Document:

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (the “Agreement”) is made and
entered into as of this      day of May, 2005, by and
among Cellegy Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
and the “Investors” named in that certain Purchase Agreement by and among the
Company and the Investors (the “Purchase Agreement”).

 

The parties hereby agree as follows:

 

1.             Certain Definitions.

 

As used in this Agreement, the following terms shall have the following
meanings:

 

“Affiliate” means, with respect to any person, any other person
which directly or indirectly controls, is controlled by, or is under common
control with, such person.

 

“Business Day” means a day, other than a Saturday or Sunday, on
which banks in New York City are open for the general transaction of business.

 

“Common Stock” shall mean the Company’s common stock, par value
$0.0001 per share, and any securities into which such shares may hereinafter be
reclassified.

 

“Investors” shall mean the Investors identified in the Purchase
Agreement and any Affiliate or permitted transferee of any Investor who is a
subsequent holder of any Warrants or Registrable Securities.

 

“Prospectus” shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus.

 

“Register,” “registered” and “registration” refer
to a registration made by preparing and filing a Registration Statement or
similar document in compliance with the 1933 Act (as defined below), and the
declaration or ordering of effectiveness of such Registration Statement or
document.

 

“Registrable Securities” shall mean (i) the Shares, (ii) the
Warrant Shares and (iii) any other securities issued or issuable with respect
to or in exchange for Registrable Securities; provided, that, a security shall
cease to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming
eligible for sale by the Investors pursuant to Rule 144(k).

 

“Registration Statement” shall mean any registration statement
of the Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement, amendments
and supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.

 

“Required Investors” means the
Investors holding a majority of the Registrable Securities.

 

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Shares” means the shares of Common Stock issued pursuant to the
Purchase Agreement.

 

“1933 Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

 

“1934 Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

“Warrants” means, collectively, the Series A Warrants to
purchase shares of Common Stock issued to the Investors pursuant to the
Purchase Agreement, the form of which is attached to the Purchase Agreement as
Exhibit A, and the Series B Warrants to purchase shares of Common Stock issued
to the Investors pursuant to the Purchase Agreement, the form of which is
attached to the Purchase Agreement as Exhibit B.

 

“Warrant Shares” means the shares of Common Stock issuable upon
the exercise of the Warrants.

 

2.             Registration.

 

(a)           Registration
Statements.

 

(i)            Promptly following
the closing of the purchase and sale of the securities contemplated by the
Purchase Agreement (the “Closing Date”) but no later than thirty (30) days
after the Closing Date (the “Filing Deadline”), the Company shall prepare and
file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is
not then available to the Company, on such form of registration statement as is
then available to effect a registration for resale of the Registrable
Securities, subject to the Required Investors’ consent), covering the resale of
the Registrable Securities in an amount at least equal to the Shares and the
Warrant Shares.  Such Registration
Statement shall include the plan of distribution attached hereto as Exhibit
A.  Such Registration Statement also
shall cover, to the extent allowable under the 1933 Act and the rules promulgated
thereunder (including Rule 416), such indeterminate number of additional shares
of Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.  The Company shall use its reasonable best
efforts to obtain from each person who now has piggyback registration rights
that would require inclusion in the Registration Statement a waiver of those
rights with respect to the Registration Statement.  The Registration Statement (and each amendment
or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided in accordance with Section 3(c) to the Investors and
their counsel prior to its filing or other submission.  If a Registration Statement covering the Registrable
Securities is not filed with the SEC on or prior to the Filing Deadline, the
Company will make pro rata payments to each Investor, as liquidated damages and
not as a penalty, in an amount equal to 1.5% of the aggregate amount invested
by such Investor for each 30-day period or pro rata for any portion thereof
following the Filing Deadline for which no Registration Statement is filed with
respect to the Registrable Securities. 
Such payments shall be in partial compensation to the Investors, and shall
not constitute the Investors’ exclusive remedy for such events.  Such payments shall be made to each Investor
in cash.

 

 

(ii)           Additional
Registrable Securities.  Upon the
written demand of any Investor and upon any change in the Warrant Price (as defined
in the Warrant) such that additional shares of Common Stock become issuable
upon the exercise of the Warrants, the Company shall prepare and file with the
SEC one or more Registration Statements on Form S-3 or amend the Registration
Statement filed pursuant to clause (i) above, if such Registration Statement
has not previously been declared effective (or, if Form S-3 is not then
available to the Company, on such form of registration statement as is then
available to effect a registration for resale of such additional shares of
Common Stock (the “Additional Shares”), subject to the Required Investors’
consent) covering the resale of the Additional Shares, but only to the extent
the Additional Shares are not at the time covered by an effective Registration
Statement.  Such Registration Statement
also shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Additional Shares.  The Company shall use its reasonable best
efforts to obtain from each person who now has piggyback registration rights
that would require inclusion in the Registration Statement a waiver of those
rights with respect to such Registration Statement.  The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and their counsel prior to its filing or other submission.  If a Registration Statement covering the
Additional Shares is required to be filed under this Section 2(a)(ii) and is
not filed with the SEC within five Business Days of the request of any Investor
or upon the occurrence of any of the events specified in this Section 2(a)(ii),
the Company will make pro rata payments to each Investor, as liquidated damages
and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested
by such Investor for each 30-day period or pro rata for any portion thereof
following the date by which such Registration Statement should have been filed
for which no Registration Statement is filed with respect to the Additional
Shares.  Such payments shall be in
partial compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events.  Such
payments shall be made to each Investor in cash.

 

(b)           Expenses.  The Company will pay all expenses associated
with each registration, including filing and printing fees, the Company’s
counsel and accounting fees and expenses, costs associated with clearing the
Registrable Securities for sale under applicable state securities laws, listing
fees, fees and expenses of one counsel to the Investors and the Investors’
reasonable expenses in connection with the registration, but excluding
discounts, commissions, fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals with respect to the Registrable
Securities being sold.

 

(c)           Effectiveness.

 

(i)            The Company shall
use commercially reasonable efforts to have the Registration Statement declared
effective as soon as practicable.  The
Company shall notify the Investors by facsimile or e-mail as promptly as
practicable, and in any event, within twenty-four (24) hours, after any
Registration Statement is declared effective and shall simultaneously provide
the Investors with copies of any related Prospectus to be used in connection
with the sale or other disposition of the securities covered thereby.  If (A)(x) a Registration Statement covering
the Registrable Securities is not declared effective by the SEC prior to the
earlier of (i) five (5) Business Days after the SEC shall have informed the
Company that no review of the

 

 

Registration Statement will be
made or (ii) the 90th day after the Closing Date, or (y) a
Registration Statement covering Additional Shares is not declared effective by
the SEC within ninety (90) days following the time such Registration Statement
was required to be filed pursuant to Section 2(a)(ii), or (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement for any reason (including without
limitation by reason of a stop order, or the Company’s failure to update the
Registration Statement), but excluding the inability of any Investor to sell
the Registrable Securities covered thereby due to market conditions and except
as excused pursuant to subparagraph (ii) below, then the Company will make pro
rata payments to each Investor, as liquidated damages and not as a penalty, in
an amount equal to 1.5% of the aggregate amount invested by such Investor for
each 30- day period or pro rata for any portion thereof following the date by
which such Registration Statement should have been effective (the “Blackout
Period”).  Such payments shall be in
partial compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events.  The amounts
payable as liquidated damages pursuant to this paragraph shall be paid monthly
within three (3) Business Days of the last day of each month following the
commencement of the Blackout Period until the termination of the Blackout
Period.  Such payments shall be made to
each Investor in cash.

 

(ii)           For not more than
twenty (20) consecutive days or for a total of not more than forty-five (45)
days in any twelve (12) month period, the Company may delay the disclosure of
material non-public information concerning the Company, by suspending the use
of any Prospectus included in any registration contemplated by this Section
containing such information, the disclosure of which at the time is not, in the
good faith opinion of the Company, in the best interests of the Company (an “Allowed
Delay”); provided, that the Company shall promptly (a) notify the Investors in
writing of the existence of (but in no event, without the prior written consent
of an Investor, shall the Company disclose to such Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, (b) advise the Investors in writing to cease all sales under the
Registration Statement until the end of the Allowed Delay and (c) use
commercially reasonable efforts to terminate an Allowed Delay as promptly as
practicable.

 

3.             Company Obligations.  The Company will use commercially reasonable
efforts to effect the registration of the Registrable
Securities in accordance with the terms hereof, and pursuant thereto the
Company will, as expeditiously as possible:

 

(a)           use commercially
reasonable efforts to cause such Registration Statement to become effective and
to remain continuously effective for a period that will terminate upon the
earlier of (i) the date on which all Registrable Securities covered by such
Registration Statement as amended from time to time, have been sold, and (ii)
the date on which all Registrable Securities covered by such Registration
Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and
advise the Investors in writing when the Effectiveness Period has expired;

 

(b)           prepare and file
with the SEC such amendments and post-effective amendments to the Registration
Statement and the Prospectus as may be necessary to keep the Registration
Statement effective for the period specified in Section 3(a) and to comply with
the

 

 

provisions of the
1933 Act and the 1934 Act with respect to the distribution of all of the
Registrable Securities covered thereby;

 

(c)           provide copies to
and permit counsel designated by the Investors to review each Registration
Statement and all amendments and supplements thereto no fewer than seven (7)
days prior to their filing with the SEC and not file any document to which such
counsel reasonably objects;

 

(d)           furnish to the
Investors and their legal counsel (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company (but not
later than two (2) Business Days after the filing date, receipt date or sending
date, as the case may be) one (1) copy of any Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and each
amendment or supplement thereto, and each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such
Registration Statement (other than any portion of any thereof which contains
information for which the Company has sought confidential treatment), and (ii)
such number of copies of a Prospectus, including a preliminary prospectus, and
all amendments and supplements thereto and such other documents as each
Investor may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor that are covered by the related Registration
Statement;

 

(e)           use
commercially reasonable efforts to (i) prevent the issuance of any stop order
or other suspension of effectiveness and, (ii) if such order is issued, obtain
the withdrawal of any such order at the earliest possible moment;

 

(f)            prior to any public
offering of Registrable Securities, use commercially reasonable efforts to
register or qualify or cooperate with the Investors and their counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions requested
by the Investors and do any and all other commercially reasonable acts or
things necessary or advisable to enable the distribution in such jurisdictions
of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (i) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(f), (ii)
subject itself to general taxation in any jurisdiction where it would not
otherwise be so subject but for this Section 3(f), or (iii) file a general
consent to service of process in any such jurisdiction;

 

(g)           use commercially
reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed;

 

(h)           immediately notify
the Investors, at any time when a Prospectus relating to Registrable Securities
is required to be delivered under the 1933 Act, upon discovery that, or upon
the happening of any event as a result of which, the Prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits

 

 

to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request of any such
holder, promptly prepare and furnish to such holder a reasonable number of
copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and

 

(i)            otherwise use
commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders,
as soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve (12)
months, beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
1933 Act, including Rule 158 promulgated thereunder (for the purpose of this
subsection 3(i), “Availability Date” means the 45th day following the end of
the fourth fiscal quarter that includes the effective date of such Registration
Statement, except that, if such fourth fiscal quarter is the last quarter of
the Company’s fiscal year, “Availability Date” means the 90th day after the end
of such fourth fiscal quarter).

 

(j)            With a view to making available to
the Investors the benefits of Rule 144 (or its successor rule) and any other
rule or regulation of the SEC that may at any time permit the Investors to sell
shares of Common Stock to the public without registration, the Company
covenants and agrees to:  (i) make and
keep public information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) six months after such date as all of the
Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
of similar effect or (B) such date as all of the Registrable Securities shall
have been resold; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1934 Act; and (iii) furnish
to each Investor upon request, as long as such Investor owns any Registrable
Securities, (A) a written statement by the Company that it has complied with
the reporting requirements of the 1934 Act, (B) a copy of the Company’s most
recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C)
such other information as may be reasonably requested in order to avail such
Investor of any rule or regulation of the SEC that permits the selling of any
such Registrable Securities without registration.

