account on a regular
distribution date. Each holder of the secured lease obligation notes will
receive its proportionate share of the aggregate amount in the secured lease
obligation notes payment account. This proportionate share will be based on the
aggregate fractional
33
<Page>
undivided interest that the holder of the secured lease obligation notes holds.
Each holder of the pass-through bonds will then receive the equivalent amount
paid to the holder of the secured lease obligation notes as debt service on the
pass-through bonds.
In addition to scheduled payments with respect to principal, the secured
lease obligation notes and, consequently, the pass-through bonds, will be
subject to partial or full prepayment under specific circumstances. Payments of
principal, premium, if any, and interest received by Homer City Funding on
account of a partial or full prepayment, if any, of the secured lease obligation
notes and payments received following a default in respect of the secured lease
obligation notes will be distributed on the redemption date under the terms of
each lease indenture. See "--Redemption and Repurchase," "--Mandatory Repayment"
and "The Lease Indentures and Secured Lease Obligation Notes--Redemption of
Secured Lease Obligation Notes." Homer City Funding will mail notice of
redemption to the holders of record of pass-through bonds. The notice will
identify the pass-through bonds to be redeemed and state the following:
- the redemption date;
- the redemption price;
- if the pass-through bonds are being redeemed in part, the portion of
principal amount being redeemed and that a pass-through bond to represent
the unredeemed portion of the pass-through bonds shall be issued upon
cancellation of the redeemed pass-through bonds;
- the name and address of the paying agent;
- that the pass-through bonds called for redemption must be surrendered to
the paying agent;
- that interest on the pass-through bonds called for redemption will cease;
- the paragraph of the bonds or section of the amended and restated
indenture pursuant to which the pass-through bonds called for redemption
are being redeemed; and
- that no representation is made as to the accuracy of the CUSIP number, if
any, on the pass-through bonds.
Distributions by Homer City Funding from amounts paid on the secured lease
obligation notes on a distribution date or a redemption date will be made by
wire transfer to the paying agent or the trustee in accordance with the amended
and restated indenture.
If any regular distribution date or redemption date is not a business day,
distributions scheduled to be made on a regular distribution date or redemption
date may be made on the next succeeding business day without any additional
interest accruing during the intervening period.
RESERVE ACCOUNTS. Under each lease indenture, as more fully described in
"Description of the Principal Sale-Leaseback Transaction Documents--The Lease
Indentures and Secured Lease Obligation Notes--Debt Service Reserve Letter of
Credit," the security agent will establish and maintain a debt service reserve
account. The amount on deposit in this account on each payment date is required
to be equal to 100% of the projected debt service on the secured lease
obligation notes for one payment period. Amounts used from each debt service
reserve account will be used to pay debt service on the secured lease obligation
notes, and thus will pay debt service on the pass-through bonds that is due if
the amount of rent paid by us is insufficient to pay the amount due on the
secured lease obligation notes and thus, the pass-through bonds. Under the
amended security deposit agreement, as more fully described in "Description of
the Principal Sale-Leaseback Transaction Documents--The Amended Security Deposit
Agreement," in the event the senior rent service coverage ratio test or the
projected senior rent service coverage ratio test set forth in the equity
payment requirements is not satisfied, an additional reserve will be set aside
in an amount equal to the lesser of six months senior rent service and amounts
otherwise available for payment of the equity portion of rent or distribution to
us, but for our failure to satisfy such coverage ratio test. In addition, there
will be two reserve accounts for use in
34
<Page>
connection with the equity portion of lease rent as described in more detail in
"Description of the Principal Sale-Leaseback Transaction Documents--The Amended
Security Deposit Agreement."
REPORTS TO HOLDERS OF PASS-THROUGH BONDS
The trustee will notify the holders of pass-through bonds of all events of
default, as defined below, under the amended and restated indenture for which
the trustee receives written notice within 90 days after the occurrence of a
default. However, the trustee will be protected if it withholds notice from the
holders of pass-through bonds of an event of default other than a failure to pay
principal of, premium, if any, or interest on any secured lease obligation note
or pass-through bond so long as a committee of responsible officers of the
trustee in good faith determines that the withholding of notice is in the
interests of the holders of pass-through bonds.
As long as any pass-through bonds remain outstanding, we will furnish to the
trustee our unaudited quarterly financial statements, as well as our audited
annual financial statements, with the accompanying footnotes and audit report.
Unaudited quarterly financial statements will be furnished to the trustee within
60 days following the end of our first three fiscal quarters during each fiscal
year and our audited annual financial statements, with the accompanying
footnotes and audit report, will be furnished to the trustee within 120 days
following the end of our fiscal year. In addition, we will be required to
furnish to the trustee notice of specific material events related to us within
30 days after they occur.
We will, upon request, which may include a request to receive this
information for subsequent financial reporting periods on an ongoing basis,
furnish all the information and any other information required to be delivered
to the trustee, directly to holders of pass-through bonds and to prospective
purchasers of pass-through bonds designated by the holders of pass-through
bonds.
VOTING RIGHTS
The holders of the pass-through bonds will have the right under specified
circumstances under the amended and restated indenture to vote and give consents
and waivers in respect of the pass-through bonds. In addition, Homer City
Funding, as the holder of the secured lease obligation notes, will have the
right under specified circumstances under each lease indenture to vote and give
consents and waivers in respect of the secured lease obligation notes. Also, in
some instances, the issuer of the debt service letter of credit will have voting
rights equivalent to the amount due and payable on the debt service reserve
letter of credit for the benefit of the pass-through bonds. The principal amount
of the secured lease obligation notes directing any action or being voted for or
against any proposal will be in proportion to the principal amount of
pass-through bonds held by the holders taking the corresponding position.
COVENANTS
The amended and restated indenture will bind Homer City Funding to the
following covenants.
MERGER OR CONSOLIDATION; SALE OF ASSETS
Homer City Funding may not consolidate with or merge with or into any other
person, or sell, assign, convey, lease, transfer or otherwise dispose of, all or
substantially all its properties or assets in one or a series of transactions to
any person or persons.
35
<Page>
In addition to the foregoing provision, Homer City Funding may not sell,
transfer, convey, lease or otherwise dispose of any assets.
RESTRICTIONS ON ABILITY TO INCUR LIENS
Homer City Funding will agree not to create, incur, assume or otherwise
cause or suffer to exist any mortgage, pledge or other lien upon any property at
any time owned by it or acquired in the future. However, this restriction will
not apply to, or prevent the creation or existence of:
- liens incurred in respect of the pass-through bonds; and
- liens for taxes, assessments or governmental charges or levies that are
not yet delinquent, nor being contested in good faith.
LIMITATION ON INCURRENCE OF INDEBTEDNESS
Homer City Funding will agree not to directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to any indebtedness. However, this
restriction will not apply to indebtedness incurred in respect of the
pass-through bonds. For a description of the limitations on the incurrence of
indebtedness by us, see "Description of the Proposed Amendments--The Proposed
Amendments--Amendment to Section 4.9 of the Existing Indenture (Limitation on
Incurrence of Indebtedness)."
ADDITIONAL COVENANTS
Subject to specified exceptions and qualifications, Homer City Funding will
agree to do, among other things, the following:
- pay debt service on the pass-through bonds;
- preserve the security interests granted under the security documents;
- establish and maintain the consent payment account;
- maintain its corporate existence; and
- comply with all laws applicable to it.
COMPLIANCE WITH COVENANTS AND CONDITIONS PRECEDENT
If Homer City Funding requests the trustee to take any action under any
provision in the amended and restated indenture, it must furnish to the trustee,
if so requested by the trustee, an officer's certificate and, if necessary, a
legal opinion stating that all conditions precedent and covenants, if any,
relating to the proposed action have been met. Every certificate or opinion with
respect to compliance with a condition or covenant will include:
- a statement that each individual signing the certificate or opinion has
read the covenant or condition;
- a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in the
certificate or opinion are based;
- a statement that, in the opinion of the individual, he has made the
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not the covenant or condition has been
satisfied; and
- a statement as to whether, in the opinion of the individual, the condition
or covenant has been satisfied.
36
<Page>
For some actions the trustee must obtain the consent of the holders of the
pass-through bonds representing either a majority of the aggregate principal
amount or all of the aggregate principal amount. Actions that benefit or do not
impact the holders of the pass-through bonds require no consent by any holders
of the pass-through bonds. See "--Modification of the Indenture" for a more
detailed description of the items requiring no consent, majority consent or
unanimous consent of the holders of the pass-through bonds.
EVENTS OF DEFAULT
Each of the following will constitute an event of default under the amended
and restated indenture:
- default for five business days in the payment when due of any principal
of, premium, if any, or interest on the pass-through bonds; or
- an event of default under any of the lease indentures; or
- failure by Homer City Funding to comply with covenants regarding
limitations on liens, limitations on incurrence of indebtedness,
limitations on business activities, maintenance of existence or
limitations on merger, consolidation or sale of substantially all of its
assets, which failure continues uncured for 30 or more days from the date
an authorized officer of Homer City Funding receives actual notice of the
default; or
- failure by Homer City Funding to comply with any of its other agreements
in the amended and restated indenture, which failure continues uncured for
60 or more days from the date an authorized officer of Homer City Funding
receives actual notice of the default. This cure period may be further
extended for a total of up to 90 days, subject to other conditions; or
- Homer City Funding, pursuant to or within the meaning of bankruptcy law,
commences a voluntary case of bankruptcy, consents to the entry of an
order for relief against it in an involuntary case, consents to the
appointment of a custodian of it or for all or substantially all of its
property, makes a general assignment for the benefit of its creditors, or
generally is not paying its debts as they become due; or
- a court of competent jurisdiction enters an order or decree under any
bankruptcy law that is for relief against Homer City Funding in an
involuntary case of bankruptcy, appoints a custodian of Homer City Funding
or for all or substantially all of the property of Homer City Funding or
orders the liquidation of Homer City Funding, and the order or decree
remains unstayed and in effect for 60 consecutive days.
RIGHTS UPON AN EVENT OF DEFAULT
If any event of default occurs and is continuing, the trustee may, and, upon
the written direction of the holders of at least 33 1/3% (in the case of any
default in the payment of any principal of, premium, if any, or interest on the
pass-through bonds) or 50% (in the case of any other event of default) in
principal amount of the then outstanding pass-through bonds will, declare all
the pass-through bonds to be due and payable. In the case of an event of default
arising from specified events of bankruptcy or insolvency with respect to Homer
City Funding, all pass-through bonds will be due and payable without further
action or notice. Holders of pass-through bonds will not be able to enforce the
amended and restated indenture or the pass-through bonds except as provided in
the amended and restated indenture. Subject to specified limitations, holders of
at least 66 2/3% in principal amount of the then outstanding pass-through bonds
will be able to, on behalf of the holders of all of the pass-through bonds,
rescind an acceleration of payment and its consequence. The trustee may withhold
from holders of the pass-through bonds notice of any continuing default or event
of default, except a default or event of default relating to the payment of
principal or interest, if it determines that withholding notice
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is in their interest. The holders of a majority in aggregate principal amount of
the pass-through bonds then outstanding, by notice to the trustee, may on behalf
of the holders of all pass-through bonds waive any existing default or event of
default and its consequences under the amended and restated indenture except a
continuing default or event of default in the payment of the principal of,
premium, if any, or interest on the pass-through bonds.
If any event of default occurs and is continuing, the trustee, in its sole
discretion, may pursue any available remedy to collect the payment of principal
of, premium, if any, or interest on the pass-through bonds or to enforce the
performance of any provision of the pass-through bonds or the amended and
restated indenture. The trustee may commence a proceeding without possession of
any of the pass-through bonds. Any delay by the trustee in exercising a right or
remedy upon an event of default will not constitute a waiver of, or acquiescence
in, the event of default. In addition, all remedies are cumulative to the extent
permitted by law.
MODIFICATION OF THE INDENTURE
Subject to specified exceptions, the amended and restated indenture or the
pass-through bonds may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the then outstanding
pass-through bonds voting as a single class, and any existing default or
compliance with any provision of the amended and restated indenture or the
pass-through bonds may be waived with the consent of the holders of a majority
in principal amount of the then outstanding pass-through bonds voting as a
single class, except for any waiver of a default in the payment of principal of,
premium, if any, or interest on, the pass-through bonds or the right to receive
this payment. The amended and restated indenture, the pass-through bonds or any
financing document may be amended or supplemented without the consent of any
holder of a pass-through bond to:
- cure any ambiguity, omission, defect or inconsistency;
- to provide for uncertificated bonds in addition to or in place of
certificated bonds;
- to alter the mechanical provisions of the amended and restated indenture
(including the related definitions) in a manner that does not adversely
affect any holder of pass-through bonds;
- to make any change that would provide any additional rights or benefits to
the holders of the pass-through bonds or that does not adversely affect
the legal rights under the amended and restated indenture of the holder of
pass-through bonds; or
- to comply with the requirements of the SEC in order to effect or maintain
the qualification of the amended and restated indenture or any related
security document under the Trust Indenture Act.
Without the consent of each affected holder of pass-through bonds, an
amendment or waiver may not, with respect to any pass-through bonds held by a
non-consenting holder:
- reduce the principal amount of pass-through bonds whose holders must
consent to an amendment, supplement or waiver;
- reduce the principal of or change the fixed maturity of any pass-through
bond or alter or waive any of the provisions with respect to the
redemption of the pass-through bonds;
- reduce the rate of or change the time for payment of interest, including
default interest, on any pass-through bond;
- waive a default or an event of default in the payment of principal of,
premium, if any, or interest on the pass-through bonds, except a
rescission of acceleration of the pass-through bonds by the holders of at
least 66 2/3% in aggregate principal amount of the then outstanding pass-
through bonds and a waiver of the payment default that resulted from the
acceleration;
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- make any pass-through bond payable in currency other than that stated in
the pass-through bonds;
- make any change in the provisions of the amended and restated indenture
relating to waivers of past defaults or the rights of holders of
pass-through bonds to receive payments of principal of, premium, if any,
or interest on the pass-through bonds;
- waive a redemption payment with respect to any pass-through bond; or
- make any change in the foregoing amendment and waiver provisions.
POWER OF ATTORNEY
Homer City Funding will grant a power of attorney to the trustee enabling
the trustee to exercise all of Homer City Funding's rights and remedies under
the secured lease obligation notes.
DIRECTION BY HOLDERS OF THE PASS-THROUGH BONDS
The holders of a majority in principal amount of the outstanding
pass-through bonds may direct the time, method and place of conducting any
proceeding for exercising any remedy available to or in the power of the
trustee. However, the trustee may refuse to follow any direction that conflicts
with the law or the amended and restated indenture or may unduly prejudice the
rights of the holders of the pass-through bonds. The trustee may take any action
consistent with the amended and restated indenture relating to the direction of
the holders of the pass-through bonds.
REDEMPTION AND REPURCHASE
The redemption and repurchase provisions with respect to the pass-through
bonds remain the same as the redemption and repurchase provisions of the
outstanding bonds.
MANDATORY REDEMPTION
The pass-through bonds will be subject to mandatory redemption upon the
occurrence of a recovery event with respect to the facilities. A recovery event
includes any settlement of or payment of $5 million or more in respect of any
property or casualty insurance claim relating to the facilities or any
governmental taking of the facilities or any of their parts. This mandatory
redemption will not apply with respect to amounts received by the owner lessor
in connection with a recovery event for which we elect to restore or replace the
facilities or any part of the facilities in respect of which a recovery event
occurred and notice is provided within 45 days of the recovery event. With
respect to any recovery event of $50 million or more, an independent engineer
must have certified as to the reasonableness of the repair and replacement plans
in our notice relating to the recovery event. The pass-through bonds will also
be subject to mandatory redemption as a result of the facility lessee's election
to terminate the facility leases due to an event of loss described in the first,
second and third bullets points under in "Description of Principal
Sale-Leaseback Transaction Documents--The Facility Leases--Events of Loss." Any
mandatory redemption of the pass-through bonds will be without premium or
penalty at a redemption price equal to the unpaid principal amount of the
pass-through bonds plus accrued and unpaid interest on this amount to the date
of redemption.
OPTIONAL REDEMPTION
The pass-through bonds will be subject to optional redemption at any time at
a redemption price equal to the outstanding principal amount of the pass-through
bonds to be redeemed plus all accrued and unpaid interest on the pass-through
bonds to the date of redemption, plus a make-whole premium as described in
"Description of Principal Sale-Leaseback Transaction Documents--The Lease
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Indentures and Secured Lease Obligation Notes--Optional Prepayment with
Make-Whole Premium," received in respect of the corresponding secured lease
obligation notes.
MANDATORY PREPAYMENT
In the event that the facility lessee elects to terminate the facility lease
due to burdensome events or the economic or technological obsolescence of the
facilities, the pass-through bonds will be subject to mandatory prepayment at a
price equal to the unpaid principal amount of the pass-through bonds plus
accrued and unpaid interest on this amount to the date of redemption, plus a
make-whole premium. The pass-through bonds will also be subject to mandatory
prepayment as a result of the facility lessee's election to terminate the
facility leases due to an event of loss described in the first, second and third
bullets points under in "Description of Principal Sale-Leaseback Transaction
Documents--The Facility Leases--Events of Loss," at a price equal to the unpaid
principal amount of the pass-through bonds plus accrued and unpaid interest on
this amount to the date of redemption, without a make-whole premium. Any amounts
prepaid under the facility lease are passed through to the pass-through bonds.
In the case of a regulatory event of loss or an event of loss described in
the fifth bullet point under "Description of Principal Sale-Leaseback
Transaction Documents--The Facility Leases--Events of Loss," the pass-through
bonds will not be subject to mandatory prepayment or mandatory redemption and
the facility lessee will make regularly scheduled payments of principal and
interest on the pass-through bonds.
SELECTION AND NOTICE
If less than all of the pass-through bonds are to be redeemed at any time,
selection of pass-through bonds for redemption will be made by the trustee on a
proportional basis, by lot or by any method as the trustee deems fair and
appropriate. No less than $1,000 of any pass-through bonds will be redeemed in
part. Notices of redemption will be mailed by first class mail at least 30 but
not more than 60 days before the date of redemption to each holder of
pass-through bonds at its registered address. Notices of redemption may not be
conditional. If any pass-through bond is to be redeemed in part only, the notice
of redemption that relates to that bond will state the portion of the principal
amount of the bond to be redeemed. A pass-through bond in principal amount equal
to the unredeemed portion of the bond will be issued in the name of the holder
of the bond upon cancellation of the original bond. Pass-through bonds called
for redemption become due on the date fixed for redemption. On and after the
date of redemption, interest ceases to accrue on pass-through bonds or portions
of them called for redemption.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the pass-through bonds will be issued in fully
registered form. Except as described below, the pass-through bonds initially
will be represented by one or more global bonds, in definitive, fully registered
form without interest coupons. The global bonds will be deposited with the
trustee as custodian for DTC, and registered in the name of Cede & Co. or
another nominee as DTC may designate.
DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered under the provisions of Section 17A of the
Exchange Act.
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- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thus eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and other organizations.
Indirect access to the DTC system is available to others, including banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
- Upon the issuance of the global bonds, DTC or its custodian will credit,
on its internal system, the respective principal amounts of the
pass-through bonds represented by the global bonds to the accounts of
persons who have accounts with DTC. Ownership of beneficial interests in
the global bonds will be limited to persons who have accounts with DTC or
persons who hold interests through the persons who have accounts with DTC.
Persons who have accounts with DTC are referred to as "participants."
Ownership of beneficial interests in the global bonds will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee, with respect to interests of
participants, and the records of participants, with respect to interests
of persons other than participants.
So long as DTC or its nominee is the registered owner or holder of the
global bonds, DTC or the nominee, as the case may be, will be considered the
sole record owner or holder of the pass-through bonds represented by the global
bonds for all purposes under the amended and restated indenture and the
pass-through bonds. No beneficial owners of an interest in the global bonds will
be able to transfer that interest except according to DTC's applicable
procedures, in addition to those provided for under the amended and restated
indenture.
Owners of beneficial interests in the global bonds will not:
- be entitled to have the pass-through bonds represented by the global bonds
registered in their names;
- receive or be entitled to receive physical delivery of certificated bonds
in definitive form; and
- be considered to be the owners or holders of any pass-through bonds under
the global bonds.
Accordingly, each person owning a beneficial interest in the global bonds
must rely on the procedures of DTC and, if a person is not a participant, on the
procedures of the participant through which that person owns its interests, to
exercise any right of a holder of pass-through bonds under the global bonds. We
understand that under existing industry practice, in the event an owner of a
beneficial interest in the global bonds desires to take any action that DTC, as
the holder of the global bonds, is entitled to take, DTC would authorize the
participants to take that action, and that the participants would authorize
beneficial owners owning through the participants to take that action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the
pass-through bonds represented by the global bonds will be made to DTC or its
nominee, as the case may be, as the registered owner of the global bonds.
Neither we, the trustee, nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global bonds or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the global bonds will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
ownership interests in the principal amount of the global bonds, as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global bonds held through these
participants will be governed by
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standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for these customers. These payments will be the responsibility of these
participants.
Transfer between participants in DTC will be effected in the ordinary way in
accordance with DTC rules. If a holder requires physical delivery of
pass-through bonds in certificated form for any reason, including to sell
pass-through bonds to persons in states which require the delivery of the
pass-through bonds or to pledge the pass-through bonds, a holder must transfer
its interest in the global bonds in accordance with the normal procedures of DTC
and the procedures described in the amended and restated indenture.
Unless and until they are exchanged in whole or in part for certificated
pass-through bonds in definitive form, the global bonds may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.
Beneficial owners of pass-through bonds registered in the name of DTC or its
nominee will be entitled to be issued, upon request, pass-through bonds in
definitive certificated form.
DTC has advised Homer City Funding that DTC will take any action permitted
to be taken by a holder of pass-through bonds, including the presentation of
pass-through bonds for exchange as described below, only at the direction of one
or more participants to whose account the DTC interests in the global bonds are
credited. Further, DTC will take any action permitted to be taken by a holder of
pass-through bonds only in respect of that portion of the aggregate principal
amount of pass-through bonds as to which the participant or participants has or
have given that direction.
Although DTC has agreed to these procedures in order to facilitate transfers
of interests in the global bonds among participants of DTC, it is under no
obligation to perform these procedures, and may discontinue them at any time.
Neither Homer City Funding nor the trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to specified conditions, any person having a beneficial interest in
the global bonds may, upon request to the trustee, exchange the beneficial
interest for pass-through bonds in the form of certificated pass-through bonds.
Upon any issuance of certificated pass-through bonds, the trustee is required to
register the certificated pass-through bonds in the name of, and cause the same
to be delivered to, the person or persons, or the nominee of these persons. In
addition, if DTC is at any time unwilling or unable to continue as a depositary
for the global bonds, and a successor depositary is not appointed by us within
90 days, we will issue certificated pass-through bonds in exchange for the
global bonds.
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DESCRIPTION OF THE PRINCIPAL SALE-LEASEBACK TRANSACTION DOCUMENTS
THE FOLLOWING IS A SUMMARY OF SELECTED PROVISIONS OF THE PRINCIPAL
AGREEMENTS CONSTITUTING THE SALE-LEASEBACK TRANSACTION, AND IS NOT TO BE
CONSIDERED TO BE A FULL STATEMENT OF THE TERMS OF THESE AGREEMENTS. ACCORDINGLY,
THE FOLLOWING SUMMARIES OF THESE AGREEMENTS ARE QUALIFIED BY REFERENCE TO EACH
AGREEMENT AND ARE SUBJECT TO THE TERMS OF THE FULL TEXT OF EACH AGREEMENT.
COPIES OF THE FORMS OF MOST OF THESE AGREEMENTS HAVE BEEN FILED AS EXHIBITS TO
THE REGISTRATION STATEMENT OF WHICH THIS CONSENT SOLICITATION STATEMENT FORMS A
PART.
THE FACILITY LEASES
We will enter into eight facility leases that relate to the facilities.
Under these eight facility leases, we will lease from each owner lessor an
undivided interest in the facilities.
TERM AND RENT
The term of each facility lease, which we refer to as the basic lease term,
will commence on the closing of the sale-leaseback transaction. The basic lease
term of each facility lease is expected to continue for a period of 33 years and
8 months following the closing of the sale-leaseback transaction. We will have
the right to renew each facility lease for one or more renewal lease terms. We
refer to the basic lease term plus all renewal lease terms for each facility
lease as its facility lease term.
Rent payable under each facility lease consists of basic lease rent, which
is payable with respect to the basic lease term, renewal lease rent, which is
payable with respect to any renewal lease term, and supplemental rent.
Supplemental rent includes our obligations arising out of the operative
documents, other than basic lease rent and renewal lease rent, to the owner
lessors or any other person.
During the facility lease term, rent will be paid on each April 1 and
October 1 if that date is a business day, and on the next succeeding business
day if that date is not a business day, which date we refer to as rent payment
dates. The first rent payment date will be April 1, 2002. Supplemental rent will
be payable when due and owing, or if there is no due date specified, promptly
after demand by the person entitled to the payment.
USE AND MAINTENANCE
Under each facility lease, we agree that we will:
- maintain the facilities, at our own expense, in as good condition, repair
and working order as when delivered on the closing date of the
sale-leaseback transaction, ordinary wear and tear excepted, without
discrimination as compared to other facilities of a similar type owned or
operated by us or any of our affiliates, and in any event, in all material
respects:
- in accordance with prudent industry practice;
- in compliance with all requirements of law, including without
limitation, all environmental laws, safety laws and rules and
regulations promulgated by the Federal Energy Regulatory Commission;
and
- in accordance with the terms of all insurance policies required to be
maintained by the documents relating to the sale-leaseback transaction;
and
- cause to be made all repairs, renewals, replacements, betterments and
improvements to the facilities, all as in our reasonable judgment may be
necessary to operate the facilities in accordance with the operative
documents and in compliance with all requirements of law, and to the
extent commercially reasonable, consistent with the estimated remaining
economic useful life of the facilities.
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In the ordinary course of maintenance, service, repair or testing of the
facilities or any component of the facilities, we, at no cost to the owner
lessors, may remove, cause or permit to be removed from the facilities any
component of the facilities, so long as:
- we cause the component to be replaced as soon as commercially practicable
by a replacement component which is free and clear of all liens, other
than permitted encumbrances, and is in as good an operating condition as
that of the component replaced, assuming that the component replaced was
maintained in accordance with the terms of the facility leases, and which
has a current and residual value, remaining economic useful life and
utility at least equal to that of the component replaced;
- the manner in which the component is replaced does not diminish the
current value, residual value, remaining economic useful life or utility
of the facilities by more than an immaterial amount, as measured
immediately before the replacement assuming the facilities are then in the
condition required to have been maintained by the terms of the facility
leases, or cause the facilities to become property subject to a lease,
which at the end of the lease term could only reasonably be expected to be
usable by the lessee, which we will refer to as "limited use property;"
and
- any component so replaced becomes our property and any component so added
becomes the property of the owner lessors and becomes immediately subject
to the facility leases.
"PRUDENT INDUSTRY PRACTICE" means, at a particular time:
- any of the practices, methods and acts engaged in or approved by a
significant portion of the competitive coal-fired electric generating
industry operating in the eastern United States at that time; or
- with respect to any matter to which the immediately preceding clause does
not apply, any of the practices, methods and acts which, in the exercise
of reasonable judgment at the time the decision was made, could have been
expected to accomplish the desired result at a reasonable cost consistent
with good business practices, reliability, safety and expedition.
Prudent industry practice is not intended to be limited to the optimum
practice, method or act to the exclusion of all others, but rather to be a
spectrum of possible practices, methods or acts having due regard for, among
other things, manufacturers' warranties and the requirements of any governmental
authority of competent jurisdiction.
IMPROVEMENTS TO THE FACILITIES
REQUIRED IMPROVEMENTS
Without expense to the owner lessors and without the consent of any other
party to the operative documents, whom we refer to as the lease financing
parties, we are required to make or cause to be made any modification,
alteration, addition or improvement to the facilities as is required:
- by requirements of law or any governmental authority;
- by any insurance policy required to be maintained by us under any
operative document; or
- by the terms of the operative documents.
These improvements are called required improvements. We may, in good faith and
by appropriate proceedings, subject to customary conditions, diligently contest
the validity or application of any requirement of law in any reasonable manner
and according to the terms of the facility leases.
OPTIONAL IMPROVEMENTS
So long as no material lease default described below in clauses (1),
(2) and (7) of "--Lease Events of Default" or lease event of default described
below in "--Lease Events of Default" has occurred and
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is continuing, at any time, we may, without expense to the owner lessors and
without the consent of any other lease financing party, make or cause to be made
or permit to be made any modification, alteration, addition or improvement to
the facilities as we consider desirable in the proper conduct of our business.
These improvements are called optional improvements. However, no optional
improvement to the facilities may (1) diminish the current or residual value,
remaining economic useful life or utility of the facilities by more than an
immaterial amount below the current or residual value, remaining economic useful
life or utility of the facilities as measured immediately before the optional
improvement (assuming the facilities are then in the condition required to have
been maintained by the terms of the facility leases) or (2) cause the facilities
to become limited use property.
Improvements that can be removed without causing material damage to the
facilities are called severable improvements. Subject to limitations on our
ability to incur indebtedness contained in the participation agreements, we may
finance improvements other than through the facility leases if the financing
does not result in a lien on the facilities or the facility site. All required
improvements, non-severable improvements and improvements that are financed
through the facility leases automatically become the property of the owner
lessors and are subject to the facility leases and the lease indentures upon
being affixed to the facilities.
FINANCING IMPROVEMENTS
We are not permitted to finance through the facility leases optional or
severable improvements which are not also required improvements. If we elect to
finance required or non-severable improvements to an undivided interest, the
applicable owner participant will be given the opportunity, exercisable in its
sole discretion, to finance the improvements in whole or in part with additional
equity. We are not obligated to accept, nor will any owner participant be
obligated to provide, any additional equity financing. Notwithstanding the
above, however, at our request, each owner lessor and the lease indenture
trustee will be obligated to finance required or non-severable improvements
through the issuance of additional secured lease obligation notes under the
applicable lease indenture. These secured lease obligation notes will rank
equally and ratably with the secured lease obligation notes then outstanding and
will share in the collateral of the indenture estate securing the original
secured lease obligation notes, subject to, among others, the following
conditions:
- there may be no more than one financing of this kind in any calendar year,
except that this limitation will not apply to required improvements;
- the additional secured lease obligation notes will have a final maturity
date no later than two years before the expiration date of the basic lease
term, will be fully repaid out of additional basic lease rent, and will be
subject to terms and conditions as are customary for leveraged lease
financings;
- appropriate adjustments to basic lease rent and termination value,
determined without regard to any tax benefits associated with the
improvements, unless the owner participant is financing the improvements
with additional equity, will be made to protect the owner participant's
expected return, but no change will be made to the amortization schedule
or interest amounts and payment dates on the original secured lease
obligation notes;
- we will pay, on an after-tax basis, all reasonable costs and expenses of
all or any of the parties to the operative documents, which we will refer
to as the lease financing parties, including the reasonable fees and
expenses of counsel to the other lease financing parties, in connection
with the financing of an improvement;
- no material lease default or lease event of default may have occurred and
be continuing, unless the improvement to be made with the financing will
cure the default and the improvement will be made in compliance with
applicable operative documents;
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- the financing may be in an amount not less than $5 million, nor greater
than 100% of the costs of the improvement being financed, but the
aggregate outstanding balance of all additional secured lease obligation
notes issued in respect of the facilities may not exceed the owner
lessor's percentage of $300 million;
- the owner participant will have received from tax counsel a favorable
opinion reasonably satisfactory to it to the effect that the financing
should not result in any incremental tax risk to the owner participant and
will have received an indemnity against this risk reasonably satisfactory
to the owner participant from or guaranteed by an entity which has a
credit rating of at least "BBB-" from Standard & Poor's and at least
"Baa3" from Moody's, but if the opinion referred to is that the financing
will not result in an incremental tax risk to the owner participant, this
minimum credit rating will not be required;
- the owner participant will not suffer material adverse accounting effects
under generally accepted accounting principles as a result of providing
the additional financing;
- we will have made or delivered representations, warranties, covenants,
opinions or certificates as the applicable owner participant may
reasonably request;
- the minimum projected basic lease rent service coverage ratio will be at
least 1.50 to 1.0, and the average projected basic lease rent service
coverage ratio will be at least 1.75 to 1.0, calculated at the time of
issuance of the additional secured lease obligation notes and calculated
in accordance with certain agreed-upon inputs and the then base case
assumptions; and
- we will have received written confirmation from Standard & Poor's and
Moody's that no lowering of the then-current credit ratings of the
pass-through bonds will result from the financing, which we refer to as a
ratings reaffirmation.
"BASIC LEASE RENT SERVICE COVERAGE RATIO" means a ratio, the numerator of
which is our net cash flow for the period, and the denominator of which is the
amount of basic lease rent payable during the period.
SUBLEASE
We may sublease each undivided interest in the facilities without the
consent of the applicable owner lessor, owner participant, security agent or
lease indenture trustee, under the following conditions:
- the sublessee is a United States person that:
- is a solvent corporation, partnership, business trust, limited
liability company or other entity not then subject to bankruptcy
proceedings;
- is not involved in material pending or unresolved litigation with the
applicable owner participant or any of its affiliates; and
- is, or its obligations under the sublease are, guaranteed by or
contracted to be performed by, an experienced operator of United States
based coal-fired electric generating assets similar to the facilities;
- the sublease does not extend beyond the scheduled expiration of the
applicable basic lease term or renewal lease term then in effect or
elected by us, may be terminated upon early termination of the applicable
facility lease, and is expressly subject and subordinate to the applicable
facility lease;
- all terms and conditions of the applicable facility lease and related
operative documents and project documents remain in effect and we remain
fully and primarily liable for our obligations under the facility leases
and the other operative documents and project documents;
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- no lease default or lease event of default under the applicable facility
lease has occurred and is continuing or will be created as a result of the
sublease;
- the sublease prohibits further assignment or subletting;
- the sublease requires the sublessee to operate and maintain the undivided
interest in a manner consistent with the facility leases;
- the sublessee does not cause the facilities to become "tax-exempt use
property" within the meaning of Section 168(h) of the Internal Revenue
Code of 1986, unless we make a payment to the applicable owner participant
at the time of the execution of the sublease that, in the reasonable
judgment of the owner participant, compensates the owner participant for
the adverse tax consequences resulting from the classification of the
property as "tax-exempt use property;"
- the applicable owner lessor and owner participant and, so long as the
secured lease obligation notes are outstanding, the trustee and security
agent, will have received an opinion of counsel reasonably satisfactory to
each recipient to the effect that all material regulatory approvals
relating to the sublease have been obtained;
- the sublessee pays all reasonable documented out-of-pocket expenses
incurred by the applicable lease financing parties in connection with the
sublease; and
- neither the sublease nor sublessee will jeopardize the owner lessor's,
owner participant's, Homer City Funding's, the trustee's or security
agent's exempt status under the Public Utility Holding Company Act of 1935
and other laws relating to electric utilities, generators, wholesalers or
retailers.
It is a condition precedent to any subleasing that we provide the applicable
owner lessor, owner participant and, so long as the secured lease obligation
notes are outstanding and the lien of the lease indenture has not been
terminated, the security agent with all documentation related to the sublease
and an opinion of counsel reasonably satisfactory to each recipient to the
effect that the sublease complies with the above requirements.
ASSIGNMENT
We may not assign the facility leases without first offering to assign such
interest to the owner lessor.
TERMINATION FOR BURDENSOME EVENTS
We have the option, by giving written notice to the applicable owner lessor
no later than 12 months after the date we receive notice or actual knowledge of
the events described below, to terminate the applicable facility lease, on a
date occurring not less than 30 days nor more than 60 days after the date of
giving the notice, if:
- due to a change in law it becomes illegal for us to continue the facility
lease or for us to make payments under the facility lease, and the
transaction cannot be restructured to comply with the change in law in a
manner reasonably acceptable to the lease financing parties; or
- one or more events outside our control has occurred which will, or can
reasonably be expected to, give rise to an obligation by us to pay or
indemnify in respect of general indemnity or tax indemnity payments under
the applicable lease documents, but only if (1) the payment or indemnity
obligation and the underlying cost or tax can be avoided in whole or in
material part by the termination of the facility lease or sale of the
owner lessor's undivided interest, and (2) the amount of the avoided
payments would exceed (on a present value basis, discounted at the
discount rate, compounded on an annual basis to the date of the
termination) 2.5% of the owner lessor's purchase price.
