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Proc-Type: 2001,MIC-CLEAR
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SECURITIES AND EXCHANGE COMMISSION Name of each exchange Securities registered pursuant to Section 12(g) of the Act: TABLE OF CONTENTS Page No. i DEFINITIONS Term Meaning ii PART I THE ORGANIZATION 1 As a result of the Merger, the Company has developed and commenced a transition plan (the "Transition Plan") to implement significant organizational and operational changes. For more information, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OVERVIEW OF 2000." 2 The Company is currently exiting operations in California. See "Proposed Asset Additions and Dispositions." 2000 1999 1998 1997 3 generation or cogeneration, or the use of alternative energy sources such as natural gas. When a competitive marketplace exists, customers will make their energy purchasing decision based upon many factors, including price, service and system
reliability. 4 The Company has formulated strategies to meet these challenges. The Company is marketing power supply services to other utilities in the western United States, including dispatch assistance, daily system load monitoring, backup power, power storage and
power marketing, and services to retail customers that encourage efficient use of energy. Effective January 1, 1998, the California Public Utilities Commission (the "CPUC") adopted rules regulating the nontariffed sale of energy and energy products and
services by utilities and their affiliates. The rules mandated a 10% rate reduction, which resulted in a $3.5 million annual reduction in revenues. The Company has decided to refrain from marketing products and services to retail customers in California
but intends to continue limited trading in the wholesale business, selling to utilities in California and marketers elsewhere in the western United States. 5 The Company owns or has interests in generating plants with an aggregate nameplate rating of 8,331 megawatts ("MW") and plant net capability of 7,829 MW. See "ITEM 2. PROPERTIES." With its present generating facilities, under average water
conditions, the Company expects that approximately 6% of its energy requirements for 2001 will be supplied by its hydroelectric plants and 64% by its thermal plants. The balance of 30% is expected to be obtained under long-term purchase contracts, and
interchange and other purchase arrangements. During 2000, approximately 7% and 61% of the Company's energy requirements were supplied by its hydroelectric and thermal generation plants, respectively, and the remaining 32% by purchased power. 6 supplied 22% of the Company's total energy requirements in 2000. See Note 14 of Notes to the Consolidated Financial Statements under ITEM 8 for further discussion on long-term firm power purchases requirements. 7 For the periods 2001 to 2004, the average annual growth in retail kilowatt hour ("kWh") sales in the Company's franchise service territories is estimated to be about 1.4%. During this period, the Company may lose retail energy sales to other suppliers
in connection with deregulation of the electric industry. As the electric industry evolves toward deregulation, the Company expects to have opportunities to sell any excess power in wholesale markets. The Company's actual results will be determined by a
variety of factors, including the outcome of deregulation in the electric industry, economic and demographic growth, and competition. 8 Pollutants -- Emission controls, low sulfur coal, plant operating practices and continuous emissions monitoring are all utilized to enable coal-burning plants to comply with opacity, visibility and other air quality requirements. All of the Company's
coal-burning plants burn low sulfur coal and are equipped with controls to limit emissions of particulate matter. Many of the Company's coal-burning plants, representing the majority of its installed capacity, have been equipped with controls which reduce
the quantity of SO2 emissions. The SO2 emission allowances awarded to the Company under the Federal Clean Air Act, and those allowances expected to be awarded annually in the future, are sufficient to enable the Company to meet its current and
expected future requirements. In addition, the Company has taken advantage of opportunities to sell SO2 allowances to other entities. 9 acted on that challenge. The Company believes that it currently has all required permits and management systems in place to assure compliance with operating permit requirements. 10 Water Quality. The Federal Clean Water Act and individual state clean water regulations require a permit for the discharge of waste water, including storm water runoff from the power plants and coal storage areas, into surface waters. Also,
permits may be required in some cases for discharges into ground waters. The Company believes that it currently has all required permits and management systems in place to assure compliance with permit requirements. 11 Between February 10 and April 6, 2000, the Company received approval orders from all states in which the Company operates for the sale of the Company's interests in the Centralia plant and mine. The sale was completed on May 4, 2000. FERC approved
the sale on January 13, 2000. For additional information on the sale of Centralia, see "Asset Sales." 12 remaining $76.2 million obligation of the Company with respect to merger credits is subject to possible offset if the Company demonstrates in a future rate case, to the satisfaction of the respective commissions, that merger-related cost reductions
have occurred and are being reflected in rates. This $76.2 million obligation will be reflected in future periods. 13 The Utah legislature also passed a bill extending the life of a legislative task force created in 1997 to study restructuring issues. The bill authorizes this task force to meet as often as twice a month to prepare legislation to implement an
electrical restructuring plan for presentation and consideration in the 2001 legislative session, unless it is not in Utah's best interest to do so. 14 Washington. On November 23, 1999, the Company filed for a rate increase before the WUTC. This rate increase contains two phases. In the first phase, the Company is asking for an increase of $14.6 million, or 8.10%. Including the systems benefit
charge, which will be used to fund conservation and new renewable development projects, this increase is $17.4 million, or 9.64%. In the second phase, the Company is requesting an increase of $11.2 million, or 5.65%. The effective date for phase one of
this proposed tariff increase is expected to be in the fall of 2000, and phase two would become effective one year following the effective date of phase one.
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________
Commission File Number 1-5152
PACIFICORP
(Exact name of registrant as specified in its charter)
State of Oregon
93-0246090
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
825 N.E. Multnomah, Portland, Oregon 97232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 813-5000
Securities registered pursuant to section 12(b) of the Act:
Title of each Class
on which registered
8 3/8% Quarterly Income Debt Securities
(Junior Subordinated Deferrable
Interest Debentures, Series A)
8.55% Quarterly Income Debt Securities
(Junior Subordinated Deferrable
Interest Debentures, Series B)
8 1/4% Cumulative Quarterly Income
Preferred Securities, Series A,
of PacifiCorp Capital I
7.70% Cumulative Quarterly Income
Preferred Securities, Series B,
of PacifiCorp Capital II
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Title of each Class
5% Preferred Stock (Cumulative; $100 Stated Value)
Serial Preferred Stock (Cumulative; $100 Stated Value)
No Par Serial Preferred Stock (Cumulative; Various Stated Values)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
On May 1, 2000, the aggregate market value of the shares of voting and nonvoting common equity of the Registrant held by nonaffiliates was $0.
As of June 14, 2000, there were 297,324,604 shares of common stock outstanding. (All common shares are indirectly owned by ScottishPower.)
DOCUMENTS INCORPORATED BY REFERENCE
None.
Definitions..................................................
ii
Part I
Item 1. Business........................................
The Organization..............................
Domestic Electric Operations..................
Australian Electric Operations................
Other Operations..............................
Discontinued Operations.......................
Employees.....................................
Item 2. Properties......................................
Item 3. Legal Proceedings...............................
Item 4. Submission of Matters to a Vote of Security
Holders.......................................
1
1
2
16
24
25
25
25
28
29
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................
Item 6. Selected Financial Data.........................
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.............................
Item 8. Financial Statements and Supplementary Data.....
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........
30
30
30
55
56
112
Part III
Item 10. Directors and Executive Officers of the
Registrant....................................
Item 11. Executive Compensation..........................
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................
Item 13. Certain Relationships and Related Transactions..
112
115
127
127
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................
128
Signatures..................................................
131
When the following terms are used in the text they will have the meanings indicated:
Company.........................
PacifiCorp and its subsidiaries
Hazelwood.......................
Hazelwood Power Partnership, a 19.9%
indirectly owned investment of Holdings
Holdings........................
PacifiCorp Group Holdings Company,
a wholly owned subsidiary of the
Company and its wholly owned
subsidiary, PacifiCorp International
Group Holdings Company
PFS.............................
PacifiCorp Financial Services, Inc., a
wholly owned subsidiary of Holdings,
and its subsidiaries
PacifiCorp......................
PacifiCorp, an Oregon corporation
Pacific Power...................
Pacific Power & Light Company, the assumed
business name of the Company under which
it conducts a portion of its retail
electric operations
PPM.............................
PacifiCorp Power Marketing, Inc., a wholly
owned subsidiary of Holdings
Powercor........................
Powercor Australia Ltd., an indirect,
wholly owned subsidiary of Holdings,
and its immediate parent companies,
PacifiCorp Australia Holdings Pty
Ltd and PacifiCorp Australia LLC
ScottishPower...................
Scottish Power plc, the indirect parent
company of PacifiCorp
TPC.............................
TPC Corporation, a wholly owned subsidiary
of Holdings until its sale in April 1999,
and its subsidiaries
Utah Power......................
Utah Power & Light Company, the assumed
business name of the Company under which
it conducts a portion of its retail
electric operations
ITEM 1. BUSINESS
The Company is an electricity company in the United States and Australia. In the United States, the Company conducts its retail electric utility business as Pacific Power and Utah Power, and engages in power production and sales on a wholesale basis under
the name PacifiCorp. Holdings owns the stock of subsidiaries conducting businesses not regulated as domestic electric utilities, including Powercor, the largest of the five electric distribution companies in Victoria, Australia.
The Company's strategic business plan is to focus on its electricity businesses in the western United States. As part of its strategic business plan, the Company will sell its other United States and international businesses, and has previously terminated
all of its business development activities outside of the United States. During January 2000, the Company committed to seek a buyer for Powercor. Holdings continues to liquidate portions of the loan and leasing portfolio of PFS. PFS presently expects to
retain only its tax-advantaged investments in leveraged lease assets and limit its pursuit of new tax-advantaged investment opportunities. See "AUSTRALIAN ELECTRIC OPERATIONS," "DISCONTINUED OPERATIONS," and "OTHER OPERATIONS."
On November 29, 1999, the Company and ScottishPower completed their proposed merger under which the Company became an indirect subsidiary of ScottishPower (the "Merger"). The Company continues to operate under its current name, and its headquarters will
remain in Portland, Oregon. As a result of the Merger, the Company became part of a public utility holding company group. The Company's operations are now subject to the requirements and restrictions of the Public Utility Holding Company Act of 1935.
In the Merger, each share of the Company's stock was converted tax-free into a right to receive 0.58 American Depositary Shares ("ADS") (each ADS represents four ordinary shares) or 2.32 ordinary shares of ScottishPower. Cash was paid in lieu of
fractional shares.
Effective November 30, 1999, the Company changed its fiscal year end from December 31 to March 31, which is the fiscal year end for ScottishPower. A report on Form 10-Q for the three-month transition period from January 1, 1999 through March 31, 1999
was filed with the Securities and Exchange Commission on January 13, 2000. The year ended March 31, 2000 and quarterly periods within that year are referred to as 2000. All future years refer to fiscal years ending March 31. The years ended December
31, 1998 and 1997 are referred to as 1998 and 1997, respectively. Powercor's fiscal year end remains December 31. Consequently, the Company's consolidated balance sheet and statements of consolidated income and consolidated cash flows as of and for year
ended March 31, 2000 include Powercor's financial statements as of and for the year ended December 31, 1999.
From time to time, the Company may issue forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Although the Company believes the expectations
reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be realized. Forward-looking statements involve known and unknown risks which may cause the Company's actual results to
differ materially from those expected. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: utility commission practices; regional, national and international economic
conditions; weather variations affecting customer usage, competition in bulk power and natural gas markets and hydroelectric and natural gas production; hydro-facility relicensing; energy trading activities; environmental, regulatory and tax legislation,
including industry restructure and deregulation initiatives; technological developments in the electricity industry; foreign exchange rates; proposed asset dispositions; and the cost of debt and equity capital. Any forward-looking statements issued by the
Company should be considered in light of these factors.
The Company's 8 3/8% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest Debentures, Series A) and 8.55% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest Debentures, Series B) are traded on the
New York Stock Exchange. The 8 1/4% Cumulative Quarterly Income Preferred Securities (Series A Preferred Securities) of PacifiCorp Capital I, a wholly owned subsidiary trust, and the 7.70% Cumulative Quarterly Income Preferred Securities
(Series B Preferred Securities) of PacifiCorp Capital II, a wholly owned subsidiary trust, are also traded on the New York Stock Exchange.
DOMESTIC ELECTRIC OPERATIONS
The Company conducts its domestic retail electric utility operations as Pacific Power and Utah Power, and engages in wholesale electric transactions under the name PacifiCorp. Pacific Power and Utah Power provide electric service within their respective
service territories. Power production, wholesale sales, fuel supply and administrative functions are managed on a coordinated basis.