 

4.             Due Diligence Review;
Information.  The Company shall make
available, during normal business hours, for inspection and review by the
Investors, advisors to and representatives of the Investors (who may or may not
be affiliated with the Investors and who are reasonably acceptable to the
Company), all financial and other records, all SEC Filings (as defined in the
Purchase Agreement) and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company’s officers, directors and
employees, within a reasonable time period, to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the

 

 

Registration Statement for the sole purpose of enabling the Investors
and such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of such Registration Statement.

 

The Company shall not disclose material nonpublic information to the
Investors, or to advisors to or representatives of the Investors, unless prior
to disclosure of such information the Company identifies such information as
being material nonpublic information and provides the Investors, such advisors
and representatives with the opportunity to accept or refuse to accept such
material nonpublic information for review and any Investor wishing to obtain
such information enters into an appropriate confidentiality agreement with the
Company with respect thereto.

 

5.             Obligations of the Investors.

 

(a)           Each Investor shall
furnish in writing to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.  At least five (5) Business Days
prior to the first anticipated filing date of any Registration Statement, the
Company shall notify each Investor of the information the Company requires from
such Investor.  An Investor shall provide
such information to the Company at least two (2) Business Days prior to the
first anticipated filing date of such Registration Statement if such Investor
elects to have any of the Registrable Securities included in the Registration
Statement.

 

(b)           Each Investor, by
its acceptance of the Registrable Securities agrees to cooperate with the
Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration Statement.

 

(c)           Each Investor agrees
that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
happening of an event pursuant to Section 3(h) hereof, such Investor will
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities, until the Investor’s
receipt of the copies of the supplemented or amended prospectus filed with the
SEC and until any related post-effective amendment is declared effective and,
if so directed by the Company, the Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor’s possession of the
Prospectus covering the Registrable Securities current at the time of receipt
of such notice.

 

6.             Indemnification.

 

(a)           Indemnification
by the Company.  The Company will
indemnify and hold harmless each Investor and its officers, directors, members,
employees and agents, successors and assigns, and each other person, if any,
who controls such Investor within the

 

 

meaning of the 1933 Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof;
(ii) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company filed in any state or other jurisdiction in order to qualify any or
all of the Registrable Securities under the securities laws thereof (any such
application, document or information herein called a “Blue
Sky Application”); (iii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (iv) any violation by
the Company or its agents of any rule or regulation promulgated under the 1933
Act applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration; or (v) any
failure to register or qualify the Registrable Securities included in any such
Registration in any state where the Company or its agents has affirmatively
undertaken or agreed in writing that the Company will undertake such
registration or qualification on an Investor’s behalf and will reimburse such
Investor, and each such officer, director or member and each such controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by such Investor or any such controlling person in
writing specifically for use in such Registration Statement or Prospectus.

 

(b)           Indemnification
by the Investors.  Each Investor
agrees, severally but not jointly, to indemnify and hold harmless, to the
fullest extent permitted by law, the Company, its directors, officers,
employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and
expense (including reasonable attorney fees) resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary prospectus or
amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto. 
In no event shall the liability of an Investor be greater in amount than
the dollar amount of the proceeds (net of all expense paid by such Investor in
connection with any claim relating to this Section 6 and the amount of any
damages such Investor has otherwise been required to pay by reason of such
untrue statement or omission) received by such Investor upon the sale of the
Registrable Securities included in the Registration Statement giving rise to
such indemnification obligation.

 

(c)           Conduct of
Indemnification Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party; provided
that any person entitled to indemnification hereunder shall have the right to
employ

 

 

separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at
the expense of such person unless (a) the indemnifying party has agreed to pay
such fees or expenses, or (b) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably satisfactory to such
person or (c) in the reasonable judgment of any such person, based upon written
advice of its counsel, a conflict of interest exists between such person and
the indemnifying party with respect to such claims (in which case, if the
person notifies the indemnifying party in writing that such person elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such person); and provided, further, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations hereunder, except to the
extent that such failure to give notice shall materially adversely affect the
indemnifying party in the defense of any such claim or litigation.  It is understood that the indemnifying party
shall not, in connection with any proceeding in the same jurisdiction, be
liable for fees or expenses of more than one separate firm of attorneys at any
time for all such indemnified parties. 
No indemnifying party will, except with the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation.

 

(d)           Contribution.  If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. 
No person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution from any person
not guilty of such fraudulent misrepresentation.  In no event shall the contribution obligation
of a holder of Registrable Securities be greater in amount than the dollar
amount of the proceeds (net of all expenses paid by such holder in connection
with any claim relating to this Section 6 and the amount of any damages such
holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission) received by it upon the sale
of the Registrable Securities giving rise to such contribution obligation.

 

7.             Miscellaneous.

 

(a)           Amendments and
Waivers.  This Agreement may be
amended only by a writing signed by the Company and the Required
Investors.  The Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Investors.

 

(b)           Notices.  All notices and other communications provided
for or permitted hereunder shall be made as set forth in Section 9.4 of the
Purchase Agreement.

 

 

(c)           Assignments and
Transfers by Investors.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the Investors and their respective successors and assigns.  An Investor may transfer or assign, in whole
or from time to time in part, to one or more persons its rights hereunder in
connection with the transfer of Registrable Securities by such Investor to such
person, provided that such Investor complies with all laws applicable thereto
and provides written notice of assignment to the Company promptly after such
assignment is effected.

 

(d)           Assignments and
Transfers by the Company.  This Agreement
may not be assigned by the Company (whether by operation of law or otherwise)
without the prior written consent of the Required Investors, provided, however,
that the Company may assign its rights and delegate its duties hereunder to any
surviving or successor corporation in connection with a merger or consolidation
of the Company with another corporation, or a sale, transfer or other
disposition of all or substantially all of the Company’s assets to another
corporation, or other similar transaction, without the prior written consent of
the Required Investors, after notice duly given by the Company to each
Investor.

 

(e)           Benefits of the
Agreement.  The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

(f)            Counterparts;
Faxes.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.  This Agreement may also be
executed via facsimile, which shall be deemed an original.

 

(g)           Titles and
Subtitles.  The titles and subtitles
used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.

 

(h)           Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.  To the extent
permitted by applicable law, the parties hereby waive any provision of law
which renders any provisions hereof prohibited or unenforceable in any respect.

 

(i)            Further
Assurances.  The parties shall
execute and deliver all such further instruments and documents and take all
such other actions as may reasonably be required to carry out the transactions
contemplated hereby and to evidence the fulfillment of the agreements herein
contained.

 

 

(j)            Entire Agreement.  This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. 
This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.

 

(k)           Governing Law;
Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding
or judgment relating to or arising out of this Agreement and the transactions
contemplated hereby.  Service of process
in connection with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are specified for the
giving of notices under this Agreement. 
Each of the parties hereto irrevocably consents to the jurisdiction of
any such court in any such suit, action or proceeding and to the laying of
venue in such court.  Each party hereto
irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.

 

	
  The Company:

  	
  CELLEGY PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

[Signature page to Registration Rights
Agreement.]

 

 

	
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[Signature
page to Registration Rights Agreement]

 

Exhibit A

 

Plan of Distribution

 

The selling
stockholders, which as used herein includes donees, pledgees, transferees or
other successors-in-interest selling shares of common stock or interests in
shares of common stock received after the date of this prospectus from a
selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded
or in private transactions.  These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices.

 

The selling
stockholders may use any one or more of the following methods when disposing of
shares or interests therein:

 

•  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

 

•  block trades
in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction;

 

•  purchases by
a broker-dealer as principal and resale by the broker-dealer for its account;

 

•  an exchange
distribution in accordance with the rules of the applicable exchange;

 

•  privately
negotiated transactions;

 

•  short sales
effected after the date the registration statement of which this Prospectus is
a part is declared effective by the SEC;

 

•  through the
writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

 

•  broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and

 

•  a combination
of any such methods of sale.

 

The selling
stockholders may, from time to time, pledge or grant a security interest in
some or all of the shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as

 

 

selling stockholders
under this prospectus.  The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

In connection
with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares
of our common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn
may sell these securities.  The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to
the selling stockholders from the sale of the common stock offered by them will
be the purchase price of the common stock less discounts or commissions, if
any.  Each of the selling stockholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of common stock to be
made directly or through agents.  We will
not receive any of the proceeds from this offering. Upon any exercise of the warrants
by payment of cash, however, we will receive the exercise price of the
warrants.

 

The selling
stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

 

The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be “underwriters”
within the meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions or
profit they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. 
Selling stockholders who are “underwriters” within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.

 

To the extent
required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the
names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In order to comply with the
securities laws of some states, if applicable, the common stock may be sold in
these jurisdictions only through registered or licensed brokers or
dealers.  In addition, in some states the
common stock may not be sold unless it has been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.

 

 

We have advised the selling
stockholders that the anti-manipulation rules of Regulation M under the
Exchange Act may apply to sales of shares in the market and to the activities
of the selling stockholders and their affiliates.  In addition, we will make copies of this
prospectus (as it may be supplemented or amended from time to time) available
to the selling stockholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act. 
The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.

 

We have agreed to indemnify
the selling stockholders against liabilities, including liabilities under the
Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.

 

We have agreed with the
selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as
all of the shares covered by this prospectus have been disposed of pursuant to
and in accordance with the registration statement or (2) the date on which the
shares may be sold pursuant to Rule 144(k) of the Securities Act.Exhibit 10.26

 

	10.26
	 
	Consent Degree dated January 11, 2005 among the State of New York, Erin M. Crotty, Commissioner of the Department of Environmental Conservation of the State of New York, New York State Electric and Gas Corporation, AEE2, L.L.C., et al.

 

UNITED STATES
DISTRICT COURT

WESTERN
DISTRICT OF NEW YORK

 

	
  STATE OF NEW
  YORK, and ERIN M. CROTTY,

  	
  )

  	
   

  	
   

  
	
  Commissioner
  of the Department of Environmental

  	
   

  	
  )

  	
   

  
	
  Conservation
  of the State of New York,

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
   

  
	
  Plaintiffs,

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
  Civ. No.

  
	
  v.

  	
   

  	
  )

  	
  Judge

  
	
   

  	
   

  	
  )

  	
   

  
	
  New York
  State Electric & Gas Corporation,

  	
   

  	
  )

  	
   

  
	
  AEE 2,
  L.L.C., AES Greenidge, L.L.C.,

  	
   

  	
  )

  	
   

  
	
  AES
  Westover, L.L.C., AES Hickling, L.L.C.,

  	
  )

  	
   

  	
   

  
	
  AES Jennison, L.L.C.,

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
  )

  	
   

  
	
  Defendants.

  	
   

  	
  )

  	
   

  

 

CONSENT DECREE

 

WHEREAS
Plaintiffs, the State of New York and Erin M. Crotty, Commissioner of the
Department of Environmental Conservation of the State of New York (collectively
the “State”), filed a Complaint in this Court on January     ,
2005, against the New York State Electric & Gas Corporation (“NYSEG”),
and AEE 2, L.L.C., AES Greenidge, L.L.C., AES Westover, L.L.C., AES Hickling,
L.L.C., and AES Jennison, L.L.C. (collectively “AES”), pursuant to Clean Air
Act, 42 U.S.C. § 7400 et seq.
(including 7604(a)), sections 71-2103 and 71-2107 of the New York State Environmental
Conservation Law (“ECL”) and New York State Executive Law § 63(12), for
penalties and injunctive relief for alleged violations of, among other things:

 

(a)   the Clean Air Act’s New Source Review (“NSR”)
provisions, including the Prevention of Significant Deterioration (“PSD”)
provisions of 42 U.S.C. §§ 7470-92 and 40 C.F.R. § 52.21;

 

(b)   related state law provisions, 6 NYCRR §§ 200.10
and 201 (implementing the Title V provisions of the Act, 42 U.S.C. § 7661 et seq.); and

 

(c)   the common law of public nuisance regarding
emissions of oxides of nitrogen (NOx) and sulfur dioxide (SO2)
from the AES plants;

 

WHEREAS the
alleged violations are based primarily upon actions and/or omissions of NYSEG,
the prior owner/operator of the AES plants relevant herein, to which a Notice
of Violation (“NOV”) was issued for certain of the alleged violations on or
about May 25, 2000 regarding such actions and/or omissions;

 

WHEREAS NYSEG
transferred ownership of the AES plants relevant herein to AES in 1999;

 

WHEREAS NYSEG
and AES, each on their own behalf and without prejudice to the rights,
arguments, and defenses of any prior owner of the AES plants relevant herein,
deny the violations alleged in the Complaint, maintain that they have been and
remain in compliance with the Clean Air Act and related state laws and are not
liable for civil penalties or injunctive or declaratory relief;

 

1

 

WHEREAS the
State, NYSEG and AES have agreed that, notwithstanding their respective
positions on the issues herein, settlement of this action is in the best
interest of the Parties and in the public interest and that entry of this
Consent Decree without further litigation is the most appropriate means of
resolving this matter; and

 

WHEREAS the
State, NYSEG and AES (collectively, the “Parties”) have consented to entry of
this Consent Decree without trial of any issue.