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The applicable owner participant may waive its right to indemnity payments in
excess of 2.5% of the purchase price payments or arrange for its own account the
payment of the indemnity payments.
In connection with the receipt of a burdensome termination notice, the owner
lessor may, but has no obligation to, sell its undivided interest and we, as the
owner lessor's agent, will use commercially reasonable efforts to obtain cash
bids from unaffiliated third parties for the sale of the undivided interest. We
may, but have no obligation to, make an offer to purchase the undivided interest
and will have a right of first refusal with respect to any offer received from
an unaffiliated third party. If the owner lessor accepts a qualifying cash bid
in writing, we will pay the owner lessor on the termination date the following
amount:
- the termination value, LESS
- the cash received by the owner lessor in connection with the qualifying
cash bid, or zero if the cash received by the owner lessor in connection
with the qualifying cash bid is equal to or greater than the termination
value, PLUS
- on an after-tax basis, all reasonable documented out-of-pocket costs and
expenses of the owner lessor, owner participant, and, so long as the
secured lease obligation notes are outstanding and the lease indenture
lien has not been discharged, the security agent, PLUS
- any amount by which basic lease rent paid by us exceeds the amount of
basic lease rent allocated to us under the facility lease, PLUS
- any payments which are due, payable and unpaid under the operative
documents on the termination date.
If the owner lessor rejects a qualifying cash bid in writing and does not
elect to retain its undivided interest and ground interest, we will pay the
owner lessor on the termination date the following amount:
- the termination value, LESS
- the amount of the rejected qualifying cash bid, or zero if the bid is
equal to or greater than the termination value, PLUS
- on an after-tax basis, all reasonable documented out-of-pocket costs and
expenses of the owner lessor, owner participant and, so long as the
secured lease obligation notes are outstanding and the lease indenture
lien has not been discharged, the security agent, PLUS
- any amount by which basic lease rent paid by us exceeds the amount of
basic lease rent allocated to us under the facility lease, PLUS
- any payments which are due, payable and unpaid under the operative
documents on the termination date.
Concurrently with the payment of the sums specified above, all basic lease
rent and renewal rent will cease to accrue, the facility lease will terminate,
the owner lessor will pay all amounts of principal and interest and any other
amounts owing under the secured lease obligation notes (including any make-whole
premium, if any, due and payable), and each of the owner lessors will transfer
its undivided interest to the facility lessee or a third party making a
qualifying cash bid after executing and delivering appropriate releases and
documents necessary to effect such transfer. Amounts prepaid by the owner lessor
with respect to the secured lease obligation notes are passed through to the
pass-through bonds. See "Description of the Pass-Through Bonds--Mandatory
Prepayment."
If, in connection with the termination of the facility lease under the
circumstances described above, we purchase an owner lessor's undivided interest,
execute an assumption agreement and satisfy other conditions contained in the
applicable lease indenture, we may, so long as no material lease default or
lease event of default has occurred and is continuing after giving affect to the
assumption, assume the
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applicable secured lease obligation notes. No termination of a facility lease
under the circumstances described above will be effective, regardless of whether
the owner lessor elects to sell or retain its undivided interest in connection
with the termination, unless and until either we assume the related secured
lease obligation notes in accordance with the provisions of the related lease
indenture and our obligation to pay termination value is reduced by the
outstanding principal amount of the secured lease obligation notes so assumed,
or the applicable owner lessor has paid all outstanding principal and accrued
interest on the secured lease obligation notes and all other amounts due under
the lease indenture on the proposed date of termination. Under the participation
agreements, we also have the option of purchasing the ownership interest in the
applicable owner lessor under the circumstances and keeping the facility lease
in place.
We may, so long as no lease event of default has occurred and is continuing,
terminate a facility lease at any time on or after the seventh anniversary of
the closing date of the sale-leaseback transaction and within six months of the
giving of notice, as described below, if our general partner determines in good
faith that the facilities are economically or technologically obsolete as a
result of a change in applicable law, regulation or tariff of general
application, any material change in the markets for the wholesale purchase
and/or sale of energy or imposition by the Federal Energy Regulatory Commission
or any other governmental entity having or claiming jurisdiction over us or the
facilities of any burdensome conditions or requirements, including without
limitation, requiring significant capital improvements to the facilities.
In order to exercise the termination option described immediately above, we
must give the applicable owner lessor at least six months' prior written notice,
containing a certification by our manager as to the basis of exercising an
option to terminate. The owner lessor may elect to retain rather than sell the
undivided interest by providing notice to us 90 days before the proposed
termination date, in which case we will pay to the owner lessor on the
termination date all basic and renewal rent and other amounts then owing, and
the facility lease will terminate. Concurrently with the payment of the sums
specified above, all basic lease rent and renewal rent will cease to accrue, the
facility lease will terminate, the owner lessor will pay all outstanding
principal and accrued interest owing under the secured lease obligation notes
(including any make-whole premium, if any, due and payable) and any other
amounts due under the lease indenture, including reimbursement of any fees or
expenses of the security agent, the facility lessee will transfer its undivided
interest to the owner lessor, the owner lessor will execute and deliver
appropriate releases and documents necessary to effect such transfer and pay to
the facility lessee the amount of a deemed loan, for federal income tax
purposes, between the lessor and the lessee, calculated to take into account
either the deferral or prepayment, when measured against the allocation of rent
for federal income tax purposes, of rental payments, which we refer to as the
section 467 loan balance, if any. Amounts prepaid by the owner lessor with
respect to the secure lease obligation notes are passed through to the
pass-through bonds. See "Description of the Pass-Through Bonds--Mandatory
Prepayment." Notwithstanding the foregoing, we will not terminate a facility
lease as described above, unless concurrently with our election to terminate, we
elect to terminate all the facility leases.
In the event of an early termination as described immediately above, if the
owner lessor does not elect to retain its undivided interest, we will, as
non-exclusive agent for the applicable owner lessor, use commercially reasonable
efforts to obtain bids from unaffiliated third parties and sell the applicable
owner lessor's undivided interest in the obsolete, surplus or unusable
facilities on the termination date, all the proceeds of which will be for the
account of the owner lessor. However, so long as the secured lease obligation
notes are outstanding and the lien of the lease indenture has not been
discharged, the proceeds of the sale will be paid directly to the security
agent. The purchaser of the undivided interest may not be us, any of our
affiliates or any third party with whom we, or any of our affiliates has an
arrangement to use or operate the affected facilities to generate power for our
benefit, or the benefit of our affiliates. On the termination date, the owner
lessor will sell the undivided interest to the highest bidder, and we will pay
the owner lessor the excess of the termination value over the proceeds of the
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sale, plus specified additional amounts. However, if the proceeds of the sale
exceed the termination value, the owner lessor will reimburse us for the amount,
if any, we paid as termination value.
No termination of a facility lease under the circumstances described above
will be effective, regardless of whether the owner lessor elects to sell or
retain its undivided interest in connection with the termination, unless and
until either we assume the related secured lease obligation notes in accordance
with the provisions of the related lease indenture and our obligation to pay
termination value is reduced by the outstanding principal amount of the secured
lease obligation notes so assumed, or the applicable owner lessor has paid all
outstanding principal and accrued interest on the secured lease obligation notes
and all other amounts due under the lease indenture on the proposed date of
termination.
Unless the applicable owner lessor enters, with our consent, into a legally
binding contract to sell its undivided interest and ground interest, we may,
upon providing notice at least 30 days before the proposed termination date,
revoke our notice of termination, but we may not reissue the notice of
termination more than once in any five-year period. In the event of a revocation
of a termination notice, the applicable facility lease will continue in effect.
LIENS
We will not, directly or indirectly, create, incur, assume or suffer to
exist any liens or other encumbrances on the undivided interest or our interest
in any operative document, except for liens expressly permitted as described in
"Description of the Proposed Amendments--The Proposed Amendments--Amendment to
Section 4.13 of the Existing Indenture (Limitation on Liens)."
INSURANCE
As described in each participation agreement, we will, at our own cost and
expense, maintain insurance customarily carried by owners and operators of
electric generating facilities similar to the facilities and at a minimum, the
following insurance, except in some circumstances when it is not available on
commercially reasonable terms:
- all risk property insurance covering against physical loss or damage to
the facilities, including but not limited to fire and extended coverage,
collapse, flood, earth movement and comprehensive boiler and machinery
coverage in an amount not less than the greater of the then current
termination value or full replacement value, with deductibles of
$2 million or less;
- business interruption insurance in an amount equal to 18 months'
continuing expenses, debt service on the secured lease obligation notes
and net profits of the facilities, with deductibles not to exceed
60 days;
- commercial or comprehensive general liability insurance, insuring against
claims for, among other things, bodily injury and property damage to third
parties, with limits of not less than $1,000,000, which will not contain
exclusions for punitive or exemplary damages where insurable under law;
- workers' compensation insurance in accordance with statutory provisions in
an amount not less than $1,000,000, which will not contain any
occupational disease exclusions;
- automobile liability insurance with a limit of not less than $1,000,000;
and
- excess/umbrella liability insurance providing coverage limits in excess of
the primary limits applying under the commercial or comprehensive general
liability, workers' compensation and automobile insurance in an amount not
less than $50,000,000, which will not contain exclusions for punitive or
exemplary damages.
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Any liability insurance policy maintained by us or on our behalf will name the
facility lessee as the insured and as long as the secured lease obligation notes
are outstanding, the security agent and thereafter each of the owner
participants and the security agent on behalf of the owner lessor, as loss
payees.
Insurance proceeds exceeding $5 million but less than $50 million on account
of any damage to or destruction of the facilities or any part of the facilities
will be held in the recovery event proceeds account for application in repair or
replacement of the affected property. If no material lease default or lease
event of default has occurred and is continuing, insurance proceeds in excess of
$50 million on account of any damage to, or destruction of, the facilities or
any part of the facilities will be paid to us, so long as we deliver a notice
supported by a report of an independent engineer as to the nature and cost of
the repair, the reasonableness of our repair and replacement plan, sufficiency
of the proceeds, together with other financings for the proposed repair and our
ability to pay lease rent during the restoration period. If we are unable to
obtain an independent engineer's report, the insurance proceeds will be payable
in accordance with the event of loss provisions described below or, if the lien
of the lease indenture has not been terminated or discharged, will be paid to
the security agent for application in accordance with the terms of the lease
indenture.
If any insurance required to be maintained by us ceases to be available on a
commercially reasonable basis at the time of renewal, we will enter into good
faith negotiations with each owner lessor in order to obtain an alternative to
the insurance.
EVENTS OF LOSS
Any of the following events, by themselves, are events of loss under each
facility lease:
- the loss of the facilities or use of the facilities due to destruction or
damage to the facilities or facility site, rendering repair uneconomic or
rendering the facilities permanently unfit for normal use;
- any damage to the facilities that results in an insurance settlement on
the basis of a total loss or an agreed constructive or a compromised total
loss of the facilities;
- seizure, condemnation, confiscation or taking of, or requisition of title
to or use of, the facilities or facility site by any governmental
authority that results in loss by the applicable owner lessor of title to
or use of its undivided interest or ground interest following exhaustion
of all permitted appeals or the election by us not to pursue the appeals
and with the applicable owner participant's consent if a material lease
default or lease event of default has occurred and is continuing;
- if elected by the owner participant and only in circumstances where the
termination of the facility lease and transfer of the facilities to us
removes the basis of the regulation described below, subjection of
(a) the owner lessor or the owner participant to any rate-of-return
regulation by a governmental authority, or (b) the owner participant or
the owner lessor to any public utility regulation or law and either
regulation, in the reasonable opinion of the owner participant, is
burdensome, due to our, the owner lessors' or the owner participants'
participation in the transactions contemplated by the operative documents,
which we will refer to as a regulatory event of loss; or
- destruction, damage, loss or theft to the facilities which results in an
insurance settlement or payment of $50,000,000 or more, and, following the
receipt of this payment we fail to repair or rebuild the facilities due to
our inability to deliver, within 45 days from the receipt of the proceeds,
a notice supported by a report of an independent engineer as to the nature
and cost of the repair, the reasonableness of our repair and replacement
plan, the sufficiency of the
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proceeds together with other financings for the proposed repair and our
ability to pay lease rent during the restoration period.
In the event of a loss described in the first three bullet points above, we
have the obligation to rebuild, replace or repair the facilities, subject to
satisfaction of rebuild conditions.
If we elect to terminate a facility lease following the occurrence of an
event of loss described in the first three bullet points above, we will purchase
the undivided interest from the applicable owner lessor by paying the
termination value plus specified other amounts, and the owner lessor will prepay
the outstanding principal of the related secured lease obligation notes, along
with accrued interest and any premium, on the related secured lease obligation
notes. Following our purchase of the applicable owner lessor's undivided
interest, the relevant facility lease will terminate. As long as we remain
liable under the facility lease, we may purchase the ownership interest held by
the applicable owner participant instead of purchasing the owner lessor's
undivided interest and thus keep the facility lease in place.
Notwithstanding the preceding provisions, in the case of a regulatory event
of loss or an event of loss described in the fifth bullet point above, if at
least one cash bid is received the facility lease will terminate and the owner
lessor will, subject to our right of first refusal, sell its undivided interest
to the party submitting the highest cash bid on an "as is," "where is" and "with
all faults" basis, without representations or warranties other than a warranty
as to the absence of owner lessor and owner participant liens. We will pay to
the owner lessor the amount by which the termination value exceeds the sales
price received by the owner lessor plus specified other amounts. If no cash bids
are received or if cash bids are received but the sale is not consummated, we
will pay to the owner lessor the termination value plus specified other amounts,
after which our rent obligation will cease and the facility lease will
terminate. If shutting down the facilities does not eliminate burdensome
regulations on the owner participant, the owner lessor will sell the undivided
interest as scrap, subject to our right of first refusal. If shutting down the
facilities eliminates the burdensome regulation, the facilities will be shut
down and we may continue marketing the facilities for up to an additional three
months. If one cash bid is received before the end of this extended period, the
owner lessor will, subject to our right of first refusal, sell the facilities to
the party submitting the highest cash bid on an "as is," "where is" and "with
all faults" basis, without representations or warranties other than a warranty
as to the absence of owner lessor and owner participant liens, after which we
will pay reasonable, documented out-of-pocket expenses of the owner participant,
owner lessor, and so long as the secured lease obligation notes are outstanding
and the lease indenture lien has not been discharged, the security agent, Homer
City Funding and the trustee, and the owner lessor will pay the net cash
proceeds of the sale to the extent of payments made by us. If there is no
extended marketing period or no cash bids are received in this period, the owner
lessor will sell the facilities as scrap, subject to our right of first refusal.
Notwithstanding the preceding provisions, in the case of a regulatory event
of loss or an event of loss described in the fifth bullet point above, and in
connection with our purchase of the undivided interest, we may, instead of
terminating the facility lease, assume the owner lessor's obligations under the
applicable lease indenture and pay an amount equal to the following:
- the termination value, LESS
- the outstanding principal amount of the applicable secured lease
obligation notes, PLUS
- on an after-tax basis, all reasonable, documented out-of-pocket costs and
expenses incurred in connection with the event of loss by the owner
lessor, owner participant, and so long as the secured lease obligation
notes are outstanding and the lease indenture lien has not been
discharged, the security agent, the lease indenture trustee, Homer City
Funding and the trustee, PLUS
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- any other rent, other than basic lease rent or renewal rent payable after
the termination value payment date, due and unpaid on the termination
value payment date, PLUS
- any amount due and unpaid or accrued and unpaid on the termination value
payment date under any other operative document.
Notwithstanding anything in the facility lease to the contrary, upon the
occurrence of an event of loss described in the first, second, third and fifth
bullet points above after which we do not elect to rebuild and do not deliver a
notice supported by an independent engineer's report within 45 days of the
settlement of or payment of $5,000,000 or more in respect of that event of loss,
then we will pay to the owner lessor as supplemental rent an amount equal to the
owner lessor's percentage of the payment.
If the facilities or any part of the facilities suffer destruction, damage,
loss or theft not constituting an event of loss, which we refer to as a partial
event of loss, we will rebuild or make repairs necessary (1) to restore the
facilities to their current value, residual value, utility and economic useful
life immediately before the partial event of loss and (2) ensure that the
facilities do not become "limited use property." However, in connection with a
partial event of loss for which we have received a settlement or payment of
$5,000,000 or more, we will deliver a notice supported by an independent
engineer's report to the owner lessor, owner participant, lease indenture
trustee, security agent, Homer City Funding and the trustee within 45 days of
receipt of the proceeds.
At the time of the payment of the amounts listed above, other than in the
case of a regulatory event of loss or burdensome buyout, described above in
"--Termination for Burdensome Events," where the owner participant sells its
membership interest but the facility lease and the secured lease obligation
notes remain in place, which we refer to as a special lessee transfer, the
facility lease, site lease and site sublease will terminate. Alternatively, we
may purchase the owner participant's ownership interest in the owner lessor and
elect not to terminate the facility lease.
Our right to rebuild the facilities in connection with an event of loss will
be subject to the satisfaction of the following conditions, among other things:
- delivery to the owner participant of: (1) an opinion reasonably
satisfactory to it from its tax counsel to the effect that the proposed
rebuilding should not result in any material unidentified incremental tax
risk; (2) an indemnity against this risk in form and substance reasonably
satisfactory to the owner participant from, or guaranteed by, an entity
which has a credit rating of at least "BBB-" from Standard & Poor's or
"Baa3" from Moody's; or (3) any other indemnity arrangement against these
risks satisfactory to the owner participant;
- delivery to the owner participant and so long as the secured lease
obligation notes are outstanding, the security agent, Homer City Funding
and the trustee of a report of an engineering consultant to the effect
that the rebuilding of the facilities is technologically feasible and
economically viable and that the rebuilding can be completed before the
end of the facility lease term, including any renewal lease term then in
effect or elected by us;
- delivery of a report of an independent appraiser to the effect that the
facilities will, after completion of the rebuilding, have at least the
same value, residual value, utility and useful life as the facilities
immediately before the event of loss;
- delivery of a certificate demonstrating that we possess adequate financial
resources, from insurance proceeds or otherwise, to complete the
rebuilding of the facilities and to pay basic lease rent or renewal rent
while the facilities are being rebuilt and that we reasonably expect to be
capable of replacing or modifying any project documents that must be
replaced or modified in order to avoid any event, development or
circumstance that has had or could reasonably be expected to have a
material adverse effect on: (1) our business, assets, results of
operations or financial condition, (2) our ability to perform or comply
with our obligations under any of the
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operative documents, (3) the validity or enforceability of any of the
operative documents, the liens granted under them or the material rights
and remedies of the parties to the operative documents, and (4) with
respect to each owner participant's interest in the facilities, the
residual value or remaining useful life of the facilities, all of which we
refer to as a material adverse effect;
- commencement of the rebuilding as soon as reasonably practicable and, in
any event, within 12 months of the occurrence of the event that caused the
event of loss;
- demonstration that the rebuilding will not result in any material adverse
accounting effect on the applicable owner participant;
- demonstration of the absence of any material lease default or lease event
of default, unless the default would be cured by rebuilding; and
- demonstration that all governmental approvals required in connection with
the work done or proposed to be done have been obtained or can reasonably
be expected to be obtained on or before the date required.
Any proceeds received by us or the owner lessors from a governmental
authority or from insurance proceeds related to an event of loss will be paid to
the owner lessors, except that we may retain any amounts up to the amount we
were to pay to the owner lessors to terminate the facility lease or purchase the
undivided interest upon the event of loss. The remainder of these proceeds will
be divided between us and the owner lessors in accordance with our respective
interests in the facilities. Notwithstanding the preceding provisions, if we
have elected to rebuild the facilities, these proceeds will be applied as
outlined above in "--Insurance."
If any portion of the facilities or facility site is requisitioned or
otherwise taken by a governmental authority under power of eminent domain or
otherwise in a manner which does not constitute an event of loss, our obligation
to pay rent will continue, but we will be entitled to receive and retain any
amounts payable as compensation for the taking. However, if at the time of the
requisition or taking, a material lease default or lease event of default has
occurred and is continuing, these amounts will be paid to and held by the owner
lessors, or if secured lease obligation notes are outstanding, the security
agent, as security for our obligations until the default has been cured.
LEASE EVENTS OF DEFAULT
The occurrence of any of the following events constitutes an event of
default under each facility lease:
(1) our failure to make any payment when due of any basic or renewal
lease rent or termination value, if we do not cure the failure within five
business days of the failure;
(2) our failure to make any other payment under the facility lease or
any other operative document when due, if we do not cure the failure within
10 days after receiving written notice of the failure;
(3) our failure to maintain insurance in the amounts and on the terms
described in the operative documents;
(4) our failure to perform or observe in all material respects the
covenant restricting mergers, consolidation or the sale of substantially all
of our assets and the covenant regarding the maintenance of accounts or our
breach of the covenant against liens, to the extent incurred with respect to
borrowed money;
(5) our failure to perform or observe any other material covenant
described in any of the facility leases or any covenant described in the
applicable participation agreement or in any other
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project document or operative document, if the failure is not cured within
30 days after receiving written notice of the failure. The project documents
consist of the energy sales agreement, the nitrogen oxide allowance sales
agreement, our partnership agreement, the fuel supply agreement, our
guarantees of trading activities, the real property documents under which we
have an interest in facility site and easements, the ownership and operation
agreement, the interconnection agreement and any other material agreement
between us and any of our affiliates or any third party relating to the
ownership, use, operation or maintenance of the facilities. However, for any
failure other than a failure to comply with the negative covenants set forth
in the participation agreements, if the failure cannot be remedied within
this 30-day period, we will have up to an additional 180 days to cure the
failure, so long as we diligently pursue this remedy and the failure is
reasonably capable of being remedied within the additional 180-day period.
However, in the case of our obligation to maintain the facilities, to the
extent we are contesting the non-compliance in good faith and the contest
extends no longer than 36 months beyond the scheduled basic lease term
expiration, our failure to comply with the requirements of the obligation
will not constitute a lease event of default so long as our contest does not
expose the facilities to any material risk of foreclosure, sale, forfeiture
or loss, imposition of a lien or expose any lease financing party to
criminal liability, regulation as a public utility, or material risk of
material adverse effect on the interests of the applicable owner lessor or
owner participant. If the noncompliance relating to maintenance of the
facilities is not a type that can be immediately remedied, our failure to
comply will not be a lease event of default if we are taking all reasonable
action to remedy the noncompliance and if, but only if, the noncompliance
does not involve any of the risks to the facilities or lease financing
parties just described;
(6) any of our representations or warranties in the operative documents,
other than tax representations described in the tax indemnity agreement,
prove to have been incorrect in any material respect when made or misleading
in any material respect, if the facts or circumstances upon which the breach
of representation or warranty is based continue to be material and
unremedied for a period of 30 days after we receive written notice of the
breach. However, if the breach cannot be remedied within 30 days but could
be remedied within 60 additional days and we diligently pursue a remedy
during the 30 days, then the cure period will be extended up to an
additional 60 days;
(7) we, Edison Mission Holdings or any of Edison Mission Holdings' other
subsidiaries voluntarily commence or have instituted against us bankruptcy
proceedings, or consent to any similar relief or the appointment of or
taking possession by any governmental official in any voluntary case of
bankruptcy or other proceeding commenced against us, or if we file an answer
admitting the material allegations of a petition filed against us in any
proceedings of this kind, or if we make a general assignment for the benefit
of creditors, or are wound up or dissolved, or, in the instance of
involuntary proceedings, the case remains undismissed for 90 days;
(8) we default under any bond, debenture, note or other evidence of
indebtedness, except obligations arising under the operative documents and
non-recourse indebtedness, for money borrowed by us under any mortgage,
indenture or instrument, whether the indebtedness exists now or is created
in the future, where the indebtedness is in an aggregate principal amount
exceeding $5 million at all times, and where the default has resulted in
this indebtedness becoming or being declared due and payable before the date
on which it would otherwise have become due and payable, without this
indebtedness having been discharged, or the acceleration having been
rescinded or annulled;
(9) any security documents, which consist of the amended and restated
guarantee and collateral agreement, the pledge and collateral agreement, the
amended security deposit agreement, the lease subordination agreement, the
owner lessor subordination agreement, the lease indenture and the amended
and restated indenture to which we, the owner lessor, the owner
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participant, or, so long as the secured lease obligation notes are
outstanding and the lien of the lease indenture has not been discharged, the
security agent or Homer City Funding is a party or the liens created
thereunder are declared unenforceable, are terminated, or cease to be in
full force and effect and such condition shall remain unremedied for a
period of 10 days;
(10) specified events occur with respect to ERISA;
(11) monetary judgments or orders for the payment of money in excess of
$1 million in the aggregate, taking into account insurance proceeds where
the insurer has accepted coverage without reservation, are entered against
us and are not vacated, discharged, stayed or bonded within 60 days from
entry of the judgment or order;
(12) subject to the covenant restricting mergers in the participation
agreement, Edison Mission Energy, without prior written consent of the owner
lessor, the owner participant and, so long as the secured lease obligation
notes are outstanding and the lien of the lease indenture has not been
discharged or terminated, Homer City Funding or the trustee, ceases to own
directly or indirectly in excess of 50% of the ownership interests in us;
however, the consent of Homer City Funding or the trustee is not required if
at that time either (1) the pass-through bonds are rated at least "BBB-" by
Standard & Poor's and "Baa3" by Moody's, and a reaffirmation of these
ratings is obtained or (2) the reduction of Edison Mission Energy's
ownership interest in us has been approved by holders or more than 66 2/3%
of the secured lease obligation notes;
(13) any of the facility site leases, site subleases or any other
material project document is cancelled, terminated or ceases to be in full
force and effect, unless alternative arrangements, satisfactory to the
applicable owner lessor, the applicable owner participant and, so long as
the secured lease obligation notes are outstanding and the lien of the lease
indenture has not been released or discharged, the security agent, Homer
City Funding and the trustee, have been made and the parties have
acknowledged their satisfaction with these alternative arrangements in
writing;
(14) we use funds on deposit in any security account other than for the
purposes specified in the operative documents;
(15) the amended and restated guarantee and collateral agreement or the
pledge and collateral agreement ceases to be in full force and effect;
(16) we fail to remain exempt from the Public Utility Holding Company
Act or any regulation under state utility law which would have a material
adverse effect on us or any transaction parties;
(17) any material operative document is terminated, declared
unenforceable or ceases to be in full force and effect with respect to us or
our affiliates; and
(18) a default occurs under any of the other facility leases.
The circumstances described in clauses (1), (2) and (7) above, without
giving effect to any notice requirements or the passage of time, are referred to
in this consent solicitation statement as material lease defaults.
Upon the occurrence and continuance of any lease event of default, the
applicable owner lessor may declare the relevant facility lease to be in default
by written notice to us, except that the facility lease will automatically be in
default without the need for giving notice upon the occurrence of the events
described in clause (7) above. Except as provided below, the applicable owner
lessor may, at any time after the declaration, so long as we have not cured all
outstanding lease events of default, exercise one or more of the remedies
described in the relevant facility lease, including:
- seeking performance of our obligations under the facility lease by
appropriate court actions, either at law or equity, or recovering damages
for breach of obligations under this document;
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- terminating the facility lease, as a result of which we will be required
to return possession of the owner lessor's undivided interest and our
right to the possession and use of the undivided interest under the
facility lease will absolutely cease and terminate, but we will remain
liable as provided in the facility lease;
- selling the owner lessor's undivided interest and ground interest at
public or private sale, free and clear of our rights, as a result of which
allocated rent will cease to accrue and rent will no longer become due or
payable plus the section 467 loan balance;
- holding, keeping idle or leasing to others the owner lessor's undivided
interest and ground interest free and clear of our rights under the
facility lease, as a result of which our obligation to pay rent will be
reduced by net proceeds, if any, received by the owner lessor from leasing
its interest to another person plus any section 467 loan balance due and
unpaid; or
- withdrawing amounts from the equity account in accordance with the
provisions of the amended security deposit agreement but only in the case
of the failure to pay the equity portion of basic lease rent.
Upon the occurrence and continuance of any lease event of default, whether
or not the applicable owner lessor has sold its undivided interest, the owner
lessor may require us to pay any due and unpaid or accrued and unpaid rent due
and payable through the termination date specified in a termination notice,
PLUS, as liquidated damages for the loss of a bargain and not as a penalty,
instead of the basic lease rent or renewal lease rent due after the termination
date specified in the notice:
- an amount equal to the excess, if any, of the sum of the termination value
computed as of the termination date plus any section 467 loan balance plus
any basic lease rent or renewal rent due and unpaid, in each case, over
the fair market sales value of the applicable undivided interest and
ground interest, as of the termination date; or
- an amount equal to the excess, if any, of the sum of the termination value
plus any section 467 loan balance plus any basic lease rent or renewal
rent due and unpaid, in each case, computed as of the termination date
over the present value of the fair market rental value of the owner
lessor's undivided interest and ground interest during the fixed lease
term or the then current renewal lease term; or
- an amount equal to the termination value computed as of the termination
date and all other rent and other amounts due and unpaid or accrued and
unpaid by us, which, together with the other amounts payable in connection
with the amounts listed above, will be at least sufficient to pay the
outstanding principal of and accrued interest on the applicable secured
lease obligation notes.
Upon payment of the amount referred to in the third clause in the
immediately preceding paragraph, the owner lessor will then exercise its
commercially reasonable efforts promptly to sell the undivided interest and will
pay any net proceeds to us or we can, instead of paying termination value under
the third bullet point in the immediately preceding paragraph, make a rejectable
offer to purchase the undivided interest from the owner lessor, and, as part of
the purchase, the owner lessor will convey its undivided interest and ground
interest to us.
Upon the occurrence and continuance of any lease event of default, and if
the applicable owner lessor has sold its undivided interest and ground interest,
the owner lessor may require us to pay as liquidated damages for loss of a
bargain and not as a penalty, instead of the basic lease rent or renewal lease
rent due for any period after the sale, an amount equal to:
- any unpaid basic lease rent or renewal lease rent due and unpaid through
the relevant termination date, PLUS
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- any amount by which basic lease rent paid by us exceeds the amount of
basic lease rent allocated to us under the facility lease, PLUS
- the amount, if any, by which the termination value computed as of the
termination date next preceding the date of the sale or, if the sale
occurs on a rent payment date or a termination date, then computed as of
that date, exceeds the net proceeds of the sale.
Upon payment of this amount, the facility lease and our obligation to pay
periodic rent for any periods after the date of this payment will terminate.
OWNER LESSORS' RIGHT TO PERFORM
If we fail to make any payment under a facility lease or fail to perform or
comply with any other obligations under a facility lease and this failure
continues for 10 business days after notice of the failure, the applicable owner
lessor or owner participant may itself make the payment or perform or comply
with the obligation. Amounts so paid by the owner lessor and/or owner
participant will be deemed, together with the interest on those amounts at an
overdue rate, to constitute supplemental lease rent payable by us to the owner
lessor on demand. However, the owner lessor's right to perform will not restrict
the owner lessor's rights following the occurrence of a lease event of default
and, subject to the subordination provisions in the applicable participation
agreement, the owner lessor will be entitled to exercise all remedies under the
facility lease.
THE SITE LEASE AND SITE SUBLEASES
We will lease the property on which the facilities are located, which we
refer to as the facility site, to the owner lessors under eight separate
facility site lease and easement agreements, which we refer to as the site
leases. Each owner lessor will, in turn, sublease its undivided interest in the
facility site, which we refer to as its ground interest, back to us under eight
separate facility site sublease agreements, which we refer to as the site
subleases.
TERM AND RENT
The term of each site lease, which we refer to as the basic site lease term,
will commence on the closing date of the sale-leaseback transaction, and will
continue for a period of 45 years. The owner lessors will have the right to
renew each site lease for one or more renewal terms, which we refer to as the
renewal site lease terms. We will refer to the basic site lease term plus all
renewal site lease terms for each site lease as the site lease term.
Each site sublease with respect to each ground interest will have the same
term as each facility lease with respect to the related undivided interest. Each
site sublease terminates upon the termination of the corresponding facility
lease and is renewed upon the renewal of the facility lease. We will refer to
the basic site sublease term plus all renewal site sublease terms as the site
sublease term.
As long as the facility leases and the site subleases are in effect, the
rents payable under each site lease and under each site sublease will be
automatically offset against each other, so that no amounts will be payable by
us or the owner lessors in respect of these agreements.
RIGHTS RESERVED BY US
We will reserve the right, from time to time, to use the ground interests in
connection with the development, construction, use, operation and maintenance of
any buildings, improvements or other structures on the facility sites, other
than the facilities, including the right to construct, install, operate, use,
repair and relocate buildings, improvements and structures on the facility site.
However, the work may not have a material adverse effect on the use or operation
of the facilities.
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EASEMENTS
We will grant to the owner lessors some non-exclusive easements over
specified portions of land retained by us and not subject to the site leases
where required to enable the owner lessors to access, use and operate the
facilities. In addition, we will reserve for ourselves some non-exclusive
easements over specified portions of the facility site where required to enable
us to access, use and operate the land and facilities retained or developed by
us and not subject to the site leases.
THE PARTICIPATION AGREEMENTS
We will enter into eight separate participation agreements with the owner
lessors, the independent managers of each owner lessor, the owner participants,
the lease indenture trustee, the security agent, Homer City Funding and the
trustee. Each participation agreement will set forth the agreements of these
parties to consummate the sale-leaseback transaction and will set forth the
conditions precedent to closing the sale-leaseback transaction. Each
participation agreement will set forth the types of claims against which we will
indemnify the other parties to the transaction, subject to customary exclusions.
Each participation agreement will contain customary representations and
warranties from us, the owner lessors, the owner lessors' independent managers,
the owner participants, Homer City Funding, the lease indenture trustee and the
trustee.
As more fully described in "The Description of the Proposed Amendments--The
Proposed Amendments," our obligations under each participation agreement
include:
- maintaining accounts in accordance with the amended security deposit
agreement as further described in "--The Amended Security Deposit
Agreement;"
- refraining from merging, consolidating and selling substantially all our
assets other than as specifically permitted;
- refraining from selling, leasing or otherwise disposing of any assets
other than as specifically permitted;
- refraining from creating, incurring, assuming or otherwise causing to
exist any liens on our properties or assets, except for permitted
encumbrances;
- refraining from permitting the validity or effectiveness of the lien of
the lease indenture to be impaired, subordinated, terminated or discharged
or permitting the lien of the lease indenture estate not to constitute a
valid first priority perfected security interest of the indenture estate;
- refraining from incurring debt, other than specified permitted
indebtedness; and
- refraining from making restricted payments and payments on the equity
portion of lease rent other than as specifically permitted.
In addition, the covenants in the participation agreements will bind us to
typical bankruptcy-remote, special-purpose vehicle restrictions. For instance,
we must maintain our own books and records, hold title to our own assets in our
own name, and observe all limited partnership formalities under applicable law.
THE AMENDED SECURITY DEPOSIT AGREEMENT
GENERAL
Concurrent with the closing of the sale-leaseback transaction, we will enter
into an amended security deposit agreement with The Bank of New York, as
successor to United States Trust Company
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of New York, as collateral agent for the benefit of the owner lessors, under
which the following will occur:
- the lien on the existing accounts established under the security deposit
agreement, dated as of March 18, 1999, will be released and any amount on
deposit at the time of release will be transferred into the new, relevant
secured accounts;
- the accounts described below will be established with the collateral
agent;
- instructions for deposits into, and payments from, each of the accounts
will be established; and
- we will pledge and assign to the collateral agent for the benefit of the
owner lessors a security interest in the revenue account, the senior rent
payment account, the recovery event proceeds account and the equity
account, which we refer to as the pledged accounts, amounts and
instruments on deposit from time to time in these accounts and all
proceeds of those instruments.
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ESTABLISHMENT OF ACCOUNTS
The collateral agent will establish the twelve accounts described below,
and, for several of those accounts, there will be corresponding subaccounts for
each facility lease. You should refer to the following diagram in connection
with the following discussion. The arrows in the diagram indicate the
progression of the funding of the accounts.
FUNDING OF THE ACCOUNTS
[CHART DEPICTING THE FLOW OF REVENUES THROUGH THE ACCOUNTS]
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The accounts will at all times be in the name of the collateral agent. We
will not have any right to withdraw monies from the accounts or any other rights
with respect to the accounts other than as follows:
REVENUE ACCOUNT
We will deposit all revenues received by us into the revenue account. The
collateral agent will transfer funds on deposit in the revenue account on the
last business day of each month, which we refer to as the monthly transfer date,
as described under "--Priority of Payments" below.