Service Area
The Company serves approximately 1.5 million retail customers in service territories aggregating about 135,800 square miles in portions of six western states: Utah, Oregon, Wyoming, Washington, Idaho, and California. The Company's service area
contains diversified industrial and agricultural economies. Principal industrial customers include oil and gas extraction, lumber and wood products, paper and allied products, chemicals, primary metals, mining companies, high technology, and agribusiness.
Agricultural products include potatoes, hay, grain and livestock.
The geographical distribution of the Company's retail electric operating revenues for the year ended March 31, 2000 was Utah, 38%; Oregon, 33%; Wyoming, 13%; Washington, 8%; Idaho, 6%; and California, 2%.
Customers
Electric utility revenues and energy sales, by class of customer, for the year ended March 31, 2000, the three months ended March 31, 1999, and the years ended December 31, 1998 and 1997, were as follows:
Operating Revenue (Dollars in millions):
Residential
Commercial
Industrial
Government, Municipal and Other
Total Retail Sales
Wholesale Sales and Market Trading
Total Energy Sales
Other Revenues
Total Operating Revenues
$ 798.7
667.2
694.5
30.4
2,190.8
1,029.1
3,219.9
72.3
$3,292.2
25%
21
21
1
68
32
100%
$ 231.2
159.0
151.8
7.2
549.2
240.0
789.2
18.0
$ 807.2
30%
20
19
1
70
30
100%
$ 806.6
653.5
705.5
30.2
2,195.8
2,583.6
4,779.4
65.7
$4,845.1
17%
14
15
1
47
53
100%
$ 814.0
640.9
709.9
31.7
2,196.5
1,428.0
3,624.5
82.4
$3,706.9
22%
18
20
1
61
39
100%
Kilowatt-hours Sold (kWh in millions):
Residential
Commercial
Industrial
Government, Municipal and Other
Total Retail Sales
Wholesale Sales and Market Trading
Total kWh Sold
13,028
12,827
20,488
663
47,006
34,327
81,333
16%
16
25
1
58
42
100%
3,773
2,993
4,627
153
11,546
9,636
21,182
18%
14
22
1
55
45
100%
12,969
12,299
20,966
651
46,885
94,077
140,962
9%
9
15
-
33
67
100%
12,902
11,868
20,674
705
46,149
59,143
105,292
12%
11
20
1
44
56
100%
The Company's service territory has complementary seasonal load patterns. In the western sector, customer demand peaks in the winter months due to space heating requirements. In the eastern sector, customer demand peaks in the summer when irrigation and
cooling systems are heavily used. Many factors affect per customer consumption of electricity. For residential customers, within a given year, weather conditions are the dominant cause of usage variations from normal seasonal patterns. However, the price
of electricity is also considered a significant factor.
During 2000, no single retail customer accounted for more than 2% of the Company's retail utility revenues and the 20 largest retail customers accounted for 14% of total retail electric revenues.
Competition
In many cases, customers have the option to switch energy sources for heating and air conditioning. In addition, certain of the Company's industrial customers are seeking choice of suppliers, options to build their own
During 2000, the Company continued to operate its electricity distribution and retail sales business as a regulated monopoly throughout most of its franchise service territories. However, the Company anticipates increasing competition, principally as a
result of industry restructuring, deregulation and increased marketing by alternative energy suppliers.
Beginning in April 1998, California retail electric energy sales have been subject to open market competition. The Company's provision of tariffed services in California will continue to be regulated while any competitive sales of electricity will be
unregulated. The other states in the Company's service territory have, to varying degrees, examined retail competition and industry restructuring, but only Oregon has enacted comprehensive legislation. Generally, the other states are moving more slowly
towards competition than was originally anticipated by the Company. See "Regulation." The Company supports increased customer choice under terms and conditions that are equitable to all stakeholders.
During July 1999, legislation was enacted in Oregon that requires competition for industrial and large commercial customers of both the Company and Portland General Electric by October 1, 2001. Residential customers will have the option of selecting a
cost of service rate or a portfolio of energy commodity rate options. The law generally exempts publicly-owned utilities and Idaho Power's Oregon service territory. The law authorizes the Oregon Public Utility Commission (the "OPUC") to make decisions on
a variety of important issues, including the method for valuation of stranded costs/benefits, consumer protections, marketer certification, environmental issues, and competitive services. The legislation also calls for the establishment of a
code-of-conduct for electric companies and their affiliates to protect consumers against anti-competitive practices. The legislation directs the investor-owned utilities to collect a 3% public benefit charge from all of its distribution customers. The
Company is currently participating in the OPUC proceedings to establish the rules and procedures that will implement the new law. The Company will continue to evaluate the finance and accounting impacts, including the continued propriety of applying
Statement of Financial Accounting Standards ("SFAS") No. 71, as the OPUC proceedings progress. The impacts, if any, are uncertain.
The Energy Policy Act, passed in 1992, opened wholesale competition to energy brokers, independent power producers and power marketers. In 1996, the Federal Energy Regulatory Commission (the "FERC") ordered all investor-owned utilities to allow others
access to their transmission systems for wholesale power sales ("open access"). This access must be provided at the same price and terms the utilities would apply to their own wholesale customers. Competition is also influenced by availability and price
of alternate energy sources and the general demand for electrical power.
The Company believes that the regulatory initiatives that are underway in each of the states may eventually bring competition for the electricity generation services. This change in the regulatory structure may significantly affect the Company's future
financial position, results of operations and cash flows. The Company intends to seek regular price increases to the extent it underearns its allowed rate of return. This intention, consistent with the strategic direction implemented in 1998, provides a
continued foundation for use of SFAS No. 71 in its financial statements. In 1999, the Company filed for rate increases before the state commissions in Oregon, Utah, Washington and Wyoming. See "Regulation."
Power and Fuel Supply
The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the western states are managed on a coordinated
basis to obtain maximum load carrying capability and efficiency.
The Company's transmission system connects with other utilities in the Pacific Northwest having low-cost hydroelectric generation and with utilities in California and the southwestern United States having higher-cost, fossil-fuel generation. The
transmission system is available for common use consistent with open access regulatory requirements. In periods of favorable hydroelectric generation conditions, the Company utilizes lower-cost hydroelectric power to supply a greater portion of its load
and sells its displaced higher-cost thermal generation to other utilities. In periods of less favorable hydroelectric generation conditions, the Company sells its excess thermal generation to utilities that are more dependent on hydroelectric generation
than the Company. During the winter, the Company is able to purchase power from utilities in the southwestern United States, either for its own peak requirements or for resale to other regional utilities. During the summer, the Company is able to sell
excess power to utilities in the southwestern United States to assist them in meeting their peak requirements. See "Wholesale Sales and Purchased Power."
The Company currently purchases 1,100 MW of firm capacity annually from the federal Bonneville Power Administration ("BPA") pursuant to a long-term agreement. The purchase amount declines to 925 MW annually beginning in July 2000, declining to 750 MW
annually in July 2003 and again to 575 MW in July 2004 through August 2011. The Company's annual payment under this agreement for the period ended March 31, 2000 was $74 million. The agreement provides for the amount of the payment to decline
proportionately as the amount of power purchased declines and also to change at the rate of change of BPA's average system cost. The next change to BPA's average system cost is expected to occur in 2001 and will be determined by BPA in future rate
proceedings.
Under the requirements of the Public Utility Regulatory Policies Act of 1978, the Company purchases the output of qualifying facilities constructed and operated by entities that are not public utilities. During 2000, the Company purchased an average of
112 MW from qualifying facilities, compared to an average of 98 MW in 1998. See Note 14 of Notes to the Consolidated Financial Statements under ITEM 8 for additional details relating to the Company's purchase of power under long-term arrangements.
The Company plans and manages its capacity, energy purchases and energy resources based on critical water conditions. Under critical or better water conditions in the Pacific Northwest, the Company believes that it has adequate reserve capacity for its
requirements. The Company's historical total firm peak load (including both retail and firm wholesale sales) of 12,301 MW occurred on February 10, 1998, and its historical on-system firm peak load of 7,909 MW occurred on December 21, 1998.
Wholesale Sales and Purchased Power
Wholesale sales of power contribute significantly to total revenues even though the Company has scaled back wholesale sales from 1998 levels. The Company's wholesale sales complement its retail business and enhance the efficient use of its generating
capacity. In 2000, the Company's wholesale revenues decreased 60% and its wholesale energy volume sold decreased 64% from the prior year. Wholesale sales accounted for 42% of the Company's total energy sales and 32% of its total energy revenues in 2000.
In addition to its base of thermal and hydroelectric generation assets, the Company utilizes a mix of long-term and short-term firm power purchases and nonfirm purchases to meet its load obligations and to make sales to other utilities. Long-term firm
power purchases supplied 10% of the Company's total energy requirements in 2000. Short-term firm and nonfirm power purchases
Asset Sales
On May 4, 2000, the utility partners (including the Company) who owned the 1,340 MW coal-fired Centralia Power Plant sold the plant and the adjacent coal mine, wholly owned and operated by the Company, to TransAlta for approximately $500 million, subject
to certain post-closing adjustments. The Company operated the plant and owned a 47.5% share. After the return to customers, required by the regulatory approvals, the Company estimates a $14 million loss will be realized on the sale. The timing of
this return to customers varies by state. The sale was pursued by the owners, in part, because of emerging deregulation, competition in the electricity industry and the need for environmental compliance expenditures. Pursuant to the sale, TransAlta has
agreed to assume the reclamation costs for the Centralia coal mine. At March 31, 2000, the Company had approximately $26 million accrued for its share of the Centralia mine reclamation costs, which was used to reduce the selling price and has
been incorporated into the estimate of net loss on the sale.
Proposed Asset Additions and Dispositions
In July 1998, the Company announced its intention to sell its California electric distribution assets. This action was in response to the continued decline in earnings on the assets and the changes in the legislative and regulatory environments in
California. On July 15, 1999, the Company signed a definitive agreement for the sale of the assets to Nor-Cal Electric Authority for $178 million. The Company does not expect to incur a material gain or loss on this sale. On August 16, 1999, the Company
filed an application with the CPUC for approval of the sale. FERC approved the sale on January 28, 2000. The sale is expected to close in the fall of 2000.
On April 12, 2000, the Company announced the closure of the Trail Mountain Mine in the fall of 2001 after the lease is mined out. This will result in the eventual displacement of 200 employees. The mine is located in Central Utah and supplies fuel to the
Hunter Plant. The fuel for the Hunter Plant will be provided by the Company's Deer Creek Mine and other Utah mines. With the early closure of the mine, there may be additional reclamation costs for which the Company would seek recovery through future rate
cases.
Projected Demand
The Company continues to benefit from positive economic conditions in several portions of its service territory and retail energy sales for the Company have experienced compound annual growth of 2.0% since 1994. The Company is seeing a turnaround from the
downturn in international economic conditions, particularly in the Far East and Japan, that negatively impacted the Company's service territories in the Pacific Northwest and many of the industries the Company serves. The Company is pursuing price
increases in jurisdictions where it does not earn an appropriate rate of return and will seek operating efficiencies as outlined in a transition plan which resulted from the Merger.
Environmental Issues
Federal, state and local authorities regulate many of the Company's activities pursuant to laws designed to restore, protect and enhance the quality of the environment. These laws have increased the cost of providing electric service. The Company is
unable to predict what material impact, if any, future changes in environmental laws and regulations may have on the Company's consolidated financial position, results of operations, cash flows, liquidity, and capital expenditure requirements.
All of the Company's mining operations are subject to reclamation and closure requirements. The Company monitors these requirements and annually revises its cost estimates to meet existing legal and regulatory requirements of the various jurisdictions in
which it operates. Compliance with future requirements could result in higher expenditures for both capital improvements and operating costs.
Air Quality. The Company's operations, principally its fossil fuel-fired electric generating plants, are subject to regulation under the Federal Clean Air Act, individual state clean air requirements and in some cases local air authority
requirements. The primary air pollutants of concern are sulfur dioxide ("SO2"), nitrogen oxides ("NOx"), particulate matter (currently PM10) and opacities. In addition, visibility requirements impact the coal-burning plants. Although not presently regulated, emissions of carbon dioxide ("CO2
") and mercury from coal-burning facilities generally are of increasing public concern.