 

NOW,
THEREFORE, without any admission of fact or law, without any adjudication on
the merits of the allegations set forth in the NOV and the Complaint, and
without any admission of the violations alleged in the NOV and the Complaint,
it is hereby ORDERED AND ADJUDGED as follows:

 

I.              JURISDICTION AND VENUE

 

1.             The Court has jurisdiction of this
matter pursuant to Section 304 of the Clean Air Act (42 U.S.C. § 7604)
and pursuant to 28 U.S.C. §§ 1331, 1355, and 1367 and ECL §§ 71-2103
and 2107.  Solely for the purposes of
this Consent Decree and the State’s underlying Complaint, AES waives all
objections that it may have to the jurisdiction of the Court, and to
venue.  Except as expressly provided for
herein, this Consent Decree shall not create any rights in any Party other than
the State, NYSEG and AES.

 

II.            APPLICABILITY

 

2.             The provisions of this Consent
Decree shall apply to and be binding upon the State and upon AES and NYSEG, and
their affiliates, successors and assigns.

 

3.             If AES proposes to sell or transfer
any of its real property or operations subject to this Consent Decree, it shall
advise the purchaser or transferee in writing of the existence of this Consent
Decree before such sale or transfer.  The
purchaser or transferee shall be made a Party-Defendant to this Consent Decree
and thereby consent to joint and several liability with AES for all the
requirements of this Consent Decree. 
Upon a showing by AES and/or purchaser or transferee that: (a) the
purchaser or transferee has the financial capability, technical capability, and
recent history of compliance to justify a transfer of liability from AES to the
purchaser or transferee; (b) the purchaser or transferee has contracted or
will contract with AES to assume the obligations and liabilities applicable to
each Unit (as defined in Paragraph 10) subject to such sale or transfer; and (c) AES
and the purchaser or transferee have properly allocated any emission Allowance (as defined in Paragraph 16) or credit
requirements under this Consent Decree that may be associated with each such
Unit, the State shall agree to such a modification of this Consent Decree that
shall make the purchaser or transferee solely liable as a party defendant to
this civil action and Consent Decree for all requirements under this Consent
Decree that are applicable to the purchased or transferred Unit.  The State shall respond to such a showing within
forty-five days of its submission by AES or transferee, and the State’s
agreement to such a modification of this Consent Decree shall not be
unreasonably withheld.

 

4.             Nothing in this Consent Decree
shall be construed to impede AES and any purchaser or transferee of real
property or operations subject to this Consent Decree from contractually

 

2

 

allocating as
between themselves the burdens of compliance with this Consent Decree;
provided, however, that both AES and such purchaser or transferee shall remain
jointly and severally liable to the State for the obligations of this Consent
Decree until such time as a modification to this Consent Decree occurs under
Paragraph 3, except that AES shall not be liable for stipulated or other
penalties for the acts and omissions of a
bona fide purchaser of the assets.

 

5.             Notwithstanding any retention of
contractors, subcontractors or agents to perform any work required under this
Consent Decree, AES shall be responsible for ensuring that all work is
performed in accordance with the requirements of this Consent Decree.  In any action to enforce this Consent Decree,
AES shall not assert as a defense the failure of its employees, servants,
agents, or contractors to take actions necessary to comply with this Consent
Decree, unless AES establishes that such failure resulted from a Force Majeure
(Section X) or (to the extent allowed under Section XI) by a Material
Adverse Condition event, as defined in this Consent Decree.

 

III.           DEFINITIONS

 

The following
definitions apply solely for purposes of this Consent Decree:

 

6.             “Consent Decree” means this Consent
Decree and any Appendix thereto.

 

7.             “DEC” or “NYSDEC” refers to the New
York State Department of Environmental Conservation.

 

8.             “Emission Reduction Credit” or “ERC”
shall have the same meaning as under 6 NYCRR Subpart 231-2, specifically: “Any
decrease in emissions of a nonattainment contaminant in tons per year,
occurring on or after November 15, 1990: (i) which is surplus, quantifiable,
permanent, and enforceable; and (ii) which results from a physical change
in, or a change in the method of operation of an emission Unit subject to Part 201
of this Title; and (a) is
quantified as the difference between prior actual annual emissions or prior
allowable annual emissions, whichever is less, and the subsequent maximum
annual potential; and (b) is
certified in accordance with the provisions of [6 NYCRR Subpart] 231-2...”.

 

9.             “Good Faith Efforts” means for the
first twelve months after Initial Operation (as defined in Paragraph 11) of the
NOx and SO2 MPC Project (as defined in Paragraph 19) on
Greenidge Unit 4 and, if applicable, Westover Unit 8, AES shall, in
coordination with DEC, modify, as necessary, to achieve the emission limits
identified in this Consent Decree, the NOx and the SO2
emission control systems, including adjustments to operational settings,
without incurring capital expenditures in the aggregate in excess of 1.0 % of
the total capital cost of the MPC Project or a CCP (as defined in Paragraph
18).

 

10.           “Unit” shall mean an electric
generating unit at the four AES plants identified in Paragraph 12.

 

11.           “Initial Operation” means the initial
flow of combustion gases through emission control equipment.

 

3

 

12.           “Plants” means the four AES
electricity generating plants that are included in this Consent Decree, located
in Dresden, New York (Greenidge), Johnson City, New York (Westover), Corning,
New York (Hickling) and Bainbridge, New York (Jennison), owned and operated by
AES:

 

a.                                       The
Greenidge plant consists of two generating units known as Unit 3 (Boilers 4 and
5) and Unit 4 (Boiler 6);

 

b.                                      The
Westover plant consists of two generating units known as Unit 7 (Boilers 11 and
12) and Unit 8 (Boiler 13);

 

c.                                       The
Hickling plant consists of two generating units known as Units 1 and 2; and

 

d.                                      The
Jennison plant consists of two generating units known as Units 1 and 2.

 

13.           “lb/mmBTU” means pounds per million
British Thermal Units of heat input.

 

14.                                 “MW”
means a megawatt.

 

15.                                 “NOx”
means oxides of nitrogen.

 

16.           “Allowance” means an authorization by
the State or United States Environmental Protection Agency (“EPA”) under an air
pollution control program, including, but not limited to, the federal Title IV
Acid Rain program, 6 NYCRR §§ 204, 237, 238, and the proposed Clean Air
Interstate Rule, to emit up to a specified amount of pollution during or after
a specified calendar year.

 

17.           “Repower” means the replacement of an
existing coal-fired boiler with a new heat source or combustion technology,
which would be subject to all applicable laws, regulations and permit
requirements.

 

18.           “Clean Coal Project” or “CCP” means
any technology, including technologies applied at the pre-combustion,
combustion, or post-combustion stage, at an existing facility that will achieve
reductions to the levels set forth in Paragraphs 38 and 42 in air emissions of
SO2 or NOx associated with the utilization of coal in the
generation of electricity or process steam.

 

19.           “Multi-Pollutant Control Project” or “MPC
Project” means the Clean Coal Project partially funded by the United States
Department of Energy (“DOE”) at Greenidge. 
The DOE Clean Coal Technology Program, co-funded by government and
industry, seeks to demonstrate and deploy advanced clean coal technologies that
meet strict environmental standards.  The
National Energy Technology Laboratory, a division of DOE, manages this Program.

 

20.                                 “SCR”
means Selective Catalytic Reduction.

 

21.                                 “SNCR”
means Selective Non-Catalytic Reduction.

 

22.                                 “SO2”
means sulfur dioxide.

 

23.           “SO2 Allowance” means a
Clean Air Act Title IV Acid Rain program Allowance, having the same definition
of “allowance” found at 42 U.S.C. § 7651a(3): “an authorization, allocated
to an affected Unit, by the Administrator [of EPA] under [Subchapter IV of the
Act] to emit, during or after a specified calendar year, one ton of sulfur
dioxide.”  SO2 Allowance does
not mean an Allowance under 6 NYCRR § 238.

 

4

 

24.           “NOx Allowance” means an
Allowance of oxides of nitrogen.

 

25.           The “30-Operating-Day Rolling Average
Emission Rate” means and is calculated by: (A) summing for each hour of
the Operating Day,  the emission rate for
each hour multiplied by the heat input for that hour and dividing the result by
the total heat input for the day; and (B)  after the daily averages are
determined (as stated in Section (A) of this Paragraph), the same
process is repeated using the daily heat inputs and daily average emission
rates to determine the 30-day averages.

 

26.           The “30-Operating-Day Rolling Average
Emission Limit”  means and is calculated
by: (A) summing for each hour of the day, the emission limit for each hour
multiplied by the heat input for that hour and dividing the result by the total
heat input for the day; and (B) after the daily averages are determined
(as stated in Section (A) of this Paragraph), the same process is
repeated using the daily heat inputs and daily average emission rates to determine
the 30-day averages.  In the instance
when a Unit’s load changes during an hour so that the associated emission limit
changes (e.g., the hour when a
Unit goes from below Minimum Operating Load to Low Operating Range), the “emission
limit for each hour” is defined as the highest of the emission limits that
apply during that hour.  Compliance with
the 30-Operating-Day Rolling Average requirement is then determined when the 30-Operating-Day
Rolling Average Emission Rate is less than or equal to the 30-Operating-Day
Rolling Average Emission Limit.

 

27.           “Calendar Day” for any Unit means any
day beginning at 12:00:00 a.m. and ending at 11:59:59 p.m.

 

28.           “Operating Day” for any Unit means
any Calendar Day, starting at 12:00:00 a.m. and ending 11:59:59 p.m.,
during which the Unit in question fires fossil fuel for one hour or more.

 

29.           “Minimum Operating Load” means: (1) for
Greenidge Unit 4, 42 Gross MW; and (2) for Westover Unit 8, 35 Gross MW.

 

30.           “High Operating Load” means (1) for
Greenidge Unit 4, when the flue gas entering the SCR is at 615 degrees F, to be
determined in accordance with Paragraph 38.A., below; and (2) for Westover
Unit 8, a certain Gross MW, which will be determined within 60 days after the
Initial Operation of a CCP or equivalent control technology.

 

31.           “Low Operating Range” means: (1) for
Greenidge Unit 4, at or above 42 Gross MW to below High Operating Load; and (2) for
Westover Unit 8, at or above 35 Gross MW to below High Operating Load.

 

32.           “Shakedown” means, unless otherwise
specified herein, the period starting with Initial Operation, or the date
Initial Operation is required by this Consent Decree, whichever comes first,
and ending 90 days from the first time after Initial Operation that AES
achieves High Operating Load with all CCP project systems (or equivalent
control technology systems) in operation or 180 days after Initial Operation or
the date Initial Operation is required by this Consent Decree, whichever comes
first.

 

5

 

IV.           CIVIL PENALTY

 

33.           Within thirty days of the date of
entry of this Consent Decree by the Court, AES shall pay a civil penalty for
the violations alleged herein, including those identified in Paragraph 55,
which the State assesses to NYSEG, by sending a check in the amount of seven
hundred thousand dollars ($700,000), payable to “State of New York”, addressed
to: J. Jared Snyder, Assistant Attorney General, The Capitol, Albany, NY 12224.