SENIOR RENT PAYMENT ACCOUNT
A senior rent payment account, with a sub-account for each owner lessor,
will be established for the benefit of the owner lessors. The collateral agent
will fund this account from funds on deposit in the revenue account on each
monthly transfer date as described under "--Priority of Payments." The
collateral agent will utilize amounts on deposit in the senior rent payment
account to pay to the security agent amounts owing under the lease indentures
when due.
PERMITTED INDEBTEDNESS ACCOUNT
A permitted indebtedness account will be established for the benefit of the
persons providing permitted indebtedness. The collateral agent will fund the
permitted indebtedness account from funds on deposit in the revenue account on
each monthly transfer date as described under "--Priority of Payments." The
collateral agent will utilize amounts on deposit in the permitted indebtedness
account to pay amounts owing from time to time under permitted indebtedness when
due.
RESERVE ACCOUNT
On closing, the collateral agent will fund the reserve account from a
portion of the proceeds from the sale of the facilities in the amount equal to
approximately $134 million, which we refer to as the reserve requirement. This
account will be funded one time only and will not be replenished with any other
amounts. The collateral agent will utilize the amounts on deposit in the reserve
account to make the equity portion of rent payments under each facility lease
when due only in the case where amounts in the subordinated rent payment account
described below are not sufficient to pay the equity portion of rent then due.
RECOVERY EVENT PROCEEDS ACCOUNT
The collateral agent will deposit all recovery event proceeds into the
recovery event proceeds account. Except during a period when a lease default or
lease event of default has occurred and is continuing, which we refer to as a
default period, funds on deposit in the recovery event proceeds account will be
utilized in one of the following two ways, in each case under the terms of the
transaction documents governing senior debt:
- the collateral agent will transfer to us, from the funds on deposit in the
recovery event proceeds account, the amount certified in a request letter
to be the aggregate amount then due and payable in respect of the
restoration of the asset or assets under which recovery event proceeds
were received; or
- the collateral agent will transfer to the owner lessors' representative
the amount certified in a request letter to be the aggregate amount then
due and payable under the facility leases in connection with the recovery
event.
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EQUITY ACCOUNT AND ADDITIONAL RESERVE ACCOUNT
The equity account currently collects revenues following the payment of debt
service. In the event the senior rent service coverage ratio test or the
projected senior rent service coverage ratio test set forth in the equity
payment requirements is not satisfied, an additional reserve will be set aside
in an amount equal to the lesser of six months senior rent service and amounts
otherwise available for payment of the equity portion of rent or distributions
to us, but for our failure to satisfy such coverage ratio test, which we refer
to as the additional reserve amount. The equity account is pledged by us as
collateral for our lease rent payment obligations. The maximum amount that can
be on deposit in the equity account is the sum of the due and unpaid rent and
the average of the next two aggregate rent payments LESS (i) $1 million and
(ii) all amounts on deposit in the other pledged accounts. To the extent that
the additional reserve amount exceeds the amount permitted to be on deposit in
the equity account, the excess funds, if any, shall be deposited from the equity
account into the additional reserve account. No lien will be granted on the
additional reserve account.
The collateral agent will fund the equity account from amounts on deposit in
the revenue account on each monthly transfer date as described under "--Priority
of Payments." Except during a default period, and upon meeting the following
requirements, which we refer to as the equity payment requirements, on
January 1, April 1, July 1 and October 1 of each year, which we refer to as the
restricted payment dates, the collateral agent will transfer to the subordinated
rent payment account, from the funds on deposit in the equity account, the
amount certified by us in a request letter to be then available for use in
making payments of the equity portion of lease rent in accordance with the terms
of the facility leases.
For a more detailed description of the equity payment requirements, see
"Description of the Proposed Amendments--The Proposed Amendments--Deletion of
Section 4.7 of the Existing Indenture (Limitation on Restricted Payments)."
SUBORDINATED RENT PAYMENT ACCOUNT
The collateral agent will fund the subordinated rent payment account from
amounts on deposit in the equity account on each restricted payment date as
described above under "--Equity Account."
SUBORDINATED RESERVE ACCOUNT
The subordinated reserve account will be funded from the funds on deposit in
the equity account on each restricted payment date as described below under
"--Priority of Payments." We will be required to maintain a specified scheduled
reserve requirement in the amount equal to the difference between approximately
$44 million and the amount on deposit in the reserve account described above. As
long as the payment conditions as specified in each participation agreement are
met, including the debt service coverage ratios, funds will be transferred into
the subordinated reserve account and utilized by the collateral agent to make
payments of the equity portion of rent under each facility lease when due. So
long as there is no lease event of default, other than a failure to pay the
equity portion of basic lease rent, and whether or not the equity payment
requirements are met, if the amounts on deposit in the other accounts are not
sufficient to pay the required portion of rent, then the shortfall may come from
the reserve account.
SUPPLEMENTAL EQUITY ACCOUNT
The collateral agent will fund the supplemental equity account from the
amounts on deposit in the equity account on each monthly transfer date as
described under "--Priority of Payments" if the equity payment requirements are
met. If the coverage ratios in the equity payment requirements are not met then
the collateral agent will fund the supplemental equity account from any amounts
over the
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maximum amounts required to be on deposit in the equity account and the
additional reserve account as described under "--Equity Account and Additional
Reserve Account".
SUSPENDED DISTRIBUTIONS ACCOUNT
The amounts on deposit in the suspended distributions account will be funded
from the funds on deposit in the equity account on each restricted payment date
as described below in "--Priority of Payments from the Equity Account."
PRIORITY OF PAYMENTS
PRIORITY OF PAYMENTS FROM THE REVENUE ACCOUNT
Except during a default period, on the last business day of each month,
which we refer to as the monthly transfer date, the collateral agent will
transfer, from the funds on deposit in the revenue account, the following
amounts in the following order of priority:
- Second, to the collateral agent, the owner lessor's representative, the
lease indenture trustee the security agent and the trustee, the amount
certified in a request letter to be the sum of the unpaid fees,
indemnities, costs and expenses then due and payable to the collateral
agent and the owner lessor's representative, the lease indenture trustee,
the security agent and the trustee in respect of their services in those
capacities;
- Third, into the senior rent payment account, an amount equal to 1/6th of
the aggregate amount payable on or within six months following the monthly
transfer date on account of rent allocable to the debt service on the
secured lease obligation notes and the aggregate amount of termination
value payable other than in connection with the termination of the
facility leases, together with the amount of all deficiencies, if any,
with respect to deposits of amount required in all prior months, as
certified in a request letter to be transferred to the owner lessors'
representative for making of the rent payments under the facility leases;
- Fourth, to the persons entitled to supplemental rent, other than excepted
payments, under the facility leases;
- Fifth, into the permitted indebtedness account, an amount sufficient to
repay in full the amount due with respect to the permitted indebtedness
then outstanding, as certified in a request letter; and
- Sixth, into the equity account, the balance remaining in the revenue
account.
PRIORITY OF PAYMENTS FROM THE EQUITY ACCOUNT
Except during a default period, the collateral agent will transfer, from the
funds on deposit in the equity account, the amount certified by us in a request
letter, the following amounts in the following order of priority:
- First, if the equity payments are not satisfied on each monthly transfer
date, into the supplemental equity account, the amount by which the sum of
the balances in the senior rent payment account and the equity account
(immediately prior to giving effect to the transfer provided in this
paragraph) exceeds the sum of senior rent due and unpaid on that date and
the second succeeding payment of senior rent (other than termination
value), as certified in the request letter;
- Second, if the equity payments are not satisfied on each monthly transfer
date, into the additional reserve account, the amount by which the sum of
the balances in the revenue account, the senior rent payment account, the
equity account (immediately prior to giving effect to the
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transfer provided in this paragraph) and the recovery event proceeds
account exceeds the sum of all rent due and unpaid on that date and the
average of the next two aggregate rent payments, LESS $1 million, as
certified in the request letter;
- Third, if the equity payment requirements are satisfied on each restricted
payment date, into the subordinated rent payment account, an amount
payable with respect to the equity portion of rent plus all excepted
payments, if any, due and payable on the restricted payment date, together
with the amount of all deficiencies, if any, with respect to all payments
required in all prior months, as certified by us in a request letter;
- Fourth, if the equity payment requirements are satisfied on each
restricted payment date, into the subordinated reserve account, an amount
equal to the difference between the reserve requirement and the amounts on
deposit in the reserve account and the subordinated reserve account; and
- Fifth, the balance remaining in the equity account, either:
(a) into the distributions account for the making of restricted
payments if the conditions to making these payments, as specified in each
participation agreement, are satisfied; or
(b) into the suspended distributions account, if the conditions to
making restricted payments, as specified in each participation agreement,
are not satisfied.
If, on any monthly transfer date, the funds on deposit in the revenue
account are insufficient to make in full any transfer required under clause
First, Second, Third, Fourth or Fifth under "--Priority of Payments from Revenue
Account", the collateral agent will make this transfer with funds then on
deposit in the equity account, the additional reserve account, the supplemental
equity account, the subordinated reserve account (only in respect to clause
Fifth) or the suspended distributions account, as the case may be.
PRIORITY OF PAYMENTS FROM THE SUPPLEMENTAL EQUITY ACCOUNT
After giving effect to the transfers from the equity account described
above, and following a date when the ratios in the equity payment requirements
are not satisfied or a date when we are not permitted to make an equity rent
payment, the collateral agent will transfer, from funds on deposit in the
supplemental equity account, in the same manner as set forth in Third, Fourth
and Fifth under the section "--Priority of Payments from the Equity Account" set
forth above.
EQUITY ACCOUNT LETTER OF CREDIT
Upon the occurrence and continuance of a non-payment of the equity portion
of rent, the collateral agent will, at the request of the representative of the
owner lessors, make a transfer from (in the following order of priority) the
equity account, the supplemental equity account or the additional reserve
account to the representative of the owner lessors an amount equal to the equity
portion of rent then due.
As a condition to the transfer, the owner lessor's representative will
deliver to the collateral agent a standby letter of credit issued for the
account of a party other than the owner lessors or us in the face amount equal
to the amount of the transfer requested. The proceeds of this letter of credit
will be available for any transfers from the equity account, the supplemental
equity account or the additional reserve account described above.
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FACILITY LESSEE PROVIDED LETTER OF CREDIT
As long as no default has occurred under the facility leases, we may request
and the collateral agent will transfer funds from the equity account to the
extent cash is on deposit in the equity account to us.
As a condition to this transfer, we shall cause to be delivered to the
collateral agent a standby letter of credit issued in favor of the Collateral
Agent for the account of a party other than the owner lessors or us in the face
amount of the transfer requested. The proceeds from this letter of credit will
be deposited in the equity account for any transfers described above.
PRIORITY OF PAYMENTS DURING AN EVENT OF DEFAULT
During a default period, we will be entitled to issue request letters and
otherwise direct the transfer of funds from the accounts until the collateral
agent receives a notice of action from the owner lessors in accordance with the
amended security deposit agreement directing that action be taken.
At any time after the collateral agent receives a notice of action
specifying that action be taken in accordance with the amended security deposit
agreement, the collateral agent will transfer all amounts remaining in the
accounts in the following order of priority:
- First, to the collateral agent, the amount certified by the collateral
agent to be the sum of the unpaid fees, indemnities, costs and expenses
then due and payable to it for its services in this capacity;
- Second, pro rata (a) to each owner lessor's representative, the amount
certified by the owner lessor's representative to be the aggregate amount
in respect of the senior portion of rent and supplemental rent (other than
excepted payments) then due and payable under the related operative
documents (b) to pay any amount of permitted indebtedness that remains due
and payable after funds have been used from the permitted indebtedness
account;
- Third, to each owner lessor's representative, the amount certified by the
owner lessor's representative to be the aggregate amount of all other
payments, other than principal, premium, if any, and interest, then due
and payable in respect of the equity portion of rent under the facility
lease;
- Fourth, pro rata to each person entitled thereto, the amount then due and
payable in respect of other supplemental rent and fees due under any
operative document; and
- Fifth, any remaining surplus after the termination of the facility lease
will be paid to us or our successors or assigns or to whoever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
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THE DESIGNATED ACCOUNT REPRESENTATIVE AGREEMENTS
The facilities are subject to nitrogen oxide budget and allowance trading
requirements promulgated by the Pennsylvania Department of Environmental
Protection and are also subject to restrictions on sulphur dioxide emissions
under the acid rain program promulgated by the U.S. Environmental Protection
Agency. Under these regulations, the owner and/or operator of the facilities
must have sufficient allowances to cover nitrogen oxide and sulphur dioxide
emissions from the facilities either by allocation by the relevant regulatory
agency of the allowances or by purchasing sufficient allowances on the open
market. We and each of the owner lessors will enter into agreements which
provide that, for so long as the facility leases are in effect, we will be
irrevocably appointed as the designated account representative on file with the
Environmental Protection Agency or the Department of Environmental Protection,
as the case may be, entitled to be allocated and to buy, sell and otherwise
dispose of these allowances without any payments or consideration to the owner
lessors. The agreements also provide that upon termination of a facility lease,
the applicable owner lessor will have the right to appoint itself or any other
person as a successor designated account representative, to be the beneficiary
of any future allowances granted to the facilities and to exercise all rights,
including rights of disposition, with respect to these emission allowances.
THE LEASE INDENTURES AND SECURED LEASE OBLIGATION NOTES
Each owner lessor will enter into an indenture of trust security agreement,
which we refer to as the lease indentures, with the lease indenture trustee and
security agent. Each lease indenture will govern the secured lease obligation
notes issued by the respective owner lessor to Homer City Funding. Each lease
indenture will contain covenants limiting the business activities of the owner
lessor to issuing the secured lease obligation notes, paying debt service on the
secured lease obligation notes and performing ancillary activities. Each lease
indenture will also contain a requirement that each owner lessor maintain a debt
service reserve equal to the next debt service payment on its secured lease
obligation notes. The collateral and credit support for the secured lease
obligation notes will include a security interest in the owner lessor's
leasehold interest in the relevant facility lease, the relevant undivided
interest, the debt service reserve account and letter of credit and a mortgage
on the relevant ground interest.
GENERAL
The secured lease obligation notes will be issued in two series or tranches
to correspond with each series of the pass-through bonds, under eight separate
lease indentures, each among an owner lessor, The Bank of New York, as successor
to United States Trust Company of New York, as lease indenture trustee and The
Bank of New York, as successor to United States Trust Company of New York, as
security agent. The secured lease obligation notes will pay the same interest
rates and have the same distribution dates and maturity dates as the
pass-through bonds.
Each owner lessor will lease its respective undivided interest to us under
the facility lease to which it is a party. We will be obligated to make rental
and other payments to each owner lessor under each facility lease in amounts
that are sufficient to pay the principal of, premium, if any, and interest on
the related secured lease obligation notes when and as due and payable, except
for principal and interest payable upon a lease indenture event of default that
is not caused by a lease event of default. However, the secured lease obligation
notes are not obligations of, or guaranteed by, us, unless we assume the
obligations of an owner lessor in the specified circumstances described in this
consent solicitation statement. See "--Assumption of Secured Lease Obligation
Notes." Payments under each facility lease in excess of the amounts required to
make required payments on the applicable secured lease obligation notes will be
paid by the security agent to the applicable owner lessor for distribution by it
in accordance with the terms of its limited liability company agreement, except
in some cases upon the
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occurrence of a lease indenture event of default. Our lease payment obligations
under each facility lease and the other operative documents to which we are a
party are our general obligations.
LEASE INDENTURE EVENTS OF DEFAULT
The occurrence of any of the following events constitutes an event of
default under each lease indenture:
(1) the occurrence and continuance of any lease event of default, other
than as a result of non-payment of the equity portion of rent and specified
customary excepted payments or our failure to maintain insurance in the
amounts and on the terms set forth in the operative documents, so long as
insurance maintained is in accordance with prudent industry practice and is
waived by the respective owner lessor and owner participant;
(2) the owner lessor's failure to pay principal, interest or any premium
when due under its secured lease obligation notes that continues unremedied
for 5 business days, or the owner lessor's failure to pay other amounts due
under any secured lease obligation note or the lease indenture that
continues unremedied for 30 days after receipt of written demand from the
security agent;
(3) any material representation or warranty made by the owner
participant or the owner lessor in the lease indenture or in any other
operative document to which it is a party proves to have been inaccurate in
any material respect when made or when deemed made, and continues to be
material and unremedied for a period of 30 days after receipt by the party
of written notice of the misrepresentation or breach of warranty; however,
if the misrepresentation or breach of warranty can be remedied, but not
within the 30-day period, this period may be extended up to 120 days in
total so long as the party commences the remedy within the 30-day period and
diligently pursues the remedy;
(5) failure in any material respect by the owner lessor to observe,
perform or comply with any material covenant contained in the lease
indenture or in any operative document to which it is a party, other than as
provided in (1) above, or failure by the owner participant to observe or
perform any material covenant contained in any operative document to which
it is a party, other than the tax indemnity agreement between us and the
owner participants, and the covenant remains material and is not remedied
for a period of 30 days after receipt by the party of written notice of the
covenant non-compliance; however, if the non-compliance can be remedied but
not within the 30-day period, this non-compliance will not constitute a
lease indenture event of default if the non-complying party pursues a
corrective action within the 30-day period and diligently pursues the
remedy, but the total period permitted to cure the non-compliance may not
extend beyond 180 days from the day the notice was provided;
(6) customary events of bankruptcy and insolvency, whether voluntary or
involuntary, with respect to the owner participant or the owner lessor under
the applicable lease indenture, and, if the event commenced involuntarily,
which continue undismissed or unstayed 60 days after the commencement of the
event; and
(7) the owner lessor gives any notice under the Pennsylvania statute
governing the creation of the mortgage or otherwise terminates the operation
of the mortgage as security for future advances or future obligations
incurred after the date the lease indenture secured parties receive such
notice, or the owner lessor takes any other similar action for the purpose
of limiting or attempting to limit the operation of the mortgage as such
security.
REMEDIES
Each lease indenture will provide that the related security agent may
exercise specified remedies and all remedies available to it at law, including
acceleration of the secured lease obligation notes, if a
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lease indenture event of default has occurred and is continuing. These specified
remedies include, in circumstances where a lease event of default under the
related facility lease has occurred, remedies with respect to the applicable
undivided interest and ground interest afforded to the applicable owner lessor
by the facility lease for lease events of default. These remedies may be
exercised by the security agent to the exclusion of the applicable owner lessor,
owner participant and us. A sale of the undivided interest and ground interest
upon the exercise of these remedies will be free and clear of any right of those
parties, other than, in some cases, rights of redemption provided by law,
including our rights under the facility lease. Under no circumstances may the
security agent sell the undivided interest or the ground interest or exercise
other remedies against the undivided interest or ground interest seeking to
deprive the owner lessor or the owner participant of their respective interests
in the undivided interest or the ground interest unless the secured lease
obligation notes have been accelerated.
Upon the occurrence of a lease indenture event of default arising out of a
lease event of default, if the security agent, acting at the instruction of the
required holders of the secured lease obligation notes and issuers of the debt
service reserve letter of credit, which we refer to as the required lease
indenture secured parties, can exercise any remedy under the applicable lease
indenture which could or would divest the owner lessor or the owner participant
of their respective interests in the undivided interest or the ground interest
subject to the lease indenture, the security agent will at the same time, if it
is then entitled to do so under the facility lease and is not then stayed or
otherwise prevented from doing so by operation of law, exercise one or more of
the remedies to dispossess us of the applicable undivided interest. However, if
the security agent is prevented by operation of law from exercising the remedies
for a continuous period of one year following the commencement of the stay, the
lease indenture trustee may, upon expiration of the one year period, exercise
any remedy available to it under the lease indenture.
Each owner lessor and the security agent will irrevocably agree for our
benefit that neither the owner lessor nor the security agent will exercise any
remedies on account of a lease event of default resulting from failure to pay
the equity portion of lease rent when due. In addition, each owner lessor and
the security agent will irrevocably agree that we are a third party beneficiary
of the remedies set forth above.
REDEMPTION OF SECURED LEASE OBLIGATION NOTES
The secured lease obligation notes will be subject to redemption under the
circumstances described below. The security agent will deposit funds sufficient
to pay the redemption price of and accrued interest on all secured lease
obligation notes to be redeemed with the lease indenture trustee or the paying
agent, who, in turn, will distribute the redemption price, equal to the
outstanding principal amount of the secured lease obligation notes to be
redeemed plus all accrued and unpaid interest on the secured lease obligation
notes as of the date of redemption, plus the make-whole premium (defined below),
if any, to the holders of the secured lease obligation notes being redeemed. The
lease indenture trustee or the paying agent will then promptly return to the
owner lessor any money deposited with the lease indenture trustee or the paying
agent by the owner lessor in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, the secured lease obligation notes
redeemed.
OPTIONAL REDEMPTION WITH MAKE-WHOLE PREMIUM
All secured lease obligation notes outstanding under a lease indenture will
be subject to optional redemption at any time. Upon the owner lessor's election
and in accordance with the operative documents, the secured lease obligation
notes will be prepaid, in whole or in part, at the outstanding principal amount
of the secured lease obligation notes, plus interest accrued to and unpaid on
the prepayment date, plus a make-whole premium.
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"MAKE-WHOLE PREMIUM" means, with respect to any secured lease obligation
note to be redeemed on any redemption date, an amount calculated by the owner
lessor on that date equal to the excess, if any, of the net present value of the
then remaining scheduled installments of principal and interest payments, but
excluding that portion of any scheduled installment of principal or payment of
interest that is actually due and paid on the redemption date, in respect of the
secured lease obligation note to be redeemed calculated using a discount factor
equal to the sum of the treasury yield plus 50 basis points, over the unpaid
principal amount of the secured lease obligation note. The make-whole premium
will be determined in accordance with the following provisions:
- the average life of the remaining scheduled installments of principal in
respect of the secured lease obligation note to be redeemed, which we
refer to as the remaining average life, will be calculated as of the
redemption date; and
- the treasury yield will be calculated for the United States Treasury
security having an average life equal to the remaining average life and
trading in the secondary market at the price closest to par, which we
refer to as the primary issue. However, if no United States Treasury
security has an average life equal to the remaining average life, the
yields, which we refer to as the other yields, for maturities of the two
United States Treasury securities having average lives most closely
corresponding to the remaining average life and trading in the secondary
market at the price closest to par will be calculated, and the yield to
maturity for the primary issue will be the yield interpolated or
extrapolated from the other yields on a straight-line basis, rounding in
each relevant periods to the nearest month.
MANDATORY REDEMPTION WITHOUT MAKE-WHOLE PREMIUM
Each series of secured lease obligation notes outstanding under a lease
indenture will be redeemed by the owner lessor, in whole or in part, ratably at
the unpaid principal amount of the secured lease obligation notes, together with
interest accrued and unpaid as of the prepayment date, but without any premium,
upon receipt by us or a lease indenture trustee of proceeds in connection with
any of the following events:
- any event of loss, other than a regulatory event of loss or event of loss
described in the fifth bullet point under "Description of Principal
Sale-Leaseback Transaction Documents--The Facility Leases--Events of
Loss," occurs with respect to the facilities, unless we elect to rebuild
or replace the facilities and can meet the conditions to the rebuilding;
or
- any destruction or damage to the facilities not constituting an event of
loss and receipt by us or the lease indenture trustee of an insurance
settlement or payment of $5,000,000 or more and we fail to rebuild or
replace the facilities due to our inability to deliver within 45 days of
the receipt of the proceeds a notice as to the nature and cost of the
repair, the reasonableness of our repair and replacement plan, sufficiency
of the proceeds together with other financings for the proposed repair and
our ability to pay lease rent during the restoration period.
We will, before any prepayment described above, deliver notice to the owner
lessor setting forth in reasonable detail the basis on which we are exercising
the termination right.
MANDATORY PREPAYMENT
In the event that the facility lessee elects to terminate the facility lease
due to burdensome events or economic or technological obsolescence of the
facilities, the secured lease obligation notes will be subject to mandatory
prepayment at a price equal to the unpaid principal amount of the secured lease
obligation notes plus accrued and unpaid interest on this amount to the date of
redemption, plus a make-whole premium. The secured lease obligation notes will
also be subject to mandatory prepayment as a result of our election to terminate
the facility leases due to an event of loss described in the first,
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second and third bullet points in "Description of Principal Sale--Leaseback
Transaction Documents--The Facility Leases--Events of Loss," at a price equal to
the unpaid principal amount of the secured lease obligation notes plus accrued
and unpaid interest on this amount to the date of redemption, without a
make-whole premium.
In the case of a regulatory event of loss or an event of loss described in
the fifth bullet point under "Description of Principal Sale--Leaseback
Transaction Documents--The Facility Leases--Events of Loss," the secured lease
obligation notes will not be subject to mandatory prepayment or mandatory
redemption and the facility lessee will make regularly scheduled payments of
principal and interest on the secured lease obligation notes.
OWNER LESSOR'S OR OWNER PARTICIPANT'S RIGHT TO CURE
Within 10 business days of the earlier of receipt by the owner lessor or
owner participant of notice of, or obtaining actual knowledge of, but in no
event later than 15 days following our failure to make a required payment under
a facility lease, each owner lessor and owner participant may, but is not
obligated to, make the payment of principal, interest and other amounts payable
with respect to the related secured lease obligation notes, or perform or comply
with the facility lease. The amount of the payment and the reasonable expenses
incurred by the owner lessor or the owner participant may, together with
interest at the overdue rate, be deemed supplemental rent, payable to the owner
lessor by us on demand. In determining whether a lease indenture default has
occurred, a payment by the owner participant or the owner lessor in accordance
with the first sentence of this paragraph will be deemed to remedy any lease
default or lease event of default in the payment of periodic lease rent and to
remedy any default by the owner lessor in the payment of any amounts due and
payable under the secured lease obligation notes or the lease indenture. Any
performance by the owner lessor of any of our obligations under the related
facility lease will be deemed to remedy any lease default or lease event of
default. Payment or performance by the applicable owner lessor will not relieve
us from our obligation to pay rent and perform our obligations under the related
facility lease.
The right of each owner lessor to cure lease defaults or lease events of
default will not apply with respect to any cure of any default in the payment of
periodic lease rent if the cure has been exercised with respect to (a) four
consecutive payments of periodic lease rent immediately preceding the date of
such default or (b) more than eight payments of periodic lease rent.
ASSUMPTION OF SECURED LEASE OBLIGATION NOTES
Upon the occurrence an event of loss due to burdensome governmental
regulations or due to partial damage to the facilities of the nature described
in the fifth bullet point "--The Facility Leases--Events of Loss" above, and in
connection with the purchase by us of the facilities following an event of loss
described in the first, second and third bullet points of the event of loss
definition, we may assume the secured lease obligation notes, in whole, but not
in part. This assumption is subject to, among other conditions, the following:
- no lease event of default shall have occurred and be continuing after
giving effect to the assumption and all payments required to be made to
the holders of secured lease obligation notes from the proceeds received
in connection of the event to loss have been made;
- the lease indenture trustee will have received a lease indenture
supplement (1) confirming the release of the applicable owner lessor and
reflecting our assumption of the owner lessor's obligations under the
lease indenture; (2) incorporating the provisions of the operative
documents, as appropriate; and (3) preserving, protecting and maintaining
the lien on the indenture estate;
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- the lease indenture trustee and holders of the secured lease obligation
notes will have received an opinion of our counsel to the effect that the
assumption agreement or other instruments or agreements executed in
connection with the contemplated assumption (1) have been duly authorized,
executed and delivered by us; (2) do not contravene our organic documents,
our contractual obligations, requirements of law or required governmental
approvals; (3) except as limited by bankruptcy, insolvency or similar
laws, are legal, valid, binding and enforceable obligations; (4) will not
cause a tax event to occur as to any direct or indirect holder of the
secured lease obligation notes or the pass-through bonds; and (5) will not
impair the lease indenture's lien as a first priority perfected lien on
the security interest in the undivided interest, unless we provide a tax
indemnity against the risk that assumption of the secured lease obligation
notes will cause a taxable event; and
- the lease indenture trustee will have received copies of required
governmental approvals, Uniform Commercial Code lien searches, title
reports, opinions and other evidence demonstrating that no condition
exists that would impair the first priority perfected lien and security
interest in the undivided interest and ratings letters from Standard &
Poor's and Moody's stating that the ratings of the pass-through bonds will
not be downgraded as a result of the assumption.
MODIFICATION OF SALE-LEASEBACK AGREEMENTS
The lease indenture trustee may, if so directed upon a notice of action
execute a supplement to the lease indenture for the purpose of adding provisions
to, or changing or eliminating provisions of, the lease indenture as specified
in the request. Except with respect to excepted payments, including specified
indemnities, insurance proceeds and other payments and fees, the security agent,
if so directed upon a notice of action, may enter into a written amendment of,
or supplement to, any documents relating to the indenture estate, which include,
among other things, the facility site lease, the facility site sublease, the
facility lease, the facility deed, the bill of sale, the limited liability
company agreement between the owner lessors and the owner participants by which
the owner lessors will be governed, which we will refer to as the owner lessor
limited liability company agreement, the amended security deposit agreement, the
debt service letter of credit, the amended and restated guarantee and collateral
agreement, the pledge and collateral agreement and each other operative document
to which the owner lessor is a party, as may be specified in the directive.
However, without the consent of each lease indenture secured party, except with
respect to excepted payments, no amendment of, or supplement to, any indenture
estate document, and no waiver or modification of the terms of any document
relating to the indenture estate, may:
- reduce the percentage of lease indenture secured parties who must consent
to an amendment, supplement or waiver;
- alter or modify the manner of payment or the order of priorities of
distribution between the holders of the secured lease obligation notes,
the issuer of the debt service letter of credit and the owner lessor or
owner participant;
- waive a lease indenture event of default in the payment of principal of,
premium, if any, or interest on the secured lease obligation notes, except
a rescission of acceleration of the secured lease obligation notes;
- change the amount or the time of payment of any amount owing or payable
under any related secured lease obligation note or reduce the rate or
change the manner of calculation of interest payable on any related
secured lease obligation note;
- make any secured lease obligation notes payable in currency other than
that stated in the secured lease obligation notes;
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- make any change in the provision of the lease indenture relating to
waivers of past defaults or the rights of the holders of the secured lease
obligation notes to receive payments of principal of, premium, if any, or
interest on the secured lease obligation notes;
- reduce the amount of, or extend the time of payment of, basic lease rent
or termination value, except as expressly provided in the related facility
lease, or waive a redemption payment of the secured lease obligation
notes;
- deprive the security agent of the lien on the indenture estate, or permit
creation of any new lien on the indenture estate ranking equal or prior to
the lien of the security agent;
- make any change in the amendment and waiver provisions listed above;
- allow for the assignment of the facility lease if we will be released from
our obligation to pay basic lease rent and termination value, except in
connection with an assumption of the secured lease obligation notes; or
- release us from our obligation to pay basic lease rent or termination
value or change the absolute and unconditional character of such
obligation, except in connection with an assumption of the secured lease
obligation notes.
Notwithstanding the foregoing, without the consent of each holder of secured
lease obligation notes, no supplement, waiver or modification of a lease
indenture or any other related operative document may permit the creation of any
lien on the related indenture estate or any part of the related indenture
estate, or deprive the lease indenture trustee or any holder of the related
secured lease obligation notes of the benefit of the lien created under the
related lease indenture.
The owner lessor and the lease indenture trustee may enter into a supplement
to the lease indenture at any time without the consent of the holders of the
secured lease obligation notes or the issuer of the debt service reserve letter
of credit for one or more of the following purposes:
- to provide for uncertificated secured lease obligation notes in addition
to or in place of certificated secured lease obligation notes or to alter
the provisions of the lease indenture relating to, among other things, the
issuance, payment, registration and assumption of the secured lease
obligation notes in a manner that does not adversely affect any holder of
secured lease obligation notes;
- to evidence the succession of another corporation as the manager under the
owner lessor limited liability company agreement, not in its individual
capacity, but solely as independent manager, which we will refer to as the
owner manager, or the appointment of a co-manager;
- to make any change that would provide additional rights or benefit to the
holders of all or any series of secured lease obligation notes that does
not adversely affect the legal rights of the holders of the secured lease
obligation notes under the lease indenture;
- to cure any ambiguity, omission, defect or inconsistency or to correct,
confirm or amplify the description of any property at any time subject to
the lien on the indenture estate;
- to establish the form and terms of the subsequent secured lease obligation
notes of any series;
- to effect, in accordance with the terms of the lease indenture, an
assumption of the owner lessor's obligations to the holders of the secured
lease obligation notes;
- to evidence and provide for removal of the lease indenture trustee or
security agent and for appointment of a successor lease indenture trustee
or security agent;
- to grant or confer upon the lease indenture trustee or the security agent
for the benefit of the lease indenture secured parties any additional
rights, remedies, powers, authority or security;
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which may be lawfully granted or conferred upon the lease indenture
trustee or the security agent and which are not contrary to or
inconsistent with the lease indenture;
- to effect any other amendment, modification, supplement, waiver or consent
with respect to any document relating to an indenture estate document;
provided that no such action will materially and adversely affect the
interests of the lease indenture secured parties; or
- the security agent, the lease indenture trustee and the owner lessor may
make further appropriate agreements and stipulations to accept the
conveyance, transfer, assignment, mortgage or pledge of any property or
assets thereunder, but will not be obligated to enter into any supplement
which affects the lease indenture trustee's or the security agent's own
rights, duties or immunities under the lease indenture or otherwise.
DEBT SERVICE RESERVE LETTER OF CREDIT
Under each lease indenture, each owner lessor will be required, for so long
as the secured lease obligation notes and pass-through bonds are outstanding, to
maintain the debt service reserve account. Amounts in the debt service reserve
account will be applied in some instances to the payment of principal, interest,
fees and amounts due in respect of funding losses, increased capital costs,
taxes and indebtedness then due and payable in respect of the secured lease
obligation notes.
The required balance in each debt service reserve account on each payment
date will be 100% of the projected debt service on the applicable secured lease
obligation notes for the succeeding six-month period, which requirement may be
satisfied by acceptable credit support in the form of one or a combination of
cash or a letter of credit issued by a bank or trust company that is an
acceptable credit provider. A bank or trust company will be an acceptable credit
provider if (1) the entity has a combined capital surplus of at least
$1 billion and a long-term unsecured debt rating of "A" or higher by Standard &
Poor's or "A2" or higher by Moody's and (2) the entity is exempt from SEC
registration under Section 3(a)(2) of the Securities Act.
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THE AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT AND CHANGES TO THE
COLLATERAL PACKAGE
PLEDGE; GRANT OF SECURITY INTEREST
We and the collateral agent on behalf of the owner lessors will enter into
an amended and restated guarantee and collateral agreement. Under the amended
and restated guarantee and collateral agreement, we will grant to the collateral
agent a security interest in all of our general intangibles, excluding all
emission allowances and credits, all insurance policies and all contracts,
agreements, instruments and indentures in any form as collateral security for
the payment and performance of the aggregate amount of all of our obligations to
the owner lessors under the operative documents.
COVENANTS
We will covenant with the collateral agent that, until all our obligations
under the operative documents are paid in full, we will:
- deliver to the collateral agent amounts payable with respect to the
collateral which become evidenced by any certificated securities, with all
relevant endorsements, to be held as collateral for the owner lessors;
- take all reasonable and necessary actions to maintain the security
interest in the collateral as a first priority perfected security
interest;
- upon written request of the collateral agent, at our sole expense,
deliver, execute and record further instruments and documents for the
purpose of obtaining or preserving the full benefits of the amended and
restated guarantee and collateral agreement, including (1) filing any
financing or continuation statements under the Uniform Commercial Code and
(2) taking actions necessary to enable the collateral agent to obtain
"control" within the meaning of the Uniform Commercial Code;
- not, except upon 30 days' written notice to the collateral agent and
delivery to the collateral agent of all executed financing statements and
other documents reasonably requested, change our jurisdiction of
organization, chief executive office location, name, identity or corporate
structure in a way that would cause any financing statement to become
misleading; and
- advise the collateral agent of (1) any liens, other than security
interests created according to the operative documents, that could
reasonably be expected to have a material adverse effect on the collateral
agent's ability to exercise remedies under the amended and restated
guarantee and collateral agreement and (2) the occurrence of other events
that could reasonably be expected to have a material adverse effect on the
aggregate value of the collateral or the security interests.