The United States Environmental Protection Agency (the "EPA") has recently commenced enforcement actions against the owners of certain coal-fired generating plants in the eastern and midwestern United States. The EPA is alleging that the plant owners have
failed to obtain the necessary permits under the Clean Air Act in connection with certain alleged modifications at the plants and that the owners have failed to install additional pollution control equipment as required. If the EPA is successful in
asserting its position, the companies named in the action will be required to make significant capital expenditures to install pollution control equipment. The Company does not have an ownership interest in any of the plants involved in these matters, and
the Company is not a party to any of these actions. Nevertheless, the Company has become aware that the EPA is engaged in fact-finding with respect to many coal-fired generating plants in the country. The Company is unable to predict the outcome of the
EPA's fact-finding effort.
Visibility -- Various federal and state agencies, as well as private environmental awareness groups, have raised concerns about perceived visibility degradation in some areas which are in proximity to some of the Company's coal-burning plants. Numerous
visibility studies have been completed or are in the process of completion near Company coal-burning plants in Colorado, Utah, Washington and Wyoming. To date, no additional emission control requirements at Company facilities have resulted directly from
these studies, although the potential exists for significant additional control requirements if visibility degradation in the study areas is reasonably attributed to the Company's coal-burning plants. The EPA also has implemented new regulations
addressing regional haze. These proposed regulations have the potential to impose significant new control requirements on certain of the Company's older coal-burning plants that are not otherwise subject to the most stringent emission limits.
Climate Change -- CO2 emissions are the subject of growing world-wide discussion and action in the context of global warming, but such emissions are not currently regulated. All of the Company's coal-burning plants emit CO2. In late
1997, the United States and other parties to the United Nations Framework Convention on Climate Change adopted the Kyoto Protocol regarding the control and reduction of so-called greenhouse gas emissions (including CO2). The United States signed the protocol in November 1998, but the United States Senate has not yet ratified it. The Kyoto Protocol, if ultimately ratified, has the potential to impose significant new costs and operational restrictions on the
Company's coal-burning plants.
Mercury -- The Company's coal-burning plants, along with all other major coal-burning plants in the United States, are participating in an effort to gather additional information about mercury emissions pursuant to a request issued by the EPA. Based in
part on this effort, the EPA is scheduled to decide during calendar 2000 whether to regulate mercury emissions from coal-burning plants. If passed, new mercury emission requirements have the potential to impose significant new control and operational
constraints on the Company's coal-burning plants.
Air Operating Permits -- The Company has received Title V Air Operating Permits for all of its coal and natural gas-fired power plants. In 1998, a citizen group challenged the issuance of the operating permits for the Company's Naughton and Jim Bridger
power plants, but the EPA still has not yet
Enforcement -- In addition to general regulation, the Company is subject to ongoing enforcement action by regulatory agencies and private citizens regarding compliance with air quality requirements. A federal lawsuit filed in 1996 by the Sierra Club
against the owners, including the Company, of units one and two of the Craig Generating Station alleged, among other things, violations of opacity requirements. The lawsuit seeks civil monetary penalties and an injunction. See "ITEM 3. LEGAL PROCEEDINGS."
Electromagnetic Fields. A number of studies continue to examine the possibility of adverse health effects from electromagnetic fields ("EMF"), without conclusive results. Certain states and cities have enacted regulations to limit the strength of
magnetic fields at the edge of transmission line rights-of-way. Other than in California, none of the state agencies with jurisdiction over the Company's operations have adopted formal rules or programs with respect to magnetic fields or magnetic field
considerations in the siting of electric facilities. The CPUC has issued an interim order requiring utilities to implement no-cost or low-cost mitigation steps in the design of new facilities. It is uncertain whether the Company's operations may be
adversely affected in other ways as a result of EMF concerns.
Endangered Species. Protection of the habitat of endangered and threatened species makes it difficult and more costly to perform some of the core activities of the Company, including the siting, construction and operation of new and existing
transmission and distribution facilities, as well as generating plants. In addition, endangered species issues impact the relicensing of existing hydroelectric generating projects, generally raising the price the Company must pay to purchase wholesale
power from hydroelectric facilities owned by others and increasing the costs of operating the Company's own hydroelectric resources. These actions could also result in further restrictions on timber harvesting and adversely affect electricity sales to
Domestic Electric Operations' customers in the wood products industry.
Environmental Cleanups. Under the Federal Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes, entities that disposed of or arranged for the disposal of hazardous substances may be liable for cleanup of
the contaminated property. In addition, the current or former owners or operators of affected sites also may be liable. The Company has been identified as a potentially responsible party in connection with a number of cleanup sites because of current or
past ownership or operation of the property or because the Company sent hazardous waste or other hazardous substances to the property in the past. The Company has completed several cleanup actions and is actively participating in investigations and
remedial actions at other sites. The costs associated with those actions are not expected to be material to the Company's consolidated financial position, results of operations, cash flows, liquidity, or capital expenditure requirements.
Regulation
The Company is subject to the jurisdiction of public utility regulatory authorities of each of the states in which it conducts retail electric operations as to prices, services, accounting, issuance of securities and other matters. Commissioners are
appointed by the individual state's governor for varying terms. The Company is a "licensee" and a "public utility" as those terms are used in the Federal Power Act and is, therefore, subject to regulation by the FERC as to accounting policies and
practices, certain prices and other matters. Most of the Company's hydroelectric plants are licensed as major projects under the Federal Power Act and certain of these projects are licensed under the Oregon Hydroelectric Act. As a result of the Merger,
the Company is also subject to the requirement and restrictions of the Public Utility Holding Company Act of 1935.
The Company is currently in the process of relicensing or preparing to relicense 16 separate hydroelectric projects under the Federal Power Act. These projects, some of which are grouped together under a single license, represent approximately 1,000 MW,
or about 94% of the Company's total hydroelectric nameplate capacity and about 14% of its total generating capacity. In the new licenses, the FERC is expected to impose conditions designed to address the impact of the projects on fish and other
environmental concerns. See "Environmental Issues - Endangered Species." The Company is unable to predict the impact of imposition of such conditions, but capital expenditures and operating costs are expected to increase in future periods. In addition,
the Company may refuse to accept renewed licenses for certain projects if the terms of renewal would make the projects uneconomical to operate. The Company has agreed to remove the Condit dam at a cost of approximately $16 million.
During 1998, the Company filed new depreciation rates with the respective regulatory commissions in the states of Oregon, Utah and Wyoming based upon a depreciation study. New depreciation rates were filed in Washington as part of a general rate case
filing. The Utah Public Service Commission (the "UPSC") approved new depreciation rates in an order dated January 6, 2000. The OPUC approved new depreciation rates in an order dated May 31, 2000. Stipulated rates have been agreed upon in Wyoming, with a
final order still pending. The impact of the proposed changes in depreciation is being incorporated into the current general rate cases in Oregon and Washington and the next general rate case in the other states. Based on the depreciation rates that have
been approved and are pending approval, annual depreciation expense would be increased by approximately $20 million. The increase in depreciation expense is primarily due to revisions of the estimated costs of removal for steam production and distribution
plant. For the period April 1, 2000 to March 31, 2002, the Utah and Wyoming commissions have ordered a reversal of a portion of previously accrued depreciation. These reversals in total, for all states, will amount to approximately $14
million per year.
Merger Orders
On June 10, 1999, the CPUC issued an order approving the Merger. The CPUC conditioned its approval on the Company's acceptance of requirements which primarily addressed the Commission's ability to continue to regulate the Company's California service
territory.
On November 22, 1999, the Wyoming Public Service Commission ("WPSC") issued an order approving the Merger. The Company agreed to make an informational filing in 2001 that guarantees reflection of $4 million per year in merger savings in future rate cases.
The Company separately agreed to limit any rate increase filing in 1999 to $12 million and in the following year to $8 million plus the effect of any change in depreciation rates. See "Regulation."
On October 6, 1999, the OPUC issued an order approving the Merger. As part of this approval, the Company agreed to provide a merger credit to retail customers of $12 million per year for three years beginning in calendar 2001 and $15 million in calendar
2004. In calendar 2003 and 2004, $9 million and $12 million, respectively, of the credit can be partially or wholly eliminated to the extent that merger-related cost savings are reflected in prices.
On October 14, 1999, the Washington Utilities & Transportation Commission (the "WUTC") approved the Merger. As part of this approval, the Company agreed to provide retail customers a merger credit of $3 million per year for four years beginning in
calendar 2001. The credit can be wholly or partially eliminated in all years to the extent that merger-related cost savings are reflected in prices.
On November 15, 1999, the Idaho Public Utilities Commission (the "IPUC") approved the Merger. As part of this approval, the Company agreed to provide a $1.6 million per year merger credit to retail customers for four years beginning in calendar 2000. The
credit can be wholly or partially eliminated in years three and four to the extent that merger-related cost savings are reflected in prices.
On November 24, 1999, the UPSC approved the Merger. As part of this approval, the Company agreed to provide a merger credit for retail customers of $12 million per year for four years beginning in calendar 2000. The credit can be wholly or partially
eliminated in years three and four to the extent that merger-related cost savings are reflected in prices.
The Company's total obligation for merger credits described above is $133.4 million over the period ending December 31, 2004. Of this amount, $57.2 million must be provided without offset or reduction of any kind and, accordingly, the Company
has recorded $57.2 million as a liability and current expense in its financial statements for the year ended March 31, 2000. The
A summary of regulatory and legislative developments in the states where the Company conducts its distribution and retail electric operations is set forth below.
Utah. On March 4, 1999, the UPSC ordered the Company to reduce revenues in Utah by $85 million, or 12%, annually. The ordered reduction was the culmination of a general rate case that began in 1997. Additionally, the UPSC ordered a refund to be
issued through a credit on customer bills of $40 million. The Company recorded a $38 million reduction in revenues in 1998 and recorded the remaining $2 million in the three months ended March 31, 1999. The refund covers the period from March 14,
1997 to February 28, 1999. The beginning date is consistent with the timing of Utah legislation imposing a moratorium on rate changes after the Utah Division of Public Utilities (the "UDPU") and the Utah Committee of Consumer Services (the "UCCS")
requested a general rate case. The $85 million reduction commenced on March 1, 1999. The order also reduced the Company's authorized rate of return on equity from 12.1% to 10.5%.
On September 20, 1999, the Company filed for a rate increase before the UPSC. The Company asked for an increase of $67 million, or 9.9%, based on a test year ended December 31, 1998 and a requested 11.25% return on equity. On March 15, 2000, the
Company filed a revised request of $55.2 million. On May 24, 2000, the Company received an order from the UPSC authorizing the Company to increase prices in Utah for residential, irrigation, small commercial and lighting customers by 4.24% and large
commercial and industrial customers by less than 1%. The price increase is expected to result in annual revenues of $17 million. The order allowed a rate of return on equity of 11% and was effective on May 25, 2000.
The 2000 Utah legislative session passed a bill that could significantly change the way in which utilities are regulated in the state. The bill provides guidelines under which the interests of all parties will be protected and balanced in the ratemaking
process. It directs the UPSC to determine fair rates by balancing the interests of utility customers with the need of utilities to maintain financial stability. This legislation also streamlines state government by consolidating the UDPU and the UCCS into
one agency - the Office of Public Advocate. The bill modifies the nature of UPSC proceedings by encouraging and providing an opportunity for timely and reasonable settlements without restricting the rights of all interested persons to participate in a
formal administrative process. Finally, the legislation requires Utah regulators to reflect "known and measurable" changes to financial data when hearing a rate case. This bill is effective July 1, 2001.
Oregon. The OPUC and the Company have agreed to an Alternate Form of Regulation ("AFOR") for the Company's Oregon distribution business. The AFOR allows for index-related price increases in 1998, 1999 and 2000, with an annual cap of 2% of
distribution revenues in any one year and an overall cap of 5% over the three-year period. The annual revenue increase for the twelve months ended December 31, 1999 was approximately $6.2 million. The AFOR also includes incentives to invest in
renewable resources and penalties for failure to maintain the service quality levels. On April 30, 1999, the Company filed for changes in the prices it charges Oregon customers under the AFOR. The filing also contained a request to increase the revenues
collected under the Company's system benefits charge. The changes were approved by the OPUC in June 1999, and became effective July 1, 1999. This resulted in a price increase of approximately 1.3%, or $9 million annually, in Oregon. On April 28, 2000, the
Company made an additional AFOR filing for a price increase of 1.8%, or $14 million annually. Of this amount, approximately $10 million is offset by costs mandated by regulators.
On November 5, 1999, the Company filed for a general rate increase in Oregon. The Company is asking for an increase of $61.8 million, or 8.5%. The Company's effective date for this increase is expected to be in the fall of 2000. The OPUC staff has
submitted a preliminary report raising issues that in the aggregate could produce a $101 million rate reduction after giving effect to the Centralia sale. The staff testimony is due in June 2000 and hearings are scheduled for August 2000.