 

34.           With regard to any penalty assessed
to NYSEG and due pursuant to this Consent Decree that is not paid by the
specified due date, AES shall be liable for and shall pay interest from the due
date at the rate specified by the New York Civil Practice Law and Rules for
interest on a judgment.  For any penalty
due under this Paragraph that AES fails to pay within ninety (90) days of its
due date, AES shall pay the State of New York an additional charge of 22% on
the penalty amount due in accordance with State Finance Law Section 18.

 

V.            ENVIRONMENTAL MITIGATION PROJECTS

 

35.           Within thirty days of a court order
approving this Consent Decree, AES shall establish an interest-bearing escrow
account, entitled the “AES Environmental Mitigation Project Account,” and shall
deposit therein one million dollars ($1,000,000).  Monies included in that account, including
any interest that may accrue, shall be used to carry out one or more projects
authorized by the DEC and the Office of the Attorney General (“OAG”) that
pertain to energy efficiency, renewable energy and/or clean air projects.  Within sixty days of the effective date of
this Consent Decree, AES shall propose projects for consideration by the DEC
and OAG; such recommendations shall include a proposed schedule for
implementing each such project.  Upon the
approval of the projects, AES shall act diligently and in good faith to
implement or fund the projects, using the Environmental Mitigation Escrow
Monies, in accordance with any practicable schedule the State may
reasonably establish.  If no projects
proposed by AES in the sixty-day period are approved by the DEC and OAG, or if
the approved projects will not use up the full sum in the AES Environmental
Mitigation Project Account, the DEC and OAG may select for financing projects
proposed by the DEC, OAG or other persons or entities.  Any funds remaining in such account five
years after the effective date of this Consent Decree shall be paid to the DEC,
which shall deposit same in the General Fund of the State of New York.

 

VI.           EMISSION REDUCTIONS AND CONTROLS 

 

A.                                     REPOWERING/CONTROL/CEASING
OPERATIONS OF GREENIDGE UNIT 4

 

36.           Subject to funding by the DOE and
subject to Sections X and XI (Force Majeure and Material Adverse Conditions
clauses) of this Consent Decree, AES shall control SO2 and NOx
emissions from Greenidge Unit 4 using the MPC Project.  AES shall commence Initial Operation of the
MPC Project by September 1, 2006, or a date eighteen months after entry of
this Consent Decree, whichever is later (subject to further extension pursuant
to the Force Majeure and Material Adverse Conditions clauses).  If, as a result of loss of DOE funding or an
event covered by Sections X and XI (Force Majeure and Material Adverse
Conditions clauses), AES discontinues its plans to control Greenidge Unit 4
using the MPC Project, it shall provide notice to the DEC

 

6

 

and OAG in
accordance with Paragraph 76 and Sections X and XI (Notice, Force Majeure and
Material Adverse Conditions clauses) herein within ten days of such a decision.

 

37.           The requirements for the operation of
Greenidge Unit 4 using the MPC Project are governed by this Paragraph 37;
provided, however, that during the Shakedown period otherwise applicable limits
will apply instead of the limits provided below.  Notwithstanding the definition of “Shakedown”
contained in paragraph 32, the Shakedown period shall be shortened, by up to 90
days, from 180 days by one day for each day after September 1, 2006 that
Initial Operation commences; provided, however, the Shakedown period shall be
90 days from Initial Operation if Initial Operation occurs on or after November 30,
2006.

 

A.            NOx Emission Control

 

(i)            Except when Greenidge Unit 4 is
operating below Minimum Operating Load or in Low Operating Range, AES will make
Good Faith Efforts to achieve a NOx emission rate of 0.10 lb/mmBTU
on a 30-Operating-Day Rolling Average.

 

a.             If this emission level cannot be
achieved despite Good Faith Efforts, the emission limit shall be the level
achieved within one year of commencement of Initial Operation, which rate shall
be no less stringent than 0.15 lb/mmBTU calculated on a 30-Operating-Day
Rolling Average. For the time beginning with the end of the Shakedown Period to
the date one year after commencement of Initial Operation, the applicable
permit limit will be a rate of 0.15 lbs/mmbtu on a 30-Operating-Day Rolling
Average.

 

b.             In the event that an emission rate
of 0.10 lbs/mmBTU cannot be achieved, AES shall, within fifteen months of
commencement of Initial Operation, submit a final proposed emission rate (and
supporting documentation) that would apply when Greenidge Unit 4 is operated at
or above High Operating Load.  The DEC
shall review the proposal to determine whether it is acceptable.  Upon the DEC’s acceptance of the proposal,
which acceptance shall not be unreasonably withheld, the proposed emission rate
shall be used to determine compliance with this Consent Decree and any permit
incorporating that emission rate.  Any
permit incorporating the emission rate required by this Consent Decree shall be
modified, if necessary, to reflect the emission rate achieved as a result of
the Good Faith Efforts process.  Until
such permit modification occurs, the accepted NOx emission rate
required by this Consent Decree shall not be exceeded when Greenidge Unit 4 is
operating at or above High Operating Load.

 

c.             No later than 15 months after
Initial Operation, AES shall submit to DEC a final definition (and supporting
documentation) of High Operating Load for Greenidge Unit 4, which shall not
exceed 95 Gross MW.  The DEC shall review
the proposal to determine whether it is acceptable.  Upon the DEC’s acceptance of the proposal,
which acceptance shall not be unreasonably withheld, the proposed definition of
High Operating Load shall be used to determine compliance with this Consent
Decree thereafter.  If DEC does not
accept the proposal, AES shall submit a revised proposal to DEC.

 

d.             If Greenidge Unit 4 is operated for
more than 1,000 hours in the range of 78 MW to the High Operating Load set
forth in Paragraph 37(A)(i)(c) in a calendar

 

7

 

year, the High
Operating Load definition for the purpose of establishing emission limits as
provided in Paragraph 37(A) will revert to 78 MW for the remainder of that
calendar year only.  At the beginning of
the next calendar year, the High Operating Load definition would be reset
pursuant to Paragraph 37(A)(i)(c).

(ii)           When Greenidge Unit 4 is operating
below Minimum Operating Load, this Unit shall be subject to the NOx emission
limit of 0.42 lb/mmBTU.

(iii)          When Greenidge Unit 4 is operating in
Low Operating Range, the Unit shall be subject to the NOx emission
limit of 0.28 lb/mmBTU, except as provided below;

 

a.             No later than twelve months after
entry of the Consent Decree or March 1, 2006, whichever is later, AES
shall provide the DEC with a preliminary graph, which shall represent SCR inlet
temperatures and corresponding NOx emission rates and shall address
only those time periods when a unit is operating within the Low Operating Range.  The DEC shall review the preliminary graph
and its supporting documentation to determine whether it is acceptable to serve
as the graphic representation of the interim NOx emission rate at a
given heat input rate and velocity, considering permitted and appropriate
ammonia slip limits and requirements. 
Acceptance of this preliminary graph shall not be unreasonably
withheld.  Once accepted by the DEC, the
results of this preliminary graph shall be substituted for the 0.28 lb/mmBTU
emission limit applicable to the Low Operating Range.  If the DEC determines that the preliminary
graph and its supporting documentation are not acceptable, AES shall submit to
the DEC a revised preliminary graph and supporting documentation that takes
into account DEC’s comments.  Prior to
acceptance of a preliminary graph, the emission rate of 0.28 lb/mmBTU shall
continue to be applicable to the Low Operating Range.

 

b.             For the first twelve months after
the Initial Operation of the MPC Project on Greenidge Unit 4, in coordination
with the DEC, AES shall, consistent with Good Faith Efforts, modify, if
necessary, the NOx control system during Low Operating Range,
including adjustments to operational settings. 
Within ninety (90) days of completion of the initial year of operation of
the NOx emission control system, AES shall submit a final graph
representing the final NOx emission rate at a given heat input
(together with the supporting documentation used in preparing the final graph),
the final NOx emission rate represented by this final graph will not
be based on changes in engineering, design, or operations that fall outside of
the manufacturer’s equipment warranty requirements and good engineering
practices.  The DEC shall review the
final graph and its supporting documentation to determine whether that graph is
acceptable to serve as the graphic representation of the final NOx emission
rate at a given heat input rate during the Low Operating Range.  Upon the DEC’s acceptance of said graph,
which acceptance shall not be unreasonably withheld, the DEC-accepted final
graph shall be used to determine compliance with this Consent Decree.  Any permit incorporating the emission rate
required by this Consent Decree will be modified to reflect the emission rate
for the Low Operating Range achieved as a result of the Good Faith Efforts
process.  Until such permit modification
occurs, during those hours Greenidge

 

8

 

Unit 4 is
operating in the Low Operating Range, the NOx emission rate from this
Unit shall not exceed the emission rate shown on the DEC-approved final graph.

 

B.            SO2 Emission Control

 

(i)            Except when Greenidge Unit 4 is
operating below Minimum Operating Load, AES will use Good Faith Efforts to
achieve a SO2 removal efficiency of 95%, resulting in a permitted
rate of 0.19 lb/mmBTU on a 30-Operating-Day Rolling Average. For the time from
the end of the Shakedown period to September 1, 2007, the applicable
permit limit will be 90% removal efficiency resulting in a permitted rate of
0.38 lbs/mmbtu on a 30-Operating-Day Rolling Average.

 

a.             If the emission limit of 0.19
lb/mmBTU cannot be achieved despite Good Faith Efforts, the emission limit
shall be the level achieved by September 1, 2007, but in no event less
stringent than 90% removal efficiency, resulting in a permitted limit of 0.38
lb/mmBTU, on a 30-Operating-Day Rolling Average.

 

b.             Within 90 days of September 1,
2007, AES shall submit a final proposed emission rate (and supporting
documentation) that will apply when Greenidge Unit 4 is operated at Minimum
Operating Load or greater.  The DEC shall
review the proposal to determine whether it is acceptable.  Upon DEC’s acceptance of the proposal, which
acceptance shall not be unreasonably withheld, the proposed emission rate shall
be used to determine compliance with this Consent Decree and any permit
incorporating that emission rate.  Any
permit incorporating the emission rate required by this Consent Decree shall be
modified, if necessary, to reflect the emission rate achieved as a result of
the Good Faith Efforts process.  Until
such permit modification occurs, the accepted SO2 emission rate
shall not be exceeded when Greenidge Unit 4 is operating at Minimum Operating
Load or greater.

 

(ii)           When Greenidge Unit 4 is operating
below Minimum Operating Load, the instantaneous sulfur-in-fuel limit set forth
at 6 § NYCRR 225-1 applies until the Minimum Operating Load is
achieved.  Compliance with this limit
shall be determined by comparing the monitored 1-hour average emission rate to
the equivalent emission rate as determined according to 6 NYCRR § 225-1.5(b) (i.e. 5.0 lbs SO2/mm Btu).

 

C.            Within 30 days of the date of entry
of this Consent Decree by the Court, AES shall submit to the Department a
startup/shutdown plan for Greenidge Unit 4 identifying:

 

(i)            the time required to achieve Minimum
Operating Load during cold, warm and hot startup times based on normal
operation (i.e., absent equipment or operational malfunctions);

 

(ii)           the time required to shut down the
unit for a planned outage and unplanned outage;

 

(iii)          the startup/shutdown plan shall
include actual operating data for each type of event that supports the proposed
startup and shutdown periods.  Following
implementation of the MPC Project, the startup/shutdown plan may be amended to
reflect additional, actual operating data. 
The startup/shutdown plan shall also include a narrative

 

9

 

description of
each startup and shutdown condition that provides the technical basis for the
time frames necessary for each mode of operation.

 

(iv) Upon
conferring the Parties will agree to establish startup and shutdown time
periods to achieve Minimum Operating Load, which periods will reflect good
engineering and utility practices and will be based on the maximum expected
duration of each startup and shutdown activity.

 

D.            Upon acceptance of the
startup/shutdown plan by the DEC, AES shall implement and follow such plan, and
shall not operate Unit 4 below the Minimum Operating Load for a period in excess
of any startup time or shutdown time in the plan or below the Minimum Operating
Load for any period not described in the plan.