REMEDIAL PROVISIONS
If a lease event of default has occurred and is continuing:
- all cash, checks or near-cash proceeds received by us with respect to the
collateral will be turned over to the collateral agent in the form
received to be held as collateral for our obligations under the operative
documents but will not constitute payment until applied in accordance with
the agreement;
- the collateral agent may apply all or any proceeds held with respect to
the collateral in payment of our obligations under the operative documents
and the balance of any funds not applied in this manner will be paid to
us; and
- the collateral agent, in addition to the remedies outlined above, may
exercise all rights and remedies under the Uniform Commercial Code or
other applicable law, including the right to
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collect, receive, appropriate, realize, sell, lease, assign or otherwise
dispose of the collateral. Upon any public sale and to the extent
permitted by law, the collateral agent may purchase the collateral free of
any right or equity of redemption, which we will waive and release.
The collateral agent will apply the net proceeds of any remedial action to
the payment in whole or in part of our obligations under the operative documents
and will pay any surplus to us.
THE COLLATERAL AGENT
Under the amended and restated guarantee and collateral agreement, we will
appoint the collateral agent as our attorney-in-fact and give the collateral
agent the power and right on our behalf and without its notice and assent, to do
the following:
- file claims or take other actions in our name for purpose of collecting
money due with respect to the collateral;
- pay or discharge taxes and liens levied or threatened against the
collateral and effect repairs or insurance and pay all or part of the
premiums;
- execute indorsements, assignments or instruments for the conveyance or
transfer of the collateral;
- (1) direct any party liable for payment under the collateral to make
payments due to the collateral agent; (2) ask, demand, collect and receive
payment of moneys due or to become due with respect to the collateral;
(3) commence or prosecute suits, actions or proceedings at law or in
equity to collect the collateral or any portion of the collateral;
(4) defend, settle, compromise or adjust any suit, action or proceeding
brought against us with respect to the collateral; and (5) sell, transfer,
pledge or make any agreement with respect to the collateral; and
- file or record financing statements and other filings of documents or
instruments with respect to the collateral without our signature.
CHANGES TO THE COLLATERAL PACKAGE
As described above in "Summary--The Sale-Leaseback Transaction," the
implementation of the sale-leaseback transaction will cause our corporate
structure to change dramatically and, as a result of these structural changes,
the collateral package and the security documents relating to the outstanding
bonds will have to be amended. Currently, because the outstanding bonds are
issued by one entity, and the assets are owned by a different entity, the
existing financing structure provides for guarantees of Edison Mission Holdings'
obligations by the subsidiary guarantors. If the sale-leaseback transaction is
consummated, the obligations on the outstanding bonds will be assumed by Homer
City Funding. The structural change will result in the following material
amendments to the guarantee and collateral agreement between us and the
collateral agent:
- the guarantees made by the subsidiary guarantors, including us, will be
released;
- the pledges of equity interests in us, Edison Mission Holdings, Edison
Mission Finance, Homer City Property Holdings and Chestnut Ridge Energy
will be released;
- the blanket liens granted by us, Edison Mission Holdings, Edison Mission
Finance, Homer City Property Holdings, Chestnut Ridge Energy and Mission
Energy Westside will be released and the security interest in all our
general intangibles will be changed to exclude emission allowances and
credits, insurance policies and all of our contracts, agreements,
instruments and indentures; the security interest will cover only those
intangibles, such as licenses and permits, which are inseparable from the
facilities;
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- the concept of the collateral agent holding and controlling the collateral
for different categories of senior debt will be deleted and a similar
concept will be moved to the lease indenture, which will provide that a
security agent will hold and control the indenture estate and the mortgage
for the benefit of the secured lease obligation notes and for the issuers
of the debt service reserve letter of credit; and
- the credit support guarantee for $42 million by Edison Mission Energy,
which expires on December 31, 2001, will be released.
In addition, because the funds generated by the revenues of the facilities
will no longer flow from us to Edison Mission Holdings to service the
outstanding bonds, the entire account structure will change. As a result of this
change in account structure, the security interests in the accounts that are
currently granted by us, Edison Mission Holdings, Edison Mission Finance, Homer
City Property Holdings, Chestnut Ridge Energy and Mission Energy Westside will
be released. New security interests in specified accounts will be granted by us
under the amended security deposit agreement to secure payment obligations under
each facility lease. See "--The Amended Security Deposit Agreement" for a
description of the new account structure.
The sale-leaseback transaction will involve a sale of our assets. Because we
will not be the continuing owner of the facilities, the blanket lien on the
assets which we provide to the outstanding bonds will be released. In place of
the blanket lien, we will grant a security interest in our general intangibles,
excluding emissions credits and allowances, insurance policies and all of our
contracts, agreements, instruments and indentures, in favor of the owner lessors
to secure our obligations under the facility leases. Also, in the pledge and
collateral agreement described below, Edison Mission Holdings will grant to the
collateral agent a lien on all shares of the capital stock of Mission Energy
Westside.
In addition, since we will no longer own the facilities, we will not be able
to give a mortgage on the facilities. As a result, on the closing date of the
sale-leaseback transaction, concurrently with the closing of the sale-leaseback
transaction, the following will occur:
- the mortgage liens currently encumbering the facilities, which are
currently granted by us in favor of the lease trustee as security for,
among other things, the existing credit facilities of Edison Mission
Holdings and the outstanding bonds, will be released;
- following the sale of the undivided interests in the facilities to each
owner lessor, each owner lessor will grant a first mortgage lien on, and
security interest in, its respective undivided interest; and
- each mortgage will be granted in favor of a security agent, who will hold
the mortgages on the ground interests and improvements, as security and
for the benefit of the holders of the secured lease obligation notes
issued by each owner lessor and the issuer of the debt service reserve
letter of credit, as described above.
The secured lease obligation notes issued by each owner lessor and each debt
service reserve letter of credit will be secured by a first priority security
interest in the indenture estate. We refer to the mortgage lien and the
collateral granted to the applicable security agent as security for the secured
lease obligation notes as the indenture estate. The indenture estate includes
the following:
- the owner lessor's applicable undivided interest in the facilities;
- rights under the related facility lease, including the right to receive
payments of any kind under the facility lease, other than the excepted
payments;
- the owner lessor's site sublease and the ground interest under the site
sublease;
- the owner lessor's fixtures;
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- the insurance proceeds payable under insurance maintained by us;
- the facility deed;
- the owners lessor's bill of sale;
- the owner lessor's interest in contracts related to the facilities
assigned or pledged to it;
- specified other agreements of the owner lessor related to the operation of
the facilities and the undivided interest; and
- any interest in any property now or later granted to the owner lessor
under any provision of the site lease, the facility lease or the site
sublease and each other operative document, other than the tax indemnity
agreement, to which the owner lessor is a party.
So long as no lease indenture event of default shall have occurred and be
continuing under a lease indenture, the applicable owner lessor will be entitled
to exercise all of the rights of the owner lessor under the operative documents,
subject to the lease subordination agreement and some specific exceptions,
including with respect to amendments, waivers, modifications and consents under
specified provisions of some of the operative documents. The owner lessor's
rights, however, do not include the right to receive payments of rent and
specified other amounts due under the facility leases. Payments made under each
facility lease will be made directly to the security agent. The assignment by
the owner lessor to the security agent of its rights under the documents
constituting the indenture estate also excludes specified rights of the owner
lessor, including rights relating to indemnification for specified matters and
insurance proceeds payable to the owner lessors under liability insurance
maintained under the facility leases.
Finally, under the amended and restated indenture, the secured lease
obligation notes and the respective indenture estate will be pledged as security
for the pass-through bonds. The pledge of the secured lease obligation notes
will give the holders of the pass-through bonds a first priority interest in the
secured lease obligation notes and indenture estate. See "Summary--The
Sale-Leaseback Transaction--Collateral Package and Credit Support Following the
Sale-Leaseback Transaction" for a list of collateral that secures the
outstanding bonds.
LIMITATION OF LIABILITY
The secured lease obligation notes are not obligations of, or guaranteed by,
us, the owner participants, Wilmington Trust Company as independent manager of
the owner lessor, the security agent, the lease indenture trustee, the trustee
or any of their respective affiliates. None of the owner participants,
Wilmington Trust Company, the trustee, the lease indenture trustee, the security
agent or any of their respective affiliates, are personally liable to any holder
of a secured lease obligation note or to the security agent for any amounts
payable under any secured lease obligation notes or, except as provided in the
applicable lease indenture, for any liability under the lease indenture. All
payments of principal of, and any premium, and interest on all secured lease
obligation notes, other than payments made in connection with an optional
redemption or purchase by the applicable owner lessor or the owner participants
will be paid or caused to be paid from the assets subject to the lien of the
related lease indenture or the income and proceeds received by the lease
indenture trustee from the indenture estate, including lease rent payable by us
under the related facility lease.
Except as otherwise provided in the lease indenture, the lease indenture
trustee or the security agent will not be answerable or accountable under any
lease indenture or secured lease obligation notes under any circumstances except
for its own willful misconduct or gross negligence not caused by an error of
judgment made in good faith by a responsible officer, unless the lease indenture
trustee or the security agent was negligent in ascertaining the pertinent facts
or by direction of a principal majority of the then outstanding secured lease
obligation notes.
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THE PLEDGE AND COLLATERAL AGREEMENT
PLEDGE; GRANT OF SECURITY INTEREST
Edison Mission Holdings and the collateral agent on behalf of the owner
lessors will enter into a pledge and collateral agreement. Under the pledge and
collateral agreement, Edison Mission Holdings will grant to the collateral agent
a security interest in all shares of the capital stock of Mission Energy
Westside held by it as collateral security for the payment and performance of
the aggregate amount of all of our obligations to the owner lessors under the
operative documents.
COVENANTS
Edison Mission Holdings will covenant with the collateral agent that, until
all our obligations under the operative documents are paid in full, it will:
- deliver to the collateral agent amounts payable with respect to the
collateral which become evidenced by any certificated securities, with all
relevant endorsements, to be held as collateral for the owner lessors;
- take all reasonable and necessary actions to maintain the security
interest in the collateral as a first priority perfected security
interest;
- upon written request of the collateral agent, at its sole expense,
deliver, execute and record further instruments and documents for the
purpose of obtaining or preserving the full benefits of the pledge and
collateral agreement, including (1) filing any financing or continuation
statements under the Uniform Commercial Code and (2) taking actions
necessary to enable the collateral agent to obtain "control" within the
meaning of the Uniform Commercial Code;
- not, except upon 30 days' written notice to the collateral agent and
delivery to the collateral agent of all executed financing statements and
other documents reasonably requested, change its jurisdiction of
organization, chief executive office location, name, identity or corporate
structure in a way that would cause any financing statement to become
misleading;
- advise the collateral agent of (1) any liens, other than security
interests created according to the operative documents, that could
reasonably be expected to have a material adverse effect on the collateral
agent's ability to exercise remedies under the pledge and collateral
agreement and (2) the occurrence of other events that could reasonably be
expected to have a material adverse effect on the aggregate value of the
collateral or the security interests;
- upon receipt of any certificate representing a stock dividend or
distribution, deliver the certificate to the collateral agent, duly
endorsed in the form received, and if requested by the collateral agent,
with an undated stock power covering the certificate duly executed in
blank by Edison Mission Holdings with signature guaranteed to be held by
the collateral agent as further collateral;
- not, without prior written consent of the collateral agent (1) vote to
enable Mission Edison Westside to issue stock or other equity securities;
(2) sell, assign, transfer, exchange or otherwise dispose of the
collateral except according to the participation agreements; (3) create,
incur or permit the existence of any lien on the collateral, other than
the security interests created under the pledge and collateral agreement;
or (4) enter into any agreement or undertaking restricting its or the
collateral agent's ability to sell, assign or transfer the collateral;
- preserve and maintain its corporate existence and all of its rights,
privileges and franchises necessary for fulfillment of its obligations
under the pledge and collateral agreement; and
- pay all taxes, assessments or other governmental or non-governmental
levies assessed or levied against the collateral before the attachment of
any fine or penalty, except if (1) the taxes,
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assessments or levies are being contested in good faith; (2) adequate
reserves consistent with generally accepted accounting principles
requirements are established and maintained in an amount sufficient to pay
the taxes, assessments or levies; and (3) any tax, assessment or levy is
immediately paid after the contest.
REMEDIAL PROVISIONS
Unless a lease event of default has occurred and is continuing and the
collateral agent has given Edison Mission Holdings notice of its intent to
exercise its rights under the pledge and collateral agreement, Edison Mission
Holdings will be permitted to receive all cash dividends with respect to the
collateral and to exercise all voting and corporate rights with respect to the
collateral, so long as no vote would impair the collateral or violate any
provisions of any operative document.
If a lease event of default has occurred and is continuing:
- the collateral agent will, after giving notice of its intent to exercise
rights under the pledge and collateral agreement, have the right to
receive cash dividends, distributions, payments or other proceeds in
respect of the collateral for application to our obligations under the
operative documents;
- the collateral may be registered in the name of the collateral agent, and
the collateral agent, after giving notice of its intent to exercise rights
under the pledge and collateral agreement, may exercise voting, corporate,
conversion, exchange, subscription and other rights pertaining to the
collateral as if it were the absolute owner, without liability except to
account for the property received;
- all cash, checks or near-cash proceeds received by Edison Mission Holdings
with respect to the collateral will be turned over to the collateral agent
in the form received to be held as collateral for our obligations under
the operative documents but will not constitute payment until applied in
accordance with the immediately following clause;
- the collateral agent may apply all or any proceeds held with respect to
the collateral in payment of our obligations under the operative documents
and the balance of any funds not applied in this manner will be paid to
Edison Mission Holdings; and
- the collateral agent, in addition to the remedies outlined above, may
exercise all rights and remedies under the Uniform Commercial Code or
other applicable law, including the right to collect, receive,
appropriate, realize, sell, lease, assign or otherwise dispose of the
collateral. Upon any public sale and to the extent permitted by law, the
collateral agent may purchase the collateral free of any right or equity
of redemption, which Edison Mission Holdings will waive and release.
The collateral agent will apply the net proceeds of any remedial action to
the payment in whole or in part of our obligations under the operative documents
and will pay any surplus to Edison Mission Holdings. The collateral agent may
engage in one or more private sales of the collateral, so long as the purchasers
agree to acquire the collateral for investment and not with a view toward
distribution.
CONTINUING ASSIGNMENT
The pledge and collateral agreement will create a continuing pledge,
assignment of, hypothecation of and security interest in the collateral and
will:
- remain in full force and effect until the payment of the obligations and
the expiration and termination of the facility leases;
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- be binding upon Edison Mission Holdings, its successors and assigns, but
Edison Mission Holdings will not be permitted to transfer its rights or
obligations under the pledge and collateral agreement without the prior
written consent of the owner lessors; and
- inure to the benefit of and be enforceable by the owner lessors, their
successors and assigns.
THE COLLATERAL AGENT
Under the pledge and collateral agreement, Edison Mission Holdings will
appoint the collateral agent as its attorney-in-fact and give the collateral
agent the power and right on its behalf and without its notice and assent, to do
the following:
- file claims or take other actions in the name of Edison Mission Holdings
for the purpose of collecting money due with respect to the collateral;
- pay or discharge taxes and liens levied or threatened against the
collateral and effect repairs or insurance and pay all or part of the
premiums;
- execute indorsements, assignments or instruments for the conveyance or
transfer of the collateral;
- (1) direct any party liable for payment under the collateral to make
payments due to the collateral agent; (2) ask, demand, collect and receive
payment of moneys due or to become due with respect to the collateral;
(3) commence or prosecute suits, actions or proceedings at law or in
equity to collect the collateral or any portion of the collateral;
(4) defend, settle, compromise or adjust any suit, action or proceeding
brought against Edison Mission Holdings with respect to the collateral;
and (5) sell, transfer, pledge or make any agreement with respect to the
collateral; and
- file or record financing statements and other filings of documents or
instruments with respect to the collateral without the signature of Edison
Mission Holdings.
OUR AMENDED AND RESTATED PARTNERSHIP AGREEMENT
In order to grant the owner lessors rights to future allocations of emission
allowances that are granted to the owner or operator of the facilities from time
to time, as discussed above in "--The Designated Account Representative
Agreements," our existing partnership agreement will be amended to reduce the
economic interest of Mission Energy Westside, our general partner, in us to 0.1%
of the partnership. Edison Mission Holdings, the 100% owner of Mission Energy
Westside, will pledge the equity in Mission Energy Westside to the owner lessors
pursuant to the pledge and collateral agreement as described in "--The Pledge
and Collateral Agreement." Upon termination of the facility leases, the owner
lessors may foreclose on this pledge and will then own Mission Energy Westside
and be able to exercise all the powers of the general partner.
Our partnership agreement will be amended and restated as follows:
- the general partner's interest will be reduced from 1% to 0.1% and the
limited partner's interest will be increased from 99% to 99.9%;
- the general partner's ability to make partnership distributions will be
explicitly made subject to the limitations contained in the amended
security deposit agreement;
- no sales of emission allowances or credits or the proceeds of these sales
will be permitted other than in accordance with the sale-leaseback
transaction documents;
- the general partner's powers will specifically include the power to pledge
the assets of the partnership, sell emission allowances and credits, and
maintain bank accounts, so long as
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maintained in accordance with the amended security deposit agreement and
the other transaction documents, and the general partner will not be
deemed to be in violation of its partnership duties for undertaking these
activities;
- the general partner will be explicitly authorized to be a creditor of the
partnership;
- the general partner's liability will be limited to willful misconduct or
recklessness, and to the fullest extent permissible under Pennsylvania
law, the general partner will be allowed to consider the interests of
creditors of the partnership, including the general partner as a creditor,
when making decisions for the partnership, or when deciding to file for
bankruptcy;
- the partnership will indemnify the general partner to the extent permitted
under Pennsylvania law;
- a resignation or removal of the general partner must be approved by the
all of the limited partner interest holders and by the majority interest
of a successor general partner;
- the rights of the limited partners to request partnership information will
be limited to annual financial information and certain records, instead of
"true and full information;" and
- transfers of limited partner interests will not be permitted if the
partnership has filed for bankruptcy.
LEASE SUBORDINATION AGREEMENTS
We, each owner lessor, each owner participant and the security agent will
enter into a lease subordination agreement. Each lease subordination agreement
will subordinate all of our obligations to the respective owner lessor and owner
participant, with respect to the equity portion of basic lease rent, the equity
portion of termination value and any supplemental rent constituting excepted
payments, excluding any excepted payments owing to the owner lessors on account
of fees and indemnities owed to the owner managers and rent paid from the
reserve account, to the claims and rights of the holders of the respective
secured lease obligation notes, with respect to (1) basic lease rent other than
the equity portion of rent, (2) termination value other than the equity portion
of termination value, (3) supplemental rent with respect to excepted payments
and (4) any other sum now or hereafter owed by us with respect to the initial
secured lease obligation notes, which we will refer to as the senior claims.
SUBORDINATION PROVISIONS
Under each lease subordination agreement, until all senior claims have been
paid in full:
- the aggregate amount of all of our obligations to the owner lessor and the
owner participant with respect to the equity portion of basic lease rent,
the equity portion of termination value and any supplemental rent,
excluding (1) any excepted payments owing to the owner lessors on account
of fees and (2) indemnities to the owner manager and rent paid from the
reserve account, which we will refer to as the subordinated claims, will
be subordinate to the prior payment of any senior claims;
- we will be prohibited from directly or indirectly, except with respect to
withdrawals from the reserve account pursuant to the amended security
deposit agreement and withdrawals from the equity account pursuant to the
amended security deposit agreement and the facility leases, making any
payment on account of, or transferring any collateral for any part of, the
subordinated claims, but so long as no lease event of default (other than
failure to make a payment of the equity portion of basic lease rent) has
occurred and is continuing and subject to the applicable provisions of the
amended security deposit agreement, we may make payments of basic lease
rent, renewal lease rent and supplemental rent under the facility leases;
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- without the consent of the lease indenture trustee, the owner lessor and
the owner participant will be prohibited from demanding, suing for or
accepting, other than with respect to withdrawals from the equity account
pursuant to the amended security deposit agreement and the facility lease,
from us any payment or collateral relating to the subordinated claims or
taking any other actions to enforce its rights or exercise remedies in
respect of the subordinated claims; and
- neither we nor the owner lessor and owner participant will take action
prejudicial to or inconsistent with the priority position of the senior
claims.
WRONGFUL COLLECTIONS
If an owner lessor or an owner participant receives any payments on account
of, or collateral for any part of, the subordinated claims in violation of the
lease subordination agreements or the participation agreements, the owner lessor
and owner participants will be required to deliver this payment or collateral to
the security agent in its original form with all necessary endorsements. Until
delivery, this payment or collateral will be held in trust for the holders of
the senior claims.
PROCEEDINGS
Each owner lessor and owner participant will be prohibited from commencing
or joining with other creditors to commence any creditor proceedings against us
without the consent of the lease indenture trustee. In the event that creditor
proceedings are commenced against us, any distributions that would otherwise be
payable with respect to the subordinated claims will be paid to and held by the
lease indenture trustee until all senior claims have been paid in full, and no
holder of subordinated claims will be entitled to receive payments,
distributions or any benefit from the subordinated claims.
After the commencement of any creditor proceedings, the holders of the
senior claims may (1) file a proof of debt, claim, suit, or otherwise;
(2) collect assets of the owner lessors, distributed, divided or applied on
account of the subordinated claims and apply the same to the senior claims until
the senior claims have been paid in full, the surplus of which will be returned
to the subordinated party; (3) vote claims comprising the subordinated claims to
accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension; and (4) take any action in connection
with any creditor proceeding which the subordinated party might otherwise take,
however, after the commencement of any creditor proceeding the subordinated
party may file a proof of claim with respect to the subordinated claims and take
further steps, not inconsistent with the lease subordination agreements, that it
deems proper. However, the owner lessor and the owner participant will have no
rights of subrogation, reimbursement, indemnity or rights of recourse to any
security held for the secured lease obligation notes until all senior claims
have been paid in full, after which time the owner lessor and the owner
participant will be subrogated to the rights of the holders of senior claims to
receive payments or distributions of our cash, property or securities applicable
to the subordinated claims.
LIMITATION ON ACTIONS
Until all senior claims have been paid in full, the owner lessor and owner
participant will not, without the prior written consent of the security agent:
- take, obtain or hold, by administrative, legal or equitable action, any of
our assets in violation of the subordination provisions of the lease
subordination agreement;
- commence, prosecute or participate in any administrative, legal or
equitable action against or involving us, relating to the payment or
collection of any subordinated claims;
- enforce or collect any judgment obtained in respect of the subordinated
claims;
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- enforce or exercise remedies to collect payment of any subordinated claims
or under any lien or other security interest securing any subordinated
claims; or
- exercise any other rights or remedies to enforce the payment or collection
of any subordinated claims.
ABSOLUTE SUBORDINATION
The rights of the holders of the senior claims against the owner lessor and
owner participant will remain in full force and effect and will not be impaired
or affected by any circumstances.
OWNER LESSOR SUBORDINATION AGREEMENTS
Each owner lessor, each owner participant and the security agent will enter
into an owner lessor subordination agreement. Each owner participant will fund
its respective owner lessor in part with an intercompany loan. All payment
obligations on these intercompany loans will be subject to those subordination
agreements. Under each owner lessor subordination agreement, the applicable
owner participant, which we will refer to as the subordinated party, will agree
to subordinate the owner lessor's obligations to it under the intercompany loan
agreement to the claims of the security agent against the owner lessor in
respect of the owner lessor's obligations under the operative documents in
respect of the secured lease obligation notes, the debt service letter of credit
and the lease indenture, which we will refer to as the senior claims.
SUBORDINATION PROVISIONS
Under each lease subordination agreement, until the holders of the senior
claims have been indefeasibly paid in full, in cash or cash equivalents:
- the aggregate amount of all obligations of the owner lessors under the
intercompany loan, which we will refer to as the subordinated claims, will
be subordinate to the prior payment of any senior claims;
- without the consent of the lease indenture trustee, the owner lessor will
be prohibited from directly or indirectly making any payment on account
of, or transferring any collateral for any part of, the subordinated
claims, but the owner lessor may (and upon direction from the owner
participant shall) make payments of interest and principal on account of
the subordinated claims, to the extent of proceeds received from payment
of rent under the subordination provisions of the lease subordination
agreement or the distribution provisions of the lease indenture or to the
extent the payments are proceeds from common equity received from the
applicable owner participant;
- without the consent of the lease indenture trustee, the subordinated party
will be prohibited from demanding, suing for or accepting from the owner
lessor any payment or collateral relating to the subordinated claims or
cancelling, setting-off or otherwise discharging any part of any
subordinated claims, regardless of the occurrence or continuance of an
event of default under the promissory notes evidencing the subordinated
claims; and
- without the consent of the lease indenture trustee, neither the owner
lessor nor the subordinated party will take any actions prejudicial to or
inconsistent with the priority position of the senior claims.
WRONGFUL COLLECTIONS
If the subordinated party receives any payments on account of, or collateral
for any part of, the subordinated claims in violation of the owner lessor
subordination agreements, the subordinated party
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will be required to deliver this payment or collateral to the security agent.
Until delivery, this payment or collateral will be held in trust for the holders
of the senior claims.
PROCEEDINGS
The subordinated party will be prohibited from commencing or joining with
other creditors of the owner lessor to commence any creditor proceedings against
the owner lessor without the consent of the lease indenture trustee. In the
event that creditor proceedings are commenced against the owner lessor, any
distributions that would otherwise be payable with respect to the subordinated
claims will be paid to and held by the lease indenture trustee until all senior
claims have been indefeasibly paid in full, in cash or cash equivalents, and no
holder of subordinated claims will be entitled to receive payments,
distributions or any benefit from the subordinated claims.
After the commencement of any creditor proceedings, the holders of the
senior claims may (1) file a proof of debt, claim, suit or otherwise;
(2) collect assets of the owner lessors, distributed, divided or applied on
account of the subordinated claims and apply the same to the senior claims until
the senior claims have been indefeasibly paid in full, in cash or cash
equivalents, the surplus of which will be returned to the subordinated party;
(3) vote claims comprising the subordinated claims to accept or reject any plan
of partial or complete liquidation, reorganization, arrangement, composition or
extension; and (4) take any action in connection with any creditor proceeding
which the subordinated party might otherwise take. However, after the
commencement of any creditor proceeding, if the security agent in a reasonable
time after receipt of an inquiry from the subordinated party does not in writing
inform the subordinated party of its intention to exercise its rights to assert
subordinated claims under clauses (1), (2), (3) and (4) above, the subordinated
party may file a proof of claim with respect to the subordinated claims and take
further steps, not inconsistent with the owner lessor subordination agreements,
that it deems proper. However, the subordinated party will have no rights of
subrogation, reimbursement, indemnity or rights of recourse to any security held
for the senior claims until all senior claims have been indefeasibly paid in
full, in cash or cash equivalents, after which time the subordinated party will
be subrogated to the rights of the holders of senior claims to receive payments
or distributions of cash, property or securities applicable to the subordinated
claims.
LIMITATION ON ACTIONS
Until all senior claims have been indefeasibly paid in full, in cash or cash
equivalents, the subordinated party, without the prior written consent of the
security agent may not:
- take, obtain or hold, by administrative, legal or equitable action, any of
the owner lessors' assets, except as they relate to the owner lessors'
interest in the facilities or the facility site, in violation of the
subordination provisions of the owner lessor subordination agreement;
- commence, prosecute or participate in any administrative, legal or
equitable action against or involving the owner lessor, relating to the
payment or collection of any subordinated claims;
- enforce or collect any judgment obtained in respect of the subordinated
claims;
- accelerate payment of any subordinated claims or require such claims to be
paid prior to the scheduled maturity date;
- enforce or exercise remedies to collect payment of any subordinated claims
or under any lien or other security interest securing any subordinated
claims; or
- enforce or exercise remedies with respect to any covenant, agreement,
representation or other undertaking contained in any promissory notes
evidencing the subordinated claims.
ABSOLUTE SUBORDINATION
The rights of the holders of the senior claims against the subordinated
party will remain in full force and effect and will not be impaired or affected
by any circumstances.
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DESCRIPTION OF THE OUTSTANDING BONDS
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE OUTSTANDING BONDS
FOR WHICH WE ARE OFFERING THE PASS-THROUGH BONDS. THE FOLLOWING INFORMATION IS
NOT A COMPLETE DESCRIPTION OF THE OUTSTANDING BONDS AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY, REFERENCE TO THE BONDS AND THE EXISITNG INDENTURE,
INCLUDING THE DEFINITIONS OF TERMS USED IN THE OUTSTANDING BONDS AND THE
EXISTING INDENTURE. UNLESS OTHERWISE SPECIFIED, THE FOLLOWING DESCRIPTION
APPLIES TO ALL OF THE OUSTANDING BONDS.
GENERAL
The outstanding bonds were issued in a private offering under an indenture
by and between Edison Mission Holdings and United States Trust Company of New
York, dated as of May 27, 1999 which we refer to as the existing indenture.
Subsequently, Edison Mission Holdings registered the outstanding bonds with the
Commission pursuant to an exchange offer in which it offered registered bonds
that were identical in all material respects to the privately held outstanding
bonds. The terms of the outstanding bonds include those stated in the existing
indenture and those made part of the existing indenture by reference to the
Trust Indenture Act of 1939. The outstanding bonds, together with all other
secured senior debt permitted under its financing documents, are senior secured
obligations of Edison Mission Holdings and rank equally in right of payment with
all other existing and future senior debt of Edison Mission Holdings, and senior
in right of payment to all existing and future indebtedness of Edison Mission
Holdings that is designated as subordinate or junior in right of payment to the
outstanding bonds. The outstanding bonds, together with all other secured senior
debt of Edison Mission Holdings, are fully and unconditionally guaranteed by
each subsidiary guarantor. If at any time before December 31, 2001, neither
Edison Mission Holdings nor its subsidiary guarantors can make payments on the
outstanding bonds and Edison Mission Holdings' other secured senior debt, Edison
Mission Energy is required to make payments on the outstanding bonds or its
other senior secured debt, in proportion to their respective obligations, of up
to $42 million under a credit support guarantee. If the debt service on the
outstanding bonds cannot be satisfied under the credit support guarantee, Edison
Mission Energy will have to make payments on the outstanding bonds under a debt
service reserve guarantee provided to satisfy the debt service requirements on
the outstanding bonds of up to $35.3 million.
PRINCIPAL, MATURITY AND INTEREST
The Series A outstanding bonds were issued in aggregate principal amount of
$300 million and will mature on October 1, 2019. The Series B outstanding bonds
were issued in aggregate principal amount of $530 million and will mature on
October 1, 2026. Interest on the outstanding bonds is payable semiannually in
arrears on each April 1 and October 1, and interest payments commenced on
October 1, 1999. Interest accrues on the basis of a 360-day year consisting of
12 months of 30 days each at a rate of 8.137% in the case of the Series A
outstanding bonds and 8.734% in the case of the Series B outstanding bonds.
Principal, premium, if any, and interest on the outstanding bonds are payable at
Edison Mission Holdings' office or agency maintained for this purpose within the
City and State of New York or, at Edison Mission Holdings' option, payment of
interest may be made by check mailed to the bondholders at their respective
addresses listed in the register of bondholders. All payments of principal,
premium, if any, and interest with respect to outstanding bonds for which
bondholders have given wire transfer instructions to Edison Mission Holdings are
required to be made by wire transfer of immediately available funds to the
accounts specified by the relevant bondholders. Until otherwise designated by
Edison Mission Holdings, its office or agency in New York is the office of
United States Trust Company of New York maintained for such purpose. The
outstanding bonds are issued in denominations of $100,000 or any multiple of
$1,000 in excess of $100,000.
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AMORTIZATION OF THE OUTSTANDING BONDS
Principal of the outstanding bonds is payable in semiannual installments on
each April 1 and October 1 occurring on or after April 1, 2004 to the registered
holder of the outstanding bonds on the immediately preceding March 15 or
September 15, so that the weighted average life of the Series A outstanding
bonds is 13.9 years and the weighted average life of the Series B outstanding
bonds is 20.7 years. The following table shows the percentage of principal of
the outstanding bonds which is payable on each semiannual principal payment
date.
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
PAYABLE ON PAYABLE ON
PRINCIPAL PAYMENT DATES SERIES A BONDS SERIES B BONDS
- ----------------------- ---------------- ----------------
April 1 and October 1, 2004................... 1.000% 0.055%
April 1 and October 1, 2005................... 2.000% 0.480%
April 1 and October 1, 2006................... 2.000% 0.590%
April 1 and October 1, 2007................... 2.500% 0.375%
April 1 and October 1, 2008................... 3.000% 0.375%
April 1 and October 1, 2009................... 3.000% 0.415%
April 1 and October 1, 2010................... 3.000% 1.000%
April 1 and October 1, 2011................... 3.000% 1.750%
April 1 and October 1, 2012................... 3.000% 2.000%
April 1 and October 1, 2013................... 3.000% 1.250%
April 1 and October 1, 2014................... 3.000% 1.500%
April 1 and October 1, 2015................... 4.000% 2.000%
April 1 and October 1, 2016................... 4.000% 2.000%
April 1 and October 1, 2017................... 5.000% 2.000%
April 1 and October 1, 2018................... 5.000% 2.000%
April 1 and October 1, 2019................... 3.500% 2.500%
April 1 and October 1, 2020................... -- 3.500%
April 1 and October 1, 2021................... -- 3.500%
April 1 and October 1, 2022................... -- 3.500%
April 1 and October 1, 2023................... -- 4.000%
April 1 and October 1, 2024................... -- 4.000%
April 1 and October 1, 2025................... -- 5.000%
April 1 and October 1, 2026................... -- 6.210%
</Table>
THE GUARANTEES
SUBSIDIARY GUARANTEES
The outstanding bonds are guaranteed by the subsidiary guarantors. The
subsidiary guarantors fully and unconditionally guarantee all of Edison Mission
Holdings' obligations under the outstanding bonds and the senior debt, including
its obligations to pay principal, premium, if any, and interest with respect to
the bonds and the senior debt. Any future subsidiary of Edison Mission Holdings
will become an additional subsidiary guarantor of the outstanding bonds.
CREDIT SUPPORT GUARANTEE
Edison Mission Energy unconditionally and irrevocably guarantees to the
bondholders and United States Trust Company of New York, as collateral agent for
the benefit of the secured parties under Edison Mission Holdings' senior debt,
the prompt and complete payment and performance by Edison Mission Holdings when
due of all of its obligations under the outstanding bonds and the senior debt up
to an amount of $42 million. The credit support guarantee may be utilized for
payments on the
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outstanding bonds and senior debt prior to amounts available in the debt service
reserve accounts. Amounts under the credit support guarantee are available until
the earlier of the termination of the guarantee or December 31, 2001.
Thereafter, Edison Mission Energy will have no further obligations under this
guarantee.
BOND DEBT SERVICE RESERVE ACCOUNT
A bond debt service reserve account has been established with United States
Trust Company of New York as the collateral agent for the benefit of the holders
of outstanding bonds. Amounts on deposit in the bond debt service reserve
account are intended to be used to pay Edison Mission Holdings' scheduled
installments of principal and interest on the outstanding bonds in the event
that Edison Mission Holdings' cash flow from operations is inadequate for such
payment. The required balance of the bond debt service reserve account on any
date of determination is 100% of the projected debt service on the outstanding
bonds for the succeeding six-month period.
The bond debt service reserve requirement may be satisfied by one or a
combination of the following:
(1) cash;
(2) a letter of credit provided by a bank or trust company rated "A2" or
higher by Moody's and "A" or higher by Standard & Poor's; or
(3) a guarantee of Edison Mission Holdings' obligations made by Edison
Mission Energy in favor of United States Trust Company of New York as the
collateral agent for the benefit of the holders of outstanding bonds, so
long as Edison Mission Energy is rated "Baa1" or higher by Moody's and
"BBB+" or higher by Standard & Poor's.
Edison Mission Energy has provided a guarantee in satisfaction of the debt
service reserve requirement for the outstanding bonds up to $35.3 million.
United States Trust Company of New York as the collateral agent for the holders
of the outstanding bonds may obtain the funds necessary to pay the debt service
due on the outstanding bonds from the proceeds of this guarantee if the debt
service due cannot be satisfied by the amount available under the credit support
guarantee. This debt service reserve guarantee by Edison Mission Energy may be
replaced without the consent of the holders of the outstanding bonds if Edison
Mission Holdings elects to provide another form of acceptable debt service
credit support as outlined above.
