Exhibit 10.10.6
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
July 21, 1994
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President and Group Executive
Consumer Energy Services Group
PECO Energy Company
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. Box 8699
Philadelphia, PA 19101-8699
Re: Letter Agreement Regarding Amendment of the Energy Service Agreements
between the Philadelphia Municipal Authority and O'BRIEN Philadelphia
Cogeneration Inc. in Conjunction with the Execution of Economic
Efficiency Rider Contracts Between the City of Philadelphia Water
Department and PECO Energy Company.
Dear ▇▇▇▇:
This letter sets forth the terms and conditions agreed to by PECO Energy
Company ("PECO") and O'BRIEN Environmental Energy, Inc. ("O'BRIEN") under
which, (i) ▇'▇▇▇▇▇ will agree to seek amendments to the Energy Service
Agreements ("ESAs") between the Philadelphia Municipal Authority ("PMA")
and O'BRIEN Philadelphia Cogeneration Inc. ("OPCI") under which OPCI
currently provides standby electric generating services for the City of
Philadelphia Water Department ("PWD") at its Northeast and Southwest waste
water treatment facilities, and, (ii) PECO will offer and agree to enter
into new Economic Efficiency Rider contracts with the PWD that would
provide the PWD with the same level of economic benefits the PWD would have
otherwise received from OPCI under the ESAs.
The agreed upon terms and conditions are as follows:
1. PECO will loan O'BRIEN $5.5 million (the "Loan") on August 5, 1995,
the last date of O'BRIEN's final option period to repurchase the
common stock of OPCI (the "Stock Repurchase") from OPC Acquisition,
Inc. (OPCAI). O'BRIEN will use $5 million of the Loan proceeds or
such lesser amount as may be mutually agreed to by ▇'▇▇▇▇▇ and ▇▇▇▇▇
to purchase the OPCI common stock (the "Stock Repurchase Price") and
will assign the OPCI common stock to PECO as collateral for the Loan,
as described below. PECO will facilitate the Stock Repurchase by
wining the Stock Repurchase Price directly to OPCAI on behalf of
▇'▇▇▇▇▇. Until the Loan is repaid, O'BRIEN will make monthly payments
of $116,000 (the Monthly PECO Loan Payment) to PECO as provided in
Schedule 1 attached hereto. O'BRIEN may prepay the outstanding
balance of the Loan at any
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
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July 21, 1994
Page 2
time without penalty. As further collateral for the Loan, O'BRIEN
promises to establish a lock-box arrangement with a bank, acceptable
to PECO and paid for by ▇'▇▇▇▇▇, as described in the addendum to
Schedule 2 attached hereto, under which all service fees received by
OPCI from PMA will be directly deposited and all OPCI obligations,
including full payment to PECO, as provided in Schedule 1, are paid in
accordance with the Order of Monthly Service Fee Distributions
attached hereto as Schedule 2. Interest shall accumulate on any unpaid
balance (the Unpaid Balance) until paid in full. If there are
insufficient funds available in any month to make the total Monthly
PECO Loan Payment, or if there are excess funds available in any month
after all the obligations of Schedule 2 have been satisfied, the
remaining principal amount shall be adjusted and the term of the
Schedule 1 Loan Amortization Table shall be extended or shortened, as
the case may be, to amortize the adjusted principal amount using a
monthly payment of $116,000 and 12% annual interest rate.