During July 1999, legislation was enacted in Oregon that requires competition for industrial and large commercial customers of both the Company and Portland General Electric by October 1, 2001. See "Competition."
Wyoming. On July 26, 1999, the Company filed for a rate increase before the WPSC. The Company requested an increase of $12 million, or 4.9%, based on a test year ended December 31, 1998. The Company has also stipulated that any rate increase
filings through May 2001 will not exceed $8 million plus the effects of any change in depreciation rates. On May 23, 2000, the Company received an order from the WPSC authorizing the Company to increase prices in Wyoming, resulting in increased
annual revenues of $11 million. The order allowed a total rate of return of 8.85%, a return on common equity of 11.25% and was effective May 25, 2000. The WPSC did not allow recovery of approximately $1 million of the requested $12 million
increase allocated to partial requirements industrial customers, finding that the cost of service study was not sufficient to support the increase to this class. The Company is in the process of refiling for this $1 million increase with a
supplemental cost of service study.
Idaho. On April 28, 2000, the Company filed documents with the IPUC to implement the next step in the gradual retirement of a BPA energy credit. The proposed reduction in the credit would increase electric prices for the Company's residential and
irrigation customers in southeastern Idaho. The filing, once approved by the IPUC, would reduce the credits from the BPA and increase residential prices 3.35%, or $1 million, and irrigation prices 8%, or $2 million. These price increases phase out the BPA
credit and do not have any impact on earnings.
Congress created the federal credit in 1980 to share the benefits of federally owned hydroelectric plants with customers of investor-owned utilities in the Columbia River drainage area. Congress recommended in 1995 that the current exchange method be
phased out by June 2001. In 1997, the Company reached a settlement with BPA to implement the order of Congress. The settlement provided credits of $48 million over five years for the Company's customers, which lessens the impact of price increases as the
BPA exchange credit is phased out.
The Company intends to seek recovery of all of its prudent costs, including stranded costs, in the event of deregulation.
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Construction Program
The following table shows actual construction costs for 2000 and the Company's estimated construction costs for 2001 through 2003, including costs of acquiring demand-side resources. The estimates of construction costs for 2001 through 2003 are subject to
continuing review and appropriate revision by the Company and are based on the Company's transition plan.
Actual |
Estimated |
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(Dollars in millions) |
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AUSTRALIAN ELECTRIC OPERATIONS
Powercor
General
Powercor, an indirect, wholly owned subsidiary of Holdings, is the largest electricity distribution company ("Distribution Company") in Victoria, Australia, based on sales volume, revenues, geographic scope and number of customers. Powercor's principal
business segments are its Distribution Business and its Supply Business. The Distribution Business consists of the distribution of electricity to approximately 570,000 customers within Powercor's distribution area, covering from the western suburbs of
Melbourne to central and western Victoria. The Supply Business consists of the purchase of electricity from generators and the sale of such electricity to customers in Powercor's distribution service area and other parts of Victoria, New South Wales
("NSW"), the Australian Capital Territory ("ACT") and Queensland. Powercor's distribution service area covers approximately 57,900 square miles (64% of the total area of Victoria), has a population of approximately 1.5 million (32% of Victoria's
population) and accounts for 26% of Victoria's Gross State Product. In 1999, Victoria accounted for approximately 25% of Australia's total population, approximately 32% of Australia's manufacturing industry output and approximately 26% of Australia's
Gross Domestic Product, although it represents only approximately 3% of the total area of Australia.
During January 2000, the Company decided to seek a buyer for Powercor. Powercor's fiscal year end remains December 31.
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Distribution Business
Powercor's Distribution Business consists of the ownership, management and operation of the electricity distribution and subtransmission network in its distribution service area. The primary activity of the Distribution Business is the receipt of
electricity from Victoria's high voltage transmission system (the "Grid") and the distribution of electricity to customers in Powercor's distribution service area. Substantially all of the Distribution Business is a regulated monopoly. Almost all
customers within Powercor's distribution service area are connected to its distribution network, whether electricity is supplied by Powercor or another retail supplier. In 2000, the Distribution Business generated all of Powercor's operating income.
The Distribution Business has grown in both its customer base and the volume of electricity distributed, primarily reflecting economic growth in Victoria generally and Powercor's distribution service area in particular. The following table sets forth the
volumes of electricity distributed by Powercor for the years indicated. See "Regulation-Distribution Pricing Regulation" below.
Electricity distributed by the |
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1,691 3,592 550 8,611 |
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The Distribution Business of Powercor has not experienced significant competition. Powercor believes that the economics underlying building and maintaining a duplicate distribution network in its distribution service area will restrict the introduction of
another network. However, to the extent customers establish or increase their own generation capacity, establish their own private distribution networks, become directly connected to the Grid, or relocate operations outside Powercor's distribution service
area, such customers would not require the distribution services of Powercor except in certain cases for standby connection services. As of December 31, 1999, Powercor had not lost any distribution revenues to customers as a result of self-generation,
cogeneration or the establishment of private distribution networks. Although Powercor believes that it has effective strategies in place to minimize this type of load loss, there can be no assurance, particularly in view of its large industrial customer
base, that the Distribution Business will not experience loss of revenues in the future as a result of such competition.
The major operating expenses of the Distribution Business are distribution use-of-system costs, use-of-transmission-system fees and connection service charges. The use-of-transmission-system fees and connection service charges, regulated by the Tariff
Order (see "Regulation - The Tariff Order" below), are payable to the Victorian Energy Network Corporation ("VENCORP"), a corporate body established under Victoria's Electricity Industry Act 1993 (the "EIA"),
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and the company that owns and maintains the Grid, GPU Power Net Victoria ("GPU"), respectively. The fees paid constitute VENCORP's and GPU's costs associated with operation, maintenance and administration of the Grid. The distribution use-of-system
costs are Powercor's fundamental operating expenses that result from operating and maintaining its distribution network. Unlike use-of-transmission-system fees and connection service charges, Powercor has the ability, and, given the current distribution
price-cap regulatory structure, a significant incentive, to control such distribution use-of-system costs through a variety of cost reduction initiatives. However, there can be no assurance that Powercor's cost efficiency initiatives will yield sufficient
savings to increase Powercor's margins from the Distribution Business to offset any network tariff reductions that may result from the Office of Regulator General's (the "ORG") review of distribution tariffs charged by Distribution Companies beginning in
2001, as described below under "Regulation-Distribution Pricing Regulation."
Supply Business
The Supply Business conducts the commercial functions of purchasing, marketing and selling of electricity and is responsible for the management of the price, purchasing and volume risks associated with such functions and end-use demand management. Supply
Business customers are subject to partial competition, which is progressing toward full competition beginning January 1, 2001. See "Regulation-Supply Pricing Regulation" below.
The customer metered sites, energy usage in millions of kWh and percentages, as well as percentages of Powercor's revenues from the Supply Business for franchise customers in Powercor's distribution service area and for contestable customers are set forth
below:
2000 |
Customer Sites |
Energy Usage |
Revenues |
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No. |
% |
kWh |
% |
% |
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4,060 570,813 |
0.7 100.0 |
7,395 11,516 |
64 100 |
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1998 |
Customer Sites |
Energy Usage |
Revenues |
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No. |
% |
kWh |
% |
% |
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3,983 564,712 |
0.7 100.0 |
7,663 11,888 |
64 100 |
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The customer metered sites, energy usage in millions of kWh and percentages of Powercor's revenues from the Supply Business for residential, commercial, industrial and other customers for the years 2000 and 1998 are set forth below:
Customer Sites(1) |
Energy Usage |
Revenues |
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No. |
% |
kWh |
% |
% |
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570,813 564,712 |
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(1) Connections as of the date shown.
(2) Other customers include farm customers and public lighting.
The Supply Business revenue is derived from major industries such as chemicals, petroleum, food and beverage, wholesale and retail, metal processing and transport equipment. No single customer accounted for more than 3% of Powercor's total revenues in 2000.
Powercor purchases all of its power for sale to franchise customers, other than cogeneration output, through the competitive wholesale market for electricity in Victoria (the "Pool"). As of December 13, 1998, the respective state wholesale markets
consolidated to a National Electricity Market ("NEM") which is operated by the National Electricity Market Management Company ("NEMMCO"). There are two major components of the wholesale electricity market: (i) the competitive energy market, centered
primarily around the Pool, which establishes the spot price for the sale of electricity by generators to suppliers and (ii) the contract trade, which involves bilateral financial contracts between electricity buyers and sellers outside the Pool that are
used to hedge against Pool price volatility. The principal function of the Pool is to allow market forces rather than monopolized central planning to determine the amount, mix and cost characteristics of generating plants and the level and shape of demand
of suppliers.
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Powercor is a party to a series of bilateral financial "vesting contracts" that have been structured to hedge the price for Powercor's forecasted franchise energy requirements through December 31, 2000. These vesting contracts take the form of two-way
and one-way contracts. Two-way vesting contracts are structured such that generators and Distribution Companies, including Powercor, compensate each other for the difference between the system marginal price, which is the spot price payable to generators
in the wholesale market via the Pool, and the contract price up to a specified price cap. One-way vesting contracts provide for amounts to be paid by generators to Distribution Companies for differences when the system marginal price is above a specified
price cap. As franchise customers of the Supply Business become contestable, the notional amount of the vesting contracts is reduced accordingly.
Powercor also has hedging contracts that relate to contestable customer loads in order to manage electricity price risk. Historically, Powercor has hedged each electricity sales contract with a back-to-back purchase contract. Increasingly, however, as the
contestable customer market grows and as the Australian electricity futures market develops, Powercor is hedging its supply obligations on a portfolio-wide basis. Powercor's policy is to hedge most of its supply obligations and to monitor the financial
risk exposure of its unhedged positions.
As of January 1, 2001, all customers in Victoria, the ACT and NSW are scheduled to be contestable, eliminating the use of vesting contracts. Powercor is currently investigating hedging options in preparation for a fully contestable market. Powercor
believes that full retail competition in Victoria will be phased in over six months from the official January 1, 2001 start date.
Regulation
Powercor is the largest of the five distribution businesses ("DBs") formed when the Victorian State Government decided to privatize, and eventually deregulate, its electricity industry. As the Victorian market becomes more open to competition and
additional customers can choose their energy supplier, Powercor and the other DBs will continue to maintain a monopoly on their individual network areas. These businesses derive much of their revenue from the network fee that is paid for the use of the
distribution system.
The ORG. The Victorian government established the ORG pursuant to the Office of the Regulator-General Act 1994 to regulate different Victorian industries. In the context of regulating activities within the electricity industry, the ORG has powers
under the EIA. The ORG's functions pursuant to the EIA include granting licenses to generate, transmit, distribute or supply electricity, ensuring compliance with industry codes and rules, administering cross-ownership provisions and administering the
Victorian Electricity Supply Industry Tariff Order (the "Tariff Order").
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Licenses. Unless covered by an exemption, the EIA prohibits, without a relevant license, the activities of generation of electricity for supply or sale, transmission, distribution, supply or sale of electricity or operation of a wholesale
electricity market. Licenses are issued by the ORG after the applicant has satisfied specific criteria and subject to the satisfaction of ongoing conditions, such as continued compliance with industry codes and rules.
Powercor has an exclusive license to distribute electricity to franchise customers in its distribution service area. This will expire on January 1, 2001. Powercor also has nonexclusive licenses to supply electricity to all customers in its distribution
service area and elsewhere in Victoria, NSW, ACT and Queensland. See "Supply Pricing Regulation." The Hazelwood Partnership has a license to generate and sell electricity to the wholesale market in Victoria and NSW. See "Hazelwood" below.
The Tariff Order. Pursuant to the EIA, the Tariff Order regulates charges for connection to, and use of, the transmission system, distribution use-of-system charges that can be levied by Distribution Companies and tariffs for the sale of
electricity to franchise customers until December 31, 2000. The ORG is charged with the regulatory oversight of the Tariff Order. The Tariff Order is the key instrument the ORG uses to regulate network prices in the Victorian electricity supply industry.