 

(i)            If Unit 4 operates below the Minimum
Operating Load for a period in excess of any startup time or shutdown time in
the plan or operates below the Minimum Operating Load for any period not
described in the plan, AES must notify the DEC in writing within 10 days as to
the cause and duration.

 

(ii)           AES will not suffer any penalties for
operating below Minimum Operating Load in excess of the time frames described
in the plan if such operation is excused as unavoidable in accordance with the
provisions of 6 N.Y.C.R.R. § 201-1.4 or the New York State Implementation
Plan, and AES follows the requirements contained therein.

 

38.           If the MPC Project is discontinued in
accordance with Paragraph 36, AES shall, by December 31, 2009, install
control technology that will meet the emission reduction limits described in
Paragraph 37 (e.g., flue gas
desulfurization (FGD) and SCR), Repower, or cease operations.  For the purpose of this Paragraph 38 only, in
the interim, Greenidge Unit 4 shall be subject to the following SO2
emissions caps:

 

January 1,
2005 through December 31, 2005: 12,125 tons

 

January 1,
2006 through December 31, 2006: 11,800 tons

 

January 1,
2007 through December 31, 2007: 11,475 tons

 

January 1,
2008 through December 31, 2008: 11,150 tons

 

January 1,
2009 through December 31, 2009: 10,825 tons.

 

AES shall
confirm compliance with these SO2 tonnage caps through compliance
with 40 C.F.R. Part 75 reporting and recordkeeping procedures.

 

39.           Compliance with emission limits at
Greenidge Unit 4 shall be calculated using 30-Operating-Day Rolling Averages.

 

B.                                     REPOWERING/CONTROL/CEASING
OPERATIONS OF WESTOVER UNIT 8

 

40.           By December 31, 2009, AES shall
either control, using NOx and SO2 technology similar to
the Greenidge MPC Project, Repower or cease operations at Westover Unit 8. By June 1,
2007, AES shall advise both the DEC and OAG of the approach it elects for
complying with this Paragraph 40.

 

41.           Beginning in 2005 and lasting through
2009, Westover Unit 8 shall be subject to the following SO2
emissions caps:

 

10

 

January 1,
2005 through December 31, 2005: 9,500 tons

 

January 1,
2006 through December 31, 2006: 9,250 tons

 

January 1,
2007 through December 31, 2007: 9,000 tons

 

January 1,
2008 through December 31, 2008: 8,750 tons

 

January 1,
2009 through December 31, 2009: 8,500 tons

 

AES shall
confirm compliance with these SO2 tonnage caps through compliance
with 40 C.F.R. Part 75 reporting and recordkeeping procedures.

 

42.           Should AES elect to install a CCP,
similar to Greenidge’s MPC Project or its functional equivalent, the
requirements for the operation of Westover Unit 8 are governed by this
Paragraph 42 and Initial Operation shall commence no later than December 31,
2009; provided, however, that during the Shakedown period otherwise applicable
limits will apply instead of the limits provided below.

 

A.            NOx Emission Control

 

(i)            Except when Westover Unit 8 is
operating below Minimum Operating Load or in Low Operating Range, AES will make
Good Faith Efforts to achieve a NOx emission rate of 0.10 lb/mmBTU
on a 30-Operating-Day Rolling Average.

 

a.             If this emission level cannot be
achieved despite Good Faith Efforts, the emission limit shall be the level
achieved by a date that is no later than one year after Initial Operation of a
CCP that is in no event less stringent than 0.15 lb/mmBTU on a 30-Operating-Day
Rolling Average. For the time from the end of the Shakedown period to the date
one year after Initial Operation of the CCP, the applicable permit limit will
be 0.15 lb/mmBTU.

 

b.             Within fifteen months of the
commencement of Initial Operation, AES shall submit a final proposed emission
rate (and supporting documentation) that would apply when Westover 8 is
operated at High Operating Load or greater. 
The DEC shall review the proposal to determine whether it is acceptable.  Upon DEC’s acceptance of the proposal, which
acceptance shall not be unreasonably withheld, the proposed emission rate shall
be used to determine compliance with this Consent Decree and any permits
incorporating that emission rate.  Any
permit incorporating the emission rate required by this Consent Decree shall be
modified, if necessary, to reflect the emission rate achieved as a result of
the Good Faith Efforts process.  Until
such permit modification occurs, the accepted NOx emission rate
required by this Consent Decree shall not be exceeded when the Westover Unit 8
is operating at High Operating Load or greater.

 

(ii)           When Westover Unit 8 is operating
below Minimum Operating Load, this Unit shall be subject to the NOx
emission limit of 0.42 lb/mmBTU.

 

(iii)          When Westover Unit 8 is in Low
Operation Range, the Unit shall be subject to the NOx emission limit
will be 0.28 lb/mmBTU, except as provided below.

 

a.             At least 6 months prior to Initial
Operation, AES shall select its SCR NOx control technology vendor
and provide the DEC with a preliminary graph representing SCR inlet
temperatures and corresponding NOx emission rates during Low
Operating

 

11

 

Range.  The DEC shall review the preliminary graph
and its supporting documentation to determine whether it is acceptable to serve
as the graphic representation of the interim NOx emission rate at a
given heat input rate and velocity, considering permitted and appropriate
ammonia slip limits and requirements. 
DEC shall not unreasonably withhold acceptance of this preliminary graph.  Once accepted by the DEC, the results of this
preliminary graph shall be substituted for the 0.28 lb/mmBTU emission limit
applicable to the Low Operating Range. If the DEC determines that the
preliminary graph and its supporting documentation are not acceptable, AES
shall submit to the DEC a revised preliminary graph and supporting
documentation that accounts for DEC’s comments. 
Prior to DEC’s acceptance of a preliminary graph, the emission rate of
0.28 lb/mmBTU shall continue to be applicable to the Low Operating Range.

 

b.             For the first twelve months after
the Initial Operation of a CCP on Westover Unit 8, in coordination with DEC,
AES shall, consistent with Good Faith Efforts, modify, if necessary, the NOx
control system during Low Operating Range, including adjustments to
operational settings.  Within ninety (90)
days of completion of the initial year of operation of the NOx emission
control system, AES shall submit a final graph representing the final NOx emission
rate at a given heat input (together with the supporting documentation used in
preparing the final graph).  The final NOx
emission rate represented by this final graph will not be based on
changes in engineering, design, or operations that fall outside of the
manufacturer’s equipment warranty requirements and good engineering
practices.  The DEC shall review the
final graph and its supporting documentation to determine whether that graph is
acceptable to serve as the graphic representation of the final NOx emission
rate at a given heat input rate during the Low Operating Range.  Upon the DEC’s acceptance of said graph,
which acceptance shall not be unreasonably withheld, the DEC-accepted final
graph shall be used to determine compliance with this Consent Decree.  Any permit incorporating the emission rate
required by this Consent Decree will be modified to reflect the emission rate
for the Low Operating Range achieved as a result of the Good Faith Efforts
process.  Until such permit modification
occurs, during those hours Westover Unit 8 is operating in the Low Operating
Range, the NOx emission rate from this Unit shall not exceed the
emission rate shown on the DEC-approved final graph.

 

B.            SO2 Emission Control

 

(i)            Except when Westover Unit 8 is
operating at or below Minimum Operating Load, AES will make Good Faith Efforts
to achieve a SO2 removal efficiency of 95%, resulting in a permitted
rate of 0.17 lb/mmBTU on a 30–Operating-Day Rolling Average.  For the time from the end of the Shakedown
period to December 31, 2010, the applicable permit limit will be 90%
removal efficiency, resulting in a permitted rate of 0.34 lbs/mmBTU on a 30-Operating-Day
Rolling Average.

 

a.             If the emission limit of 0.17
lb/mmBTU cannot be achieved despite Good Faith Efforts, the emission limit
shall be the level achieved by a date that is no later than one year after the
Initial Operation date for the CCP or equivalent technology, but in no

 

12

 

event less
stringent than 90% removal efficiency, resulting in a permitted rate of 0.34
lb/mmBTU on a 30-Operating-Day Rolling Average.

 

b.             Within 90 days of December 31,
2010, AES shall submit a final proposed emission rate (and supporting
documentation) that will apply when Westover Unit 8 is operated at Minimum
Operating Load or greater.  The DEC shall
review the proposal to determine whether it is acceptable.  Upon DEC’s acceptance of the proposal, which
acceptance shall not be unreasonably withheld, the proposed emission rate shall
be used to determine compliance with this Consent Decree and any permit
incorporating that emission rate.  Any
permit incorporating the emission rate required by this Consent Decree shall be
modified, if necessary, to reflect the emission rate achieved as a result of
the Good Faith Efforts process.  Until
such permit modification occurs, the accepted SO2 emission rate
shall not be exceeded when the Unit is operating at Minimum Operating Load or
greater.

 

(ii)           When Westover Unit 8 is operating
below Minimum Operating Load, the instantaneous sulfur-in-fuel limit set forth
at 6 NYCRR § 225-1 applies to the Unit until the Minimum Operating Load is
achieved. Compliance with this limit shall be determined by comparing the
monitored 1-hour average emission rate to the equivalent emission rate as
determined according to 6 § NYCRR 225-1.5(b) (i.e., 5.0 lb SO2/mm BTU).

 

C.            Within 30 days of notifying the DEC
of its intent to undertake a CCP project at Westover Unit 8, AES shall submit
to the DEC a startup/shutdown plan for Westover Unit 8 identifying:

 

(i)            the time required to achieve Minimum
Operating Load during cold, warm and hot startup times based on normal
operation (i.e., absent equipment or operational malfunctions);

 

(ii)           the time required to shut down the
unit for a planned outage and unplanned outage;

 

(iii)          the startup/shutdown plan shall
include actual operating data for each type of event that supports the proposed
startup and shutdown periods.  Following
implementation of a CCP or equivalent technology, the startup/shutdown plan may
be amended to reflect additional, actual operating data.  The startup/shutdown plan shall also include
a narrative description of each startup and shutdown condition that provides
the technical basis for the time frames necessary for each mode of operation.

 

(iv)  Upon
conferring the Parties will agree to establish startup and shutdown time
periods to achieve Minimum Load, which periods will reflect good engineering
and utility practices and will be based on the maximum expected duration of
each startup and shutdown activity.

 

D.            Upon acceptance of the
startup/shutdown plan by the DEC, AES shall implement and follow such plan, and
shall not operate Unit 8 below the Minimum Operating Load for a period in
excess of any startup time or shutdown time in the plan or below the Minimum
Operating Load for any period not described in the plan.

 

13

 

(i)            If Unit 8 operates below the Minimum
Operating Load for a period in excess of any startup time or shutdown time in
the plan or operates below the Minimum Operating Load for any period not
described in the plan, AES must notify the DEC in writing within 10 days as to
the cause and duration.

 

(ii)           AES will not suffer any penalties for
operating below Minimum Operating Load in excess of the time frames described
in the plan if such operation is excused as unavoidable in accordance with the
provisions of 6 N.Y.C.R.R. § 201-1.4 or the New York State Implementation
Plan, and AES follows the requirements contained therein.

 

43.           Compliance with emission limits at
Westover Unit 8 shall be calculated using 30- Operating-Day Rolling Averages.

 

C.                                     PERMITS AND CONTROLLING EMISSIONS USING CLEAN COAL
TECHNOLOGY

 

44.           The emission limits (with
corresponding “compliance dates,” i.e.,
the date each permit limit takes effect pursuant to this Consent Decree) set
forth in Paragraphs 37 and 42, shall be incorporated into the Title V or Air
State Facility permits for each of those Plants.  Despite this permit incorporation, emission
limits must be met by the respective Plants on the applicable compliance dates
and not beforehand; further, compliance dates will be used in Allowance
calculations (e.g., for Control
Period Potential to Emit or “CPPTE” purposes) as a matter of law to reduce
Allowance calculations only upon occurrence of the compliance date.  Notwithstanding the reference to Title V and
Air State Facility permits in this Consent Decree, the enforcement of such
limits shall be in accordance with their own terms and the Clean Air Act.  A Title V or Air State Facility permit shall
not be directly enforceable under this Consent Decree, although any term or
limit established by or under this Consent Decree shall be enforceable under
this Consent Decree (subject to the terms of Section XIII herein),
regardless of whether such limit has or will become part of a Title V or Air
State Facility permit. Nothing in this Consent Decree shall restrict AES from
invoking the startup/shutdown/malfunction excuse provision for unavoidable
noncompliance or emergency defense provisions.