Further O'BRIEN will not sell, move, pledge, or otherwise further
encumber the 22 megawatts of diesel fuel standby electric generating
equipment sets (the "Gen Sets") currently leased by O'Brien Rental
Services ("RENTAL") to OPCI and located on PWD property without either
obtaining PECO's prior written approval or by repaying the Loan in
full. Further,upon the effective date of this Letter Agreement,
O'BRIEN will immediately use its best efforts to ▇▇▇▇▇ ▇▇▇▇ a second
lien or mortgage on the Gen Sets in an amount equal to any Unpaid
Balance due on the Loan. O'BRIEN will use its best efforts to obtain
the consent of the lenders who have a primary lien on the Gen Sets
(the "Primary Lenders") if such consent is necessary to permit O'BRIEN
to grant the second lien to PECO. O'BRIEN represents that, (i) as of
the date of this Letter Agreement, the projected schedule of payments
would result in a remaining balance of less than $600,000 that will be
owed to the Primary Lenders on all of the Gen Sets as of August, 1998,
and (ii) the original financing costs of the Gen Sets and related
equipment were greater than $8 million. O'BRIEN will provide PECO
with detailed schedules and other documents memorializing RENTAL's
obligations to the Primary Lenders with respect to the Gen Sets upon
request.
2. O'BRIEN will not sell or pledge the common stock of OPCI to any party
other than PECO until the Loan is repaid in full, except that O'BRIEN
may sell the common stock to OPCAI as provided in paragraph 5 below.
3. Subject to a right of first refusal on the sale of the OPC I common
stock which OPCAI has pursuant to Section 5 of Annex 11 to the Stock
Purchase Agreement by and among OPCAI and affiliates and O'BRIEN dated
November 12, 1993 (the "OPCAI Agreement"), after O'BRIEN has acquired
the OPCI common stock, O'BRIEN shall ▇▇▇▇▇ ▇▇▇▇ an exclusive option to
acquire the OPCI common stock for the sum of $3 million, which option
PECO must exercise when, and only if, all of the following conditions
are satisfied:
(1) ▇'▇▇▇▇▇ and the PMA execute amended ESAs that include at least the
terms
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
July 21, 1994
Page 3
described below in paragraph 10, and the ESAs are acceptable to PECO;
(2) PECO and the PWD execute Economic Efficiency Rider Contracts (the "EER
contracts"), as described below in paragraphs 7 and 8;
(3) ▇'▇▇▇▇▇ and ▇▇▇▇ execute a transfer agreement (the "Transfer
Agreement"), as described below in paragraph 1 0; and
(4) PECO pays the difference between $9.5 million and the then current
balance on the Loan to O'BRIEN and deems the Loan satisfied in full.
4. After O'BRIEN has acquired the common stock of OPCI, PECO shall have
the right to tender an offer to purchase the OPCI common stock for $3
million (the "Offer"), which offer shall be subject to the conditions
described above in paragraph 3.
5. If OPCAI, (i) exercises its rights to match the Offer, (ii) pays
O'BRIEN $3 million for the OPCI common stock in accordance with the
OPCAI Agreement, and (iii) makes the Lease Buyout Payment of $6.5
million, O'BRIEN shall immediately repay the Loan in full from the
proceeds of the payments received from OPCAI for the OPCI common stock
and the Lease Buyout and shall do so by requesting that OPCAI wire
directly to PECO an amount equal to the principal and interest due on
the Loan.
6. If OPCAI does not exercise its right to match, as soon as practicable
and at least thirty days after the date the Loan is executed, ▇'▇▇▇▇▇
and PECO shall contact PWD and other relevant City of Philadelphia
representatives to seek PWD's agreement to an amendment of the ESAs as
described in paragraph 3 (1) above, the Transfer Agreement described
in paragraph 10 below, and the EER contracts as described in paragraph
7 below. O'BRIEN and its affiliates shall fully defend, indemnify,
and hold PECO harmless from and against any losses or damages that
PECO might suffer as the result of any legal action of any kind, if
any, brought by ▇▇▇▇▇, or by any other person or entity making a claim
based on the OPCAI Agreement, in connection with alleged violations of
rights, or alleged breaches of obligations, established by the OPCAI
Agreement,
7. PECO will offer EER contracts to the PWID for its Northeast and
Southwest waste water treatment facilities that would provide the same
level of economic benefits that the PWID would otherwise receive under
the ESAs. The EER contracts will provide a discount on PECO's full
Rate HT service to the PWD in a manner that is consistent with the
requirements of PECO's EER Tariff and the Pennsylvania Public Utility
Code. The combination of this discount and the timing of such
discount will provide the same level of economic benefits that the PWD
would have otherwise received at the PWID facilities from OPCI under
the ESAs.