Distribution Pricing Regulation. Under distribution licenses granted by the ORG, the Distribution Companies are able to levy the following charges, which include their profit: (i) network tariffs, which include recovery of distribution
use-of-system costs, use-of-transmission-system fees and GPU connection service charges, (ii) connection charges for connecting customers to the network, taking into account that a portion of the costs of connection are recovered through network tariffs
and (iii) charges for other services, which are required to be fair and reasonable. The level of distribution charges, as one element of the network tariffs, is regulated under the Tariff Order through December 31, 2000 pursuant to a formula. The formula
is the Consumer Price Index for Melbourne ("CPI") minus a fixed percentage ("X"), or CPI-X. This formula attempts to ensure that the annual increase in the weighted average of distribution charges (weighted by the forecast quantity of electricity to be
delivered and adjusted for under and over recovery in previous financial years) does not exceed CPI-1%.
Existing network tariffs are subject to review by the ORG within the framework of, and the principles set forth in, the Tariff Order. In particular, the Tariff Order provides that the ORG, in connection with such review of network tariffs, can only reset
the network tariffs for a period of not less than five years, the ORG must utilize price capping and not rate of return regulation and the ORG must consider the need to (i) provide each Distribution Company with incentives to operate efficiently, (ii)
ensure a fair sharing of benefits achieved through efficiency between customers and Distribution Companies and (iii) ensure appropriate incentives for capital expenditures and maintenance of the distribution networks. The ORG released a draft Distribution
Price Review determination in mid-May 2000. This draft suggested reducing Powercor's regulated distribution revenue in 2001 to $168.7 million (as converted using the May 31, 2000 currency exchange rate of 0.58). This is largely driven by a
21
proposed reduction in the regulated rate of return from 11.9% to 7.4% (pre-tax, real). This would result in an average real network tariff cut of 20.6% on January 1, 2001, and an average real reduction of 1% each year thereafter. This is a preliminary
report, and a final determination will be made in September 2000 following further consultation.
Supply Pricing Regulation. Under the retail portions of their licenses, Distribution Companies are required, pursuant to the Tariff Order, to supply electricity to franchise customers through December 2000, at prices no greater than the prices
specified in the applicable Maximum Uniform Tariff ("MUT") for such customers. The prices specified in the MUTs are therefore fully regulated and inclusive of all network and distribution related charges and energy costs. Powercor's MUTs are adjusted
annually by a percentage equal to CPI minus a fixed percentage. Commencing July 1, 2000, the annual adjustments for large and medium businesses will be the CPI and will be the CPI-1% for medium and small businesses and residential and rural customers. The
CPI for the years ended December 31, 1999, 1998 and 1997 was 1.8%, 1.2% and 0.2%, respectively.
Prices charged to contestable customers are subject to competitive forces and, therefore, are not directly regulated by the ORG, in contrast to prices charged to franchise customers. Prices to contestable customers include regulated network charges
(transmission and distribution) and competitively determined energy supply charges.
Customers in Victoria, the ACT and NSW with annual consumption in excess of 160 megawatt hours ("MWh") per year are now contestable. Customers with usage of 160 MWh per year or less are not currently contestable but will become contestable on January 1,
2001 in Victoria, the ACT and NSW.
Customers in Queensland with annual consumption of 200 kWh per year can now choose their electricity retailer and there are plans to introduce contestability for all customers on January 1, 2001.
For a description of Powercor's properties, see "ITEM 2. PROPERTIES - AUSTRALIA."
Environmental Issues
The nature of Powercor's operations exposes it to risks of varying degrees associated with bushfires and other environmental issues.
Approximately 63% of Powercor's assets are located in fire prone zones. Powercor and its predecessors have developed a comprehensive bushfire risk management and mitigation system to reduce bushfire exposure. This system is based on regular inspections of
poles and conductors and the identification and reporting of maintenance items existing on the network that may contribute to an electrically initiated bushfire.
Powercor is subject to various Australian federal and Victorian state environmental regulations, the most significant of which is the Victorian Environment Protection Act of 1970 ("VEPA"). The VEPA regulates, in particular, the discharge of waste into
air, land and water, site
22
contamination, the emission of noise and the storage, recycling and disposal of solid and industrial waste. The VEPA established the Environment Protection Authority ("Authority") and grants the Authority a wide range of powers to control and prevent
environmental pollution. These powers include issuing approvals for construction of works that may cause noise or emissions to air, water or land, waste discharge licenses and pollution abatement notices. Powercor believes it is currently in material
compliance with the provisions of the VEPA and no licenses or work approvals from the Authority are currently required for activities undertaken by Powercor.
Hazelwood
General
Hazelwood Pacific Pty Ltd ("Hazelwood Pacific"), an indirect, wholly owned subsidiary of Holdings, holds a 19.9% interest in the Hazelwood Power Partnership (the "Hazelwood Partnership"), which owns a 1,600 MW, brown coal-fired thermal power station (the
"Hazelwood Plant") and the adjacent brown coal mine (the "Hazelwood Mine") in Victoria, Australia. The Hazelwood Partnership is composed of Hazelwood Pacific, an affiliate of National Power Corporation PLC ("National Power") (71.94%), and two companies
associated with the Commonwealth Bank group of Australia (8.16%). National Power oversees the Hazelwood Plant operations and the Company oversees operations at the Hazelwood Mine. In the fourth quarter of 1998, the Company announced its intent to sell its
equity interest in the Hazelwood Partnership and began soliciting bids. Accordingly, the Company recorded a pretax loss of $28 million ($17 million after-tax) to reduce its carrying value in the Hazelwood Power Station to its estimated net realizable
value less selling costs.
Through December 2001, Hazelwood Pacific estimates that its contribution to the capital expenditure commitments of the Hazelwood Plant will be $8 million and $6 million for the years 2000 and 2001, respectively. The investment is accounted for on an
equity basis. For 1999 and 1998, equity losses from Hazelwood were $2.6 million and $5.5 million, respectively.
The Hazelwood Partnership sells its power through the National Electricity Market and enters into bilateral financial contracts with Australian distribution companies, such as Powercor. Prices vary with weather, economic growth and other factors affecting
the supply of and demand for power. Power prices tend to be lowest during Australia's summer months (the fourth and first calendar quarters), except during periods of unusually high temperatures.
For a description of Hazelwood properties, see ITEM 2. PROPERTIES - AUSTRALIA.
Environmental Issues
The operations of the Hazelwood Partnership are subject to environmental regulation. The Hazelwood Partnership is required to obtain licenses from the Authority in connection with certain of its operations, including operations involving the emission or
discharge of pollutants. These licenses are generally issued to the Hazelwood Partnership in the ordinary course of business and are terminable upon breach or violation.
23
The Hazelwood Plant is fired by brown coal and consequently emits more greenhouse gas per unit of power produced than is emitted by power plants fired by black coal or natural gas. The Australian government has participated in negotiations with
governments of other countries with respect to greenhouse gas emission levels. As a result of the December 1997 Kyoto Climate Change Conference, the Australian government committed to limitations on greenhouse gas emissions. It is anticipated that the
Australian government will introduce some measures to control greenhouse gas emissions. Such measures could increase capital expenditures at the Hazelwood Plant and could have the effect of making brown coal fired generators less competitive.
OTHER OPERATIONS
Financial Services
PFS is a holding company principally engaged in holding investments in tax advantaged and leveraged lease assets (primarily aircraft).
PFS made its last investment in aircraft or loans relating to aircraft in 1992. At March 31, 2000, 100% of the aircraft in PFS's portfolio investment were Stage III noise compliant. At March 31, 2000, PFS's aviation finance portfolio had total
leveraged lease and other financial assets of $326 million (28 aircraft), representing approximately 76% of PFS's consolidated assets.
PFS has four plants in the Birmingham, Alabama area which produce a synthetic coal fuel designed to qualify for tax credits under Section 29 of the Internal Revenue Code. The technology utilized by the plants is licensed from Covol Technologies, Inc.
US Competitive Energy Businesses
The Klamath Cogeneration Project is a 484 MW natural gas-fired power plant under construction near Klamath Falls, Oregon. The City of Klamath Falls owns the plant and PPM is under contract for management, operations and fuel supply. In addition, upon
commercial operation, PPM will purchase 227 MW of output from the plant for resale to third parties, and market on behalf of the City the remaining output to municipal and commercial buyers in the Pacific Northwest and northern California. The plant was
financed in April 1999 with proceeds from revenue bonds issued by the City of Klamath Falls. Construction began in June 1999 and the plant has a planned commercial operation date of July 2001.
During October 1998, the Company decided to cease operations of its energy trading business in the eastern United States (see "DISCONTINUED OPERATIONS"). The Company amended its FERC tariff to allow PPM to engage in trading business in the western United
States. Certain regulatory constraints, however, preclude this business from utilizing the Company's utility assets. The business may add assets in the western United States to support its marketing and trading activity.
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International Operations
Beginning in October 1998, the Company decided to focus on its western United States electric business and to sell or shut down all international businesses and activities, subject to achieving reasonable economic and other terms. The process of exiting
the international businesses is nearing completion.
DISCONTINUED OPERATIONS
The Company's discontinued energy trading business includes the eastern United States electricity trading operations of PPM and the natural gas marketing and storage operations of TPC. PPM's wholesale power trading activities in the eastern United States
have been discontinued, and all forward energy trading has been closed. On April 1, 1999, Holdings sold TPC to NIPSCO Industries, Inc. for $150 million. Exiting these energy trading activities resulted in a net after-tax gain of $1 million in the first
quarter of 2000.
EMPLOYEES
PacifiCorp and its subsidiaries had 8,832 employees on March 31, 2000. Of these employees, 7,681 were employed by PacifiCorp and its mining affiliates, 1,043 were employed by Powercor and 108 were employed by PPM, PFS and other subsidiaries.
As a result of the Merger, the Company has developed and commenced the Transition Plan to implement significant organizational and operational changes. As part of this Transition Plan, the Company expects to reduce its work force company-wide by
approximately 1,600 over the next five years, mainly through early retirement, voluntary severance and attrition. For more information, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OVERVIEW OF 2000."
Approximately 55% of the employees of PacifiCorp and its mining affiliates are covered by union contracts, principally with the International Brotherhood of Electrical Workers, the Utility Workers Union of America and the United Mine Workers of America.
Due to changes in Australian laws, information concerning union membership is no longer available to employers.
In the Company's judgment, employee relations are satisfactory.
ITEM 2. PROPERTIES
UNITED STATES
The Company owns 52 hydroelectric generating plants and has an interest in one additional plant, with an aggregate nameplate rating of 1,068 MW and plant net capability of 1,131 MW. It also owns or has interests in 17 thermal-electric generating
plants with an aggregate nameplate rating of 7,231 MW and plant net capability of 6,666 MW. The Company also jointly owns one wind power generating plant with an aggregate nameplate rating of 33 MW and plant net
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capability of 33 MW. The following table summarizes the Company's existing generating facilities:
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*Jointly owned plants; amount shown represents the Company's share only.
NOTE: Hydroelectric project locations are stated by locality and river
watershed.
The Company's generating facilities are interconnected through its own transmission lines or by contract through the lines of others. Substantially all generating facilities and reservoirs located within the Pacific Northwest region are managed on a
coordinated basis to obtain maximum load carrying capability and efficiency. Portions of the Company's transmission and distribution systems are located, by franchise or permit, upon public lands, roads and streets and, by easement or license, upon the
lands of other third parties.
26
For a discussion of the sale of the Centralia plant and mine, see "Asset Sales."
Substantially all of the Company's electric utility plants are subject to the lien of the Company's Mortgage and Deed of Trust.
The following table describes the Company's recoverable coal reserves as of March 31, 2000, excluding the Centralia mine, which was subsequently sold. All coal reserves are dedicated to nearby Company operated generating plants. Recoverability by
surface mining methods typically ranges between 90% and 95%. Recoverability by underground mining techniques ranges from 50% to 70%. The Company considers that the respective coal reserves assigned to the Craig, Dave Johnston, Huntington, Hunter and Jim
Bridger plants, together with coal available under both long-term and short-term contracts with external suppliers, will be sufficient to provide these plants with fuel that meets the Clean Air Act standards effective in 1999, for their current
economically useful lives. The sulfur content of the coal reserves ranges from 0.43% to 0.84% and the British Thermal Units value per pound of the reserves ranges from 7,600 to 11,400. Coal reserve estimates are subject to adjustment as a result of the
development of additional data, new mining technology and changes in regulation and economic factors affecting the utilization of such reserves.
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(1) These coal reserves are mined by subsidiaries of the Company.
(2) These coal reserves are leased and mined by Trapper Mining, Inc., a Delaware nonstock corporation operated on a cooperative basis, in which the Company has an ownership interest of approximately 20%.
(3) These coal reserves are in underground mines and include the Mill Fork Track of 36 million tons.