 

D.                                    USE OF SUB-BITUMINOUS COAL

 

45.           Subject to the conditions set forth
in this Paragraph 45, AES is allowed to use up to a 30% blend of sub-bituminous
(reduced sulfur) coal at either the Westover or Greenidge plants.  The use of up to a 30% blend of
sub-bituminous coal shall be based on the heat input at each of these plants
effective January 1, 2005.  For the
purposes of this Consent Decree, and based on the condition that the use of up
to a 30% blend of sub-bituminous coal at either the Westover or Greenidge
plants will not require any physical change to any Unit at either plant other
than those required for dust suppression and/or safe operation, the DEC has
made a determination that such use does not constitute a change in fuel, is not
a physical change and does not result in a change in the method of operation,
nor does it result in an increase in any nonattainment contaminant.  As a result, the DEC has determined that the
use of up to a 30% blend of sub-bituminous coal at either the Westover or
Greenidge plants is not a source project and does not fall within the
requirements of 6 NYCRR Subpart 231-2. 
Upon execution of this Consent

 

14

 

Decree and the
submission of a notice to DEC and EPA Region II seven days prior to the
proposed use (per 6 NYCRR § 201-6.5(f)(6)), AES may begin to burn
sub-bituminous coal at the Westover and Greenidge plants.

 

E.                                      GREENIDGE UNIT 3 AND WESTOVER UNIT 7

 

46.           Greenidge Unit 3 and Westover Unit 7
shall install control technology equivalent to Best Available Control
Technology (BACT), be Repowered, or cease operations, no later than December 31,
2009.  During each of the years 2007,
2008 and 2009, Greenidge Unit 3 and Westover Unit 7 shall each be subject
to an annual operating limit of 1400 hours, with a SO2 emission rate
of 3.0 lb/mmBTU measured on a 30-Operating-Day Rolling Average.  In addition, and for the same time periods,
Greenidge Unit 3 and Westover Unit 7 shall be subject to a sulfur-in-fuel limit
of 1.5 lb/mmBTU.  Westover Unit 7
compliance will be based on a 30-Operating- Day Rolling Average fuel limit, as
a separate stack emission rate cannot be effectively measured.

 

F.                                      HICKLING AND JENNISON

 

47.           Hickling Units 1 and 2 shall each
have BACT-equivalent control technology installed, be Repowered, or cease
operations no later than May 1, 2007. 
The continued operation of Hickling Units 1 or 2, and/or any changes to
the operations of either of these Units, shall comply with all applicable laws
and regulations.

 

48.           Jennison Units 1 and 2 shall each
have BACT-equivalent control technology installed, be Repowered, or cease
operations, no later than May 1, 2007. 
The continued operation of Jennison Units 1 or 2, and/or any changes to
the operations of either of these Units, shall comply with all applicable laws
and regulations.

 

G.                                     VOC and NOx EMISSION REDUCTION CREDITS AND
SO2 AND NOx ALLOWANCES

 

49.           Nothing in this Consent Decree shall
be construed to prevent, limit or restrict AES from generating, using or
selling VOC ERCs.  Furthermore, for the
purpose of this Consent Decree, the parties stipulate that AES is entitled to
generate emissions reductions credits (“ERCs”) under 6 NYCRR Part 231 to
the extent that implementation of this Consent Decree results in emission
reductions below those that would be achieved by reducing the emission rate at
Greenidge Unit 4 or Westover Unit 8, to the extent those Units are equipped
with a CCP, to the NOx emission rate achieved as a result of the
Good Faith Efforts process.  AES will use
those ERCs generated in accordance with this Paragraph 49 for projects
developed by AES in New York State only and the ERCs shall not be sold to any
party not a wholly owned subsidiary of AES or a bona fide purchaser of the AES facilities; however, nothing
herein shall be read to prevent AES from generating NOx ERCs for
achieving any reductions not required by this Consent Decree nor limiting the
sale, exchange or other transfer of such ERCs to third parties.

 

50.           Allowances Under State Programs

 

A.            Allowances, other than Federal Clean
Air Act Title IV SO2 Allowances, shall be distributed to each of the
plants encompassed by the terms of this Consent Decree, pursuant to relevant
applicable laws and requirements.  No
Allowances, other than Federal Clean Air Act Title

 

15

 

IV SO2
Allowances as provided for in this Consent Decree, shall be surrendered,
including Allowances issued pursuant to any allocation.

 

B.            For the purpose of determining
allocations for the limited energy generator Units Greenidge Unit 3 and
Westover Unit 7, the reduced operating constraint of 1400 hours per year as set
forth in Paragraph 47 of this Consent Decree, shall become effective January 1,
2007.

 

C.            For the purpose of determining the
allocations for Greenidge Unit 4 and Westover Unit 8 under the 6 NYCRR Part 238
SO2 and 6 NCYRR Part 204 and 6 NYCRR Part 237 NOx
programs, if those Units are installed using MPC or Clean Coal Technology, the
following rates shall be used:

 

(i)            For Greenidge Unit 4, in 2007 the
allowable SO2 emission rate shall be 0.38 lb/mmBTU and for NOx
the allowable emission rate shall be 0.15 lb/mmBTU.

 

(ii)           For Westover Unit 8, in the year
following the completion of the control technology, the allowable SO2
emission rate shall be 0.34 lb/mmBTU and for NOx the allowable
emission rate shall be 0.15 lb/mmBTU.

 

51.           Federal Title IV SO2
Allowance Surrender

 

A.            AES shall surrender excess Federal
Clean Air Act Title IV SO2 Allowances for Greenidge Units 3 and 4
and Westover Units 7 and 8, as set forth below, each year commencing as of January 1,
2012.

 

B.            If either Greenidge Unit 4 or
Westover Unit 8 installs an MPC Project or CCP, such surrender shall be above
values equivalent to 1859 tons per year for Greenidge Unit 4 and 1303 tons per
year for Westover Unit 8; provided, however, in no case shall AES be required
to surrender CAA Title IV SO2 Allowances below the levels needed to
operate Greenidge Unit 4 or Westover Unit 8 under applicable laws.

 

(i)            If AES elects to Repower either
Greenidge Unit 4 or Westover Unit 8, the Repowered Unit(s) shall retire Federal
Clean Air Act Title IV SO2 Allowances each year, commencing as of January 1,
2012 at levels above those permitted.

 

(ii)           If AES elects to cease operations at
either Greenidge Unit 4 or Westover Unit 8 prior to January 1, 2012, such
Unit(s) shall retire all Federal Clean Air Act Title IV SO2
Allowances as of January 1, 2012.

 

C.            For Greenidge Unit 3 and Westover
Unit 7, such surrender shall be above values equivalent to 1265 tons per year
for Greenidge Unit 3 and 813 tons per year for Westover Unit 7 effective as of January 1,
2012; provided, however, in no case shall AES be required to surrender CAA
Title IV SO2 Allowances below the levels needed to operate Greenidge
Unit 3 or Westover Unit 7 under applicable laws.

 

D.            No other Allowances than those
described in this Paragraph 52 must be surrendered under this Consent Decree.

 

H.                                    PROHIBITION ON NETTING CREDITS FOR NOx AND
SO2 EMISSION REDUCTIONS 

 

16

 

52.           For any and all emission control
actions taken by AES to comply with the terms of this Consent Decree, including
but not limited to the Repowering of certain Units, any emission reduction
achieved shall not be considered as a creditable contemporaneous emission
decrease for the purpose of obtaining a netting credit under the PSD and
nonattainment NSR programs, except to the extent such decrease is greater than
that required by this Consent Decree. 
The limitations of this Paragraph 52 shall not apply to the ERCs
generated in accordance with Paragraph 49.

 

VII.          PERMITS AND RESOLUTION OF CLAIMS

 

A.            PERMITS

 

53.           In any instance where otherwise
applicable law or this Consent Decree requires AES to secure a permit or
certificate to authorize constructing or operating any device under this
Consent Decree, AES shall take all such measures within its control that are
needed to successfully obtain such permit or certificate in a diligent
manner.  Such applications shall be
completed and submitted to the appropriate authorities to allow sufficient time
for all legally required processing and review of the permit or certificate
request. AES may construct and operate the MPC Project or a CCP at Greenidge
Unit 4 and/or Westover Unit 8 without a State preconstruction permit or any
modification to its Title V permits, subject to the future permit amendment
provisions of Paragraphs 45 and 55 of this Consent Decree.

 

54.           Subject to DEC’s determinations in
Paragraphs 46 and 54 of this Consent Decree, AES shall apply for amendments to
its Title V Operating Permit for the Plants, as necessary, to include in such
Title V permits all applicable requirements from this Consent Decree that are
consistent with the State Title V program, including all performance,
operational, maintenance, and control technology requirements.  AES will apply for such amendments no later
than the date that applications for renewal of such permits are required by
applicable law.  In its permit renewal
applications, AES may list 40 CFR § 52.21 or a State PSD program (if or
when one exists) as the applicable requirements for any emission limits set
forth or established pursuant to this Consent Decree.  DEC reserves the discretion to review the
permit and make appropriate determinations pursuant to applicable laws and
regulations; and AES reserves and does not waive any right, claim or defense
relative to the permit.

 

B.            RESOLUTION
OF PAST CLAIMS

 

55.           The State covenants not to sue and
releases AES and NYSEG and each of their affiliated companies, officers and
directors for all of the civil claims that were or could have been brought by
the State against NYSEG and AES for alleged violations at Greenidge Units 3 and
4, Westover Units 7 and 8, Hickling Units 1 and 2, and Jennison Units 1 and 2,
prior to and including the date of entry of this Consent Decree, of:

 

A.            the PSD or Non-Attainment NSR
provisions of Parts C and D of the Clean Air Act and 40 C.F.R. § 52.21,
and the New Source Performance Standards of 42 U.S.C. § 7411 and 40 C.F.R.
Part 60;

 

B.            6 NYCRR § 200.10 (to the extent
it incorporates the federal regulations at 40 C.F.R. § 52.21 and 40 C.F.R.
Part 60), 6 NYCRR Parts 200 and 201 (to the extent Parts 200 and

 

17

 

201 relate to
the alleged violations that are the subject of this Consent Decree), and Part 231;
and

 

C.            6 NYCRR § 211.2 and related
claims at common law, including public nuisance law, pertaining to emissions of
NOx, SO2, and particulate matter (including claims brought
under New York State Executive Law § 63(12)).

 

C.            RESOLUTION
OF FUTURE CLAIMS

 

56.           Upon the date of entry of this
Consent Decree, the State covenants not to sue or bring administrative
enforcement actions against AES for claims under the PSD or Non-Attainment NSR
provisions of Parts C and D of the Clean Air Act, 42 U.S.C. § 7401 et seq. or any DEC PSD and/or
Nonattainment NSR program; the New Source Performance Standards of 40 C.F.R. Part 60,
Subpart D or Da, as applied to modifications and/or reconstructions as defined
by 40 C.F.R. Part 60; 6 NYCRR § 200.10 (to the extent it incorporates
the federal regulations at 40 C.F.R. § 52.21 (federal PSD), 40 CFR Part 70
(Title V),  40 CFR Part 51 (state
Nonattainment NSR) and Part 60 (NSPS), Subpart D or Da, as applied to
modifications and/or reconstructions as defined by 40 C.F.R. Part 60), and
6 NYCRR Parts 200, 201, 211, 227 and 231, at Greenidge Units 3 and 4, Westover
Units 7 and 8, Hickling Units 1 and 2, and Jennison Units 1 and 2, to the
extent such claims are based on the failure to obtain PSD or nonattainment NSR
permits (or perform other PSD and/or nonattainment NSR requirements), or
undertaking modifications, reconstructions or source projects as defined by 40
C.F.R. Part 60 and § 52.21, or 6 NYCRR Part 231, or to obtain an
operating permit, regarding:

 

A.            work that this Consent Decree
expressly directs AES to undertake or which is required to accommodate such
work, regardless of when such work is undertaken; or

 

B.            repairs, replacement or maintenance
or other changes not required by this Consent Decree if:

 

(i)            such change is commenced after the
entry of this Consent Decree,

 

(ii)           such change is commenced during the
time this Consent Decree applies to the Unit at which this change has been
made, is commenced prior to December 31, 2009 and is completed prior to December 31,
2010;

 

(iii)          AES is otherwise in material
compliance with this Consent Decree; and

 

(iv)          hourly emission rates of NOx
and SO2 at any changed Unit(s), after a Shakedown period not to
exceed 180 days, do not exceed the maximum hourly emission rates for NOx
and SO2 prior to the change, as measured by 40 C.F.R. § 60.14(h).