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
July 21, 1994
Page 4
8. The EER contracts may include provisions similar to those provisions
relating to early termination contained in the "Term of Contract"
section of the EER contract executed on June 30, 1994 between
SmithKline ▇▇▇▇▇▇▇ Corporation and PECO if the PWD wishes to have such
provisions included.
9. O'BRIEN and PECO shall cooperate to obtain PWD's agreement to the
changes to the ESAs, to accept the transfer of obligations previously
owed to the PWD by OPCI to ▇'▇▇▇▇▇, and to induce the PWD to enter
into the EER contracts on the terms and conditions described herein,
and shall endeavor to share any additional burdens, economic or
otherwise, which O'BRIEN and PECO deem reasonable and appropriate, to
bring about PWD's agreement and participation. O'BRIEN shall have
sole discretion to decide whether to accept any such burdens with
respect to the amended ESAs, and ▇▇▇▇ shall have sole discretion to
decide whether to accept any such burdens with respect to the EER
contracts.
10. The amendment to the ESAs shall include provisions that, (i) permit
the PMA or PWD to enter into the EER contracts, and (ii) release
O'BRIEN or an affiliate of O'BRIEN from its obligation to maintain and
operate all diesel fuel standby electric generating equipment
currently located on PWD property. The amendment to the ESAs and the
Transfer Agreement between PECO and O'BRIEN will contain terms
ensuring that, upon closing of those agreements and the EER contracts,
(i) OPCI shall have no remaining obligations whatsoever to the PIVIA,
the PWD, or to O'BRIEN and any of its affiliates, or to any other
person or entity, and, (H) that O'BRIEN will assume any obligations
that OPCI had to the PIVIA, the PWD or to O'BRIEN and any of its
affiliates, or to any other person or entity, it being PECO's intent
to take whatever actions that may be necessary to cause OPCI to cease
to exist immediately following the execution of the amended ESAs,
Transfer Agreement, and the EER contracts.
11. If the PMA fails to execute the amended ESAs and the EER contracts
within 120 days after the date the Loan is made, PECO may issue a
second offer to purchase the common stock according to the same terms
and conditions as its first offer, as described above in paragraphs 3,
4 and 5.
12. On, or as soon as practicable after, the date on which there is no
longer any possibility that the amended ESAs and EER contracts
contemplated herein will be successfully negotiated and executed,
▇'▇▇▇▇▇ and RENTAL shall enter into a written security agreement (the
"Security Agreement") with PECO that will obligate O'BRIEN and RENTAL
to, within six (6) months of the date the ESAs are terminated (the
"Final Repayment Date"), (i) pay to PECO the Unpaid Balance on the
Loan plus accumulated interest or, (ii) cause RENTAL to sell such
number of the Gen Sets as are required to pay the Unpaid Balance to
PECO and any remaining obligations to the Primary Lenders, and, (iii)
grant a security interest to PECO in the GEN SETS such that if ▇'▇▇▇▇▇
fails to pay the full amount of the Unpaid Balance by the Final
Repayment Date, subject to any regulatory
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
July 21, 1994
Page 5
approvals that PECO deems necessary, O'BRIEN shall be obligated to
cause RENTAL to assign RENTAL's full interest in all of the Gen Sets
to PECO. The Security Agreement shall also provide, and O'BRIEN
hereby promises, that PECO shall be entitled to recover any costs
reasonably incurred by PECO or PECO's agent to sell the Gen Sets to
satisfy the Loan from the net proceeds of any such sale and any
balance remaining shall be returned to O'BRIEN. At the time O'BRIEN,
RENTAL, and PECO enter into the Security Agreement, O'BRIEN and RENTAL
shall execute whatever financing statements and other documents that
PECO, in its sole judgment, deems necessary to enable PECO to perfect
the security interest that the Security Agreement grants to PECO.