(4) These coal reserves are leased and mined by Bridger Coal Company, a joint venture between Pacific Minerals, Inc., a subsidiary of the Company, and a subsidiary of Idaho Power Company. Pacific Minerals, Inc. has a two-thirds interest in the
joint venture.
(5) The Company ceased mining operations at this location in October 1999.
Most of the Company's coal reserves are held pursuant to leases from the federal government through the Bureau of Land Management and from certain states and private parties. The leases generally have multi-year terms that may be renewed or extended and
require payment of rentals and royalties. In addition, federal and state regulations require that comprehensive environmental protection and reclamation standards be met during the course of mining operations and upon completion of mining activities. In
2000, the Company expended $10.6 million of reclamation costs and accrued $4.9 million of estimated final mining reclamation costs. Final mine reclamation funds have
27
been established with respect to certain of the Company's mining properties. At March 31, 2000, the Company's pro rata portion of these reclamation funds totaled $67.0 million and the Company had an accrued reclamation liability of $138.7 million at March 31, 2000.
AUSTRALIA
Powercor's electrical distribution network, located in Victoria, Australia, comprises: (i) 66 kilovolts ("kV") and 22 kV subtransmission lines and underground subtransmission cables that transport wholesale energy from 12 terminal stations owned
by GPU and controlled, under lease, by the Victoria Power Exchange; (ii) 53 zone substations that transform electricity to lower voltages (22 kV and below) and then distribute the energy through the distribution network; and (iii) 22 kV, 11
kV and 6.6 kV distribution lines, including distribution substations that transform electricity to low voltages (415 volts and below) suitable for connection to the majority of the customers. In addition, Powercor leases its principal executive
offices at 40 Market St, Melbourne in Victoria under a four-year lease with an option to renew for another eight years.
The Hazelwood Plant has four stages, each with two 200 MW boiler and turbo generator units, and was constructed progressively between November 1964 and August 1971. The plant has eight units, all of which were in service at March 31, 2000. The
Hazelwood Mine has between 400 million and 450 million recoverable tons of brown coal, which is expected to provide the Hazelwood Plant with sufficient quantities of coal. The Hazelwood Plant and Mine are anticipated to be sold along with
Powercor. For a discussion of the proposed sale of Powercor, see "ITEM 1. BUSINESS - AUSTRALIAN ELECTRIC OPERATIONS - Powercor - General."
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal claims, actions and complaints, two of which are described below. Although it is impossible to predict with certainty whether or not the Company and its subsidiaries will ultimately be
successful in its legal proceedings or, if not, what the impact might be, management believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial results.
On October 9, 1996, the Sierra Club filed an action against the Company and the other joint owners of Units 1 and 2 of the Craig Electric Generating Station (the "Station") under the citizen's suit provisions of the Federal Clean Air Act alleging, based
upon reports from emissions monitors at the Station, that over 14,000 violations of state and federal opacity standards have occurred over a five-year period at Units 1 and 2 of the Station. (Sierra Club v. Tri-State Generation and Transmission Association, Inc., Public Service Company of Colorado, Inc., Salt River Project Agricultural Improvement and Power District, PacifiCorp and Platte River Power Authority, Civil Action
No. 96-B2368, US District Court for the District of Colorado). The Company has a 19.28% interest in Units 1 and 2 of the Station, which is operated by Tri-State Generation and Transmission Association and located in Craig, Colorado.
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The action seeks injunctive relief requiring the defendants to operate the Station in compliance with applicable statutes and regulations, the imposition of civil penalties, litigation costs, attorneys' fees and mitigation. The Federal Clean Air Act
provides for penalties of up to $27,500 per day for each violation, but the level of penalties imposed in any particular instance is discretionary. The complaint alleges that the Company and Public Service Company of Colorado are responsible for the
alleged violations beginning with the second quarter of 1992, when they acquired their interests in the Station, and that the other owners are responsible for the alleged violations during the entire period. The complaint alleges that there were
approximately 10,000 violations since the second quarter of 1992. On March 18, 1999, the district court issued its order regarding summary judgment motions filed by the parties. The court ruled, among other things, that the emission monitors may be used
by the plaintiff to establish violations of opacity standards, but that the plant owners are entitled to prove that the reported information is flawed.
Over the period from November 1997 to May 1998, Powercor entered into 11 electricity hedging contracts with a NSW State-owned generator (the "Generator") for the supply of electricity between 1998 and 2008. The contracts were designed to support the
long-term supply of electricity by Powercor to its customers and to minimize Powercor's exposure to large fluctuations in the spot electricity price. When the wholesale market price for electricity moved against the Generator in May 1998, the Generator
denied that any final and binding contracts had been entered into with Powercor, as both parties had not signed final versions of the confirmations setting out the terms and conditions of each transaction. However, an ISDA Master Agreement was in place
between the parties which governed the negotiation, contracting and settlement process of individual contracts between them.
The Generator refused to honor the contracts and Powercor commenced proceedings against the Generator, claiming in the Supreme Court of Victoria that the contracts were valid and enforceable. (Powercor Australia Ltd. v. Pacific Power, Commercial
List No. 4931, Case No. 2067 of 1998, Supreme Court of Victoria.) In December 1999, a ruling was issued in favor of Powercor. Specific performance was ordered of the 11 electricity hedge contracts, which were in dispute. Further, the following orders were
made requiring payments by the Generator to Powercor: the Generator made payment of $29 million on December 17, 1999 attributable to the performance of the contracts from July 1, 1998 to judgment. This amount reflects the difference between actual
payments and payments under the hedges plus interest of $1 million; and the Generator made payment of $2 million on December 24, 1999 as an agreed sum for legal expenses and other costs relating to the proceedings.
On December 21, 1999, the Generator appealed the judgments, declarations and orders on 80 grounds, including substantially all of the key aspects of the decision. The appeal is listed for hearing on October 2, 2000 for eight days.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required to be reported pursuant to this item.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PacifiCorp is a subsidiary of ScottishPower, which owns all 297,324,604 shares of PacifiCorp's outstanding common stock. Therefore, there is no public market for PacifiCorp's common stock. Dividend information required by this item is included under
"Quarterly Financial Data" on page 111 of this Report.
The Company is restricted from paying dividends or making other distributions to ScottishPower without prior OPUC approval to the extent such payment or distribution would reduce the Company's common stock equity below a specified percentage of its total
capitalization. The percentage of total capitalization is between 35% after December 31, 1999 to 40% after December 31, 2004. In addition, the Company must give the OPUC 30 days prior notice of any special cash dividend or any transfer involving more than
five percent of PacifiCorp's retained earnings in a six-month period.
Under the Public Utility Holding Company Act of 1935, the Company may pay dividends out of capital or unearned surplus only with SEC approval. Dividends from earned surplus are permitted without approval.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under "Selected Financial Information" on page 106 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW OF 2000
During 2000, the Company began to see the results of its plan to focus on its electricity businesses in the western United States and reduce costs. In April 1999, the Company sold TPC for $150 million. In January 2000, the Company decided to seek a
buyer for its Australian utility, Powercor. The Company will seek to sell Hazelwood along with Powercor.
On November 29, 1999, the Company and ScottishPower completed the Merger under which the Company became an indirect subsidiary of ScottishPower. The Company continues to operate under its current name, and its headquarters will remain in Portland, Oregon.
As a result of the Merger, the Company became part of a public utility holding company group. The Company's operations are now subject to the requirements and restrictions of the Public Utility Holding Company Act of 1935.
In the Merger, each share of the Company's stock was converted tax-free into a right to receive 0.58 ADS (each ADS represents four ordinary shares) or 2.32 ordinary shares of ScottishPower. Cash was paid in lieu of fractional shares.
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As a result of the Merger, the Company has developed and commenced its Transition Plan to implement significant organizational and operational changes. These changes are intended to lead to improved service to customers, continued strong investment in
communities and enhanced value for shareholders. The Transition Plan is the outcome of an intense five-month review of the Company's business. More than 200 initiatives and changes have been proposed. By 2004, the initiatives are expected to deliver
annual cost savings from 1998 levels of $300 million in operating expenses and $250 million in capital expenditures. The Company intends to invest approximately $150 million over the same period for training and new technology. The Company expects to
reduce its work force company-wide by approximately 1,600 over the same five-year period, mainly through early retirement, voluntary severance and attrition. The cost of the early retirement offering will not be determinable until the end of June 2000,
the deadline for election by eligible employees. The Company intends to seek regulatory orders to recover costs incurred under the Transition Plan.
A new management structure has been established, including key appointments from ScottishPower, the Company and also from well-known US companies.
Unless otherwise stated, references below to periods in 2000 are to periods in the fiscal year ended March 31, 2000, while references to periods in 1998 and 1997 are to periods in the years ended December 31, 1998 and 1997, respectively.
Australian Electric Operations' financial results for the year ended December 31, 1999 are included in PacifiCorp's financial results for the year ended March 31, 2000. For purposes of this discussion, these financial results are referred to as
results for "2000".
Earnings Overview of the Company
Earnings (loss) on common stock |
March 31, |
December 31, |
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1998 |
1997 |
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In 2000 and 1998, the Company incurred a series of nonrecurring items, including ScottishPower merger costs, special charges, discontinued operations of certain businesses and acquisition transaction costs. The table below sets forth the effects of these
items to assist the reader.
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Effects of nonrecurring items on earnings:
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(a) In 1998, the Company reported earnings excluding nonrecurring items of $300 million. Included in the calculation of $300 million were Utah rate order adjustments similar to those recorded in 2000 operations. Accordingly, those adjustments
are not shown above as nonrecurring.
Earnings on common stock for the Company increased $120 million in 2000 compared to 1998. The Company's 2000 earnings of $65 million reflected $180 million for ScottishPower merger costs and $15 million relating to write-offs of projects under
construction.
The Company's 1998 loss of $55 million included special charges of $77 million relating to the Company's early retirement program announced in January 1998 and the additional early retirement offer announced in the fourth quarter of 1998, $13 million for
ScottishPower merger costs, $55 million relating to the write off of costs associated with The Energy Group PLC ("TEG") transaction and the closing of foreign currency options in April 1998 associated with the terminated bid for TEG and a $10 million gain
on sale of TEG shares. In addition, the Company recorded charges in 1998 of $155 million, which included $105 million relating to the provision for losses on disposition of TPC and the eastern U.S. energy trading segment, $17 million relating to the write
down of the Company's investment in Hazelwood, and $32 million relating to the provision for losses on disposition of other energy development businesses.
Excluding these nonrecurring items, the Company's 2000 earnings on common stock from continuing operations would have been $258 million compared to $276 million in 1998, a decrease of $18 million.
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The following table shows where ScottishPower merger costs have been recorded in the Company's financial results.
ScottishPower Merger Costs |
March 31, |
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December 31, |
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Other Operations reported net income of $14 million in 2000 as compared to a loss of $52 million in 1998. The 2000 results included $3 million in expenses relating to ScottishPower merger costs, as well as a decrease in interest income of $31
million. An income increase at PFS's synthetic fuel producing businesses in 2000 totaled $13 million. After-tax losses associated with exiting energy development businesses were approximately $7 million in 2000 and $19 million in 1998. The 1998
results included $32 million in losses relating to the decision to exit the energy development businesses, $55 million in costs associated with the Company's terminated bid for TEG and closing foreign currency options in April 1998, and a gain of $10
million relating to the sale of TEG shares.
Discontinued Operations reported a net after-tax gain on exiting discontinued operations of $1 million in 2000 compared to losses in 1998 of $147 million. The 1998 results included $105 million for the losses anticipated to dispose of TPC and exit
the eastern United States energy trading business and a loss of $42 million relating to these operations prior to discontinuance.
FORWARD-LOOKING STATEMENTS
The information in the tables and text in this document includes certain forward-looking statements that involve a number of risks and uncertainties that may influence the financial performance and earnings of the Company. When used in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends" and variations of such words and similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties. There can be no assurance the results predicted will be realized. Actual results will vary from those represented by the forecasts, and those variations may be material.
The following are among the factors that could cause actual results to differ materially from the forward-looking statements: utility commission practices; regional, national and international economic conditions; weather variations affecting customer
usage; competition and prices in electric power and natural gas markets and hydroelectric and natural gas production; hydro-facility relicensing; energy trading activities; environmental, regulatory and tax legislation, including industry restructure and
deregulation initiatives; technological developments in the electricity industry; foreign exchange rates; proposed asset dispositions; and the cost of debt and equity capital. Any forward-looking statements issued by the Company should be considered in
light of these factors.