 

57.           The provisions of Paragraph 56 shall
terminate on December 31, 2010; provided, however, that the State may not
sue AES at any time thereafter for work encompassed within Subparagraphs 56.A
and 56.B(ii) or taken by AES for actions otherwise in compliance with
applicable law.

 

18

 

VIII.        STIPULATED PENALTIES AND REMEDIES

 

58.           For purposes of this Consent Decree,
within thirty days after written demand from the State, and subject to the
provisions of Sections X (Force Majeure), XI (Material Adverse Conditions), XII
(Dispute Resolution) and the State’s resolution not to sue for future claims in
Paragraphs 56 and 57 of this Consent Decree, AES shall pay the following
stipulated penalties to the State for each failure by AES to comply with the
terms of this Consent Decree:

 

A.            (i)            Subject
to Paragraphs 36 and 38, for the failure to complete installation of the MPC
Project on or Repower, Greenidge Unit 4 by December 31, 2009, after having
elected to install such controls or Repower: 
$5,000 for each day after December 31, 2009, but before February 1,
2010, that such installation has not been completed, and $10,000 for each day
after January 31, 2010, that such installation has not been completed;
provided, however, no stipulated penalties shall be payable, or other
enforcement action taken against AES, if AES does not operate Greenidge Unit 4
after December 31, 2009, after having elected to install such controls or
Repower, and resumes operation only after completing installation of such
controls or Repowering.

 

(ii)           Subject to Paragraphs 36 and 38, for
the failure to cease operations of Greenidge Unit 4 by December 31, 2009,
after having elected to do so:  $27,500
for each day after December 31, 2009, that Greenidge Unit 4 operates
without emission controls or Repowering.

 

(iii)          Subject to Paragraph 40, for the
failure to complete installation of a CCP or other BACT-equivalent control
technology on, or Repower, Westover Unit 8 by December 31, 2009, after
having elected to install such controls or Repower:  $5,000 for each day after December 31,
2009, but before February 1, 2010, that such installation has not been
completed, and $10,000 for each day after January 31, 2010, that such
installation has not been completed; provided, however, no stipulated penalties
shall be payable, or other enforcement action taken against AES, if AES does
not operate Westover Unit 8 after December 31, 2009, after having elected
to install such controls or Repower, and resumes operation only after
completing installation of such controls or Repowering.

 

(iv)          Subject to Paragraph 40, for the
failure to cease operations of Westover Unit 8 by December 31, 2009, after
having elected to do so:  $27,500 for
each day after December 31, 2009, that Westover Unit 8 operates without
emission controls or Repowering.

 

(v)           Subject to Paragraph 47, for the
failure to complete installation of, or the failure to install, a
BACT-equivalent control technology, or Repower, Hickling Units 1 or Unit 2 by May 1,
2007, after having elected to install such controls or Repower:  $5,000 for each day after May 1, 2007,
but before June 1, 2010, that such installation has not been completed,
and $10,000 for each day after June 1, 2010, that such installation has
not been completed; provided, however, no stipulated penalties shall be
payable, or other enforcement action taken against AES, if AES does not operate
Hickling Units 1 or Unit 2 after May 1, 2007, after having elected to
install such controls or Repower, and resumes operation only after completing
installation of such controls or Repowering.

 

19

 

(vi)          Subject to Paragraph 48, for the
failure to complete installation of, or for the failure to install, a
BACT-equivalent control technology or Repower Jennison Units 1 or Unit 2 by May 1,
2007, after having elected to install such controls or Repower:  $5,000 for each day after May 1, 2007,
but before June 1, 2010, that such installation has not been completed,
and $10,000 for each day after June 1, 2010, that such installation has
not been completed; provided, however, no stipulated penalties shall be
payable, or other enforcement action taken against AES, if AES does not operate
Jennison Units 1 or Unit 2 after May 1, 2007, after having elected to
install such controls or Repower, and resumes operation only after completing
installation of such controls or Repowering.

 

(vii)         Subject to Paragraph 47, for the
failure to cease operations of Hickling Units 1 and 2 by May 1, 2007,
after having elected to do so:  $27,500
for each day after May 1, 2007, that Hickling Units 1 and 2 operates without
emission controls or Repowering.

 

(viii)        Subject to Paragraph 48, for the failure
to cease operations of Jennison Units 1 or 2 by May 1, 2007, after having
elected to do so:  $27,500 for each day
after May 1, 2007, that Jennison Units 1 or 2 operates without emission
controls or Repowering.

 

(ix)           Subject to Paragraph 46, for the
failure to complete installation of, or for the failure to install, a
BACT-equivalent control technology or Repower Greenidge Unit 3 and/or Westover
Unit 7 by December 31, 2009, after having elected to install such controls
or Repower:  $5,000 for each day after December 31,
2009, but before February 1, 2010, that such installation has not been
completed, and $10,000 for each day after January 31, 2010, that such
installation has not been completed; provided, however, no stipulated penalties
shall be payable, or other enforcement action taken against AES, if AES does
not operate Greenidge Unit 3 and/or Westover Unit 7 after December 31,
2009, after having elected to install such controls or Repower, and resumes
operation only after completing installation of such controls or Repowering.

 

(x)            Subject to Paragraph 46, for the
failure to cease operations of Greenidge Unit 3 and/or Westover Unit 7 by December 31,
2009, after having elected to do so: 
$27,500 for each day after December 31, 2009, that Greenidge Unit 3
and/or Westover Unit 7 operates without emission controls or Repowering.

 

(xi)           Subject to Paragraph 51, for the
failure to permanently retire federal Clean Air Act Title IV SO2
Allowances: $1,500 per day plus, (a) if the allowances are sold, the value
of any consideration received, and (b) if the allowances are used, the
value of the allowances used.

 

(xii)          Subject to Paragraph 49, for violation
of any Consent Decree provision relating to the use of ERCs: double the value
of any consideration received by AES for any prohibited sale or transfer of
each ERC.

 

(xiii)         Subject to Paragraph 38, for the
failure to comply with the Greenidge Unit 4 annual SO2 emission
caps: $2,000 per excess ton emitted.

 

20

 

(xiv)        Subject to Paragraph 41, for the failure
to comply with the Westover Unit 8 annual SO2 emission caps: $2,000
per excess ton emitted.

 

B.            For purposes of this Consent Decree,
each failure to comply with the maximum permissible emission rate for a 30-Operating-Day
rolling average period constitutes a single “occurrence” of a failure to comply
with the maximum permissible emission rate. 
Violation of the 30-Operating-Day Rolling Average Emission Limit is a
violation on every day of the thirty-day period on which the average is based;
however, when a new occurrence of a violation of the 30-Operating-Day Rolling
Average Emission Limit occurs within less than thirty days, AES shall not pay a
daily stipulated penalty for any day of the new occurrence for which a
stipulated penalty has already been paid. 
No penalties shall be payable under this subparagraph 58.B for a 30-Operating-Day
rolling average period that contains one or more “missing data periods,” as 40
C.F.R. § 75.33 uses that term if, after the missing data period or periods
are excluded from the determination of the emission rate for that 30-Operating-Day
rolling average period, there is no exceedance of the maximum permissible
emission rate for that 30-Operating-Day rolling average period.

 

C.            Subject to Paragraph 58.B of this
Consent Decree, in the event of a NOx or SO2 exceedance
involving Greenidge Unit 4 or Westover Unit 8 in the first year after Initial
Operation of the CCP or equivalent technology on each of those units, the
following stipulated penalties are applicable:

 

(i)            For a NOx exceedance: 

 

	
  If the
  number of the occurrence of the failure is as noted below, irrespective of
  the percentage by which the maximum permissible emission rate was exceeded:

  	
   

  	
  then the per-day
  penalty for that occurrence is as shown below, based upon the percentage by
  which the maximum permissible rate was exceeded:

  

 

	
   

  	
   

  	
  Less than 5%

  	
   

  	
  More than 5%

  but less than 10%

  	
   

  	
  10% or more

  	
   

  
	
  1st
  through the 30th

  	
   

  	
  $

  	
  200

  	
   

  	
  $

  	
  400

  	
   

  	
  $

  	
  800

  	
   

  
	
  31st through
  the 35th

  	
   

  	
  $

  	
  400

  	
   

  	
  $

  	
  600

  	
   

  	
  $

  	
  900

  	
   

  
	
  36th
  and on

  	
   

  	
  $

  	
  500

  	
   

  	
  $

  	
  900

  	
   

  	
  $

  	
  1000

  	
   

  

 

(ii)           For an SO2 exceedance:

 

	
  If the
  number of the occurrence of the failure is as noted below, irrespective of
  the percentage by which the maximum permissible emission rate was exceeded:

  	
   

  	
  then the per-day
  penalty for that occurrence is as shown below, based upon the percentage by
  which the maximum permissible rate was exceeded:

  

 

21

 

	
   

  	
   

  	
  More than 10%

  	
   

  
	
  1st
  through the 30th

  	
   

  	
  $

  	
  500

  	
   

  
	
  31st through
  the 35th

  	
   

  	
  $

  	
  600

  	
   

  
	
  36th
  and on

  	
   

  	
  $

  	
  700

  	
   

  

 

D.            Subject to Paragraph 58.B, for any
NOx exceedance or SO2 exceedance involving Greenidge Unit 4 or Westover Unit 8
occurring more than one year after Initial Operation, the State may seek
penalties and other relief pursuant to ECL Article 71, and the State shall not
be required nor prohibited from considering the number of occurrences of any
failures as set forth in Subparagraph 58.C(1) or C(2) of this Consent Decree in
assessing any penalty.

 

E.             For any other violation of this
Consent Decree, $2,500 per day, per violation. 
Should the State allege any violations under Paragraph 58.A, B, C or E,
the State will issue a letter of non-compliance only as its notice of such violation.  

 

59.           Should AES dispute its obligation to
pay part or all of a demanded stipulated penalty, it may avoid the imposition
of a separate stipulated penalty for the failure to pay the disputed penalty by
depositing the disputed amount in a commercial escrow account pending
resolution of the matter and by invoking the Dispute Resolution provisions of
this Consent Decree within the time provided in this Section VIII of this
Consent Decree for payment of the disputed penalty.  If the dispute is thereafter resolved in AES’
favor, the escrowed amount plus accrued escrow interest shall be returned to
AES.  If the dispute is resolved in favor
of the State, then the State shall be entitled to the escrowed amount
determined to be due by the Court, plus accrued escrow interest.  The balance in the escrow account, if any,
shall be returned to AES.

 

60.           The State reserves the right to
pursue any additional injunctive relief for AES’ violations of this Consent
Decree.  AES shall not be required to
remit any stipulated penalty that is disputed in compliance with Section XII
of this Consent Decree until the dispute is resolved in favor of the
State.  However, nothing in this
Paragraph 60 shall be construed to cease the accrual of the stipulated
penalties until the dispute is resolved.