13. Should PECO, in its sole judgment, deem it necessary to obtain
approval, from the Federal Trade Commission, the Federal Energy
Regulatory Commission, Pennsylvania Public Utility Commission, or any
other agency or governmental entity, to undertake any of the actions
required by this Letter Agreement, O'BRIEN will undertake all actions
that, in PECO's sole judgment, are necessary, including making all
complementary or concurrent filings that may be required. PECO shall
not be required to undertake or fulfill any obligation imposed by this
Letter Agreement should an agency or other governmental entity
disapprove of or forbid PECo from fulfilling the obligation.
14. O'BRIEN will manage and lead negotiations with the PWD, PIVIA, and, as
appropriate, other City of Philadelphia officials, on the
restructuring and amendment of the ESAs and shall consult PECO on
strategy. PECO shall cooperate with ▇'▇▇▇▇▇ and shall attend meetings
with ▇'▇▇▇▇▇ and City officials in support of ▇'▇▇▇▇▇'▇ negotiations
consistent with the strategy. PECO shall not separately negotiate or
maintain contact with the City or any other party involved with the
ESAs, including OPCAI, Woodforde Energy, Inc., ▇▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or
any of her affiliates or representatives, regarding any amendment of
the ESAs or the provision of service under the EER contracts, except
with the prior written approval of ▇'▇▇▇▇▇. Except for initial
telephone contacts to establish meeting dates and times, ▇'▇▇▇▇▇ shall
not separately discuss with the PWID, the PIVIA, or other City
officials, the EER contract provisions PECO has agreed to herein or
the details of the EER contracts as the negotiations proceed.
15. Upon the execution of the amended ESAs, the Transfer Agreement, and
the EER contracts contemplated herein, PECO will pay O'BRIEN the
difference between $9.5 million and the then remaining principal
amount and any accrued interest of the Loan owed to PECO by ▇'▇▇▇▇▇
and shall provide O'BRIEN with written certification that the Loan has
been satisfied in full.
16. ▇'▇▇▇▇▇ represents to PECO that as of the date of this Letter
Agreement, it knows of no outstanding claims against OPCI, and
promises that, with respect to any claims that may be made or that
accrue against OPCI between the date of this Letter Agreement and the
date of the execution of the amended ESAs, the Transfer Agreement, and
the EER contracts, O'BRIEN and its affiliates shall fully indemnify
and hold PECO harmless from
O'BRIEN
ENVIRONMENTAL
ENERGY
[Letterhead]
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July 21, 1994
Page 6
and against any losses or damages, including attorney's fees and expenses
incurred to defend against any such claims, that ▇▇▇▇ might suffer as the
result of any such claims should PECO ever obtain title to the OPCI stock
as contemplated herein.
As with our original restructuring proposal and in accordance with our Non-
Disclosure Agreement, this Letter Agreement is hereby designated as
"Confidential" by ▇'▇▇▇▇▇ and may not be disclosed to any other party for
any purpose without ▇'▇▇▇▇▇'▇ or PECO's prior written permission.
By signing below, both parties intend to be legally bound by the foregoing.
Thank you for your consideration.