NATURE OF RECOURSE
Recourse for payment or performance of any of Edison Mission Holdings'
obligations in respect of the outstanding bonds is limited solely to Edison
Mission Holdings and the subsidiary guarantors. Neither any of Edison Mission
Holdings' affiliates, other than the subsidiary guarantors, nor any of the
officers, directors or stockholders of Edison Mission Holdings, or any of its
affiliates, are liable for the payment of the principal of, premium, if any, or
interest on the outstanding bonds. Bondholders have no claim against or recourse
to, whether by operation of law or otherwise, these entities or persons or their
affiliates, other than with respect to the credit support guarantee and any
guarantee by Edison Mission Energy issued to satisfy the bond debt service
reserve requirement under the existing indenture.
RATINGS
Moody's has assigned the outstanding bonds a long-term senior secured debt
rating of "Baa3," Standard & Poor's has assigned the outstanding bonds a
long-term senior secured debt rating of "BBB-" and Fitch, formerly known as
Duff & Phelps, has assigned the outstanding bonds a long-term senior secured
debt rating of "BBB." These expectations reflect only the views of Moody's,
Standard & Poor's
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and Fitch, respectively, at the time the rating is issued, and any explanation
of the significance of these ratings may be obtained only from the rating
agency. There is no assurance that these ratings will remain in effect for any
given period of time or that these ratings will not be lowered, suspended or
withdrawn entirely by Moody's, Standard & Poor's or Fitch, if, in their
judgment, circumstances so warrant. Any lowering, suspension or withdrawal of
these ratings may have an adverse effect on the market price or marketability of
the outstanding bonds.
REDEMPTION AND REPURCHASE
MANDATORY REDEMPTION
The outstanding bonds are subject to mandatory redemption, ratably with all
other senior debt in existence at that time, upon the occurrence of a recovery
event. A recovery event includes any settlement of or payment of $5 million or
more in respect of any property or casualty insurance claim relating to any
asset of Edison Mission Holdings or any guarantor or any governmental taking,
with respect to the facilities. This mandatory redemption shall not apply with
respect to amounts received by Edison Mission Holdings and the subsidiary
guarantors in connection with a recovery event for which Edison Mission Holdings
elects to restore or replace the asset or assets in respect of which a recovery
event occurred and notice is provided within 45 days of a recovery event. With
respect to any recovery event of $50 million or more, an independent engineer
must certify as to the reasonableness of the repair and replacement plans in
Edison Mission Holdings' notice relating to this recovery event. Any mandatory
redemption of the outstanding bonds will be without premium or penalty at a
redemption price equal to the unpaid principal amount of the outstanding bonds
plus accrued and unpaid interest on this amount to the date of redemption.
OPTIONAL REDEMPTION
The outstanding bonds are subject to optional redemption at any time at a
redemption price equal to the outstanding principal amount of the outstanding
bonds to be redeemed plus all accrued and unpaid interest on the outstanding
bonds to the date of redemption, plus a yield maintenance premium based on rates
of comparable United States Treasury securities plus 50 basis points, if any.
SELECTION AND NOTICE
If less than all of the outstanding bonds are to be redeemed at any time,
selection of outstanding bonds for redemption will be made by United States
Trust Company of New York on a proportional basis, by lot or by such method as
United States Trust Company of New York, acting for the benefit of the holders
of outstanding bonds, shall deem fair and appropriate. No less than $1,000 of
any outstanding bonds shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of the outstanding bonds at its registered
address. Notices of redemption may not be conditional. If any bond is to be
redeemed in part only, the notice of redemption that relates to that bond shall
state the portion of the principal amount of the bond to be redeemed. A new bond
in principal amount equal to the unredeemed portion of the bond will be issued
in the name of the holder of the bond upon cancellation of the original bond.
Outstanding bonds called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
outstanding bonds or portions of them called for redemption.
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DESCRIPTION OF EXISTING FINANCING DOCUMENTS
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE EXISTING FINANCING
DOCUMENTS. THE STATEMENTS UNDER THIS CAPTION ARE A SUMMARY ONLY AND DO NOT
PURPORT TO BE COMPLETE. THE SUMMARY MAKES USE OF TERMS MORE FULLY DEFINED IN AND
IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ALL THE PROVISIONS
OF THE FINANCING DOCUMENTS. COPIES OF THE FINANCING DOCUMENTS HAVE PREVIOUSLY
BEEN FILED WITH THE SEC. COPIES OF THE EXISTING FINANCING DOCUMENTS WILL BE
PROVIDED UPON REQUEST MADE TO THE INFORMATION AGENT. WHEN WE REFER TO BONDS IN
THIS SECTION, WE ARE REFERRING TO THE OUTSTANDING BONDS.
EXISTING INDENTURE
GENERAL
The bonds were issued under the existing indenture and, together with all
other secured senior debt, are senior secured obligations of Edison Mission
Holdings and rank equally in right of payment with all other existing and future
senior debt of Edison Mission Holdings, and senior in right of payment to all
existing and future indebtedness of Edison Mission Holdings that is designated
as subordinate or junior in right of payment to the bonds. The bonds, together
with all other secured senior debt of Edison Mission Holdings, are fully and
unconditionally guaranteed by each subsidiary guarantor, including us, and
secured by, among other things, a mortgage and first priority lien on all of
Edison Mission Holdings' and the subsidiary guarantors' tangible and intangible
assets. As a result, the bonds effectively rank equally with all secured senior
debt of Edison Mission Holdings and the subsidiary guarantors and senior to all
other indebtedness except indebtedness permitted to be incurred under the
existing indenture and secured by permitted liens. Edison Mission Holdings'
right to receive assets of any of the subsidiary guarantors upon the latter's
liquidation or reorganization, and the consequent right of the bondholders and
the other secured parties under Edison Mission Holdings' financing documents to
participate in the receipt of those assets, are effectively senior to the claims
of that subsidiary guarantor's creditors, except with respect to permitted
liens.
"MATERIAL ADVERSE EFFECT" means, with respect to any event, development or
circumstance that has had or could reasonably be expected to have a material
adverse effect on the following:
- the business, assets, property, financial condition or operations of
Edison Mission Holdings and the subsidiary guarantors since the issuance
of the bonds; or
- the ability of Edison Mission Holdings or any subsidiary guarantor to
perform its obligations under the existing financing documents.
AFFIRMATIVE COVENANTS
The following is a description of material affirmative covenants in favor of
the trustee and the bondholders. Edison Mission Holdings is obligated to comply
with these covenants so long as any bonds remain outstanding.
INFORMATION REQUIREMENTS
Edison Mission Holdings will furnish, or cause to be furnished, to the
trustee, each of Moody's, Standard and Poor's and Fitch, rating agencies, or
their successors and assigns, and, with respect to clauses (1) and (2) below
upon written request which may be a single continuing request, any bondholder or
beneficial owner or prospective bondholder or beneficial owner:
(1) as soon as available, and in any event within 60 days after the end of
the first, second and third quarters of each fiscal year, Edison Mission
Holdings' unaudited financial statements as of the end of that fiscal
quarter, together with an officer's certificate of Edison Mission
Holdings stating that these financial statements fairly present its
financial condition and results
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of operations on the dates and for the periods indicated in accordance
with generally accepted accounting principles;
(2) as soon as available, and in any event within 120 days after the end of
each fiscal year, Edison Mission Holdings' audited financial statements,
together with an officer's certificate of Edison Mission Holdings stating
that no default or event of default has occurred and is continuing, or
that if a default or an event of default has occurred and is continuing,
a statement as to the nature of this event;
(3) within 10 days after an authorized officer of Edison Mission Holdings
obtains actual knowledge of any event or condition which constitutes a
default or an event of default under the existing indenture, written
notice of its occurrence, specifically stating that this event or
condition has occurred and describing it and any action being or proposed
to be taken with respect to it;
(4) within 15 days after an authorized officer of Edison Mission Holdings
has actual knowledge of any pending or threatened material litigation
which has or could reasonably be expected to have a material adverse
effect, written notice of this litigation; and
(5) at any time when Edison Mission Holdings is subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act, copies of
any filing made with the SEC under Section 13 or Section 15(d) of the
Exchange Act, within 5 days after this filing is made.
Edison Mission Holdings will also provide to the trustee and the rating
agencies mentioned above:
- annual operational and construction reports;
- updated power market consultant reports from PA Consulting formerly known
as PHB Hagler Bailly, Inc. or another nationally recognized power market
consulting firm;
- any officer's certificates provided by Edison Mission Holdings relating to
the incurrence of indebtedness under clause (6) or (7) under "--Negative
Covenants--Limitation on Incurrence of Indebtedness" below, at least
30 days' prior to the incurrence of the indebtedness under those clauses;
and
- notice of any transfers of assets permitted by clause (1) under
"--Negative Covenants--Limitation on Sale of Assets" below.
MAINTENANCE OF EXISTENCE; COMPLIANCE WITH LAWS
Edison Mission Holdings will, and will cause each of the subsidiary
guarantors to, at all times:
- maintain their respective existence in good standing under the laws of
their respective jurisdictions of organization; and
- maintain and renew all of their respective rights, powers, privileges and
franchises except where the failure to do so could not reasonably be
expected to have a material adverse effect.
Edison Mission Holdings will, and will cause each of the subsidiary
guarantors to, comply with all applicable laws, acts, rules, regulations,
permits, orders and requirements of any legislative, executive, administrative
or judicial body relating to Edison Mission Holdings and the subsidiary
guarantors, except where:
- failure to do so could not reasonably be expected to have a material
adverse effect; or
- Edison Mission Holdings is disputing in good faith the law, act, rule,
regulation, permit, order or requirement and has established or accrued
adequate cash reserves in accordance with generally
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accepted accounting principles or provided other appropriate assurances
against any liabilities arising from this dispute, and its action to
dispute this law, act, rule, regulation, permit, order or requirement
could not reasonably be expected to have a material adverse effect.
GOVERNMENT APPROVALS
Edison Mission Holdings will, and will cause each of the subsidiary
guarantors to, obtain and maintain in full force and effect all governmental
approvals required under applicable laws to be obtained by or on its behalf and
the subsidiary guarantors' behalf to conduct their respective businesses in
accordance with, and perform their obligations under, the existing financing
documents to which each of them is a party, except where the failure to do so
could not reasonably be expected to have a material adverse effect.
MAINTENANCE OF PROPERTY; INSURANCE
Edison Mission Holdings will cause us to:
- keep and maintain all property useful and necessary in our business in
good working order and condition consistent with prudent industry practice
approved by a significant portion of the electric power generation
industry; and
- maintain good and valid title to our properties and assets, subject to no
liens other than permitted liens, except where the failure to do so could
not reasonably be expected to have a material adverse effect.
Edison Mission Holdings will cause us to maintain with financially sound and
reputable insurance companies, insurance for the amounts against the risks,
loss, damage and liability as are customarily insured against by other
enterprises of like size and type as our facilities, subject to the availability
of this coverage on commercially reasonable terms. This insurance will be on
terms and conditions which are in accordance with prudent industry practice.
OTHER AFFIRMATIVE COVENANTS
The existing indenture also contains other covenants of Edison Mission
Holdings, including the obligations of Edison Mission Holdings to, and to cause
each of the subsidiary guarantors to:
- make all payments on the bonds;
- pay all taxes and claims;
- maintain books and records;
- maintain a paying agent office with respect to the bonds; and
- maintain the perfection of the security interests created by the security
documents discussed below.
NEGATIVE COVENANTS
The following is a description of the principal negative covenants in favor
of the trustee and the bondholders. Edison Mission Holdings is obligated to
comply with these negative covenants under the existing indenture so long as any
bonds remain outstanding.
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LIMITATION ON INCURRENCE OF INDEBTEDNESS
Edison Mission Holdings cannot, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to any indebtedness other than permitted
indebtedness.
"Permitted indebtedness" means any of the following items of indebtedness:
(1) indebtedness incurred in respect of the bonds;
(2) indebtedness outstanding on the date of issuance of the bonds;
(3) indebtedness incurred under the credit agreement described below;
(4) capital lease obligations and purchase money indebtedness entered
into in the ordinary course of business in an amount not to exceed
$10 million outstanding at any one time;
(5) indebtedness to any wholly-owned subsidiary of Edison Mission
Holdings, so long as that indebtedness is held by that subsidiary;
(6) indebtedness in respect of capital improvements required by
applicable law if, (a) Edison Mission Holdings delivers to the
trustee an officer's certificate stating that the indebtedness is
being incurred to fund a required capital improvement and (b) after
giving effect to the incurrence of that indebtedness, either:
- the average projected debt service coverage ratio, defined as a
ratio the numerator of which is net cash flow and the
denominator of which is the aggregate of all principal,
interest and other fixed charges payable on the bonds or other
permitted indebtedness, through the final maturity date of the
respective bonds will not be less than 1.75 to 1.0 and the
minimum projected debt service coverage ratio for any four
quarters through the final maturity date of the respective
bonds, taken as one accounting period, will not be less than
1.50 to 1.0; or
- a written confirmation from two or more of the rating agencies
mentioned above that the bonds will not be downgraded is
obtained;
(7) indebtedness, so long as, after giving effect to the incurrence of
that indebtedness, Edison Mission Holdings delivers to the trustee an
officer's certificate stating that:
- the average projected debt service coverage ratio through the
final maturity date of the bonds will not be less than 2.50 to
1.0 and the minimum projected debt service coverage ratio for
any four quarters through the final maturity date of the bonds,
taken as one accounting period, will not be less than 2.00 to
1.0, and if the proceeds of the indebtedness are to be applied
to construct a new facility, the bonds must be rated at least
"Baa3" by Moody's, "BBB-" by Standard & Poor's and "BBB-" by
Fitch after giving effect to the incurrence of that
indebtedness; or
- the bonds are rated at least "Baa3" by Moody's, "BBB-" by
Standard & Poor's and "BBB-" by Fitch, or its successors and
assigns;
(8) indebtedness incurred for working capital purposes only and not in
excess of $50 million at any one time outstanding, with this amount
to be escalated annually in accordance with increases in the consumer
price index as published by the United States Department of Labor,
Bureau of Labor Statistics; however, the outstanding principal amount
of this indebtedness on each anniversary of May 27, 1999 must be $0;
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(9) indebtedness represented by interest rate hedging obligations, so
long as these interest rate hedging obligations relate to
indebtedness otherwise permitted to be incurred by Edison Mission
Holdings;
(10) reimbursement obligations or other indebtedness relating to
reimbursement under any letter of credit issued to satisfy any debt
service reserve requirement described under "Description of the
Outstanding Bonds--Bond Debt Service Reserve Account;"
(11) subordinated indebtedness to affiliates of Edison Mission Holdings,
if the incurrence of this subordinated indebtedness satisfies the
covenant described below under "--Limitation on Restricted Payments;"
(12) indebtedness in the form of guarantees entered into by Edison
Mission Holdings in the ordinary course of business in connection
with fuel procurement or sales, purchases or exchanges by affiliates
of Edison Mission Holdings related to physical or financial capacity,
energy and emissions credits related to the facilities, so long as
these activities are not for speculative purposes;
(13) indebtedness in respect of letters of credit, surety bonds or
performance bonds issued in the ordinary course of Edison Mission
Holdings' business;
(14) indebtedness incurred in exchange for, or the net proceeds of which
are used to refund, refinance or replace, indebtedness of Edison
Mission Holdings' incurred under clause (3) above, if (a) the
principal amount, net of expenses, of the new indebtedness does not
exceed the principal amount of the old indebtedness and (b) either
(1) the average life of the new indebtedness will not be shorter than
the remaining average life of the respective bonds or (2) the new
indebtedness will be rated at least "Baa3" by Moody's, "BBB-" by
Standard & Poor's and "BBB-" by Fitch, or its successors and assigns;
and
(15) other senior indebtedness not to exceed $20 million at any one time
outstanding.
For purposes of incurring indebtedness under clauses (6), (7) and
(14) above, Edison Mission Holdings shall cause PA Consulting or another
nationally recognized power market consulting firm to provide updated
electricity price projections to allow Edison Mission Holdings to provide the
requisite certification.
For purposes of determining compliance with this covenant, in the event that
an item of proposed indebtedness meets the criteria of more than one of the
categories of permitted indebtedness described in clauses (1) through
(15) above as of the date of its incurrence, Edison Mission Holdings is, in its
sole discretion, entitled to classify or reclassify this item of indebtedness in
any manner that complies with this covenant. Accrual of interest, the accretion
of accreted value and the payment of interest in the form of additional
indebtedness are not deemed to be an incurrence of indebtedness for purposes of
this covenant.
LIMITATION ON INCURRENCE OF SUBSIDIARY GUARANTOR INDEBTEDNESS
Edison Mission Holdings may not permit any subsidiary guarantor to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to any
indebtedness other than:
- subordinated indebtedness; or
- indebtedness in respect of letters of credit, surety bonds or performance
bonds issued, or purchase money or trade indebtedness incurred, in the
ordinary course of business and in an aggregate amount not to exceed
$15 million at any one time outstanding.
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LIMITATION ON RESTRICTED PAYMENTS
Edison Mission Holdings may not, and may not permit any of the subsidiary
guarantors to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of its or any of the subsidiary guarantors' capital stock and all
warrants, rights and other options to acquire capital stock which we
refer to as equity interests, including, without limitation, any payment
in connection with any merger or consolidation involving Edison Mission
Holdings or any subsidiary guarantor, or to the direct or indirect
holders of Edison Mission Holdings or any of the subsidiary guarantors'
equity interests in their capacity as holders, other than:
- dividends or distributions payable in equity interests of Edison
Mission Holdings;
- dividends or distributions payable to Edison Mission Holdings or
another subsidiary of Edison Mission Holdings; or
- dividends payable to Edison Mission Energy not to exceed
$30 million from the proceeds of bonds;
(2) purchase, redeem or otherwise acquire or retire for value, including
without limitation, in connection with any merger or consolidation
involving Edison Mission Holdings or any subsidiary guarantor, any equity
interests of Edison Mission Holdings or any direct or indirect parent of
Edison Mission Holdings or other affiliate of Edison Mission Holdings;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any subordinated indebtedness,
except a payment of interest or principal at stated maturity, or a
payment of interest made through the issuance of additional indebtedness
of the same kind as the indebtedness on which this interest shall have
accrued; or
(4) make any restricted investment.
The payments and other actions described above are collectively referred to
as restricted payments. The existing indenture does not prohibit restricted
payments if, at the time of, and after giving effect to a restricted payment:
- no default or event of default has occurred and is continuing or would
occur as a consequence of this restricted payment;
- the amount on deposit in each account for accrued interest and in each
account for payment of principal is equal to or greater than the amount
then required to be on deposit in the accrued interest account or
principal account, as the case may be as described in "--Accrued Interest
Accounts; Principal Accounts" below;
- the debt service reserve accounts are each fully funded;
- the debt service coverage ratio for the preceding four quarters, taken as
one accounting period, is equal to or greater than 1.50 to 1.0 in the case
of any period ending on or prior to December 31, 2001 or 1.70 to 1.0 in
the case of any period ending after December 31, 2001, as described in an
officer's certificate; and
- the projected debt service coverage ratio for each four-quarter period,
taken as one accounting period, during the next eight quarters is equal to
or greater than 1.50 to 1.0 in the case of any period ending on or prior
to December 31, 2001 or 1.70 to 1.0 in the case of any period ending after
December 31, 2001, as described in an officer's certificate.
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At intervals not to exceed every three years, Edison Mission Holdings shall
cause PA Consulting or another nationally recognized power market consulting
firm to provide updated electricity price projections to allow Edison Mission
Holdings certification for purposes of making restricted payments.
LIMITATION ON LIENS
Edison Mission Holdings may not, and may not permit any of the subsidiary
guarantors to, create, incur, assume or otherwise cause or suffer to exist or
become effective any lien of any kind upon any of their property or assets,
owned at the time of closing or acquired in the future, other than permitted
liens.
Permitted liens include the following types of liens:
- liens existing on the date of issuance of the bonds;
- liens created under the security documents as described in
"--Intercreditor Agreement" and "--Other Security Documents" below;
- carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar liens arising in the ordinary course of
business in respect of obligations not yet due and payable or which are
being contested in good faith by appropriate proceedings promptly
instituted and diligently prosecuted in each case as long as any reserve
or other appropriate provision as will be required to conform with
generally accepted accounting principles will have been made for these
liens; and
- liens for taxes, assessments or governmental charges or levies that are
not yet delinquent and remain payable without penalty or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently prosecuted in each case as long as any reserve or other
appropriate provision as will be required to conform with generally
accepted accounting principles will have been made for these liens.
LIMITATION ON SUBSIDIARIES AND INVESTMENTS
Edison Mission Holdings will not create or acquire any subsidiary unless the
subsidiary will become an additional subsidiary guarantor under the security
documents and, at the time of the creation or acquisition of this subsidiary,
the subsidiary will have no indebtedness outstanding other than indebtedness
permitted under the existing financing documents. Edison Mission Holdings will
retain 100% direct or indirect beneficial ownership in each of its subsidiaries
for so long as the bonds remain outstanding. Edison Mission Holdings cannot, nor
can it permit any of the subsidiary guarantors to, make any investment other
than permitted investments.
LIMITATION ON MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
Edison Mission Holdings may not, directly or indirectly, consolidate or
merge with or into any other person, whether or not Edison Mission Holdings is
the surviving corporation, or sell, assign, convey, lease, transfer or otherwise
dispose of, all or substantially all of its properties or assets in one or a
series of transactions, to any person or persons. However, Edison Mission
Holdings may consolidate with or merge into any other person so long as Edison
Mission Holdings is the surviving corporation and both immediately before and
after giving effect to this transaction, no default or event of default will
have occurred and be continuing.
Notwithstanding the preceding provision, Edison Mission Holdings may merge
or consolidate with or transfer substantially all of its assets to an affiliate
that has no significant assets or liabilities and was formed solely for the
purpose of changing the jurisdiction of organization of Edison Mission Holdings
or the form of organization of Edison Mission Holdings, but only if the amount
of indebtedness of
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Edison Mission Holdings and the subsidiary guarantors is not increased by this
merger, consolidation or transfer and only if the successor assumes all
obligations of Edison Mission Holdings under the existing indenture and the
registration rights agreement. Upon any consolidation or merger, or any sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the properties or assets of Edison Mission Holdings in
accordance with the immediately preceding sentence, the successor corporation
formed by this consolidation or into or with which Edison Mission Holdings is
merged or to which this sale, assignment, transfer, lease, conveyance or other
disposition is made, will succeed to, and be substituted for and may exercise
every right and power of Edison Mission Holdings under the existing indenture
with the same effect as if the successor had been named as the "Company" in the
existing indenture. From and after the date of this consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of the existing indenture
referring to the "Company" will refer instead to the successor corporation and
not to Edison Mission Holdings. However, Edison Mission Holdings will not be
relieved from the obligation to pay the principal of and interest on the bonds
except in the case of a sale, assignment, transfer, conveyance or other
disposition of all or substantially all of the properties or assets of Edison
Mission Holdings on a combined basis that meets the requirements of this
paragraph.
Edison Mission Holdings cannot permit any of the subsidiary guarantors to,
directly or indirectly, consolidate or merge with or into any other person,
whether or not the subsidiary guarantor is the surviving corporation, or sell,
assign, convey, lease, transfer or otherwise dispose of, all or substantially
all of its properties or assets in one or a series of transactions, to any
person or persons, other than a merger with or into the Edison Mission Holdings.
In the case of any wholly-owned subsidiary, Edison Mission Holdings can permit a
merger with or into any other wholly-owned subsidiary, a merger of any other
wholly-owned subsidiary into a wholly-owned subsidiary or a transfer or
disposition of substantially all of its properties or assets to Edison Mission
Holdings or any other wholly-owned subsidiary.
LIMITATION ON SALE OF ASSETS
Except in connection with a merger, consolidation or sale of substantially
all of its properties or assets, which is covered by the covenant described
above under "--Limitation on Merger, Consolidation and Sale of Substantially All
Assets," Edison Mission Holdings may not, and may not permit any of the
subsidiary guarantors to, sell or otherwise dispose of any assets or enter into
sale-leaseback transactions, including by way of the issue or sale by it or any
of the subsidiary guarantors of equity interests in these subsidiary guarantors,
other than:
- transfers of assets among Edison Mission Holdings and the subsidiary
guarantors, so long as a written confirmation that the bonds will now be
downgraded is obtained from at least two of the rating agencies mentioned
above;
- sales and dispositions in the ordinary course of business not in excess of
$10 million in any fiscal year;
- sales or dispositions of surplus, obsolete or worn out equipment; and
- sales or dispositions required for compliance with applicable law or
necessary governmental approvals.
LIMITATION ON BUSINESS ACTIVITIES
Edison Mission Holdings may not, nor may it permit any subsidiary guarantor
to, engage in any business or conduct any activities other than the ownership
and operation of the facilities, any expansion or improvements of the
facilities, and matters reasonably incidental to these permitted activities.
Edison Mission Holdings and the subsidiary guarantors may enter into fuel
procurement or
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sales, purchases or exchanges related to physical or financial capacity, energy
and emissions credits or allowances related to the facilities, so long as these
activities are not for speculative purposes.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
Edison Mission Holdings may not, and may not permit any of the subsidiary
guarantors to, enter into any transaction or arrangement, whether or not in the
ordinary course of business, with any affiliate, other than Edison Mission
Holdings and its subsidiaries, except for the following:
- management, operating, marketing, trading or other similar services
agreements between and among Edison Mission Holdings and its affiliates in
existence on May 27, 1999; and
- any transaction which is on terms that are no less favorable to Edison
Mission Holdings or the relevant subsidiary guarantor than those that
would have been obtained in a comparable arm's-length transaction by
Edison Mission Holdings or this subsidiary guarantor with an unrelated
person.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the existing
indenture:
- default for 15 days in the payment when due of any principal of, premium,
if any, or interest on the bonds;
- failure by Edison Mission Holdings or any subsidiary guarantor to comply
with the provisions described above under the captions:
- "--Negative Covenants--Limitation on Incurrence of Indebtedness,"
- "--Negative Covenants--Limitation on Incurrence of Subsidiary Guarantor
Indebtedness,"
- "--Negative Covenants--Limitation on Liens,"
- "--Negative Covenants--Limitation on Restricted Payments,"
- "--Negative Covenants--Limitation on Asset Sales,"
- "--Negative Covenants--Limitation on Business Activities,"
- "--Negative Covenants--Limitation on Merger, Consolidation and Sale of
Substantially all Assets," or
- "--Affirmative Covenants--Maintenance of Existence," and this failure
continues uncured for 30 or more days from the date an authorized
officer of Edison Mission Holdings receives actual notice of this
failure;
- failure by Edison Mission Holdings or any subsidiary guarantor to comply
with any of its other agreements in the existing indenture, the bonds or
the security documents and this failure continues uncured for 60 or more
days from the date an authorized officer of Edison Mission Holdings
receives actual notice of this failure, or to the extent this default is
curable but cannot be cured within the 60 day period, so long as Edison
Mission Holdings provides an officer's certificate to the trustee stating
that it is diligently pursuing a cure, a longer period of time which may
be necessary in good faith to cure the default, but in no event to exceed
90 days;
- the occurrence of a change of control in Edison Mission Holdings caused by
a reduction in Edison Mission Energy's beneficial ownership in it to less
than 50%;
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- any portion of the security interests granted under the security documents
ceasing to be a senior security interest in full force and effect, which
cessation has a material adverse effect, but Edison Mission Holdings will
have 10 days to cure this cessation;
- default under any mortgage, existing indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Edison Mission Holdings or any of the
subsidiary guarantors, or the payment of which is guaranteed by Edison
Mission Holdings or any of the subsidiary guarantors, whether this
indebtedness or guarantee existed at the time of closing or was created
after May 27, 1999, which default results in the acceleration of this
indebtedness before its express maturity and, in each case, the principal
amount of any indebtedness, together with the principal amount of any
other indebtedness the maturity of which has been so accelerated,
aggregates without duplication to $15 million or more;
- failure by Edison Mission Holdings or any of the subsidiary guarantors to
pay final, non-appealable judgments aggregating in excess of $15 million,
excluding amounts covered by insurance, which judgments are not paid,
discharged or stayed for a period of 90 days; and
- certain events of bankruptcy or insolvency with respect to Edison Mission
Holdings or any of the subsidiary guarantors, including any involuntary
proceeding that continues unstayed and undismissed for a period of 60 or
more consecutive days.
SECURITY DEPOSIT AGREEMENT
GENERAL
Edison Mission Holdings, each of the subsidiary guarantors and United States
Trust Company of New York, as the collateral agent, entered into a security
deposit agreement, dated as of March 18, 1999, under which:
- specified accounts of Edison Mission Holdings and the subsidiary
guarantors were established with the collateral agent,
- instructions for deposits into, and payments from, each of the accounts
were established; and
- Edison Mission Holdings and each of the subsidiary guarantors pledged and
assigned to the collateral agent, and created in favor of the collateral
agent, for the benefit of the secured parties, a security interest in each
such party's interest in and to revenues received by this party, the
accounts, all amounts on deposit from time to time in the accounts and all
proceeds of the items listed in this clause.
ESTABLISHMENT OF ACCOUNTS
The following accounts have been established by the collateral agent:
- revenue account;
- accrued interest accounts;
- principal accounts;
- debt service reserve accounts;
- environmental capital expenditure account;
- recovery event proceeds account; and
- equity account.
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Edison Mission Holdings and the subsidiary guarantors have granted a
security interest in the accounts to the collateral agent for the benefit of the
secured parties. The accounts will at all times be in the name of the collateral
agent. Edison Mission Holdings and the subsidiary guarantors do not have any
right to withdraw monies from the accounts or any other rights with respect to
the accounts other than as described in the security deposit agreement.
REVENUE ACCOUNT
All revenues received by Edison Mission Holdings or the subsidiary
guarantors are deposited into the revenue account. Funds on deposit in the
revenue account are transferred on the last business day of each month.
ACCRUED INTEREST ACCOUNTS; PRINCIPAL ACCOUNTS
Accrued interest accounts and principal accounts were established for each
class of senior debt entitled to the benefits of the security documents. These
accounts are funded from funds on deposit in the revenue account on the last
business day of each month. Amounts on deposit in the accrued interest accounts
and principal accounts are utilized by the secured parties' representatives to
pay when due amounts owing from time to time under senior debt.
DEBT SERVICE RESERVE ACCOUNTS
Debt service reserve accounts were established for each class of senior debt
that, under the terms of the financing document governing this senior debt,
require Edison Mission Holdings to satisfy a debt service reserve requirement
for this senior debt. Any letter of credit, guarantee or other instrument
delivered to the collateral agent in accordance with any debt service reserve
requirement will be deposited in the related debt service reserve account.
ENVIRONMENTAL CAPITAL EXPENDITURE ACCOUNT
All proceeds of the construction term loans issued under the credit
agreement are deposited into the environmental capital expenditure account.
Except during a period of default, as specified in a request letter from Edison
Mission Holdings to the collateral agent requesting a transfer, the collateral
agent will transfer to Edison Mission Holdings or any of the subsidiary
guarantors, from the funds on deposit in the environmental capital expenditure
account, the amount certified in this request letter to be the aggregate amount
then due and payable in respect of environmental capital expenditures.
RECOVERY EVENT PROCEEDS ACCOUNT
All recovery event proceeds are deposited into the recovery event proceeds
account. Except during a period of default, funds on deposit in the recovery
event proceeds account will be utilized as follows, in each case under the terms
of the financing documents governing senior debt: either
- the collateral agent will transfer to Edison Mission Holdings or any of
the subsidiary guarantors, from the funds on deposit in the recovery event
proceeds account, the amount certified in the related request letter to be
the aggregate amount then due and payable in respect of restoration of the
asset or assets under which the proceeds have been received; or
- the collateral agent will transfer to the secured parties' representative
for senior debt required to be repaid from these recovery event proceeds
the amount certified in the related request letter to be the aggregate
amount of principal, premium and interest then due and payable in respect
of this senior debt.
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EQUITY ACCOUNT
The equity account is funded from amounts on deposit in the revenue account
on the last day of each month. Except during a period of default, on the first
business day of each of January, April, July and October, also known as a
restricted payment date, the collateral agent will transfer, from the funds on
deposit in the equity account, the amount certified by Edison Mission Holdings
in the request letter delivered in connection with this restricted payment date
to be then available for use in making restricted payments in accordance with
the terms of the financing documents.
PRIORITY OF PAYMENTS DURING AN EVENT OF DEFAULT
During a period of default, Edison Mission Holdings will be entitled to
issue request letters and otherwise direct the transfer of funds from the
accounts until the collateral agent receives a notice of action directing that
action be taken. For more information, see "--Intercreditor Agreement--Default;
Acceleration; Exercise of Remedies."
At any time after the collateral agent receives a notice of action
specifying that action be taken in accordance with the security deposit
agreement, the collateral agent shall:
- transfer all amounts in the environmental capital expenditure account to
Citicorp USA Inc., in its capacity as the administrative agent for the
bank lenders, and this transfer will be deemed to be a payment made on
account of the debt service then due and payable in respect of the
construction term loans under the credit agreement;
- with respect to any senior debt, transfer all amounts in the debt service
reserve account with respect to this senior debt, including amounts
obtained from drawings under any letter of credit, guarantee or other
instrument held by the collateral agent in respect of this senior debt, to
the secured parties' representative for this senior debt, and this
transfer will be deemed to be a payment made on account of the debt
service then due and payable in respect of this senior debt; and
- with respect to any senior debt, transfer all amounts in the accrued
interest account and the principal account with respect to this senior
debt to the secured parties' representative for this senior debt, and this
transfer will be deemed to be a payment made on account of the debt
service then due and payable in respect of this senior debt.
After making the transfers specified by the immediately preceding clauses,
the collateral agent will take or discontinue to take all actions specified in
this notice of action and/or will transfer all amounts remaining in the accounts
in the following order of priority:
- first, to the collateral agent and each secured parties' representative,
the amount certified by this person to be the sum of the unpaid fees,
indemnities, costs and expenses then due and payable to this person for
its services in this capacity;
- second, to each secured parties' representative for senior debt, the
amount certified by this secured parties' representative to be the
aggregate amount of principal, premium and interest then due and payable
in respect of this senior debt under the related financing documents;
- third, to each secured parties' representative for senior debt, the amount
certified by this secured parties' representative to be the aggregate
amount of all debt service, other than principal, premium and interest,
then due and payable in respect of this senior debt under the related
financing documents; and
- fourth, any surplus then remaining will be paid to Edison Mission Holdings
or its successors or assigns or to whoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.
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INTERCREDITOR AGREEMENT
GENERAL
Edison Mission Holdings, each of the subsidiary guarantors, Citicorp
USA Inc., as administrative agent, and United States Trust Company of New York,
as the collateral agent, together with other secured parties' representatives
from time to time party to this agreement, entered into a collateral agency and
intercreditor agreement, dated as of March 18, 1999, under which:
- United States Trust Company of New York was appointed by the secured
parties' representatives as collateral agent for these parties under the
security documents; and
- the secured parties' representatives agreed as to specified procedures
regarding the sharing of collateral. Upon the issuance of the bonds, the
trustee became a party to the intercreditor agreement as a secured
parties' representative.
On June 26, 2001, U.S. Trust Corporation, of which United States Trust
Company of New York is a part, sold its Corporate Trust and Agency division to
The Bank of New York. All of United States Trust Company of New York's corporate
trust business and assets are currently in the process of being transferred to
The Bank of New York. In the interim, United States Trust Company of New York
acts as agent of The Bank of New York in monitoring, maintaining and
administering the corporate trust accounts which are being transferred to The
Bank of New York.
Under the intercreditor agreement, all secured senior debt incurred by
Edison Mission Holdings from time to time is entitled to the benefits of the
security documents and ranks equally without any preference among these
obligations by reason of date of incurrence or otherwise.
DEFAULT; ACCELERATION; EXERCISE OF REMEDIES
The intercreditor agreement permits holders of senior debt to declare
defaults and events of default with respect to the financing document governing
this senior debt, and to accelerate this debt upon the occurrence of an event of
default, in accordance with the provisions described in this financing document.
Notice of any event of default or acceleration of senior debt must be provided
by the applicable secured parties' representative to the collateral agent, who
will promptly forward this notice to Edison Mission Holdings and each other
secured parties' representative.