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DOMESTIC ELECTRIC OPERATIONS
REVENUES
Revenues |
March 31, |
December 31, |
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1998 |
1997 |
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December 31, |
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Total Domestic Electric Operations' revenues decreased $1.55 billion, or 32%, from 1998 to $3.29 billion in 2000 primarily due to a decrease in wholesale revenues of $1.55 billion. Retail revenues were flat compared to 1998, remaining at $2.20 billion.
Wholesale revenues decreased $1.55 billion, or 60%. The decrease in revenues was driven by a 64% decline in energy volumes. Short-term firm and spot market sales volumes decreased 75%, creating a $1.56 billion decrease in revenues. Sales prices for
short-term firm and spot market sales averaged $27 per megawatt hour ("MWh") in 2000 compared to $26 per MWh in 1998, resulting in $24 million in additional revenues. Decreased long-term firm contract prices lowered wholesale revenues by $19 million in
2000. The decline in energy volumes is consistent with the Company's decision to scale back short-term wholesale sales.
Short-Term Firm and Spot Market Sales
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March 31, |
December 31, |
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1998 |
1997 |
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Residential revenues were down $8 million, or 1%. Excluding the impact of the sale of the Company's distribution assets in Montana in 1998, residential revenues were up $5 million, energy volumes were up 2% and customer growth was 3%. Growth in the
average number of residential customers added $20 million to revenues. Price increases in Oregon added $6 million to revenues in 2000. A
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rate order issued by the Utah Commission in 1998 decreased residential revenues by $36 million in 2000. This decrease was partially offset by the one-time Utah rate order refund that reduced revenues by $16 million in 1998.
Industrial revenues were down $11 million, or 2%. Excluding the impact of the Montana sale, industrial revenues were down $2 million, energy volumes were down 1% and average number of customers declined 2%. The Company participated in open access pilot
programs in Oregon, which ended in 1998, that reduced revenues $10 million in 2000. Increased irrigation usage added $5 million to industrial revenues in 2000. The Utah rate order decreased industrial revenues by $17 million in 2000. This decrease
was offset by the one-time Utah rate order refund that reduced revenues in 1998 by $8 million and other changes in the average price for electricity, which added $10 million in 2000.
Commercial revenues were up $14 million, or 2%. Excluding the impact of the Montana sale, commercial revenues were up $24 million, energy volumes were up 6% and customer growth was 3%. Growth in the average number of commercial customers added $24
million to revenues and volume increases added $16 million to revenues. The Utah rate order decreased commercial revenues by $33 million in 2000. This decrease was partially offset by the one-time Utah rate order refund that reduced revenues in 1998 by
$13 million and other changes in the average price for electricity, which added $6 million in 2000.
Other revenues increased by $7 million, or 7%. The primary cause of this favorable variance was an $11 million increase in wheeling revenues resulting from new contracts for transmitting electricity for other companies across the Company's system and
increased volume under existing wheeling contracts.
1998 compared to 1997 - Revenues rose 31%, or $1.14 billion, in 1998 primarily due to increased wholesale energy volumes and sales prices. A 59% increase in wholesale energy volumes sold increased wholesale revenues by $917 million and higher sales prices
in short-term firm and spot market sales increased wholesale revenues by $242 million. Residential revenues decreased $7 million primarily due to the Utah rate order and decreased customer usage, partially offset by customer growth. Commercial revenues
increased $13 million primarily due to customer growth and increased customer usage, partially offset by the effect of the Utah rate order. Other revenues decreased $18 million primarily due to revenue adjustments relating to changes in property tax
legislation.
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OPERATING EXPENSES
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December 31, |
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1998 |
1997 |
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Operating expenses decreased $1.57 billion, or 37%, to $2.70 billion in 2000, primarily as a result of a $1.54 billion decrease in purchased power costs.
In addition to base energy and capacity from its thermal and hydroelectric resources, the Company utilizes a mix of long-term, short-term and nonfirm power purchases to meet its own retail load commitments and to make wholesale power sales to other
utilities. Purchased power expense decreased $1.54 billion, or 62%, to $958 million in 2000. The lower expense was primarily due to a 61 million MWh decrease in short-term firm and spot market energy purchases, a 77% decrease from 1998, which
decreased purchased power expense by $1.58 billion. Short-term firm and spot market purchase prices averaged $28 per MWh in 2000 versus $26 per MWh in 1998, a 9% increase. The increase in purchase prices added $42 million to costs in 2000. The reduced
level of power purchases in 2000 is consistent with the Company's decision to scale back short-term wholesale sales.
Short-Term Firm and Spot Market Purchases
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March 31, |
December 31, |
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2000 |
1998 |
1997 |
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Fuel expense was up $7 million, or 2%, to $485 million in 2000. Thermal generation increased 1% to 52.4 million MWh. Increased expense from the higher generation was partially offset by lower cost per MWh. The average cost per MWh decreased to $9.25 from
$9.37 in 1998 due to improved operating efficiencies at Company-operated mines. Hydroelectric generation remained flat compared to 1998.
Other operations and maintenance expense increased $99 million, or 22%, to $556 million in 2000. In 2000, the Company completed an analysis of construction projects and determined to abandon a number of early stage projects. Write-offs of these assets
were $23 million pretax. Increased tree trimming added $6 million to expenses, increased materials and contracts primarily relating to steam plant overhaul costs added $11 million, increased employee costs added $9 million and write-offs of
obsolete inventory added $4 million. An increasing amount of work relating to expense rather than
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capital projects resulted in $14 million of additional transmission and distribution expenses. Customer accounting, service and sales expenses increased $8 million due to increased collection activity. Employee costs resulting from higher than
normal employee turnover added $2 million to expenses. Costs related to the Foote Creek wind turbines, placed in service at the end of 1998, also added $2 million to expenses. In addition, operations and maintenance was up $15 million due to costs
reclassified from administrative and general upon conversion to the SAP software operating environment.
Depreciation and amortization expense increased $19 million, or 5%, to $406 million primarily due to increased plant in service and increased depreciation on the new SAP software system.
Administrative, general and taxes - other expenses decreased $32 million, or 10%, to $299 million. This decrease included $15 million of costs reclassified to operations and maintenance expense upon conversion to SAP. In addition, pension costs decreased
$4 million in 2000 due to favorable returns on plan assets. Costs of converting to SAP decreased $4 million, other consulting services also decreased $9 million and Year 2000 conversion costs decreased $3 million. Increased employee costs relating to
the Merger of $14 million were completely offset by decreased labor and other employee expenses.
Special charges recorded in 1998 were the costs of early retirement and cost reduction programs implemented in the first and fourth quarters of 1998. The net work force reduction was approximately 930 positions and the Company recorded $77 million of
after-tax charges in 1998 relating to the programs.
1998 compared to 1997 - Operating expenses increased $1.17 billion in 1998 due to higher purchased power volumes and prices. Short-term firm and spot market energy purchases increased 33.9 million MWh, a 74% increase from 1997, which increased purchased
power expense by $937 million. Short-term firm and spot market purchase prices were, on average, 36% higher in 1998, which added $255 million to purchased power costs. Special charges decreased $47 million in 1998. Special charges in 1998 consisted
of the costs of an early retirement and cost reduction program. Special charges in 1997 included the Glenrock mine closure costs of $64 million, the write-off of deferred regulatory pension costs of $87 million, and impairment charges on information
system assets of $19 million.
OTHER INCOME AND EXPENSE
Interest expense was $51 million lower primarily due to the dividends received from Holdings that were used to pay down intercompany debt owed to Holdings and some external debt. ScottishPower merger costs were $177 million higher primarily due to
taxes paid for stock transfers to complete the Merger and the merger credits ordered in various states. Other income increased $7 million primarily due to decreased new product expense and a settlement received from the federal government for loss of coal
rights upon creation of a new national park in Utah. Income tax expense was $125 million, an increase of $22 million, primarily due to an increase in nondeductible merger transaction costs, partially offset by the decline in taxable income. See Note 15 of
Notes to the Consolidated Financial Statements under ITEM 8.
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1998 compared to 1997 - Other expenses increased $20 million in 1998, which included $13 million of ScottishPower merger costs and $6 million of higher minority interest expense relating to the issuance of quarterly income preferred securities in
August 1997. Income tax expense decreased $9 million due to the decline in pretax income.
INDUSTRY CHANGE, COMPETITION AND DEREGULATION
Industry Change - The electric power industry continues to experience change. The key driver for this change is public, regulatory and governmental support for replacing the traditional cost-of-service regulatory framework with an open market
competitive framework where the customers have a choice of energy supplier. The pace at which this change will occur has slowed as regulators and legislators struggle with conversion and implementation issues. However, federal laws and regulations have
been amended to provide for open access to transmission systems, and various states have adopted or are considering new regulations to allow open access for all energy suppliers. For additional information concerning the regulatory, competitive and
environmental issues facing the Company, see "ITEM 1. BUSINESS - DOMESTIC ELECTRIC OPERATIONS - Regulation," "- Competition" and "- Environmental Issues."
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AUSTRALIAN ELECTRIC OPERATIONS
Powercor's principal businesses are to sell electricity to franchise and contestable customers inside and outside its franchise area and to provide electricity distribution services to customers within its regulated network distribution service area.
Franchise customers are those customers that cannot yet choose an electricity supplier, while contestable customers have the opportunity to choose suppliers. Powercor purchases all of its electricity supply from a national electricity market.
Victoria and NSW are currently divided between franchise and contestable customers. Customers in both states with annual consumption of more than 160 MWh are now contestable. Customers with usage of 160 MWh per year or less will become contestable on
January 1, 2001 in Victoria, the ACT and NSW. If a Powercor customer chooses a different retailer, Powercor will continue to receive network distribution revenues associated with that customer. Powercor was granted licenses to sell electricity to
customers in the States of Queensland and ACT in early 1998.
Australian Electric Operations' financial results for the year ended December 31, 1999 are included in PacifiCorp's financial results for the year ended March 31, 2000. For purposes of this discussion, these financial results are referred to as "2000"
results.
In 2000, Australian Electric Operations contributed earnings of $39 million compared to $13 million in 1998. Operating expense reductions increased the contribution to earnings, however, lower market prices resulting from an increasing level of
deregulation, partially offset by lower purchased power expense, caused margins on energy sold to decline. Also, in 1998, Australian Electric Operations recorded a $17 million loss on the write down of its investment in Hazelwood to estimated net
realizable value less selling costs.
Currency Risks - Australian Electric Operations' results of operations and financial position are translated from Australian dollars into United States dollars for consolidation into the Company's financial statements. Changes in the prevailing
exchange rate may have a material effect on the Company's consolidated financial statements. The average currency exchange rate for converting Australian dollars to United States dollars was 0.65 in 2000 compared to 0.63 in 1998, a 3% increase for the
year. The effect of the exchange rate fluctuation was an increase of $1 million in net income in 2000. The currency exchange rate at May 31, 2000 was 0.58. The following discussion excludes the effects of the higher currency exchange rate in 2000.
40
REVENUES
|
|
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Change |
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|
76.4 1.5 2.5 155.0 32.7 $617.6 |
71.6 0.6 0.3 151.6 25.1 $614.5 |
2.0 2.0 - - 0.1 4.1 0.9 $ 16.3 |
(6.5) 2.8 0.9 2.1 (0.7) 6.7 $(13.2) |
Energy Sales |
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Australia reported 2000 revenues of $618 million, a $13 million, or 2%, decrease from 1998. The decrease was primarily attributable to a reduction in energy sales volumes of 372 million kWh, or 3%.
Inside Powercor's franchise area, revenues declined $19 million, $17 million due to a 378 million kWh decrease in volumes and $2 million due to price decreases for customers.
Energy volumes sold to contestable customers outside Powercor's franchise area were up 6 million kWh in 2000. This increase was primarily due to customer gains in Queensland, the ACT and NSW. The revenue increase resulting from the additional energy
volumes sold was offset by lower rates, primarily in Victoria.
Other revenues increased $7 million in 2000 primarily due to recognition of a sales tax contract settlement payment received from the Australian Government of $4 million, and $4 million from construction projects for customers who own their own
distribution assets, as well as refunds received with the dissolution of the Victoria Power Exchange of $2 million. These increases were offset due to $4 million for Tariff H revenue recognition in 1998.