Sincerely, ACCEPTED AND AGREED TO BY:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /S/ ▇. ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇
Vice President for PECO Energy Company
O'BRIEN Environmental Energy, Inc. DATE: 7/21/94
cc:
cc: P. T. ▇▇▇▇▇▇▇
F. L. ▇'▇▇▇▇▇, ▇▇▇
▇. ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
Schedule 1
Loan Amortization
Amount $5,500,000
Interest Rate/year 0.12
Monthly Payment 116,000
a. Unpaid
b. Month Balance Payment Interest Principal
1 5,500,000 116,000 55,000 61,000
2 5,439,000 116,000 54,390 61,610
3 5,377,390 116,000 53,774 62,226
4 5,315,164 116,000 53,152 62,848
5 5,252,316 116,000 52,523 63,477
6 5,188,839 116,000 51,888 64,112
7 5,124,727 116,000 51,247 64,753
8 5,059,974 116,000 50,600 65,400
9 4,994,574 116,000 49,946 66,054
10 4,928,520 116,000 49,285 66,715
11 4,861,805 116,000 48,618 67,382
12 4,794,423 116,000 47,944 68,056
13 4,726,367 116,000 47,264 68,736
14 4,657,631 116,000 46,576 69,424
15 4,588,207 116,000 45,882 70,118
16 4,518,089 116,000 45,181 70,819
17 4,447,270 116,000 44,473 71,527
18 4,375,743 116,000 43,757 72,243
19 4,303,500 116,000 43,03S 72,965
20 4,230,535 116,000 42,305 73,695
21 4,156,841 116,000 41,568 74,432
22 4,082,409 116,000 40,824 75,176
23 4,007,233 116,000 40,072 75,928
24 3,931,306 116,000 39,313 76,687
25 3,854,619 116,000 38,546 77,454
26 3,777,165 116,000 37,772 78,228
27 3,698,936 116,000 36,989 79,011
28 3,619,926 116,000 36,199 79,801
29 3,540,125 116,000 35,401 80,599
30 3,459,526 116,000 34,595 81,405
31 3,378,122 116,000 33,781 82,219
32 3,295,903 116,000 32,959 83,041
33 3,212,862 116,000 32,129 83,871
34 3,128,990 116,000 31,290 84,710
35 3,044,280 116,000 30,443 85,557
36 2,958,723 116,000 29,587 86,413
Schedule 1, Loan Amortization
Page 2
37 2,872,310 116,000 28,723 87,277
38 2,785,034 116,000 27,850 88,150
39 2,696,884 116,000 26,969 89,031
40 2,607,853 116,000 26,079 89,921
41 2,517,931 116,000 25,179 90,821
42 2,427,111 116,000 24,271 91,729
43 2,335,382 116,000 23,354 92,646
44 2,242,735 116,000 22,427 93,573
45 2,149,163 116,000 21,492 94,508
46 2,054,654 116,000 20,547 95,453
47 1,959,201 116,000 19,592 96,408
48 1,862,793 116,000 18,628 97,372
49 1,765,421 116,000 17,654 98,346
50 1,667,075 116,000 16,671 99,329
51 1,567,746 116,000 15,677 100,323
52 1,467,423 116,000 14,674 101,326
53 1,366,098 116,000 13,661 102,339
54 1,263,759 116,000 12,638 103,362
55 1,160,396 116,000 11,604 104,396
56 1,056,000 116,000 10,560 105,440
57 950,560 116,000 9,506 106,494
58 844,066 116,000 8,441 107,559
59 736,506 116,000 7,365 108,635
60 627,871 116,000 6,279 109,721
61 518,150 116,000 5,182 110,818
62 407,332 116,000 4,073 111,927
63 295,405 116,000 2,954 113,046
64 182,359 116,000 1,824 114,176
65 68,183 116,000 682 68,183
Unadjusted Term: 5.42 Years
NOTE:
Commencing September 20, 1994, and on the 20th day of each succeeding month
during the term of the Loan, ▇'▇▇▇▇▇ will revise this Schedule 1 Loan
Amortization Table in accordance with section 1 of the Letter Agreement and
the provisions of Schedule 2 and forward the revised amortization table
(the "Revised Schedule 1") to PECO for approval, such approval not to be
unreasonably withheld. The Monthly PECO Loan Payment of $116,000 will
remain a constant in the Revised Schedule 1, while the remaining Term,
Unpaid Balance, Interest, and Principal payments in the revised Schedule 1
will be subject to adjustment.