Following the delivery of a notice of acceleration of senior debt to the
collateral agent, during any period during which an event of default under
senior debt will have occurred and be continuing, the holders of senior debt
holding a majority of the sum of senior debt outstanding at that time may
deliver a notice of action to the collateral agent directing the collateral
agent to exercise one or more of the rights and remedies available to the
collateral agent under the security documents. The collateral agent will
exercise the rights and remedies and take the other actions described in that
notice of action at the time or times specified in the notice of action.
AMENDMENT OF FINANCING DOCUMENTS
The intercreditor agreement requires, in addition to any consent requirement
contained in any financing document, the consent of each secured parties'
representative:
- in connection with any amendment, supplement or other modification of any
financing document that would increase the amount of, or change the
scheduled date of maturity of, any senior debt or the scheduled date of
any installment of principal payable on any senior debt, or increase the
stated rate of any interest, premium, fee or other amount payable in
respect of any senior debt, or change the scheduled date of any payment of
any senior debt, or provide for any additional mandatory prepayment of any
senior debt;
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- to release all or any material portion of the collateral from the liens of
the security documents;
- to release Edison Mission Holdings or any of the subsidiary guarantors
from their respective obligations under the security documents;
- to release Edison Mission Energy from its obligations under the credit
support guarantee;
- to amend, modify or waive any provision of the security documents relating
to the order of priority or amounts of transfers of cash and other
property to be made in accordance with the security documents or to amend
or modify the definitions of "Obligations" or "Senior Debt" under these
documents; or
- to amend or modify the definition of "Required Secured Parties" under the
security documents or the percentages required for any action to be taken
under the security documents.
AMENDMENT OF INTERCREDITOR AGREEMENT
With the written consent of the holders of senior debt holding a majority of
the sum of senior debt outstanding at the time, the collateral agent, Edison
Mission Holdings and the subsidiary guarantors may, from time to time, enter
into an amendment, supplement, waiver or other modification of the intercreditor
agreement or change in any manner the rights of the collateral agent, the
secured parties or Edison Mission Holdings under the intercreditor agreement
but:
- any amendment, supplement, waiver or other modification of the provisions
described in this agreement relating to amendments of financing documents
will require the consent of each secured parties' representative and the
collateral agent; and
- any amendment, supplement, waiver or other modification of the provisions
relating to amendments of the intercreditor agreement described in this
agreement will require the consent of each secured parties'
representative, the collateral agent, Edison Mission Holdings and each of
the subsidiary guarantors.
Notwithstanding the preceding provisions, without the consent of any secured
party, the collateral agent, Edison Mission Holdings and, so long as any
obligations are outstanding under the credit agreement, the administrative
agent, at any time and from time to time, may enter into one or more agreements
supplemental to the intercreditor agreement, in form satisfactory to the
collateral agent:
- to add to the covenants of Edison Mission Holdings and the subsidiary
guarantors for the benefit of the secured parties or to surrender any
right or power conferred upon Edison Mission Holdings or any of the
subsidiary guarantors;
- to mortgage or pledge to the collateral agent, or grant a security
interest in favor of the collateral agent in, any property or assets as
security or additional security for the obligations under secured senior
debt; or
- to cure any ambiguity, defect or inconsistency or to make any other change
that would provide any additional rights or benefits to the secured
parties or that does not adversely affect the legal rights of any secured
party under the financing documents.
OTHER SECURITY DOCUMENTS
GUARANTEE AND COLLATERAL AGREEMENT
Under the guarantee and collateral agreement, the secured parties have a
security interest in specified collateral, including:
- all tangible and intangible property of Edison Mission Holdings and each
subsidiary guarantor;
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- all proceeds and products of any and all of the preceding property and
assets;
- all collateral security and guarantees given by any person with respect to
any of the preceding property and assets; and
- the books and records pertaining to the above, securing, in the case of
Edison Mission Holdings, the obligations of Edison Mission Holdings under
senior debt and, in the case of the subsidiary guarantors, the obligations
of the subsidiary guarantors under their guarantees.
Under this agreement, each subsidiary guarantor fully and unconditionally
guarantees the obligations of Edison Mission Holdings under the senior debt.
The obligations of each subsidiary guarantor under its respective guarantee
is limited to the maximum amount as does not constitute a fraudulent conveyance
or fraudulent transfer under federal or state law. This determination will be
made after giving effect to all other contingent and fixed liabilities of the
subsidiary guarantor including, without limitation, any obligations under any
senior debt and after giving effect to any collections from or payments made by
or on behalf of any other subsidiary guarantor in respect of the obligations of
this subsidiary guarantor under its guarantee.
MORTGAGE
Under the mortgage, the secured parties have a lien on all of our real
property interests held at the time of closing or acquired after as security for
Edison Mission Holdings' obligations under the senior debt and our obligations
under our guarantee as a subsidiary guarantor.
CREDIT SUPPORT GUARANTEE
Under the credit support guarantee, Edison Mission Energy unconditionally
and irrevocably guarantees to the collateral agent, for the benefit of the
secured parties, the prompt and complete payment and performance by Edison
Mission Holdings when due of all of Edison Mission Holdings' obligations under
the senior debt up to an amount of $42 million. Under the security deposit
agreement, the credit support guarantee would be utilized for payments on senior
debt prior to amounts available in the debt service reserve accounts. Amounts
under the credit support guarantee are available until December 31, 2001.
BOND DEBT SERVICE RESERVE ACCOUNT
A debt service reserve account was established with the collateral agent for
the benefit of the bondholders. Amounts on deposit in the bond debt service
reserve account will be used to pay Edison Mission Holdings' scheduled
installments of principal and interest on the bonds in the event Edison Mission
Holdings' cash flow from operations is inadequate for payment of these
installments. The required balance of the bond debt service reserve account on
any date of determination will be 100% of the projected debt service on the
bonds for the succeeding six-month period.
This reserve requirement may be satisfied by one or a combination of the
following:
- cash;
- an irrevocable letter of credit from a bank or trust company with a
combined capital and surplus of at least $1 billion whose long term
unsecured debt is rated at least "A2" by Moody's or "A" by Standard &
Poor's; or
- a unconditional guarantee of Edison Mission Holdings' obligations with
respect to this reserve requirement, in the form described in the existing
indenture, made by Edison Mission Energy in favor of the collateral agent
for the benefit of the bondholders.
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DEBT SERVICE RESERVE LETTER OF CREDIT
Under the existing indenture, Edison Mission Holdings will be required, for
so long as the bonds are outstanding, to maintain the debt service reserve
account. Amounts in the debt service reserve account will be applied in some
instances to the payment of principal, interest, fees and amounts due in respect
of funding losses, increased capital costs, taxes and indebtedness then due and
payable in respect of the bonds.
The required balance in the debt service reserve account on each payment
date will be 100% of the projected debt service on the bonds for the succeeding
six-month period, which requirement may be satisfied by acceptable credit
support in the form of one or a combination of the following: cash or a letter
of credit issued by a bank or trust company that is an acceptable credit
provider. A bank or trust company will be an acceptable credit provider if
(1) the entity has a combined capital surplus of at least $1 billion and a long
term unsecured debt rating of "A" or higher by Standard & Poor's or "A2" or
higher by Moody's and (2) the entity is exempt from SEC registration under
Section 3(a)(2) of the Securities Act.
SUBORDINATION AGREEMENT
Edison Mission Holdings, each subsidiary guarantor and the collateral agent
entered into an intercompany loan subordination agreement on March 18, 1999,
under which any and all obligations owed by Edison Mission Holdings or any
subsidiary guarantor to Edison Mission Holdings or any subsidiary guarantor are
subordinated to Edison Mission Holdings' and the subsidiary guarantors'
obligations under the financing documents.
The subordination agreement includes customary "deep subordination" terms,
including without limitation:
- an agreement by the subordinated parties not to exercise any remedies in
respect of subordinated claims until all of the senior claims have been
indefeasibly paid in full;
- an obligation of the subordinated parties to turn over any payments
received in respect of the subordinated claims in violation of the
subordination agreement; and
- a right of the holders of senior claims to enforce subordinated claims in
a bankruptcy proceeding of the borrower.
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DESCRIPTION OF THE PROPOSED AMENDMENTS
We are seeking the consent of the holders of outstanding bonds to the
consummation of the sale-leaseback transaction. In connection with the
sale-leaseback transaction, we are seeking the requisite consents to the waiver
of all provisions of the existing indenture necessary in order to effect the
sale-leaseback transaction.
Set forth below is a description of the proposed amendments. The proposed
amendments will be approved at the consent date if Edison Mission Holdings has
received the requisite consents, and the requisite consents have not been
revoked at the consent date. You should refer to the form of the amended and
restated indenture for the full and complete terms of the proposed amendments.
The form of the amended and restated indenture, which may be modified or
supplemented prior to its execution in a manner that would require additional
consents, is filed as an exhibit to the registration statement of which this
consent solicitation statement forms a part.
In connection with the sale-leaseback transaction, an amended and restated
indenture governing the pass-through bonds will be executed. Although the
amended and restated indenture will become effective upon execution, the
proposals will only become operative concurrently with the execution of, among
other documents, the facility leases, the lease indentures, the lease
subordination agreements and the participation agreements, the consummation of
the sale-leaseback transaction and the making of the consent payment. The
existing indenture will remain in effect, without giving effect to the proposed
amendments, until the sale-leaseback transaction is consummated. For a
description of these documents, see "Description of the Principal Sale-Leaseback
Transaction Documents." If the sale-leaseback transaction has not been
consummated and the consent payment has not been made, none of the proposals
will become effective.
As a part of the sale-leaseback transaction, Homer City Funding will assume
all the obligations of Edison Mission Holdings under the indenture, as amended
and restated, and the subsidiary guarantors, including us, will be released from
our and their respective obligations under the indenture. The proposed
amendments will move all of the operational covenants and events of default,
with some modification as described below, from the existing indenture to the
participation agreements and the facility leases where they will apply to us.
The proposed amendments will also add covenants that will bind us. The covenants
and events of default remaining in the amended and restated indenture with
respect to Homer City Funding are designed to limit Homer City Funding's
activities to servicing the debt service obligations under the pass-through
bonds only and to include provisions giving holders of pass-through bonds
essentially the same rights and remedies regarding redemption, amount of
payments and exercise of remedies as the holders of outstanding bonds have under
the existing indenture. In connection with the sale-leaseback transaction, the
subsidiary guarantors, including us, will be released from their obligations
under the existing indenture and, therefore the amended and restated indenture
will contain no references to the subsidiary guarantors. The recourse to the
bondholders is limited to the secured lease obligation notes. The following
discussion sets forth the material amendments to the existing indenture.
THE PROPOSED AMENDMENTS
DELETION OF SECTION 4.3 OF THE EXISTING INDENTURE (INFORMATION REQUIREMENTS)
This covenant requires Edison Mission Holdings to, among other things,
furnish financial statements at the end of the first three quarters of each
fiscal year and at the end of each fiscal year. Under the existing indenture,
the financial statements for the first three quarters of each fiscal year must
be accompanied by a company certificate stating that the financial statements
fairly represent the financial condition of Edison Mission Holdings and results
of operations in accordance with generally accepted accounting principles. Under
section 5.1 of each participation agreement, we will have an
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obligation to provide our financial statements for the first three quarters and
at the end of each fiscal year which will need to be accompanied by an officer's
certificate stating:
- that to the knowledge of the officer no event of default, as discussed
below, exists, or if any exists, the nature of the event of default and
the corrective actions that have been taken; and
- that the calculations of the debt service coverage ratios are true and
correct.
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Under the existing indenture, this covenant also requires Edison Mission
Holdings to provide, within 10 days of actual knowledge, written notice of an
event of default and within 15 days of actual knowledge, written notice of any
pending or threatened litigation which has or could reasonably be expected to
have a material adverse effect. Each participation agreement will require us to
provide, promptly upon obtaining actual knowledge, written notice of any
litigation involving claims in excess of $5 million per claim or $10 million in
the aggregate, notice of any event of default and notice of any matter which has
resulted or is likely to result in a material adverse effect.
This covenant will be deleted with respect to Homer City Funding.
DELETION OF SECTION 4.7 OF THE EXISTING INDENTURE (LIMITATION ON RESTRICTED
PAYMENTS)
Under the existing indenture, Edison Mission Holdings may make a restricted
payment on January 1, April 1, July 1 or October 1 if that date is a business
day, and on the next succeeding business day if that date is not a business day,
if the following conditions are met:
- no event of default has occurred and is continuing or would occur as a
consequence of the restricted payment;
- the amounts in each accrued interest account and in each principal account
are equal to or greater than levels required by the security deposit
agreement;
- the debt service reserve accounts are fully funded;
- the debt service coverage ratio for the preceding four quarters, taken as
one accounting period, has been at least 1.5 to 1.0 for periods ending on
or prior to December 31, 2001 and 1.7 to 1.0 for periods ending after
December 31, 2001; and
- the projected debt service coverage ratio for each four-quarter period
during the next eight quarters, taken as one accounting period, is at
least 1.5 to 1.0 for periods ending on or prior to December 31, 2001 and
1.7 to 1.0 for periods ending after December 31, 2001.
"DEBT SERVICE COVERAGE RATIO" is defined as a ratio, the numerator of which
is net cash flow for the period and the denominator of which is the aggregate of
all principal, interest and other fixed charges payable during the period on the
outstanding bonds.
The proposed amendments will split this limitation into two parts:
limitations on restricted payments and limitations on payments of the equity
portion of the lease rent. Under Section 6.10 of each participation agreement,
in order for us to make a restricted payment (other than in connection with the
closing of the sale-leaseback transaction), the following conditions will have
to be met:
- the payment date must be January 1, April 1, July 1 or October 1 if that
date is a business day, and on the next succeeding business day if that
date is not a business day, or within 5 days after;
- no lease default or lease event of default, OTHER THAN a failure to make
any payment of the equity portion of basic lease rent when due which
failure continues unremedied for a period of 5 business days (which we
will refer to as an equity event) shall have occurred and be continuing,
no equity event (other than due to decreased revenue attributable to force
majeure) shall have occurred and be continuing for 9 months and no two
equity events shall have occurred (regardless of whether or not cured);
- the requirement to maintain the debt service reserve amount in the debt
service reserve account must be satisfied either in cash or with the debt
service reserve letter of credit or a combination of the two in an
aggregate amount equal to the debt service reserve amount;
- all our accounts maintained with the collateral agent must be funded at
their required levels or supported by a letter of credit in the requisite
amount, in each case in accordance with the amended security deposit
agreement;
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- the senior rent service coverage ratio for the preceding four quarters,
taken as one accounting period, is equal to or greater than 1.5 to 1.0 for
periods ending on or prior to December 31, 2001 or 1.7 to 1.0 for periods
ending after December 31, 2001;
- the projected senior rent service coverage ratio for each four-quarter
period, taken as one accounting period, during the next two consecutive
four-quarter periods, is equal to or greater than 1.5 to 1.0 for periods
ending on or prior to December 31, 2001 or 1.7 to 1.0 for periods ending
after December 31, 2001; and
- we must be current on all payments on the equity portion of rent.
"SENIOR RENT SERVICE COVERAGE RATIO" means, for any period, without
duplication, a ratio the numerator of which is the net cash flow for the period,
and the denominator of which is the non-equity or senior portion of the rent
payable during the period.
Under section 6.9 of each participation agreement, before we can make any
payments on the equity portion of the lease rent out of accounts other than the
reserve account and the subordinated reserve account, the following conditions
must be met:
- the payment date shall be January 1, April 1, July 1 or October 1 if that
date is a business day, and on the next succeeding business day if that
date is not a business day, or within 5 days after;
- no material lease default or lease event of default other than an equity
event has occurred and will be continuing;
- the requirement to maintain the debt service reserve amount in the debt
service reserve account must be satisfied either in cash or with the debt
service reserve letter of credit or a combination of the two in an
aggregate amount equal to the debt service reserve amount;
- all our accounts maintained with the collateral agent (other than the
reserve account and the subordinated reserve account) shall be funded at
their required levels or supported by a letter of credit in the requisite
amount, in each case in accordance with the amended security deposit
agreement; and
- (1)(A) the senior rent service coverage ratio for the preceding four
quarters, taken as one accounting period, is equal to or greater than 1.5
to 1.0 for periods ending on or prior to December 31, 2001 or 1.7 to 1.0
for periods ending after December 31, 2001; and (B) the projected senior
rent service coverage ratio for each four-quarter period, taken as one
accounting period, for the next two consecutive four-quarter periods, is
equal to or greater than 1.5 to 1.0 for periods ending on or prior to
December 31, 2001 and 1.7 to 1.0 for periods ending after December 31,
2001; or
(2) if we fail to meet the distribution conditions in clause (1),
triggering a cash trap, and such failure continues for eighteen months,
then we must meet (A) a senior rent service coverage ratio for the
preceding four fiscal quarters, taken as one accounting period that is
equal to or greater than 1.3 to 1.0 and a projected senior rent service
coverage ratio for each four fiscal quarter period, taken as one
accounting period, during the next two such four fiscal-quarter periods
that is equal to or greater than 1.3 to 1.0; and (B) a modified senior
rent service coverage ratio (modified to include in the numerator, in
addition to revenue, (i) amounts on deposit in the supplemental equity
account, subordinated rent payment account and the subordinated reserve
account on the last day of such period and (ii) amounts on deposit in the
equity account and the additional reserve account on the last day of such
period but only to the extent such amounts were deposited during the
limitation period in which the last day of such calculation period occurs)
for the most recently ended four fiscal quarters, taken as one accounting
period, that is equal to or greater than 1.5 to 1.0 in the case of any
such period ending on or prior to December 31, 2001 or 1.7 to 1.0 in the
case of any period ending after December 31, 2001; and a projected
modified senior rent service coverage ratio (modified to
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include in the numerator, in addition to revenue, (i) amounts projected to
be on deposit in the supplemental equity account, subordinated rent
payment account and the subordinated reserve account on the last day of
such period and (ii) amounts projected to be on deposit in the equity
account and the additional reserve account on the last day of such period
but only to the extent such amounts were projected to be deposited during
the limitation period in which the last day of such calculation period
occurs) for each four fiscal quarter period, taken as one accounting
period, during the next two such four fiscal-quarter periods that is equal
to or greater than 1.5 to 1.0 in the case of any such period ending on or
prior to December 31, 2001 or 1.7 to 1.0 in the case of any period ending
after December 31, 2001. "Limitation period" means each period
(x) commencing on a restricted payment date on which the condition
contained in clause (1) is not satisfied and which immediately succeeds a
restricted payment date on which such condition was satisfied and
(y) ending on the first subsequent restricted payment date on which the
condition contained in clause (1) is satisfied.
This covenant will be deleted with respect to Homer City Funding.
AMENDMENT TO SECTION 4.9 OF THE EXISTING INDENTURE (LIMITATION ON INCURRENCE OF
INDEBTEDNESS)
This covenant limits Edison Mission Holdings' ability to incur additional
debt, other than permitted indebtedness. Under the indenture, permitted
indebtedness includes, among other things, capital lease obligations entered
into in the ordinary course of business in an amount not to exceed $10 million
outstanding at any one time, indebtedness to any of Edison Mission Holdings'
wholly owned subsidiaries and indebtedness for required capital improvements
subject to specified requirements. The amended and restated indenture will
restrict Homer City Funding's ability to incur additional debt.
Under section 6.7 of each participation agreement, we will be further
limited from incurring additional indebtedness to only allow subordinated debt
to our affiliates according to the terms of the existing subordination
agreement, and additional permitted indebtedness in the aggregate amount of up
to $50 million in any combination of the following: working capital, interest
rate hedging obligations (up to $20 million), and ordinary course letters of
credit, surety bonds or performance bonds. The amended definition of permitted
indebtedness in each participation agreement will exclude capital lease
obligations, indebtedness to any of Edison Mission Holdings' wholly owned
subsidiaries and indebtedness for required capital improvements. In addition,
each participation agreement will limit indebtedness in the form of guarantees
entered into in connection with fuel procurement or sales, purchases or
exchanges related to physical or financial capacity, energy and emission credits
to guarantees with respect to permitted trading activities only. Further, no
indebtedness, including permitted indebtedness, may be incurred if a lease event
of default has occurred and is continuing.
DELETION OF SECTION 4.10 OF THE EXISTING INDENTURE (LIMITATION ON INCURRENCE OF
SUBSIDIARY GUARANTOR INDEBTEDNESS)
This covenant limits the ability of the subsidiary guarantors to incur,
directly or indirectly, indebtedness, other than subordinated indebtedness or
indebtedness incurred in the ordinary course of business not in excess of
$15 million.
The proposed amendments will permanently delete this covenant due to the
fact that there will no longer be any subsidiary guarantors. As noted above, we
will be subject to the limitations on debt incurrence set forth in section 6.7
of each participation agreement.
AMENDMENT TO SECTION 4.11 OF THE EXISTING INDENTURE (LIMITATION ON SALE OF
ASSETS)
This covenant limits Edison Mission Holdings' ability, except in connection
with a merger, consolidation or sale of substantially all of its properties or
assets, to dispose of any assets or enter into sale-leaseback transactions. The
amended and restated indenture will restrict Homer City Funding from
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disposing of any assets or entering into any sale-leaseback transactions, but
there will no longer be an exception in the case of a merger, consolidation or
sale of substantially all of its properties or assets.
Under section 6.2 of each participation agreement, we will not be permitted
to sell, transfer, convey, lease or otherwise dispose of any assets other than
the following:
- sales of inventory, products or obsolete items and other similar
dispositions and sales of energy, emission allowances and/or credits,
capacity, and ancillary services in the ordinary course of business;
- making of restricted payments;
- pursuant to a permitted merger, consolidation or sale of substantially all
assets; and
- any permitted assignment of our leasehold interest in the facilities.
In addition, we will be subject to other specified restrictions on our
ability to sell, trade or dispose of emission allowances and credits.
Under the existing indenture, this covenant contains a prohibition on Edison
Mission Holdings' ability to enter into any lease with respect to any asset.
Pursuant to section 19 of each facility lease, we will be permitted to sublease
the undivided interest under the conditions as described in "Description of the
Principal Sale-Leaseback Transaction Documents--The Facility Leases."
AMENDMENT OF SECTION 4.12 OF THE EXISTING INDENTURE (LIMITATION ON TRANSACTIONS
WITH AFFILIATES)
This covenant limits Edison Mission Holdings' ability to enter into any
transaction with an affiliate that would not be no more favorable to such
affiliate than an "arm's-length transaction" with a third party, other than
specified arrangements that were in effect on the date of the indenture.
The amended and restated indenture will not permit Homer City Funding to
enter into any transaction with affiliates other than the agreement between
Homer City Funding and Wilmington Trust Company as independent manager.
Under section 6.6 of each participation agreement, we will be permitted to
enter into a transaction with an affiliate that would be as favorable to us as
an "arm's-length transaction" with a third party. However, section 6.6 of each
participation agreement will specifically state that the following transactions
will be considered to be on an "arm's-length basis:"
- agreements for cost reimbursement and other compensation in the amounts no
greater than amounts that would have been payable to a third party on an
arm's-length basis;
- some Edison Mission Marketing & Trading risk management arrangements; and
- specified permitted trading activities undertaken in accordance with
Edison Mission Marketing & Trading risk management guidelines.
AMENDMENT TO SECTION 4.13 OF THE EXISTING INDENTURE (LIMITATION ON LIENS)
This covenant limits Edison Mission Holdings' ability to incur additional
liens, other than permitted liens. Under the amended and restated indenture,
Homer City Funding will be bound by a similar covenant. However, there will be
fewer permitted liens.
We will be bound by a similar covenant in each participation agreement,
which adds the following permitted liens: (1) interests under the operative
documents related to the sale-leaseback transaction; (2) all owner lessor liens,
owner participant liens and the security interest granted by the owner lessor to
the security agent for the benefit of the holders of the secured lease
obligation notes and the issuer of the debt service reserve letter of credit in
the indenture estate under the lease indenture and in connection with the
issuance of the secured lease obligation notes, which we will refer to as the
security
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interest; (3) our reversionary interests in the facilities; (4) liens created or
expressly permitted by any of the operative documents for the sole purpose of
paying all amounts due and owing under the operative documents; (5) liens
arising solely by order of a court or other governmental authority, or by any
agreement of similar effect; (6) the interest of the owner lessors in the
ownership and operation agreement to be entered into among all of the eight
owner lessors; (7) the interest of a sublessee in the undivided interest or the
facility under a permitted sublease; and (8) all matters shown as exceptions to
the title policies on the closing date of the sale-leaseback transaction and
other customary permitted encumbrances such as liens for taxes, water, sewage,
license, permit or inspection fees, construction, materialmen's and mechanics'
liens, liens arising in the ordinary course of business and zoning and building
regulations and ordinances.
Under section 6.3 of each participation agreement, we also agree that we
will not permit the validity of the lien of the lease indenture to be impaired,
subordinated or terminated or permit the lien of the lease indenture to not
constitute a valid first priority perfected security interest in the lessee
rights, except for permitted encumbrances.
AMENDMENT TO SECTION 4.14 OF THE EXISTING INDENTURE (LIMITATION ON BUSINESS
ACTIVITIES)
This covenant prohibits Edison Mission Holdings from engaging in any
business activities other than the ownership and general operation of the
facilities.
The amended and restated indenture will prevent Homer City Funding from
engaging in any business other than servicing the debt service obligations under
the pass-through bonds. Pursuant to section 6.24 of each participation
agreement, we will be prohibited from engaging in any business other than the
general ownership, leasing, operation, maintenance and power marketing of the
facilities and the generation of income from those activities.
AMENDMENT TO SECTION 4.15 OF THE EXISTING INDENTURE (MAINTENANCE OF EXISTENCE)
This covenant requires Edison Mission Holdings to maintain its existence in
good standing and to maintain and renew its rights and privileges, except where
the failure to do so could not reasonably be expected to cause any event,
development or circumstance that has had or could reasonably be expected to have
a material adverse effect on the (1) the business, assets, property, financial
condition or operations of Edison Mission Holdings and the subsidiary
guarantors, taken as a whole, since the issuance of the outstanding bonds, or
(2) the ability of Edison Mission Holdings or any subsidiary guarantor to
perform its obligations under the indenture or other financing documents, which
we will refer to as a material adverse effect.
The amended and restated indenture will continue to bind Homer City Funding
to the same restrictions. Pursuant to section 5.4 of each participation
agreement, we will be bound by similar restrictions, except in the instance of a
permitted merger, consolidation or sale of all or substantially all of our
assets as described below.
AMENDMENT TO SECTION 4.17 OF THE EXISTING INDENTURE (COMPLIANCE WITH LAWS)
This covenant requires Edison Mission Holdings to comply with all applicable
laws and regulations, and to reserve against any disputed legal requirements.
The amended and restated indenture will continue to bind Homer City Funding by
the covenant. Pursuant to section 5.5 of each participation agreement, we will
be required to comply with all requirements of law at our own expense. Under
each participation agreement, "requirements of law" will mean any law, treaty,
rule, regulation, judgment, decree, injunction, writ or order of any court,
arbitration board or governmental authority, and any rule, regulation, order,
ordinance, license or permit of any governmental authority applicable to or
binding upon the subject person or its property.
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DELETION OF SECTION 4.18 OF THE EXISTING INDENTURE (GOVERNMENTAL APPROVALS)
This covenant requires Edison Mission Holdings to obtain and maintain in
full force and effect all requisite governmental approvals required to conduct
its business and to perform its obligations under the financing documents
related to the issuance of the bonds, except where the failure to do so could
not reasonably be expected to have a material adverse effect. Pursuant to
section 5.4 of each participation agreement, we will be required to do all
things reasonable to maintain government approvals necessary to conduct our
business. Under section 5.8 of each participation agreement, we will also be
required to comply in all material respects with the applicable requirements of
the Federal Energy Regulatory Commission imposed on us as a public utility.
This covenant will be deleted with respect to Homer City Funding.
DELETION OF SECTION 4.19 OF THE EXISTING INDENTURE (MAINTENANCE OF PROPERTY;
INSURANCE)
This covenant currently requires Edison Mission Holdings to maintain all
property in good working order and to maintain good and valid title to its
properties, unless the failure to do so could not reasonably be expected to have
a material adverse effect. Each participation agreement would restrict us in the
same manner.
Under the participation agreements, we will be required to maintain
insurance policies customary for facilities of this nature. See "Description of
Principal Sale-Leaseback Transaction Documents--The Facility Leases."
This covenant will be deleted with respect to Homer City Funding.
DELETION OF SECTION 4.20 OF THE EXISTING INDENTURE (BOND SERVICE RESERVE
ACCOUNT)
This covenant requires Edison Mission Holdings to establish and maintain the
bond debt service reserve account with a balance equal to the projected debt
service on the bonds for the succeeding six-month period for the benefit of the
holders of the outstanding bonds. Under the existing indenture, the debt service
reserve account is the account established by us with the collateral agent for
the benefit of the holders of the outstanding bonds. On any date that a
restricted payment is made, the required balance in the account must be 100% of
the projected debt service reserve on the bonds for the succeeding six month
period and may be satisfied by cash, a letter of credit from an acceptable
credit provider or a guarantee made by Edison Mission Energy (so long as their
corporate credit rating is "BBB+" from Standard & Poor's or higher or "Baa1" or
higher by Moody's), or a combination thereof. At present, this covenant is
satisfied by a letter of credit.
Homer City Funding will not be subject to a similar covenant in the amended
and restated indenture, but pursuant to an applicable lease indenture each owner
lessor will be required to establish and maintain a debt service reserve equal
to the next debt service payment on its respective secured lease obligation
notes for the benefit of the holders of the secured lease obligation notes. This
debt service reserve can be satisfied by a letter of credit from an acceptable
credit provider, which is an entity with a combined capital surplus of at least
$1 billion, exempt from SEC registration under the Securities Act and whose long
term unsecured debt is rated "A" or higher by Standard & Poor's or "A2" or
higher by Moody's.
AMENDMENT TO SECTION 5.1 OF THE EXISTING INDENTURE (LIMITATION ON MERGER,
CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS)
This covenant restricts Edison Mission Holdings from merging, consolidating
or selling substantially of its assets, unless (1) it is merging or
consolidating and it is the surviving entity in the merger or consolidation and
both before and after giving effect, no default or event of default exists; or
(2) it consolidates, merges or transfers substantially all its assets to an
affiliate who has no significant assets or liabilities and was formed solely for
the purpose of changing the jurisdiction of organization
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or form of organization of Edison Mission Holdings if its debt is not increased
and the successor assumes its obligations under the bonds. The amended and
restated indenture, with no exceptions, will prohibit Homer City Funding from
merging, consolidating or selling substantially all of its assets.
Pursuant to section 6.1 of each participation agreement, we will be
permitted to merge, consolidate or transfer substantially all of our properties
or assets if the following conditions are met: (1) either (x) in the case of a
sale, we first offer such properties and assets to the owner lessor, who will
expressly assume all our obligations under the operative documents or (y) the
transferee or resulting entity is (A) organized under the laws of the United
States, any state of the United States or the District of Columbia and assumes
all of our obligations under the operative documents, (B) a corporation, limited
liability company or limited partnership, (C) substantially engaged in the
wholesale power generating business, experienced in coal-fired generation and,
together with its affiliates, owns and operates at least 5,000 MW of capacity,
and (D) the consolidation, merger or succession shall not subject the owner
lessor or the owner participant to regulation under the Public Utility Holding
Company Act; (2) we provide the lease indenture trustee, owner lessor and owner
participant with customary officer's certificates and legal opinions; and
(3) if the entity with whom we have consolidated or merged has any indebtedness,
we would have been permitted to incur the indebtedness pursuant to each
participation agreement.
We will not be able to consummate a merger, consolidation or sale of
substantially all of our assets unless, after giving effect to the merger,
consolidation or sale of substantially all of our assets, the pass-through bonds
shall have a credit rating of at least "BBB-" from Standard & Poor's and "Baa3"
from Moody's and, prior to the consummation of the merger, consolidation or sale
of substantially all of our assets, we shall have provided an officer's
certificate to this effect or a copy of the letters from Standard & Poor's or
Moody's confirming the ratings.
AMENDMENT TO SECTION 6.1 OF THE EXISTING INDENTURE (EVENTS OF DEFAULT)
Under Section 6.1 of the existing indenture, an "event of default" is
defined as each of the following: (1) default for 15 days in the payment of
principal, premium or interest on the bonds; (2) Edison Mission Holdings'
failure to comply with specified covenants in the existing indenture, with a
30-day grace period to cure; (3) Edison Mission Holdings' failure to comply with
any of its agreements in the existing indenture, bonds or security documents,
with a 60 to 90-day grace period to cure; (4) the occurrence of a change of
control; (5) any portion of the security interests granted under the security
documents ceasing to be a senior security interest, which has a material adverse
effect, with a 10-day grace period to cure; (6) default resulting in
acceleration under any mortgage, indenture or other instrument of indebtedness
in excess of $15 million in the aggregate; (7) Edison Mission Holdings' failure
to pay judgments in excess of $15 million in the aggregate for 90 days;
(8) under bankruptcy law, Edison Mission Holdings commences a voluntary case,
consents to the entry of an order in an involuntary case, consents to the
appointment of a custodian for our property, makes a general assignment for the
benefit of our creditors or generally does not pay its debts when due; or (9) a
court enters an order under any bankruptcy law that is for relief against it in
an involuntary case, appoints a custodian of its property or orders its
liquidation and the case remains unstayed for 60 days.
The amended and restated indenture would include items (1) (with a grace
period reduced from 15 to 5 business days), (2), (3), (8) and (9) above with
respect to Homer City Funding, plus any event of default under the lease
indentures. The remainder of the current events of default will be deleted with
respect to Homer City Funding. Section 16 of each facility lease will revise the
events of default with regard to us as follows:
- reduce the grace period for default on payments of the rent that will
service the pass-through bonds from 15 days to 5 business days and add an
event of default for failure to make payments under any of the other
operative documents within 10 days of written notice of the default;
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- include a requirement to also comply with covenants in the applicable
participation agreement, facility lease, any project document or other
operative document, with a 30-day grace period and eliminate the grace
periods for failure to comply with covenants in the applicable
participation agreement restricting mergers, and the covenant dealing with
the maintenance of accounts;
- amend the requirement that the security interest remain a senior security
interest to add the requirement that the security interest not be declared
unenforceable, terminated or cease to be in full force and effect and to
delete the material adverse effect qualifier;
- decrease the threshold of failure to pay judgments from $15 million to
$1 million and decrease the grace period from 90 days to 60 days;
- decrease the threshold of failure to pay any mortgage or other instrument
from $15 million to $5 million;
- include our consent or failure to controvert any relief and our filing of
an answer admitting material allegations in any voluntary case of
bankruptcy; and
- increase the grace period from 60 days to 90 days in the event of an
unstayed bankruptcy case.
Section 16 of each facility lease will also include the following as events
of default:
- our failure to maintain the required insurance;
- any of our representations or warranties prove to be incorrect;
- any event occurs which results in ERISA related liability in excess of
$5 million;
- any material operative documents, any project document, the amended and
restated guarantee and collateral agreement or the pledge and collateral
agreement is cancelled or terminated;
- funds on deposit in any account are used for any other purpose than as
specified;
- we fail to remain exempt from regulation under the Public Utility Holding
Company Act;
- Edison Mission Energy, without the prior written consent of the owner
lessor, the owner participant, and so long as the secured lease obligation
notes are outstanding and the lien of the lease indenture shall have been
discharged or terminated, Homer City Funding or the trustee, ceases to own
(directly or indirectly) in excess of 50% of the ownership interests in
us; provided, however, the consent of Homer City Funding or the trustee
will not be required if at such time either (1) a reaffirmation of the
pass-through bonds has been obtained or (2) Edison Mission Energy's
reduction in ownership of us has been approved by holders of more than
66 2/3% of the secured lease obligation notes (other than in accordance
with the provisions of the operative documents); and
- a default under any of the other facility leases.
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THE CONSENT SOLICITATION
GENERAL
Edison Mission Holdings is soliciting your consent, upon the terms and
subject to the conditions set forth in this consent solicitation statement, in
the accompanying consent form, and, except as expressly set forth in this
consent solicitation statement, in the existing indenture.