 

IX.           RIGHT OF ENTRY

 

61.           Any authorized representative of the
DEC or OAG, including independent contractors, upon presentation of
credentials, shall have a right of entry upon the premises of the plants at any
reasonable time for the purpose of monitoring compliance with the provisions of
this Consent Decree, including inspecting plant equipment and inspecting and
copying all records maintained by AES required by this Consent Decree that are
non-privileged; and AES shall not unreasonably interfere with such access.  AES shall retain such records for a period of
two (2) years from the termination of this Consent Decree.

 

22

 

X.            FORCE MAJEURE

 

62.           A.            AES
shall not suffer any penalty under this Consent Decree, or be deemed to be in
violation hereof or be subject to any proceeding or action, if AES’ compliance
with any requirements hereof, including compliance with emission rates, is
delayed or rendered impossible by a natural event, war, strike, work stoppage,
riot, catastrophe, delays in the issuance of permits or other authorizations
(despite diligent efforts by AES to obtain such permits and authorizations in
accordance with Paragraph 53) or any other event or circumstance as to which
negligence or misconduct on the part of AES was not the proximate cause;
provided, however, that AES shall make diligent efforts to comply nonetheless,
or minimize such delay, and shall promptly notify the State by telephone and in
writing, pursuant to the notice provision of this Consent Decree, after it
obtains knowledge of any such condition or event, and request an appropriate
extension or modification of this Consent Decree.

 

B.            For purposes of this Consent Decree,
AES will not suffer any penalties for failure to meet the emission tonnage
limitations or other emission limits of this Consent Decree if such failure is
excused in accordance with the provisions of 6 NYCRR § 201-1.4 or the New
York State Implementation Plan, and AES follows the requirements contained therein.

 

C.            AES shall be entitled to an
extension of any deadline for any requirements of this Consent Decree for a
period that shall be equal to and fully offset any delay caused by a Force
Majeure event.  Nothing in this Subparagraph
62.C of this Consent Decree shall preclude AES from seeking additional
extensions subject to DEC’s consent.

 

63.           Unanticipated or increased costs or
expenses associated with the performance of AES’ obligations under this Consent
Decree shall not constitute circumstances beyond the control of AES or serve as
a basis for an extension of time under this Consent Decree, except as a
Material Adverse Condition that may affect the MPC Project or a similar
Westover Unit 8 CCP.

 

XI.                                MATERIAL
ADVERSE CONDITIONS

 

64.           AES shall not be deemed to be in
violation of Paragraph 36 due to a Material Adverse Condition.  For the purpose of this Consent Decree,
Material Adverse Condition shall mean a change of circumstance which exists on
or after the effective date of this Consent Decree, and has a negative impact
on the MPC Project’s economic viability in an amount greater than $1,000,000
and causes AES not to proceed with the MPC Project, or causes delays of up to
six months regardless of the cost.  AES
shall promptly notify the State by telephone and in writing, pursuant to the
notice provision of this Consent Decree, after it obtains knowledge of any
Material Adverse Condition.

 

XII.         DISPUTE RESOLUTION

 

65.           The dispute resolution procedure
provided by this Section XII of this Consent Decree shall be available to
resolve all disputes arising under this Consent Decree, provided that the Party
making such application has first made a good faith attempt to resolve the
matter with the other Party.

 

66.           The dispute resolution procedure
required in this Section XII of this Consent Decree shall be invoked by
one Party to this Consent Decree giving written notice to the other

 

23

 

advising of a
dispute sought to be resolved pursuant to this Section.  The notice shall describe the nature of the
dispute and shall state the noticing Party’s position with regard to such
dispute.  The Parties shall expeditiously
schedule a meeting to discuss the dispute informally not later than
fourteen (14) days following receipt of such notice.

 

67.           Disputes submitted to dispute
resolution under this Section shall, in the first instance, be the subject
of informal good faith negotiations between the Parties.  Such period of informal negotiations shall
not extend beyond thirty Calendar Days from the date of the first meeting among
the Parties’ representatives unless they agree in writing to shorten or extend
this period.

 

68.           If the Parties are unable to reach
agreement during the informal negotiation period, the State shall provide AES
with a written summary of its position regarding the dispute.  The written position provided by the State
shall be considered binding unless, within thirty Calendar Days thereafter, AES
files with this Court a petition which describes the nature of the dispute and
seeks resolution.  The State may respond
to the petition within forty-five Calendar Days of filing.

 

69.           Where the nature of the dispute is
such that a more timely resolution of the issue is required, the time periods
set out in this Section may be shortened upon motion of one of the Parties
to the dispute.

 

70.           As part of the resolution of any
dispute under this Section, in appropriate circumstances the Parties may agree
to, or this Court may order, an extension to, or modification of, the schedule for
completion of work under this Consent Decree to account for the delay that
occurred as a result of dispute resolution.

 

24

 

XII.         GENERAL PROVISIONS

 

71.           Effect of Settlement.  This Consent Decree is not a permit; and
except as specifically provided by this Consent Decree, nothing in this Consent
Decree shall relieve AES of its obligation to comply with all applicable
Federal, State and Local laws and regulations. 
Subject to Paragraphs 55 and 56 (Resolution of Past and Future Claims)
of this Consent Decree, nothing contained in this Consent Decree shall be
construed to prevent or limit the State’s rights to obtain penalties or
injunctive relief under the Clean Air Act or other federal, state or local
statutes, regulations or causes of action existing now or to be enacted in the
future.

 

72.           Third Parties.  This Consent Decree does not limit, enlarge
or affect the rights of any Party to this Consent Decree as against any third
party, except as noted herein.

 

73.           Summary Abatement.  If the DEC Commissioner or her duly
authorized representative finds, after investigation, that AES is causing,
engaging in, or maintaining a condition or activity which, in her judgment,
presents an imminent danger to the health or welfare of the people of this
State or results or is likely to result in irreversible or irreparable damage
to natural resources and relates to the prevention and abatement powers of the
Commissioner and it therefore appears to be prejudicial to the interests of the
people of this State to delay action until an opportunity for a hearing can be
provided, the terms of this Consent Decree shall not be construed to prohibit
the Commissioner or her duly authorized representative, pursuant to ECL § 71-0301,
from ordering AES by notice, but without prior hearing, to discontinue, abate,
or alleviate such condition or activity.

 

74.           Indemnification.  AES shall indemnify and hold the DEC, the
State, and their representatives and employees harmless for all claims, suits,
actions, damages and costs of every name and description (except for claims
that may be raised in a citizen suit which seeks to challenge, modify, or add
to the penalties or remedies in this Consent Decree) arising out of or
resulting from the fulfillment or attempted fulfillment of this Consent Decree
by AES, its directors, officers, employees, servants, agents, successors or
assigns; provided, however, that AES shall not be liable for any costs related
to the defense of any such claims, suits, or actions including attorneys fees
and other such costs.

 

75.           Costs.  Each Party to this action shall bear its own
costs and attorneys’ fees.

 

76.           Notice.  Unless otherwise provided in this Consent
Decree, notifications to or communications with the State, NYSEG or AES shall
be deemed submitted on the date they are postmarked and sent either by
overnight mail, return receipt requested, or by certified or registered mail,
return receipt requested.  Notifications
shall be sent to the following representatives for each mail by electronic mail
and overnight, certified or registered mail at the addresses set forth below:

 

A.            State:

 

J. Jared
Snyder

State of New
York Office of the Attorney General

Environmental
Protection Bureau

The Capitol

Albany, New
York 12224

 

25

 

Michelle A.
Crew

New York State
Department of Environmental Conservation

625 Broadway,
14th Floor

Albany, New
York 12233-5500

 

Reggie Parker

RAPCE, Region
7

New York State
Department of Environmental Conservation

615 Erie
Boulevard West

Syracuse, New
York 13204-200

 

Thomas
Marriott

RAPCE, Region
8

New York State
Department of Environmental Conservation

6274 E.
Avon-Lima Road

Avon, New York
14414-9519

 

B.                                                                                     AES:

 

Robert J.
Alessi

Counsel for
AES

LeBoeuf, Lamb,
Greene & MacRae, L.L.P.

99 Washington
Avenue, Suite 2020

Albany, New
York 12210

 

Kevin Pierce

Vice-President

AEE 2, LLC

7725 Lake Road

Barker, NY
14012

 

C.                                                                                     NYSEG

 

Seth A. Davis

Elias Group

411 Theodore
Fremd Ave.

Rye, NY 10850

 

77.           Modification.  Except as otherwise allowed by law, there
shall be no modification of this Consent Decree without written approval by AES
and the State and, unless AES and the State agree that the changes are minor,
approval of such modification by the Court.

 

78.           Continuing Jurisdiction.  The Court shall retain jurisdiction of this
case after entry of this Consent Decree to enforce compliance with the terms
and conditions of this Consent Decree and to take any action necessary or
appropriate for its interpretation, construction, execution, or
modification.  During the term of this
Consent Decree, any Party to this Consent Decree may apply to the Court for any
relief necessary to construe or effectuate this Consent Decree.

 

79.           Complete Agreement.  This Consent Decree constitutes the final,
complete and exclusive agreement and understanding among the Parties with
respect to the settlement embodied in this Consent Decree.  The Parties acknowledge that there are no
representations, agreements or understandings relating to the settlement other
than those expressly contained in this Consent Decree.

 

XIII.        TERMINATION

 

80.           This Consent Decree shall be subject
to termination upon motion by the Parties after AES satisfies the material
requirements of this Consent Decree (other than those requirements set forth in
Paragraphs 51 and 61 [retirement of SO2 Allowances and right of
entry clauses], the requirements set forth therein surviving as enforceable
provisions beyond

 

26

 

termination of
this Consent Decree), including payment of all stipulated penalties that may be
due, installation of control technology systems as specified herein, the
receipt of all permits specified herein, and securing modifications to the
Title V Operating Permits for the plants that incorporate all operational
limits established under this Consent Decree.

 

81.           If AES believes it has achieved
compliance with the material requirements of this Consent Decree (excluding
those requirements set forth in Paragraphs 51 and 61 [retirement of SO2
Allowances and right of entry clauses] as of the date of such certification),
then AES shall so certify to the State. 
Unless the State objects in writing with specific reasons within sixty
days of receipt of AES’ certification, the Court shall order that this Consent
Decree be terminated on motion by AES. 
If the State objects to AES’ certification, then the matter shall be
submitted to the Court for resolution under Section XII of this Consent
Decree.

 

82.           Should any term or other aspect of
this Consent Decree be rejected by the Court in whole or in part, AES and the
State shall have an absolute, unilateral right to withdraw their consent and
terminate this Consent Decree without prejudice or waiver of any claim, right
or defense.

 

	
  Dated:  
  January          ,
  2005

  	
  FOR THE
  PLAINTIFFS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ERIN M.
  CROTTY, Commissioner

  
	
   

  	
  New York
  State Department of Environmental

  Conservation

  
	
   

  	
  625 Broadway

  
	
   

  	
  Albany, New
  York 12233-5500

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ELIOT
  SPITZER

  
	
   

  	
  Attorney
  General of the State of New York

  
	
   

  	
   

  
	
   

  	
  by:

  
	
   

  	
   

  	
   

  
	
   

  	
  J. JARED
  SNYDER

  
	
   

  	
  Assistant
  Attorney General

  
	
   

  	
  Environmental
  Protection Bureau

  
	
   

  	
  The Capitol

  
	
   

  	
  Albany, New
  York 12224

  
	
   

  	
  (518) 474-8010

  
	
   

  	
  Of counsel

  
				

 

27

 

	
   

  	
  FOR AES:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ROBERT J.
  ALESSI

  
	
   

  	
  Counsel for
  AES

  
	
   

  	
  LeBoeuf,
  Lamb, Greene & MacRae, L.L.P.

  
	
   

  	
  99
  Washington Avenue, Suite 2020

  
	
   

  	
  Albany, NY
  12210

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FOR NYSEG:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SETH A.
  DAVIS

  
	
   

  	
  Elias Group

  
	
   

  	
  411 Theodore
  Fremd Ave.

  
	
   

  	
  Rye, NY
  10850

  
	
   

  	
   

  
	
   

  	
   

  
	
  SO ORDERED,
  THIS       DAY
  OF           , 2005.

  	
   

  
				

 

28

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