The following examples illustrate how the original and revised versions of
Schedule 1 would be subject to change:
A. If, based on Schedule 2, only $100,000 of the first month's payment is
paid on time, then the Unpaid Balance for the second month will be
increased by $16,000 to $5,455,000 and the Interest due for the second
month will be $54,550.
B. If no payment is made in the first month, then the balance due for the
second month will be $5,555,000 and the interest due for the second
month will be $55,550.
C. If, based on Schedule 2, $130,000 is available and paid to PECO as
payment in the first month, then the Unpaid Balance for the second
month will be adjusted to $5,425,000 and the interest due for the
second month will be $54,250.
(a) Schedule 2
(b) Order of Monthly Distribution Payments
1. Primary Gen Set Lenders' Lease Payments.
2. An amount equal to O'BRIEN's ▇▇▇▇▇ ▇▇▇▇▇▇ as defined below plus the
Operation & Maintenance Reimbursement of $25,000, such amount to be
escalated each year by four (4) percent, to PECO Energy.
3. If applicable, the estimated Preferred Stockholder Dividend to the
OPCI dividend reserve account.
4. The monthly PECO Loan Payment amount less the amount in line 2 above.
5. Operation & Maintenance Reimbursement of $25,000, such amount to be
escalated each year by four (4) percent, to O'BRIEN.
6. Any remaining amount to PECO to further reduce the remaining principal
amount of the loan.
For purposes of this Schedule 2, O'BRIEN's Lease Margin, means $195,761 per
month less the Primary Gen Set Lenders' Lease Payments.
SCHEDULE 2 ADDENDUM
LOCKBOX ARRANGEMENTS
OPCI SERVICE FEES AND DISTRIBUTIONS
As provided in section one of the Letter Agreement, upon the making of the
Loan O'BRIEN will establish a Lockbox Account (the "Lockbox") with a bank
(the "Bank"), acceptable to PECO and paid for by ▇'▇▇▇▇▇, to receive and
distribute OPCI service fees. The Bank will have standing instructions to
follow the following procedures each month with respect to the flow of
funds;
1. Monthly service fee checks will be remitted by the Philadelphia
Municipal Authority ("PMA') directly to the Bank in the name of OPCI.
These checks are typically received between the 10th and 12th day of
each month.
2. As with ▇▇▇▇'s own billing and payment schedule, there is a time lag
(approximately 45 days) between the end of the applicable PECO billing
period and the date the OPCI service fees are paid. While ▇'▇▇▇▇▇, as
the new holder of OPCI common stock, will be entitled to accrue
dividends commencing August 6, 1994 (the day after the Stock
Repurchase), the actual disbursement of the common stock dividend for
the period August 6 through August 22, 1994 will not be available
until October 12, 1994, and the common stock dividend accrued for the
period August 22 through September 22, 1994 will not be available
until November 12, 1994.
2. PECO, RENTAL and O'BRIEN will maintain a demand deposit account at the
Bank during the term of the Loan.
3. On the 12th of each month, the Bank will automatically debit the
account of OPCI and distribute payments in the amounts and in the
order of the distribution categories shown in Schedule 2. Since the
Preferred Stockholder Dividend (category number 4 on Schedule 2) is
payable quarterly, if applicable and if funds are available, the Bank
will debit the account of OPCI monthly in an amount estimated by
▇'▇▇▇▇▇ to be the then current month's share of the then current
quarter's projected preferred stock dividend and deposit such amount
into a separate dividend reserve account to be established at the Bank
and controlled by OPCI. If applicable, the preferred stock dividend
will be calculated in accordance with the formula described in a
letter from ▇'▇▇▇▇▇ to OPCAI dated November 12, 1993 attached hereto
as Schedule 3.
4. OPCI will be entitled to maintain a minimum monthly working capital,
balance of $5,000 at all times during the term of the Loan.