The consent solicitation will expire on , 2001. If Edison Mission
Holdings receives the requisite consents, and the consents are not revoked on or
before the consent date according to the procedures described below in
"--Revocation of Consents" and the other conditions described in this consent
solicitation statement are satisfied or waived, Edison Mission Holdings will pay
to each holder who has validly delivered, and has not revoked, a consent on or
before the expiration date, no later than , 2001, a consent payment in
the amount of $13.75 for each $1,000 in principal amount of outstanding
Series A bonds and $16.25 for each $1,000 in principal amount of outstanding
Series B bonds in respect of which a consent has been validly delivered.
The proposed amendments will be effected by the amended and restated
indenture, which will be executed by Homer City Funding and the trustee on the
consent date. Although the amended and restated indenture will become effective
upon execution, the proposals will only become operative concurrently with the
consummation of the sale-leaseback transaction. The existing indenture will
remain in effect, without giving effect to the proposed amendments, until the
sale-leaseback transaction is consummated. If the sale-leaseback transaction has
not been consummated, the proposals will not become effective.
Following the receipt of the requisite consents and the consummation of the
sale-leaseback transaction, all current holders of outstanding bonds, including
non-consenting holders, and all subsequent holders, will be bound by the
proposals. No accrued interest will be paid on the consent payment. If the
consent solicitation is terminated for any reason before the consent date, any
consents received by the trustee will be voided, the first amended and restated
indenture will not be executed and the consent payment will not be made to any
holders of outstanding bonds.
Notwithstanding any subsequent transfer of the outstanding bonds, any holder
whose properly executed consent form, which indicates a consent, has been
received on or before the expiration date, and which has not been revoked, will
be eligible to receive any consent payment due in respect of the outstanding
bonds. Holders of outstanding bonds who do not validly deliver consents before
the expiration date, revoke their consents before the consent date, or deliver
consents after the expiration date will not be entitled to receive the consent
payment, even though the amended and restated indenture, if it is executed, and
the proposals will be binding with respect to any outstanding bonds held by the
holders.
HOLDERS
Only holders of outstanding bonds will be eligible to consent to the
proposals. The term holder as used in this consent solicitation statement means:
- persons in whose name outstanding bonds were registered as of the close of
business on November 16, 2001, which date we refer to as the record date;
or
- any other person who has been authorized by proxy or in any other manner
acceptable to Edison Mission Holdings or any other person claiming title
by or through that person, to vote the applicable outstanding bonds on
behalf of the registered holder on the record date.
We anticipate that The Depository Trust Company, which we refer to as DTC,
as nominee holder of the outstanding bonds, will execute an omnibus proxy that
will authorize its participants to consent with respect to the outstanding bonds
owned by those DTC participants and held in the name of
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Cede & Co. as specified on the DTC position listing as of the record date. In
that case, all references to holders will, unless otherwise specified, include
DTC participants. Edison Mission Holdings reserves the right to establish from
time to time any new date as a record date and, at that time, that new date will
be the record date for purposes of this consent solicitation.
You are not to construe the contents of this consent solicitation statement
as legal, business or tax advice. You should consult your own attorney, business
advisor and tax advisor as to legal, business, tax and related matters
concerning this consent solicitation.
REQUISITE CONSENTS
Holders of outstanding bonds must validly deliver, and not revoke, consents
in respect of a majority in aggregate principal amount of the outstanding bonds
not owned by us or any person or entity directly or indirectly controlling or
controlled by, or under common control with, us, voting as a single class, in
order to approve the proposals. As of the date of this consent solicitation
statement, $830 million aggregate principal amount of the outstanding bonds were
issued and outstanding. The failure of a holder to deliver a consent will have
the same effect as if the holder had voted against the proposals.
ALL HOLDERS BOUND IF REQUISITE CONSENTS ARE RECEIVED
If Edison Mission Holdings receives requisite consents, the consents are not
revoked, and the other conditions described in this consent solicitation
statement are satisfied or waived, all holders of outstanding bonds will be
bound by the proposals and all holders of outstanding bonds, including
non-consenting holders, will receive pass-through bonds in exchange for their
outstanding bonds.
CONSEQUENCES OF FAILING TO CONSENT
Holders of outstanding bonds who do not consent to the proposals as set
forth in this consent solicitation statement will not be paid the consent
payment and will nevertheless be subject to the amended and restated indenture
and their outstanding bonds will be replaced with pass-through bonds, if the
requisite consents are received and not revoked and the sale-leaseback
transaction is effected.
RECORD DATE
The record date for the purposes of this consent solicitation is
November 16, 2001. Edison Mission Holdings reserves the right to establish from
time to time any new date as the record date and at that time, the new date will
be the record date for purposes of this consent solicitation.
If the requisite consents are obtained and the proposals become effective,
they will be binding on all holders of outstanding bonds and their transferees,
whether or not those holders have delivered their consent forms.
The transfer of outstanding bonds after the record date will not have the
effect of revoking any consent that has already been validly given by a holder,
and each properly completed and executed consent form will be counted regardless
of any transfer of the outstanding bonds to which the consent form relates,
unless the procedure for revoking consents described in this consent
solicitation statement has been complied with.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The consent solicitation will expire at 5:00 p.m., New York City time, on
, 2001, unless extended by Edison Mission Holdings. Consents may be
revoked at anytime up to the consent date, but may not be revoked after the
consent date. See "--Revocation of Consents."
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Edison Mission Holdings expressly reserves the right to extend the consent
solicitation at any time and from time to time by giving oral or written notice
to the solicitation agents, the information agent and the trustee, whether or
not the requisite consents have been received. For purposes of this consent
solicitation, a notice given by Edison Mission Holdings before 9:00 a.m., New
York City time, on any day will be deemed to have been made on the preceding
day. Any extension will be followed as promptly as practicable by notice of
extension by press release or other public announcement, or by written notice to
the holders of outstanding bonds. The announcement or notice may state that
Edison Mission Holdings is extending the consent solicitation for a specified
period of time or on a daily basis until 5:00 p.m., New York City time on the
date on which the requisite consents have been received.
Edison Mission Holdings expressly reserves the right for any reason to
abandon, terminate or amend the consent solicitation at any time before the
expiration date by giving oral or written notice of the abandonment, termination
or amendment to the solicitation agents, the information agent and the trustee.
If Edison Mission Holdings, whether or not the requisite consents have been
received, abandons or terminates the consent solicitation, or if the conditions
to the execution of the amended and restated indenture are not satisfied or
waived, or if the sale-leaseback transaction is not consummated, no consent
payment will be made to any holder of outstanding bonds. Moreover, if the
conditions to the execution of the amended and restated indenture are not
satisfied or waived, the amended and restated indenture will not be executed and
the proposals will not become effective. Any action by Edison Mission Holdings
will be followed as promptly as practicable by notice of the action by press
release or other public announcement, or by written notice to the holders of
outstanding bonds.
CONSENT PROCEDURES
Only holders of outstanding bonds may execute and deliver a consent form. A
beneficial owner of outstanding bonds who is not the holder (for example, a
beneficial holder whose outstanding bonds are registered in the name of a
nominee such as a bank or a brokerage firm) must arrange for the registered
holder to either:
- execute a consent form and deliver it either to the trustee on the
beneficial owner's behalf or to the beneficial owner for forwarding to the
trustee by the beneficial owner; or
- to forward a duly executed proxy from the registered holder authorizing
the beneficial holder to execute and deliver a consent form with respect
to the outstanding bonds on behalf of the registered holder.
FOR PURPOSES OF THIS CONSENT SOLICITATION STATEMENT THE TERM "REGISTERED
HOLDER," "REGISTERED OWNER" OR "HOLDER" WILL BE DEEMED TO INCLUDE DTC
PARTICIPANTS WHO HOLD OUTSTANDING BONDS. IT IS EXPECTED THAT DTC WILL AUTHORIZE
THE DTC PARTICIPANTS WHO HOLD OUTSTANDING BONDS TO EXECUTE CONSENTS AS IF THEY
WERE HOLDERS OF RECORD. GIVING A CONSENT WILL NOT AFFECT A HOLDER'S RIGHT TO
SELL OR TRANSFER OUTSTANDING BONDS.
Holders of outstanding bonds who wish to consent should mail, hand deliver,
send by overnight courier or facsimile, confirmed by physical delivery,
completed, dated and signed consent forms to the trustee at the address set
forth on the back cover page of this consent solicitation statement and in the
consent form in accordance with the instructions set forth in this consent
solicitation statement. Consent forms should be delivered to the trustee, and
not to us, Edison Mission Holdings, the solicitation agents or the information
agent. However, Edison Mission Holdings reserves the right to accept any consent
received by us, Edison Mission Holdings, the solicitation agents or the
information agent. In no event should you tender any outstanding bonds. If and
when Edison Mission Holdings receives the requisite consents and the
sale-leaseback transaction is consummated, we will replace all outstanding bonds
with a like amount of pass-through bonds. Consent forms delivered by facsimile
will be binding only if the original consent form is subsequently delivered on
or before the expiration date.
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Any consent forms that are properly completed, signed and delivered to the
trustee on or before the expiration date will be given effect in accordance with
their specifications. Holders of outstanding bonds who desire to consent to the
proposals should mark the "Consent" box and complete, sign and date the consent
form included with this consent solicitation statement and mail, deliver or send
by overnight courier or facsimile, confirmed by physical delivery, the signed
consent form to the trustee at the address listed on the back cover page of this
consent solicitation statement and on the consent form. IF YOU FAIL TO INDICATE
THE PRINCIPAL AMOUNT OF OUTSTANDING BONDS FOR WHICH YOU ARE GIVING YOUR CONSENT,
BUT THE CONSENT FORM IS OTHERWISE PROPERLY COMPLETED AND SIGNED, YOU WILL BE
DEEMED TO HAVE CONSENTED TO THE PROPOSALS WITH RESPECT TO ALL OUTSTANDING BONDS
REGISTERED IN YOUR NAME. If none of the boxes on the consent form are marked,
but the consent form is otherwise properly completed and signed, you will be
deemed to have consented to the proposals. Delivery of consents should be made
promptly in order to assure that the trustee receives the consents before
5:00 p.m., New York City time, on the expiration date.
Consent forms must be executed in exactly the same manner as the registered
holder(s) name(s) appear on the outstanding bonds. If outstanding bonds to which
a consent relates are held of record by two or more joint holders, all the
holders must sign the consent form. If a consent form is signed by a trustee,
partner, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
the person must so indicate when signing and must submit with the consent form
appropriate evidence satisfactory to Edison Mission Holdings of authority to
execute the consent form. In addition, if a consent relates to less than the
total principal amount of outstanding bonds registered in the name of the
holder, the holder must list the serial numbers and principal amount of bonds
registered in the name of the holder to which the consent relates. If
outstanding bonds are registered in different names, separate consents must be
executed covering each form of registration. If a consent form is executed by a
person other than the registered holder, it must be accompanied by a proxy duly
executed by the registered holder.
The record ownership of an outstanding bond will be proven by the register
maintained by the trustee as registrar of the bonds, subject, in the case of
bonds held by DTC, to the information furnished by DTC concerning DTC
participants owning outstanding bonds. All questions as to the validity, form
and eligibility, including time of receipt, regarding the consent procedures
will be determined by Edison Mission Holdings in its sole discretion, which
determination will be conclusive and binding. Edison Mission Holdings reserves
the right to reject any or all consents that are not in proper form or the
acceptance of which could, in its opinion or its counsel's opinion, be unlawful.
Edison Mission Holdings also reserves the right to waive any defects or
irregularities in connection with the deliveries of particular consents. Unless
waived, any defects or irregularities in connection with deliveries of consents
must be cured within the amount of time as Edison Mission Holdings determines.
Neither Edison Mission Holdings nor any of its affiliates, the solicitation
agents, the trustee, the information agent or any other person will be under any
duty to give notification of any defects or irregularities or waiver, nor will
any of them incur any liability for failure to give the notification. Deliveries
of consents will not be deemed to have been made until any irregularities or
defects in this consent solicitation statement have been cured or waived. Edison
Mission Holdings' interpretations of the terms and conditions of the consent
solicitation will be conclusive and binding.
REVOCATION OF CONSENTS
Each properly completed and executed consent form will be counted,
notwithstanding any transfer of the outstanding bonds to which the consent
relates, unless the procedure for revocation of consents described below has
been followed.
Before the consent date, holders of outstanding bonds may revoke their
consent in part or in whole, but in multiples of $1,000. To revoke their
consent, holders must, before that time, deliver to the trustee at the address
set forth on the back cover page of this consent solicitation statement and on
the
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consent form a written revocation of the consent containing its name, the serial
numbers of the outstanding bonds to which the revocation relates, the principal
amount of the outstanding bonds to which the revocation relates and its
signature. Holders' consents cannot be revoked after the consent date. The
trustee must receive the written revocation before the date the sale-leaseback
transaction is consummated, even if the consent solicitation continues beyond
that time.
If a revocation is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, that person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the revocation. A revocation of consent will only be effective as to outstanding
bonds listed on the revocation. Holders may revoke a consent only if the
revocation complies with the provisions of this consent solicitation statement.
Only a holder as reflected in the register of the trustee is entitled to revoke
a consent previously given. A beneficial owner of outstanding bonds who is not
the holder of the bonds must arrange with the registered holder to execute and
deliver to the trustee on the beneficial owner's behalf, or to the beneficial
owner for forwarding to the trustee by the beneficial owner, either a revocation
of any consent already given with respect to the bonds or the duly executed
proxy from the registered holder authorizing the beneficial owner to act on
behalf of the registered holder as to the consent. A revocation of a consent may
only be rescinded by the execution and delivery of a new consent, in accordance
with the procedures described in this consent solicitation statement by the
holder who delivered the revocation.
Edison Mission Holdings reserves the right to contest the validity of any
revocation, and all questions as to validity, including the time of receipt, of
any revocation will be determined by Edison Mission Holdings in its sole
discretion. Neither Edison Mission Holdings nor any of its affiliates, the
solicitation agents, the trustee, the information agent or any other person will
be under any duty to give notification of any defects or irregularities with
respect to any revocation nor will any of them incur any liability for failure
to give notification.
CONDITIONS OF EXECUTION OF AMENDED AND RESTATED INDENTURE
The execution of the amended and restated indenture and the making of the
consent payment are conditioned on the following:
- the requisite consents being validly delivered, and not revoked, before
the expiration date;
- the absence of any law or regulation which would, and the absence of any
injunction or action or other proceeding, pending or threatened, which, in
the case of any action or proceeding, if adversely determined, would make
unlawful or invalid or enjoin the implementation of the proposals, the
entering into of the amended and restated indenture or the making of any
consent payment or question the legality or validity of the implementation
of the proposals, the entering into of the amended and restated indenture
or the making of any consent payment; and
- with respect to the making of the consent payment only, the consummation
of the sale-leaseback transaction, including the execution of the
principal sale-leaseback transaction documents.
If the sale-leaseback transaction is not consummated, the consent payment
will not be made to any holders of outstanding bonds.
The consent solicitation may be abandoned or terminated by Edison Mission
Holdings at any time before the expiration date, for any reason, in which case
consents with respect to the outstanding bonds will be voided and no consent
payment will be made to you. Each of the conditions to the consent solicitation,
the execution of the amended and restated indenture and the making of the
consent payment set forth in this consent solicitation statement are for the
sole benefit of Edison Mission Holdings and may be waived by Edison Mission
Holdings at any time.
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SOLICITATION AGENTS AND INFORMATION AGENT
We and Edison Mission Holdings are entering into a consent solicitation
agreement under which Credit Suisse First Boston Corporation and Lehman
Brothers Inc. will act as exclusive financial advisors and solicitation agents
in connection with the consent solicitation. The solicitation agents will
solicit delivery of consents, communicate with brokers, dealers, banks, trust
companies, nominees and other persons, including holders of the outstanding
bonds about the consent solicitation and provide other financial advisory
services to us in connection with the consent solicitation. Each solicitation
agent will receive a fee of $2 million for its services, which fee will be
payable upon the closing of the sale-leaseback transaction, and reimbursement
for reasonable out-of-pocket expenses. We and Edison Mission Holdings have
agreed to indemnify the solicitation agents against specified liabilities and
expenses, including liabilities under the securities laws in connection with the
consent solicitation. Questions and requests for assistance may be directed to
the solicitation agents at their addresses and telephone numbers set forth on
the back cover of this consent solicitation statement.
The consent solicitation agents and their affiliates have performed certain
investment banking, advisory or general financing and banking services for us
and our affiliates from time to time for which they have received customary fees
and expenses. The consent solicitation agents and their affiliates may, from
time to time, engage in transactions with and perform services for us and our
affiliates in the ordinary course of their business. In addition, the consent
solicitation agents and their affiliates have in the past and may in the future
act as lenders in connection with our and our affiliates' credit facilities.
Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse
First Boston Corporation, and Lehman Commercial Paper Inc., an affiliate of
Lehman Brothers Inc., are lenders under Edison Mission Holdings' $250 million
and $50 million senior secured bank facilities, which mature in March 2004. In
addition, Credit Suisse First Boston and Lehman Brothers Inc. arranged these
facilities. Because the proceeds of the sale-leaseback transaction will be used
to repay a portion of these facilities, Credit Suisse First Boston, New York
branch, and Lehman Commercial Paper Inc. will receive a portion of the proceeds.
Edison Mission Holdings has retained D.F. King & Co., Inc. to act as
information agent. Requests for assistance in completing and delivering consents
or for additional copies of this consent solicitation statement or the consent
form may be directed to the information agent at its address and telephone
numbers set forth on the back cover of this consent solicitation statement.
THE TRUSTEE
United States Trust Company of New York was originally the trustee under the
existing indenture. On June 26, 2001, U.S. Trust Corporation, of which United
States Trust Company of New York is a part, sold its Corporate Trust and Agency
division to The Bank of New York. All of United States Trust Company of New
York's corporate trust business and assets are currently in the process of being
transferred to The Bank of New York. In the interim, United States Trust Company
of New York acts as agent of The Bank of New York in monitoring, maintaining and
administering the corporate trust accounts which are being transferred to The
Bank of New York. Currently, the timing for the completion of the sale has been
scheduled for the first quarter of 2002.
FEES AND EXPENSES
The owner lessors will bear the costs of this consent solicitation. The
trustee will be reimbursed for expenses that the trustee incurs in connection
with this consent solicitation. The owner lessors will also reimburse banks,
trust companies, securities dealers, nominees, custodians and fiduciaries for
their reasonable expenses in forwarding consent forms and other materials to
beneficial owners of outstanding bonds.
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OUR MANAGEMENT
GENERAL PARTNER
All powers to control and manage our business and affairs are exclusively
vested in our general partner, Mission Energy Westside, Inc., a California
corporation and wholly-owned subsidiary of Edison Mission Holdings Co. The
members of Mission Energy Westside's current board of directors are elected by,
and serve until their successors are elected by, Edison Mission Holdings. All
officers are elected from time to time by Mission Energy Westside's board of
directors and hold office at its discretion. Mission Energy Westside's board of
directors currently contains five members. The board of directors of Mission
Energy Westside may elect to appoint additional directors from time to time.
Listed below are the current directors and the executive officers of Mission
Energy Westside and their ages and positions as of September 24, 2001.
<Table>
<Caption>
NAME AGE POSITION
- ---- -------- ------------------------------------------------------------
John K. Deshong................ 47 Director and Vice President
Ronald L. Litzinger............ 42 Director and Vice President
Georgia R. Nelson.............. 51 Director and President
Kevin M. Smith................. 43 Director, Treasurer and Vice President
Raymond W. Vickers............. 58 Director
Paul C. Gracey, Jr............. 42 Vice President and General Counsel
Michelle J. Johnson............ 39 Secretary Pro Tem
</Table>
Set forth below are the principal occupations and business activities of the
directors and executive officers of Mission Energy Westside for the past five
years, in addition to their positions described above.
Mr. Deshong has been Vice President of Edison Mission Energy since
June 2000. From November 1998 until May 2000, Mr. Deshong was Regional Vice
President--Tax of Edison Mission Energy's Americas region. Mr. Deshong has
served as Director, Tax Planning & Special Projects to Edison Mission Energy
since 1997. Prior to joining Edison Mission Energy, Mr. Deshong was Director of
Tax at United States Enrichment Corporation from December 1995 to April 1997.
Mr. Litzinger has been Senior Vice President, Worldwide Operations, of
Edison Mission Energy since June 1999. Mr. Litzinger served as Vice
President-O&M Business Development from December 1998 to May 1999.
Mr. Litzinger has been with Edison Mission Energy since November 1995, serving
as both Regional Vice President, O&M Business Development and Manager, O&M
Business Development until 1998.
Ms. Nelson has been Senior Vice President of Edison Mission Energy since
January 1996 and has been President of Midwest Generation EME, LLC since
May 1999. From January 1996 until June 1999, Ms. Nelson was Senior Vice
President, Worldwide Operations. Ms. Nelson was Division President of Edison
Mission Energy's Americas region from January 1996 to January 1998. Prior to
joining Edison Mission Energy, Ms. Nelson served as Senior Vice President of
Southern California Edison from June 1995 until December 1995.
Mr. Smith has been Senior Vice President and Chief Financial Officer of
Edison Mission Energy since May 1999 and Regional Vice President--Finance of
Edison Mission Energy's Americas region since March 1998. Mr. Smith has served
as Vice President and Treasurer of Edison Mission Energy since September 1994.
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Mr. Vickers has been Senior Vice President and General Counsel of Edison
Mission Energy since March 1, 1999. Prior to joining Edison Mission Energy,
Mr. Vickers was a partner with the law firm of Skadden, Arps, Slate, Meagher &
Flom since 1989.
Mr. Gracey has been Vice President of Edison Mission Energy since May 1998.
Mr. Gracey was Regional Vice President from June 1996 to May 1998. Mr. Gracey
has been a lawyer with Edison Mission Energy since 1992. Prior to being named
Vice President, he served as General Counsel of Edison Mission Energy's Europe,
Central Asia, Middle East and Africa region.
Ms. Johnson has been Corporate Secretary Pro Tem of Edison Mission Energy
since April 2001. Ms. Johnson has been a paralegal with Edison Mission Energy
since 1990.
EXECUTIVE COMPENSATION
The officers of Mission Energy Westside receive no compensation for their
services as officers.
DIRECTORS COMPENSATION
The directors of Mission Energy Westside receive no compensation for their
services as directors.
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INTERCOMPANY RELATIONSHIPS AND RELATED TRANSACTIONS
THE FOLLOWING IS A SUMMARY OF THE INTERCOMPANY RELATIONSHIPS AND RELATED
TRANSACTIONS. WE BELIEVE THAT THE TERMS OF THESE TRANSACTIONS ARE NO MORE
FAVORABLE THAN THOSE THAT WOULD HAVE BEEN AGREED UPON BY THIRD PARTIES ON AN
ARM'S LENGTH BASIS.
ENERGY SALES AGREEMENT
We have entered into a contract with Edison Mission Marketing & Trading,
Inc., a marketing affiliate, for the sale of energy and capacity produced by the
facilities, which enables this marketing affiliate to engage in forward sales
and hedging transactions to manage our electricity price exposure. Net gains or
losses on hedges by the marketing affiliate that are settled are recognized in
the same manner as the hedged item. We receive the net transaction price on all
contracts that are settled. We pay the marketing affiliate a nominal fee
currently set at $0.02/MWh. For the period ended December 31, 2000, these
commission fees totaled $1.5 million. All revenue from physical sales
transactions executed by the marketing affiliate are and will be deposited into
the revenue account described in "Description of the Principal Sale-Leaseback
Transaction Documents--The Amended Security Deposit Agreement--Revenue Account."
During 2001, we entered into an option for installed capacity, and three
transactions, including the exercise of the aforementioned option, for installed
capacity with our marketing affiliate as follows: 450 MW for the period of June
2001 to December 2001, 150 MW for the period of January 2002 to December 2002
and 125 MW for the period of January 2002 to May 2002. Each transaction was at
fair market value for such installed capacity at the time. Total payments for
the option and the three transactions will be approximately $25.8 million.
INTERCOMPANY LOANS
Edison Mission Holdings entered into an intercompany loan agreement with
Edison Mission Finance, under which Edison Mission Holdings agreed to make loans
to Edison Mission Finance from time to time with the proceeds of the offering of
the outstanding bonds and the proceeds of the loans made to Edison Mission
Holdings under its senior bank facility. Edison Mission Finance has entered into
a corresponding intercompany loan agreement with us under which it has agreed to
make loans to us from time to time with the proceeds of loans made to Edison
Mission Finance by Edison Mission Holdings. We have also entered into a
subordinated intercompany revolving loan agreement with Edison Mission Finance.
The loans described in this paragraph, and all other obligations owed by a
subsidiary guarantor to another subsidiary guarantor or to Edison Mission
Holdings, are subordinated to all of the subsidiary guarantors' obligations
under the financing documents relating to the outstanding bonds. As part of the
sale-leaseback transaction, we will repay the amounts we owe to Edison Mission
Finance under the intercompany loan agreement relating to the proceeds of the
outstanding bonds, and Edison Mission Finance will use the amount of our
repayment to repay in turn a portion of its obligations under the intercompany
loan agreement between it and Edison Mission Holdings. We will use a portion of
the proceeds from the sale of the facilities to repay a portion of our debt
under the subordinated revolving loan agreement.
OUR RELATIONSHIP AND THE RELATIONSHIP OF EDISON MISSION HOLDINGS TO EDISON
MISSION ENERGY
Each of Edison Mission Holdings and each subsidiary guarantor, including us,
has been organized and operated as a legal entity separate and apart from Edison
Mission Energy, Edison International and any other affiliates of Edison Mission
Energy or Edison International, and, accordingly, our assets and the assets of
Edison Mission Holdings and the other subsidiary guarantors will not be
generally available to satisfy the obligations of Edison Mission Energy, Edison
International or any other affiliates of Edison Mission Energy or Edison
International. However, our unrestricted cash and that of
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Edison Mission Holdings and the other subsidiary guarantors or other assets
which are available for distribution may, subject to applicable law and the
terms of financing arrangements of these parties, be advanced, loaned, paid as
dividends or otherwise distributed or contributed to Edison International,
Edison Mission Energy or any of their affiliates. Edison Mission Energy and
Edison International are not obligated to make any payments under the
outstanding bonds, except for the credit support guarantee. As part of the
sale-leaseback transaction, the credit support guarantee will be released, and
Edison Mission Energy and Edison International will not be obligated to make any
payments under the pass-through bonds.
SERVICES AGREEMENTS
Administrative services such as payroll, employee benefit programs,
insurance and information technology, all performed by Edison International or
Edison Mission Energy, are shared among all affiliates of Edison International,
and the costs of these corporate support services are allocated to all
affiliates, including us. Costs are allocated based on one of the following
formulas: percentage of time worked, equity in investment and advances, number
of employees, or multi-factor, including operating revenues, operating expenses,
total assets and number of employees. In addition, services of Edison
International or Edison Mission Energy are sometimes directly requested by us,
and those services are performed for our benefit. Labor and expenses of these
directly requested services are specifically identified and billed at cost. We
believe the allocation methodologies utilized are reasonable. We made
reimbursements for the cost of these programs and other services, which amounted
to $30.0 million and $18.1 million for the years ended December 31, 2000 and
1999, respectively.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences of the proposed amendments and the consent payment to holders of
the outstanding bonds. The discussion does not address all of the tax
consequences that may be relevant to a particular holder or to holders subject
to special treatment under federal income tax laws (e.g., banks and certain
other financial institutions, insurance companies, tax-exempt organizations,
partners in partnerships that are holders, S corporations, persons whose
functional currency is not the United States dollar, foreign persons, dealers in
securities or foreign currency, and persons holding certificates that are a
hedge against, or that are hedged against, currency risk or that are part of a
straddle, constructive sale or conversion transaction). This discussion is
limited to persons who are holders at the time the proposed amendments are
adopted and who hold their outstanding bonds as capital assets. No ruling has
been or will be sought from the IRS regarding any matter discussed herein. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a different position. HOLDERS MUST CONSULT WITH THEIR OWN TAX ADVISORS
AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED AMENDMENTS, THE
CONSENT PAYMENTS AND OF HOLDING AND DISPOSING OF THE OUTSTANDING BONDS, AS WELL
AS THE EFFECTS OF STATE, LOCAL AND NON-U.S. TAX LAWS.
In connection with the opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois) described in this summary, counsel has examined and relied on
originals or copies, certified or otherwise identified to its satisfaction, of
(1) the registration statement, (2) the existing indenture, (3) the amended and
restated indenture and (4) such other documents, certificates, and records it
has deemed necessary or appropriate as a basis for the opinion set forth herein.
Counsel has also relied upon factual statements and representations made to it
by representatives of Edison Mission Holdings, Homer City Funding, LLC, EME
Homer City Generation L.P. and others and has assumed that such statements and
representations are and will continue to be correct without regard to any
qualification as to knowledge or belief. Counsel has also assumed that the
consent solicitation will be consummated in accordance with the registration
statement, the amended and restated indenture and such other documents,
certificates, records, statements, and representations and that the statements
as to factual matters contained in the registration statement are true, correct
and complete and will continue to be true, correct and complete through the
completion of the consent solicitation.
In Counsel's examination, it has assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to it as originals, the conformity to original documents of all
documents submitted to it as certified, conformed or photostatic copies, and the
authenticity of the originals of such copies. In making its examination of
documents executed, or to be executed, by the parties indicated in those
documents, Counsel has assumed that each party has, or will have, the power,
corporate or other, to enter into and perform all obligations under those
documents and has also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties and the validity
and binding effect thereof on such parties.
In rendering this opinion, Counsel has considered the applicable provisions
of the Internal Revenue Code of 1986, as amended, Treasury Department
regulations promulgated under the Internal Revenue Code of 1986, as amended,
pertinent judicial authorities, interpretive rulings of the Internal Revenue
Service and such other authorities as Counsel has considered relevant. It should
be noted that statutes, regulations, judicial decisions and administrative
interpretations are subject to differing interpretations or change at any time
(possibly with retroactive effect). A change in the authorities or the accuracy
or completeness of any of the information, documents, certificates, records,
statements, representations, covenants, or assumptions on which this opinion is
based could affect the conclusions stated herein.
As used in this opinion, the term "United States Holder" means a beneficial
owner of an outstanding bond that is (1) a citizen or resident of the United
States, (2) a corporation, partnership or
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other entity created or organized in or under the laws of the United States or
any of its political subdivisions, (3) an estate whose income is includible in
gross income for U.S. federal income tax purposes regardless of source, or
(4) a trust, if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust, or
(b) the trust was in existence on August 20, 1996 and properly elected to
continue to be treated as a U.S. person. A "Non-United States Holder" is a
beneficial owner of an outstanding bond that is not a United States Holder.
Based upon, and subject to, the foregoing, Counsel has advised us that the
following discussion constitutes the opinion of Counsel.
ADOPTION OF THE PROPOSED AMENDMENTS
The adoption of the proposed amendments will be treated as a taxable
exchange of outstanding bonds for pass-through bonds for U.S. federal income tax
purposes, may also be a taxable transaction under applicable state, local and
foreign tax laws and may create original issue discount. The tax consequences of
such exchange may vary upon, among other things, a holder's particular
circumstances. In general, as a result of adoption of the proposed amendments, a
holder will recognize gain or loss, if any, equal to the difference between
(A) the sum of (1) the issue price for the pass-through bonds (generally, the
fair market value of the pass-through bonds as of the date of the deemed
exchange) constructively received, plus (2) the amount of any consent payment
received (subject to the discussion below), over (B) such holder's adjusted tax
basis in its outstanding bonds constructively surrendered in exchange therefor.
Generally, a holder's adjusted tax basis in its outstanding bonds is the price
such holder paid for the bonds, increased by any original issue discount and
market discount previously included in such holder's income, and reduced (but
not below zero) by any amortized premium. Subject to the discussion below
regarding consent payments, any gain or loss (other than accrued but unpaid
interest that a holder has not included in gross income previously, which will
be taxable as ordinary income), will be capital gain or loss, and will be
long-term capital gain or loss if at the time of the adoption of the proposed
amendments such holder has held its bonds for more than one year. A holder's
initial tax basis in its pass-through bonds will generally be equal to the issue
prices of the pass-through bonds.
If the fair market value of the pass-through bonds at the time of the
constructive exchange is less than their principal amount, the pass-through
bonds may be treated as issued with original issue discount equal to such
difference. Such original issue discount would be includible daily in the income
of a holder (regardless of whether such holder is an accrual method taxpayer) on
a constant yield-to-maturity basis over the remaining life of the pass-through
bonds. This means that each holder would be required to include such original
issue discount in gross income without a corresponding receipt of cash
attributable to such income.
CONSENT PAYMENTS
Consent payments received by a holder should be treated as either
(1) additional consideration received on the constructive exchange or (2) a
separate payment in the nature of a fee for the consent. If the consent payments
are treated as additional consideration received on the constructive exchange,
the consent payments will be added to the amount realized in computing gain or
loss in the manner described above. If the consent payments are treated as a
separate fee, a holder would likely recognize ordinary income in an amount equal
to the consent payment received.
NON-UNITED STATES HOLDERS
A Non-United States Holder that realizes any gain as a result of the
adoption of the proposed amendments will generally not be subject to United
States federal income taxation unless (1) such gain
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is effectively connected with its conduct of a United States trade or business
(as determined for United States federal income tax purposes), (2) it is an
individual who is present for 183 days or more in the taxable year of the
constructive exchange and certain other requirements are met or (3) such holder
fails to properly certify as to its Non-United States status.
Except as set forth above, Counsel expresses no opinion. This opinion is
expressed as of the date hereof, and counsel disclaims any undertaking to advise
anyone of any subsequent changes relating to matters considered in this opinion
or of any subsequent changes in applicable law. HOLDERS MUST CONSULT WITH THEIR
OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED
AMENDMENTS, THE CONSENT PAYMENTS AND OF HOLDING AND DISPOSING OF THE
PASS-THROUGH BONDS, AS WELL AS THE EFFECTS OF STATE, LOCAL AND NON-U.S. TAX
LAWS.
ACCOUNTING TREATMENT
We plan to record the sale-leaseback transaction as a lease financing under
generally accepted accounting principles. In addition, we will record an
extraordinary gain or loss related to the assumption of the outstanding bonds
equal to the difference between our book value, which was $819.3 million at
September 30, 2001, and the fair market value of the outstanding bonds on the
date of the consummation of the sale-leaseback transaction.
LEGAL MATTERS
The legality of the pass-through bonds will be passed upon for us by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
Our financial statements and the financial statements of Edison Mission
Holdings Co., Chestnut Ridge Energy Co. and Edison Mission Finance Co. included
in Edison Mission Holdings' Annual Report on Form 10-K for the year ended
December 31, 2000, which is incorporated by reference in this consent
solicitation statement and elsewhere in the registration statement, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of this firm as experts in giving these reports.
AVAILABLE INFORMATION
We, along with Edison Mission Holdings and its other subsidiaries, are
currently subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with the Exchange Act file reports
and other information with the SEC. Upon consummation of the sale-leaseback
transaction, we will continue to be subject to the informational requirements of
the Exchange Act, but Edison Mission Holdings, along with its other
subsidiaries, will no longer be subject to those requirements. The reports and
other information filed with the SEC by us, Edison Mission Holdings or any of
its other subsidiaries may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional office of the SEC at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of the material can be obtained upon written request addressed to the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains an Internet website that contains
reports, proxy and information statements and other information regarding
issuers that file electronically. The address of that website is http:/ /
www.sec.gov.
128
<Page>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Edison Mission Holdings and its direct and
indirect subsidiaries, including us, with the SEC are incorporated by reference
into this consent solicitation statement:
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2001,
June 30, 2001 and September 30, 2001; and
- Current Report on Form 8-K dated September 24, 2001.
All documents filed by Edison Mission Holdings and its direct and indirect
subsidiaries, including us, pursuant to the Exchange Act subsequent to the date
of this consent solicitation statement and before the termination of the consent
solicitation will be deemed to be incorporated in this consent solicitation
statement and to be part of this consent solicitation statement from the date of
those reports and documents.
MISCELLANEOUS
Any statement contained in a document incorporated by reference in this
consent solicitation statement will be deemed to be modified or superseded for
purposes of this consent solicitation statement to the extent that a statement
contained in this consent solicitation statement modifies or supersedes that
statement. Any statement so modified or superseded will not be deemed to
constitute a part of this consent solicitation statement except as so modified
or superseded.
The consent solicitation is not being made to, nor will consent forms be
accepted from or on behalf of, holders of outstanding bonds in any jurisdiction
in which the making of the consent solicitation or the acceptance of the consent
solicitation would not be in compliance with the laws of the jurisdiction.
However, we may in our discretion take any action as we may deem necessary to
make the consent solicitation in any jurisdiction and extend the consent
solicitation to holders of outstanding bonds in any jurisdiction. In any
jurisdiction in which the securities laws or blue sky laws require the consent
solicitation to be made by a licensed broker or dealer, the consent solicitation
will be deemed to be made on behalf of Edison Mission Holdings by the
solicitation agents, or one or more registered brokers or dealers that are
licensed under the laws of the applicable jurisdiction.
The statements contained in this consent solicitation statement are made as
of the date of this consent solicitation statement, and the delivery of this
consent solicitation statement and the accompanying materials will not, under
any circumstances, create any implication that the information contained in this
consent solicitation statement is correct at any time subsequent to the date of
this consent solicitation statement.
129
<Page>
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATION ON BEHALF OF US, EDISON MISSION HOLDINGS, THE
TRUSTEE, THE SOLICITATION AGENTS OR THE INFORMATION AGENT NOT CONTAINED IN THIS
CONSENT SOLICITATION STATEMENT OR IN THE ACCOMPANYING CONSENT FORM AND OTHER
MATERIALS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS.
THIS CONSENT SOLICITATION STATEMENT DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO
BUY ANY SECURITIES OTHER THAN THOSE TO WHICH THIS CONSENT SOLICITATION STATEMENT
RELATES, AND IT DOES NOT CONSTITUTE AN OFFER TO SELL OR ASK FOR OFFERS TO BUY
ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON
MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY
BE OFFERED THE PASS-THROUGH BONDS.
Manually signed facsimile copies of the consent form will be accepted and
should be confirmed by physical delivery no later than 5:00 p.m., New York City
time, on the expiration date. The consent form and any other required documents
should be sent or delivered by each holder of outstanding bonds or the holder's
broker, dealer, commercial bank, trust company or other nominee, to the trustee
at its address set forth below.
The trustee for the consent solicitation is:
The Bank of New York
as Successor Trustee
<Table>
By hand before 4:30 p.m. New York City time By hand after 4:30 p.m. New York City time on
on the expiration date: the expiration date:
The Bank of New York The Bank of New York
c/o United States Trust Company of New York c/o United States Trust Company of New York
30 Broad Street 30 Broad Street
B-Level 14th Floor
New York, New York 10004 New York, New York 10004
By first class, registered or certified mail: By facsimile transmission:
The Bank of New York (212) 422-0183
c/o United States Trust Company of New York For information call:
P.O. Box 112 (800) 548-6565 (call toll free)
Bowling Green Station
New York, New York 10274
Attention: Corporate Trust Services
</Table>
Questions and requests for assistance or for additional copies of this
consent solicitation statement and the consent form may be directed to the
information agent or the solicitation agents at their respective telephone
numbers and locations listed below. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
consent solicitation.
The information agent for the consent solicitation is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers: (212) 269-5550 (call collect)
All Others: (800) 290-6427 (call toll free)
The solicitation agents for the consent solicitation are:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Telephone: (212) 538-8474 (call collect)
(800) 820-1653 (call toll free)
Attention: Liability Management Group
Lehman Brothers Inc.
101 Hudson Street
Jersey City, New Jersey 07302
Telephone: (212) 455-3328
(212) 681-2265 (call collect)
Attention: Steve Delaney
<Page>
PART II
INFORMATION NOT REQUIRED IN CONSENT SOLICITATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are a limited partnership organized under the laws of the State of
Pennsylvania. Section 8510 of the Pennsylvania Revised Uniform Limited
Partnership Act provides that, subject to such standards and restrictions, if
any, as are described in its partnership agreement, a limited partnership may,
and shall have the power to, indemnify and hold harmless any partner or other
persons from and against any and all claims and demands whatsoever; if, however,
such indemnification shall not be made in any case where the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.
Section 8.7 of our Agreement of Limited Partnership, which we refer to as
the agreement, provides that the general partner, as defined in the agreement,
will not be liable to us or the limited partners, as defined in the agreement,
for any act or omission by the general partner under the authority granted to it
by the agreement, except by reason of fraud, bad faith, willful misfeasance,
gross negligence or any act in breach of the agreement. The general partner will
indemnify and save harmless us and the limited partners from any loss or
liability arising out of its fraud, bad faith, willful misfeasance, gross
negligence or breach of the agreement. Moreover, we will indemnify and save
harmless the general partner from any loss or liability incurred by the general
partner by reason of any act performed by the general partner on our behalf or
in furtherance of our interest other than by reason of the general partner's
fraud, bad faith, willful misfeasance, negligence or breach of the agreement. In
the event the general partner is found personally liable for any debts of ours,
other than any debt or liability incurred by reason of the general partner's
fraud, bad faith, willful misfeasance, negligence or breach of the agreement,
and is required to and does satisfy a liability of ours out of its personal
assets, the general partner will have a right of reimbursement out of our assets
which we refer to as right of reimbursement. The right of reimbursement will
accrue to the general partner 30 days after written notice of such right is
given to each of the other partners. Upon such accrual of the right of
reimbursement, the general partner will be reimbursed out of our assets in the
order of priority specified in Section 8.7 of the agreement, but only to the
extent necessary to satisfy such right of reimbursement. To the extent not
reimbursed as provided in the agreement, the general partner will have no right
of contribution from the limited partners.
Upon the consummation of the sale-leaseback transaction, the partnership
agreement will be amended so that the general partner will only be liable to the
partnership or limited partners for any act or ommission by the general partner
constituting willful misconduct, recklessness or any act in breach of the
partnership agreement. In determining whether the general partner's acts
constitute willful misconduct or recklessness, it will not constitute misconduct
or recklessness to comply with provision of the sale-leaseback transaction
documents. The general partner shall also be entitled to consider, to the
fullest extent permitted by Pennsylvania law, the effects of any action that it
might take upon creditors of the partnership, even if the general partner is a
creditor or an affiliate of a creditor, so long as its determination does not
constitute willful misconduct or recklessness. We will indemnify and save
harmless the general partner from any loss or liability incurred by it in
furtherance of our interest other than by reason of willful misconduct,
recklessness or breach of the partnership agreement, to the broadest extent
permitted under Section 8510 of the Pennsylvania Revised Uniform Limited
Partnership Act or successor statute.
II-1
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<Table>
3.1 EME Homer City Generation L.P. Agreement of Limited
Partnership incorporated by reference to Exhibit 3.13 to
Edison Mission Holding Co.'s registration statement on Form
S-4 filed with the Securities and Exchange Commission on
December 3, 1999 (File No. 333-92047).
3.2 Form of Amended and Restated Agreement of Limited
Partnership of EME Homer City Generation L.P.*
4.1 Indenture, dated as of May 27, 1999, between Edison Mission
Holdings Co. and United States Trust Company of New York, as
Trustee, incorporated by reference to Exhibit 4.1 to Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
December 3, 1999 (File No. 333-92047).
4.1.1 Form of First Amended and Restated Indenture, dated as of
December , 2001 among Homer City Funding LLC and The Bank
of New York, a successor trustee to United States Trust
Company of New York.*
4.1.2 Form of 8.137% Senior Secured Bond due 2019 (included in
Exhibit 4.1.1).*
4.1.3 Form of 8.734% Senior Secured Bond due 2026 (included in
Exhibit 4.1.2).*
4.1.4 Form of Assumption Agreement, dated as of December ,
2001, among Homer City OL1 LLC, Homer City OP2 LLC, Homer
City OP3 LLC, Homer City OP4 LLC, Homer City OL5 LLC, Homer
City OP6 LLC, Homer City OP7 LLC, Homer City OP8 LLC, Homer
City Funding and The Bank of New York as Trustee.*
4.2 Form of Indenture of Trust and Security Agreement, dated, as
of December , 2001, between Homer City OL1 LLC, The Bank
of New York, as Lease Indenture Trustee and Security Agent.*
4.2.1 Schedule identifying substantially identical agreements to
Lease Indenture of Trust, Mortgage and Security Agreement
constituting Exhibit 4.2 hereto.
4.2.2 Form of Secured Lease Obligation Note (included in Exhibit
4.2).*
4.3 Form of Facility Lease Agreement, dated as of December ,
2001, between Homer City OL1 LLC and EME Homer City
Generation L.P.*
4.3.1 Schedule identifying substantially identical agreements to
Facility Lease Agreement constituting Exhibit 4.3 hereto.
4.4 Form of Participation Agreement, dated as of December ,
2001, among EME Homer City Generation L.P., Homer City OL1
LLC, the Owner Participant, the Owner Manager, The Bank of
New York as the Security Agent, The Bank of New York as
Lease Indenture Trustee, Homer City Funding LLC and The Bank
of New York as Trustee.*
4.4.1 Schedule identifying substantially identical agreements to
Participation Agreement constituting Exhibit 4.4 hereto.
4.5 Form of Owner Lessor Subordination Agreement, dated as of
December , 2001, by and among Homer City OL1 LLC, the
Owner Lessor, the Owner Participant and The Bank of New
York, as the Lease Indenture Trustee.*
4.5.1 Schedule identifying substantially identical agreements to
Owner Lessor Subordination Agreement constituting Exhibit
4.5 hereto.
</Table>
II-2
<Page>
<Table>
4.6 Form of Lease Subordination Agreement, dated as of December
, 2001, by and among the Owner Lessor, the Owner
Participant and The Bank of New York as Security Agent.*
4.6.1 Schedule identifying substantially identical agreements to
Lease Subordination Agreement constituting Exhibit 4.6
hereto.
4.7 Form of Pledge and Collateral Agreement made by Edison
Mission Holdings Co. in favor of The Bank of New York, as
successor to United States Trust Company of New York, as
Collateral Agent, dated as of December , 2001.*
4.8 Form of Assumption Agreement, dated as of December , 2001,
among Edison Mission Holdings Co., EME Homer City Generation
L.P. and The Bank of New York (as successor to United States
Trust Company of New York), as Trustee.*
4.9 Form of Open-End Mortgage, Security Agreement and Assignment
of Rents, dated as of December , 2001, among Homer City
OLI LLC, as the Owner Lessor to The Bank of New York, as
Security Agent and Mortgagee (included in Exhibit 4.2).*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to EME Homer City Generation L.P., as to the
legality of the 8.137% Senior Secured Bonds due 2019 and
8.734% Senior Secured Bonds 2026 being registered hereby.*
10.1 Exchange and Registration Rights Agreement, dated as of May
27, 1999, by and among the Initial Purchasers named therein,
the Guarantors named therein and Edison Mission Holdings
Co., incorporated by reference to Exhibit 10.1 to Edison
Mission Holding Co.'s registration statement on Form S-4 to
the Securities and Exchange Commission on December 3, 1999
(File No. 333-92047).
10.2 Executive Supplemental Benefit Program, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.3 1981 Deferred Compensation Agreement, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.4 1985 Deferred Compensation Agreement for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-2313).
10.5 1987 Deferred Compensation Agreement for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-2313).
10.6 1988 Deferred Compensation Plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-2313).
10.7 1989 Deferred Compensation plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-9936).
10.8 1990 Deferred Compensation Plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-9936).
10.9 Annual Deferred Compensation Plan for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-9936).
10.10 Executive Retirement Plan for Executives, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.11 Estate and Financial Planning Program for Executive
Officers, incorporated by reference to Exhibits to Forms
10-K filed by SCEcorp (File No. 1-9936).
</Table>
II-3
<Page>
<Table>
10.12 Transition Power Purchase Agreement, dated August 1, 1998,
between New York State Electric & Gas Corporation and
Mission Energy Westside, Inc., incorporated by reference to
Exhibit 10.52 to Edison Mission Energy's Form 10-K for the
year ended December 31, 1998.
10.13 Transition Power Purchase Agreement, dated August 1, 1998,
between Pennsylvania Electric Company and Mission Energy
Westside, Inc., incorporated by reference to Exhibit 10.53
to Edison Mission Energy's Form 10-K for the year ended
December 31, 1998.
10.14 Guarantee, dated August 1, 1998, between Edison Mission
Energy, Pennsylvania Electric Company, NGE Generation, Inc.
and New York State Electric & Gas Corporation, incorporated
by reference to Exhibit 10.54 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1998.
10.15 Credit Agreement, dated March 18, 1999, among Edison Mission
Holdings Co. and Certain Commercial Lending Institutions,
and Citicorp USA, Inc., incorporated by reference to Exhibit
10.55 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.16 Guarantee and Collateral Agreement made by Edison Mission
Holdings Co., Edison Mission Finance Co., Homer City
Property Holdings, Inc., Chestnut Ridge Energy Co., Mission
Energy Westside, Inc., EME Homer City Generation L.P. and
Edison Mission Energy in favor of United States Trust
Company of New York, dated as of March 18, 1999,
incorporated by reference to Exhibit 10.56 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
10.16.1 Amendment No. 1 to the Guarantee and Collateral Agreement,
dated May 27, 1999, between Edison Mission Holdings Co.,
Edison Mission Finance Co., Homer City Property Holdings,
Inc., Chestnut Ridge Energy Company, Mission Energy
Westside, Inc., EME Homer City Generation L.P. and Edison
Mission Energy in favor of United States Trust Company of
New York, incorporated by reference to Exhibit 10.56.1 to
Amendment No. 1 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 8, 2000 (File No.
333-92047).
10.16.2 Open-End Mortgage, Security Agreement and Assignment of
Lease and Rents, dated March 18, 1999, from EME Homer City
Generation L.P. to United States Trust Company of New York,
incorporated by reference to Exhibit 10.56.2 to Amendment
No. 1 of Edison Mission Holdings Co.'s registration
statement on Form S-4 filed with the Securities and Exchange
Commission on February 8, 2000 (File No. 333-92047).
10.16.3 Amendment No. 1 to the Open-End Mortgage, Security Agreement
and Assignment of Leases and Rents, dated May 27, 1999, from
EME Homer City Generation L.P. to United States Trust
Company of New York, incorporated by reference to Exhibit
10.56.3 to Amendment No. 1 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 8, 2000 (File No.
333-92047).
10.16.4 Form of Amended and Restated Guarantee and Collateral
Agreement, dated as of December , 2001, made by EME Homer
City Generation L.P. in favor of The Bank of New York as
successor to United States Trust Company of New York, as
Collateral Agent.*
10.17 Collateral Agency and Intercreditor Agreement among Edison
Mission Holdings Co., Edison Mission Finance Co., Homer City
Property Holdings, Inc., Chestnut Ridge Energy Co., Mission
Energy Westside, Inc., EME Homer City Generation L.P., The
Secured Parties' Representative, Citicorp USA, Inc., as
Administrative Agent and United States Trust Company of New
York, as Collateral Agent, dated as of March 18, 1999,
incorporated by reference to Exhibit 10.57 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
</Table>
II-4
<Page>
<Table>
10.18 Security Deposit Agreement among Edison Mission Holdings
Co., Edison Mission Finance Co., Homer City Property
Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy
Westside, Inc., EME Homer City Generation L.P. and United
State Trust Company of New York, as Collateral Agent, dated
as of March 18, 1999, incorporated by reference to Exhibit
10.58 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.18.1 Amendment No. 1 to the Security Deposit Agreement, dated May
27, 1999, between Edison Mission Holdings Co., Edison
Mission Finance Co., Homer City Property Holdings, Inc.,
Chestnut Ridge Energy Company, Mission Energy Westside,
Inc., EME Homer City Generation L.P. and United States Trust
Company of New York, as Collateral Agent, incorporated by
reference to Exhibit 10.58.1 to Amendment No. 1 of Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
February 8, 2000 (File No. 333-92047).
10.18.2 Form of Amended Security Deposit Agreement, dated as of
December , 2001, among EME Homer City Generation L.P. and
The Bank of New York as Collateral Agent.*
10.19 Credit Support Guarantee, dated as of March 18, 1999, made
by Edison Mission Energy in favor of United States Trust
Company of New York, incorporated by reference to Exhibit
10.59 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.19.1 Amendment No. 1 to the Credit Support Guarantee, dated May
27, 1999, made by Edison Mission Energy in favor of United
States Trust Company of New York, incorporated by reference
to Exhibit 10.59.1 to Amendment No. 1 of Edison Mission
Holdings Co.'s registration statement on Form S-4 filed with
the Securities and Exchange Commission on February 8, 2000
(File No. 333-92047).
10.20 Debt Service Reserve Guarantee, dated as of March 18, 1999,
made by Edison Mission Energy in favor of United States
Trust Company of New York on behalf of the various financial
institutions (Lenders) as are or may become parties to the
Credit Agreement, dated as of March 18, 1999, among Edison
Mission Holdings Co., the Lenders and Citicorp USA, Inc.,
incorporated by reference to Exhibit 10.60 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
10.20.1 Amendment No. 1 to the Debt Service Reserve Guarantee, dated
May 27, 1999, made by Edison Mission Energy in favor of
United States Trust Company of New York, incorporated by
reference to Exhibit 10.60.1 to Amendment No. 1 of Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
February 8, 2000 (File No. 333-92047).
10.20.2 Amendment No. 2 to the Debt Service Reserve Guarantee, dated
as of March 18, 2001, made by Edison Mission Energy in favor
of United States Trust Company of New York, incorporated by
reference to Exhibit 10.60.2 to Edison Mission Energy's Form
10-Q for the quarter ended June 30, 2001.
10.20.2 Bond Debt Service Reserve Guarantee, dated May 27, 1999,
made by Edison Mission Energy in favor of United States
Trust Company of New York, incorporated by reference to
Exhibit 10.60.2 to Amendment No. 1 of Edison Mission
Holdings Co.'s registration statement on Form S-4 filed with
the Securities and Exchange Commission on February 8, 2000
(File No. 333-92047).
</Table>
II-5
<Page>
<Table>
10.20.3 Intercompany Loan Subordination Agreement, dated March 18,
1999, among Edison Mission Holdings Co., Edison Mission
Finance Co., Homer City Property Holdings, Inc., Chestnut
Ridge Energy Co., Mission Energy Westside, Inc., EME Homer
City Generation L.P. and United States Trust Company of New
York, incorporated by reference to Exhibit 10.60.3 to
Amendment No. 2 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 29, 2000 (File No.
333-92047).
10.21 Credit Agreement, dated March 18, 1999, among Edison Mission
Energy and Certain Commercial Lending Institutions, and
Citicorp USA Inc., incorporated by reference to Exhibit
10.61 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.21.1 Amendment One to Credit Agreement, dated as of August 17,
2000, by and among Edison Mission Energy, Certain Commercial
Lending Institutions, and Citicorp USA, Inc., as
Administrative Agent, incorporated by reference to Exhibit
10.61.1 to Edison Mission Energy's Form 10-K for the year
ended December 31, 2000.
10.22 Asset Purchase Agreement, dated August 1, 1998, between
Pennsylvania Electric Company, NGE Generation, Inc., New
York State Electric & Gas Corporation and Edison Mission
Energy's Form 10-K for the year ended December 31, 2000.
10.23 Form of Agreement for 2000 Employee Awards under the Equity
Compensation Plan, incorporated by reference to Exhibit
10.78 to Edison Mission Energy's Form 10-Q for the quarter
ended Mach 31, 2000.
10.24 Edison International 2000 Equity Plan, incorporated by
reference to Exhibit 10.1 to Edison International's Form
10-Q for the quarter ended March 31, 2000. (File No.
1-9936).
10.25 Form of Agreement for 2000 Employee Awards under the 2000
Equity Plan, incorporated by reference to Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended June
30, 2000. (File No. 1-9936).
10.26 Amendment No. 1 to the Edison International Equity
Compensation plan (as restated January 1, 1998),
incorporated by reference to Exhibit 10.4 to Edison
International's Form 10-Q for the quarter ended June 30,
2000. (File No. 1-9936).
12.1 Statement regarding the ratio of earnings to fixed charges
for EME Homer City Generation L.P.**
21.1 List of Subsidiaries of EME Homer City Generation L.P.**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).*
25.1 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York for the 8.137% Senior Secured Bonds due
2019 and 8.734% Senior Secured Bonds due 2026.*
99.1 Form of Consent Form.*
99.2 Form of Letter to Our Clients.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Form of Consent Solicitation Agreement, dated as of ,
2001, among EME Homer City Generation L.P., Edison Mission
Holdings Co., Credit Suisse First Boston Corporation and
Lehman Brothers Inc.*
</Table>
- ------------------------
* Filed herewith.
II-6
<Page>
** Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
II-7
<Page>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
(d) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(e) The undersigned registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) of clause (b) above, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 16th day of November, 2001.
<Table>
EME HOMER CITY GENERATION L.P.
(Registrant)
By: Mission Energy Westside, Inc., as General
Partner
By: /s/ GEORGIA R. NELSON
-----------------------------------------
Georgia R. Nelson
PRESIDENT
</Table>
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGIA R. NELSON President and Director
- ------------------------------------------- (Principal Executive November 16, 2001
Georgia R. Nelson Officer)
Vice President, Treasurer
/s/ KEVIN M. SMITH and Director
- ------------------------------------------- (Principal Financial and November 16, 2001
Kevin M. Smith Accounting Officer)
/s/ JOHN K. DESHONG
- ------------------------------------------- Vice President and Director November 16, 2001
John K. Deshong
/s/ RONALD L. LITZINGER
- ------------------------------------------- Vice President and Director November 16, 2001
Ronald L. Litzinger
/s/ RAYMOND W. VICKERS
- ------------------------------------------- Director November 16, 2001
Raymond W. Vickers
</Table>
II-9
<Page>
INDEX TO EXHIBITS
<Table>
3.1 EME Homer City Generation L.P. Agreement of Limited
Partnership incorporated by reference to Exhibit 3.13 to
Edison Mission Holding Co.'s registration statement on Form
S-4 filed with the Securities and Exchange Commission on
December 3, 1999 (File No. 333-92047).
3.2 Form of Amended and Restated Agreement of Limited
Partnership of EME Homer City Generation L.P.*
4.1 Indenture, dated as of May 27, 1999, between Edison Mission
Holdings Co. and United States Trust Company of New York, as
Trustee, incorporated by reference to Exhibit 4.1 to Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
December 3, 1999 (File No. 333-92047).
4.1.1 Form of First Amended and Restated Indenture, dated as of
December , 2001 among Homer City Funding LLC and The Bank
of New York, as successor trustee to United States Trust
Company of New York.*
4.1.2 Form of 8.137% Senior Secured Bond due 2019 (included in
Exhibit 4.1.1).*
4.1.3 Form of 8.734% Senior Secured Bond due 2026 (included in
Exhibit 4.1.2).*
4.1.4 Form of Assumption Agreement, dated as of December , 2001,
among Homer City OL1 LLC, Homer City OP2 LLC, Homer City OP3
LLC, Homer City OP4 LLC, Homer City OL5 LLC, Homer City OP6
LLC, Homer City OP7 LLC, Homer City OP8 LLC, Homer City
Funding and The Bank of New York as Trustee.*
4.2 Form of Indenture of Trust and Security Agreement, dated as
of December , 2001, between Homer City OL1 LLC, The Bank
of New York, as Lease Indenture Trustee and Security Agent.*
4.2.1 Schedule identifying substantially identical agreements to
Lease Indenture of Trust, Mortgage and Security Agreement
constituting Exhibit 4.2 hereto.**
4.2.2 Form of Secured Lease Obligation Note (included in Exhibit
4.2).*
4.3 Form of Facility Lease Agreement, dated as of December ,
2001, between Homer City OL1 LLC and EME Homer City
Generation L.P.*
4.3.1 Schedule identifying substantially identical agreements to
Facility Lease Agreement constituting Exhibit 4.3 hereto.**
4.4 Form of Participation Agreement, dated as of December ,
2001, among EME Homer City Generation L.P., Homer City OL1
LLC, the Owner Participant, the Owner Manager, The Bank of
New York as the Security Agent, The Bank of New York as
Lease Indenture Trustee, Homer City Funding LLC and The Bank
of New York as Trustee.*
4.4.1 Schedule identifying substantially identical agreements to
Participation Agreement constituting Exhibit 4.4 hereto.**
4.5 Form of Owner Lessor Subordination Agreement, dated as of
December , 2001, by and among Homer City OL1 LLC, the
Owner Participant and The Bank of New York, as the Lease
Indenture Trustee.*
4.5.1 Schedule identifying substantially identical agreements to
Owner Lessor Subordination Agreement constituting Exhibit
4.5 hereto.**
4.6 Form of Lease Subordination Agreement, dated as of
December , 2001, by and among the Owner Lessor, the Owner
Participant and United States Trust Company of New York. as
Security Agent.*
</Table>
<Page>
<Table>
4.6.1 Schedule identifying substantially identical agreements to
Lease Subordination Agreement constituting Exhibit 4.6
hereto.**
4.7 Form of Pledge and Collateral Agreement, made by Edison
Mission Holdings Co. in favor of The Bank of New York, as
successor to United States Trust Company of New York, as
Collateral Agent, dated as of December , 2001.*
4.8 Form of Assumption Agreement, dated as of December , 2001,
among Edison Mission Holdings Co., EME Homer City Generation
L.P. and The Bank of New York (as successor to United States
Trust Company of New York), as Trustee.*
4.9 Form of Open-End Mortgage, Security Agreement and Assignment
of Rents, dated as of December , 2001, from December ,
2001 Homer City OLI LLC, as the Owner Lessor to The Bank of
New York, as Security Agent and Mortgagee (included in
Exhibit 4.2).*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to EME Homer City Generation L.P., as to the
legality of the 8.137% Senior Secured Bonds due 2019 and
8.734% Senior Secured Bonds 2026 being registered hereby.*
10.1 Exchange and Registration Rights Agreement, dated as of May
27, 1999, by and among the Initial Purchasers named therein,
the Guarantors named therein and Edison Mission Holdings
Co., incorporated by reference to Exhibit 10.1 to Edison
Mission Holding Co.'s registration statement on Form S-4 to
the Securities and Exchange Commission on December 3, 1999
(File No. 333-92047).
10.2 Executive Supplemental Benefit Program, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.3 1981 Deferred Compensation Agreement, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.4 1985 Deferred Compensation Agreement for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-2313).
10.5 1987 Deferred Compensation Agreement for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-2313).
10.6 1988 Deferred Compensation Plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-2313).
10.7 1989 Deferred Compensation plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-9936).
10.8 1990 Deferred Compensation Plan for Executives, incorporated
by reference to Exhibits to Forms 10-K filed by SCEcorp
(File No. 1-9936).
10.9 Annual Deferred Compensation Plan for Executives,
incorporated by reference to Exhibits to Forms 10-K filed by
SCEcorp (File No. 1-9936).
10.10 Executive Retirement Plan for Executives, incorporated by
reference to Exhibits to Forms 10-K filed by SCEcorp (File
No. 1-2313).
10.11 Estate and Financial Planning Program for Executive
Officers, incorporated by reference to Exhibits to Forms
10-K filed by SCEcorp (File No. 1-9936).
10.12 Transition Power Purchase Agreement, dated August 1, 1998,
between New York State Electric & Gas Corporation and
Mission Energy Westside, Inc., incorporated by reference to
Exhibit 10.52 to Edison Mission Energy's Form 10-K for the
year ended December 31, 1998.
10.13 Transition Power Purchase Agreement, dated August 1, 1998,
between Pennsylvania Electric Company and Mission Energy
Westside, Inc., incorporated by reference to Exhibit 10.53
to Edison Mission Energy's Form 10-K for the year ended
December 31, 1998.
</Table>
<Page>
<Table>
10.14 Guarantee, dated August 1, 1998, between Edison Mission
Energy, Pennsylvania Electric Company, NGE Generation, Inc.
and New York State Electric & Gas Corporation, incorporated
by reference to Exhibit 10.54 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1998.
10.15 Credit Agreement, dated March 18, 1999, among Edison Mission
Holdings Co. and Certain Commercial Lending Institutions,
and Citicorp USA, Inc., incorporated by reference to Exhibit
10.55 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.16 Guarantee and Collateral Agreement made by Edison Mission
Holdings Co., Edison Mission Finance Co., Homer City
Property Holdings, Inc., Chestnut Ridge Energy Co., Mission
Energy Westside, Inc., EME Homer City Generation L.P. and
Edison Mission Energy in favor of United States Trust
Company of New York, dated as of March 18, 1999,
incorporated by reference to Exhibit 10.56 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
10.16.1 Amendment No. 1 to the Guarantee and Collateral Agreement,
dated May 27, 1999, between Edison Mission Holdings Co.,
Edison Mission Finance Co., Homer City Property Holdings,
Inc., Chestnut Ridge Energy Company, Mission Energy
Westside, Inc., EME Homer City Generation L.P. and Edison
Mission Energy in favor of United States Trust Company of
New York, incorporated by reference to Exhibit 10.56.1 to
Amendment No. 1 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 8, 2000 (File No.
333-92047).
10.16.2 Open-End Mortgage, Security Agreement and Assignment of
Lease and Rents, dated March 18, 1999, from EME Homer City
Generation L.P. to United States Trust Company of New York,
incorporated by reference to Exhibit 10.56.2 to Amendment
No. 1 of Edison Mission Holdings Co.'s registration
statement on Form S-4 filed with the Securities and Exchange
Commission on February 8, 2000 (File No. 333-92047).
10.16.3 Amendment No. 1 to the Open-End Mortgage, Security Agreement
and Assignment of Leases and Rents, dated May 27, 1999, from
EME Homer City Generation L.P. to United States Trust
Company of New York, incorporated by reference to Exhibit
10.56.3 to Amendment No. 1 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 8, 2000 (File No.
333-92047).
10.16.4 Form of Amended and Restated Guarantee and Collateral
Agreement, dated as of December , 2001, made by EME Homer
City Generation L.P. in favor of The Bank of New York as
successor to United States Trust Company of New York, as
Collateral Agent.*
10.17 Collateral Agency and Intercreditor Agreement among Edison
Mission Holdings Co., Edison Mission Finance Co., Homer City
Property Holdings, Inc., Chestnut Ridge Energy Co., Mission
Energy Westside, Inc., EME Homer City Generation L.P., The
Secured Parties' Representative, Citicorp USA, Inc., as
Administrative Agent and United States Trust Company of New
York, as Collateral Agent, dated as of March 18, 1999,
incorporated by reference to Exhibit 10.57 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
10.18 Security Deposit Agreement among Edison Mission Holdings
Co., Edison Mission Finance Co., Homer City Property
Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy
Westside, Inc., EME Homer City Generation L.P. and United
States Trust Company of New York, as Collateral Agent, dated
as of March 18, 1999, incorporated by reference to Exhibit
10.58 to Edison Mission Energy's Form 8-K dated March 18,
1999.
</Table>
<Page>
<Table>
10.18.1 Amendment No. 1 to the Security Deposit Agreement, dated May
27, 1999, between Edison Mission Holdings Co., Edison
Mission Finance Co., Homer City Property Holdings, Inc.,
Chestnut Ridge Energy Company, Mission Energy Westside,
Inc., EME Homer City Generation L.P. and United States Trust
Company of New York, as Collateral Agent, incorporated by
reference to Exhibit 10.58.1 to Amendment No. 1 of Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
February 8, 2000 (File No. 333-92047).
10.18.2 Form of Amended Security Deposit Agreement, dated as of
December , 2001, among EME Homer City Generation L.P. and
The Bank of New York as Collateral Agent.*
10.19 Credit Support Guarantee, dated as of March 18, 1999, made
by Edison Mission Energy in favor of United States Trust
Company of New York, incorporated by reference to Exhibit
10.59 to Edison Mission Energy's Form 8-K dated March 18,
1999.
10.19.1 Amendment No. 1 to the Credit Support Guarantee, dated May
27, 1999, made by Edison Mission Energy in favor of United
States Trust Company of New York, incorporated by reference
to Exhibit 10.59.1 to Amendment No. 1 of Edison Mission
Holdings Co.'s registration statement on Form S-4 filed with
the Securities and Exchange Commission on February 8, 2000
(File No. 333-92047).
10.20 Debt Service Reserve Guarantee, dated as of March 18, 1999,
made by Edison Mission Energy in favor of United States
Trust Company of New York on behalf of the various financial
institutions (Lenders) as are or may become parties to the
Credit Agreement, dated as of March 18, 1999, among Edison
Mission Holdings Co., the Lenders and Citicorp USA, Inc.,
incorporated by reference to Exhibit 10.60 to Edison Mission
Energy's Form 8-K dated March 18, 1999.
10.20.1 Amendment No. 1 to the Debt Service Reserve Guarantee, dated
May 27, 1999, made by Edison Mission Energy in favor of
United States Trust Company of New York, incorporated by
reference to Exhibit 10.60.1 to Amendment No. 1 of Edison
Mission Holdings Co.'s registration statement on Form S-4
filed with the Securities and Exchange Commission on
February 8, 2000 (File No. 333-92047).
10.20.2 Amendment No. 2 to the Debt Service Reserve Guarantee, dated
as of March 18, 2001, made by Edison Mission Energy in favor
of United States Trust Company of New York, incorporated by
reference to Exhibit 10.60.2 to Edison Mission Energy's Form
10-Q for the quarter ended June 30, 2001.
10.20.2 Bond Debt Service Reserve Guarantee, dated May 27, 1999,
made by Edison Mission Energy in favor of United States
Trust Company of New York, incorporated by reference to
Exhibit 10.60.2 to Amendment No. 1 of Edison Mission
Holdings Co.'s registration statement on Form S-4 filed with
the Securities and Exchange Commission on February 8, 2000
(File No. 333-92047).
10.20.3 Intercompany Loan Subordination Agreement, dated March 18,
1999, among Edison Mission Holdings Co., Edison Mission
Finance Co., Homer City Property Holdings, Inc., Chestnut
Ridge Energy Co., Mission Energy Westside, Inc., EME Homer
City Generation L.P. and United States Trust Company of New
York, incorporated by reference to Exhibit 10.60.3 to
Amendment No. 2 of Edison Mission Holdings Co.'s
registration statement on Form S-4 filed with the Securities
and Exchange Commission on February 29, 2000 (File No.
333-92047).
10.21 Credit Agreement, dated March 18, 1999, among Edison Mission
Energy and Certain Commercial Lending Institutions, and
Citicorp USA Inc., incorporated by reference to Exhibit
10.61 to Edison Mission Energy's Form 8-K dated March 18,
1999.
</Table>
<Page>
<Table>
10.21.1 Amendment One to Credit Agreement, dated as of August 17,
2000, by and among Edison Mission Energy, Certain Commercial
Lending Institutions, and Citicorp USA, Inc., as
Administrative Agent, incorporated by reference to Exhibit
10.61.1 to Edison Mission Energy's Form 10-K for the year
ended December 31, 2000.
10.22 Asset Purchase Agreement, dated August 1, 1998, between
Pennsylvania Electric Company, NGE Generation, Inc., New
York State Electric & Gas Corporation and Edison Mission
Energy's Form 10-K for the year ended December 31, 2000.
10.23 Form of Agreement for 2000 Employee Awards under the Equity
Compensation Plan, incorporated by reference to Exhibit
10.78 to Edison Mission Energy's Form 10-Q for the quarter
ended Mach 31, 2000.
10.24 Edison International 2000 Equity Plan, incorporated by
reference to Exhibit 10.1 to Edison International's Form
10-Q for the quarter ended March 31, 2000. (File No.
1-9936).
10.25 Form of Agreement for 2000 Employee Awards under the 2000
Equity Plan, incorporated by reference to Exhibit 10.2 to
Edison International's Form 10-Q for the quarter ended June
30, 2000. (File No. 1-9936).
10.26 Amendment No. 1 to the Edison International Equity
Compensation plan (as restated January 1, 1998),
incorporated by reference to Exhibit 10.4 to Edison
International's Form 10-Q for the quarter ended June 30,
2000. (File No. 1-9936).
12.1 Statement regarding the ratio of earnings to fixed charges
for EME Homer City Generation L.P.*
21.1 List of Subsidiaries of EME Homer City Generation L.P.**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).*
25.1 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York for the 8.137% Senior Secured Bonds due
2019 and 8.734% Senior Secured Bonds due 2026.*
99.1 Form of Consent Form.*
99.2 Form of Letter to Our Clients.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Form of Consent Solicitation Agreement, dated as of ,
2001, among EME Homer City Generation L.P., Edison Mission
Holdings Co., Credit Suisse First Boston Corporation and
Lehman Brothers Inc.*
</Table>
- ------------------------
* Filed herewith.
** Previously filed.