41
1998 compared to 1997
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Change |
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Revenues increased $11 million, or 1%, in 1998 primarily due to an 8% increase in energy sales volumes. Increased market share in the contestable market in Victoria and NSW added $7 million and $39 million, respectively. Lower prices for contestable sales
reduced revenues by $12 million. Revenues within Powercor's franchise area decreased $13 million due to lower average realized prices and $8 million due to a 177 million kWh decrease in volumes.
42
OPERATING EXPENSES
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Change |
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Purchased power expense decreased $2 million, or 1%, in 2000. A favorable court ruling received on a contract dispute resulted in decreased expense of $24 million. A 6% decrease in purchased power volumes reduced costs by $16 million. These decreases
were partially offset by increases of $11 million in payments to counterparties due to recalculation of contract fees and $24 million of increases in purchased power costs.
The power supplier in the contract dispute noted above did not meet its contractual obligation to deliver power to Powercor at the agreed upon rate, which forced Powercor to purchase power on the open market at a higher rate. On November 17, 1999, the
Supreme Court of Victoria upheld the validity of these contracts and on December 14, 1999 ordered specific performance on the remaining contracts and payment of $29 million for failure to perform in the past. On December 21, 1999, the power supplier
filed a notice of appeal seeking to overturn all of the judgments against it. The Company expects the decision to be upheld. See "ITEM 3. LEGAL PROCEEDINGS."
Other operations and maintenance expense decreased $39 million, or 27%, in 2000. The decrease in expense is related to an increase in external network revenue, accounted for on a net basis against other network costs, of $18 million relating to
customers within Powercor's distribution area being supplied electricity by competitors, a decrease in external network fees of $11 million, a $9 million decrease due to reclassifying expenses to administrative and general, and a $1 million
decrease in maintenance expense because of mild weather.
Administrative, general and taxes - other increased $22 million, or 47%, in 2000. An increase of $9 million was attributable to a reclassification of construction services expenses, for services provided to other companies, from other operations and
maintenance. Restructuring costs increased $4 million over 1998. A project to help transition to full retail contestability increased expenses by $3 million, salaries and incentives increased $4 million, and legal fees due to the power supply
contract dispute increased $1 million.
Interest expense decreased $1 million in 2000 to $58 million as a result of lower debt balances. Other expense decreased $30 million primarily due to the 1998 pretax write down of $28 million that reduced the carrying value of the Company's investment in
the Hazelwood Power Station to its estimated net
43
realizable value less selling costs and $5 million in costs for removal of certain energy efficiency devices in connection with a product recall. Equity losses in Hazelwood were $3 million, a decrease of $3 million over 1998, primarily due to decreased
maintenance costs. Income tax expense increased $16 million due primarily to an increase in taxable income.
44
1998 compared to 1997
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|
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Change |
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Operating expenses increased $26 million, or 5%, in 1998. Increased sales to contestable customers outside Powercor's franchise area resulted in increased purchased power expense of $28 million and higher network fees of $40 million, which were partially
offset by decreased purchased power prices of $35 million, and higher network revenues of $12 million from customers inside Powercor's franchise area that were serviced by other energy suppliers.
REGULATION
For additional information concerning the regulatory and environmental issues facing the Australian Electric Operations, see "ITEM 1. BUSINESS - AUSTRALIAN ELECTRIC OPERATIONS - Regulation" and "- Environmental Issues."
45
OTHER OPERATIONS
Earnings Contribution |
March 31, |
December 31, |
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2000 |
1998 |
1997 |
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During 2000, Other Operations included the activities of Holdings, PFS and energy development businesses. Other operations reported earnings of $14 million in 2000 compared to a loss of $52 million in 1998. The 2000 results include ScottishPower
merger costs of $3 million. Interest income decreased $31 million as the result of cash dividends paid by Holdings to Domestic Electric in January 1999 and October 1998. This cash had been invested by Holdings in interest bearing instruments prior to
payment of the dividends. Income at PFS's synthetic fuel producing businesses increased $13 million. The 1998 results included losses relating to the decision to shut down or sell the Company's other energy development businesses totaling $32
million. After-tax losses associated with exiting these businesses were approximately $7 million in 2000. In 1998, these businesses incurred $19 million of after-tax losses. In addition, 1998 included $55 million in costs associated with the
Company's terminated bid for TEG and closing foreign currency options in April 1998 associated with the terminated bid for TEG, and a gain of $10 million relating to the sale of TEG shares.
PFS has tax-advantaged investments in leasing operations that consist principally of aircraft leases. For 2000, PFS reported net income of $16 million, a $7 million increase from 1998. This increase was primarily attributable to increased tax credits
received on the sales of synthetic coal, which was offset by a decrease as a result of the sale of its affordable housing properties in 1998. PFS sold its investments in affordable housing in 1998 for $80 million, which approximated book value.
The energy development businesses that the Company decided to exit in 1998 are generally wholly owned subsidiaries of the Company or subsidiaries in which the Company has a majority ownership. The pretax loss associated with exiting the energy development
businesses was $52 million in 1998 and was included in "Write down of investments in energy development businesses" on the income statement. The remaining values for these businesses were arrived at using cash flow projections and estimated market value
for fixed assets. Some of these businesses have been exited through the discontinuance of their operations while others are being held for sale. The process of exiting these businesses is nearing completion.
46
1998 compared to 1997 - The $43 million decrease in earnings contribution of Other Operations in 1998 was primarily attributable to a loss of $32 million relating to the decision to shut down or sell the Company's energy development businesses. A
loss of $54 million was associated with the Company's terminated bid for TEG, as well as $2 million relating to closing foreign exchange positions associated with the terminated bid. This loss was partially offset by a gain of $10 million relating to the
sale of TEG shares.
Results from Other Operations in 1998 benefited from a $40 million after-tax increase in interest income and reduced interest expense as the result of cash received from 1997 asset sales.
In 1997, the Company completed the sale of its independent power subsidiary, Pacific Generation Company ("PGC"), for approximately $150 million in cash, resulting in a gain of $30 million. PGC contributed income of $10 million in 1997 prior to completion
of the sale.
DISCONTINUED OPERATIONS
Discontinued operations reported earnings in 2000 of $1 million compared to losses of $147 million in 1998. The 1998 results included $105 million for the loss anticipated to exit the eastern United States energy trading business and a loss of $42
million for operating losses prior to the decision to exit. On April 1, 1999, Holdings sold TPC for $150 million. Exiting these energy trading activities resulted in a net after-tax gain of $1 million in 2000.
In 1998, the pretax loss associated with exiting the eastern United States energy trading business was $155 million. This loss consisted of write downs of intangible assets of $83 million and the costs to exit a portion of the business and sell
another portion of the business of $72 million. The exiting costs included anticipated severance payments and operating costs to the selling date and selling expenses. The remaining values for these businesses represented the estimated market value of the
fixed assets of the companies and the remaining working capital at the expected sale date.
47
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash flows from continuing operations increased $98 million from 1998 to 2000. This increase was largely due to cash expenditures in 1998 relating to taxes on 1998 and 1997 asset sales.
INVESTING ACTIVITIES
Investing in 2000 focused on continued capital spending to improve and expand existing operations. In addition, the Company disposed of non-strategic assets such as TPC in 2000 and the Montana electric distribution assets and the majority of the
tax-advantaged investments in affordable housing owned by PFS in 1998.
On May 4, 2000, the utility partners who own the 1,340 MW coal-fired Centralia Power Plant sold the plant and the adjacent coal mine owned by the Company to TransAlta for approximately $500 million. For additional information concerning the sale of the
Centralia plant and mine, see "ITEM 1. BUSINESS - DOMESTIC ELECTRIC OPERATIONS - Asset Sales."
On October 23, 1998, the Company announced its intent to exit its energy trading business in the eastern United States and its other energy development businesses. As a result, the Company recorded an after-tax loss of $137 million for these businesses.
In addition, the Company recorded an after-tax loss of $17 million to reduce the Company's carrying value in the Hazelwood Power Station to its net realizable value less selling costs. On April 1, 1999, Holdings sold TPC for $150 million. Exiting these
energy trading activities resulted in a net after-tax gain of $1 million in the first quarter of 2000. On July 9, 1998, the Company announced its intention to sell its California and Montana electric distribution assets. On November 5, 1998, the Company
sold its Montana electric distribution assets to Flathead Electric Cooperative, Inc. and received proceeds of $89 million, net of taxes and customer refunds. The Company returned $4 million of the $8 million gain on the sale to Montana customers as
negotiated with the Montana Public Service Commission and the Montana Consumer Counsel. For additional information on the sale of the California electric distribution assets, see "ITEM 1. BUSINESS - DOMESTIC ELECTRIC OPERATIONS - Proposed Asset Additions
and Dispositions."
In October 1998, Holdings paid a dividend of $500 million to Domestic Electric. Domestic Electric used the proceeds to pay down intercompany debt owed to Holdings. In January 1999, Holdings paid a dividend of $660 million to Domestic Electric. Domestic
Electric used the proceeds to pay down short-term debt and intercompany debt and temporarily invested the remainder in money market funds. In March 2000, Holdings paid a dividend of $49 million to Domestic Electric. Domestic Electric used the proceeds to
pay down short-term debt and temporarily invested the remainder in money market funds.
The Company believes that its existing and available capital resources are sufficient to meet working capital, dividend and construction needs in 2001.
48
BID FOR THE ENERGY GROUP
During 1997 and 1998, the Company sought to acquire TEG, a diversified international energy group with operations in the United Kingdom, the United States and Australia. In March 1998, another United States utility made a tender offer at a price higher
than the Company's offer and on April 30, 1998, the Company announced that it would not increase its revised offer for TEG.
The Company recorded an $89 million pretax charge ($55 million after-tax) to 1998 earnings, included in "TEG costs and option losses," for bank commitment and facility fees, foreign currency option contract expense, legal expenses and other related
costs incurred since the Company's original bid for TEG in June of 1997. These costs had been deferred pending the outcome of the transaction.
Additionally, in connection with the attempt to acquire TEG, a subsidiary of the Company purchased approximately 46 million shares of TEG at a price of 820 pence per share, or $625 million. The Company recorded a pretax gain on the TEG shares of
$16 million ($10 million after-tax) when they were sold on June 2, 1998.
Upon initiation of the original tender offer in June 1997, the Company also entered into foreign currency exchange contracts. The financing facilities associated with the June 1997 offer for TEG terminated upon referral to the Monopolies and Mergers
Commission and the Company initiated steps to unwind its foreign currency exchange positions consistent with its policies on derivatives. As a result of the termination of these positions and initial option costs, the Company realized a pretax loss of
approximately $106 million ($65 million after-tax) in the third quarter of 1997.
49
CAPITALIZATION
|
March 31, |
December 31, |
||
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The Company manages its capitalization and liquidity position in a consolidated manner through policies established by senior management and the Board of Directors. These policies, subject to periodic review and revision, have resulted from a review of
historical and projected practices for businesses and industries that have financial and operating characteristics similar to the Company and its principal business operations.
The Company's policies attempt to balance the interests of all shareholders, ratepayers and creditors. In addition, given the changes that are occurring within the industry and market segments in which the Company operates, these policies are intended to
remain sufficiently flexible to allow the Company to respond to these developments.
On a consolidated basis, the Company attempts to maintain total debt at 48% to 54% of capitalization. The debt to capitalization ratio was 48% at March 31, 2000. The Company also attempts to maintain a preferred stock ratio, including subordinated debt,
at 8% to 12% of capitalization. The preferred stock ratio was 8% at March 31, 2000. The Company has made commitments in connection with the Merger not to reduce common equity, without approval, to below 35% of total capitalization, increasing over time to
40%.
50
VARIABLE RATE LIABILITIES
|
March 31, |
December 31, |
|
|
|
The Company's capitalization policy targets consolidated variable rate liabilities at between 10% and 25% of total capitalization.
AVAILABLE CREDIT FACILITIES
At March 31, 2000, PacifiCorp had $800 million of committed bank revolving credit agreements. Regulatory authorities limit PacifiCorp to $1.5 billion of short-term debt, of which $109 million was outstanding at March 31, 2000. At March 31, 2000,
subsidiaries of PacifiCorp had $723 million of committed bank revolving credit agreements. The Company had $429 million of short-term debt classified as long-term debt at March 31, 2000, as it had the intent and ability to support such short-term
borrowings through the various revolving credit facilities on a long-term basis. See Notes 7 and 8 of Notes to Consolidated Financial Statements for additional information under ITEM 8.
LIMITATIONS
In addition to the Company's capital structure policies, its debt capacity is also governed by its contractual commitments. PacifiCorp's principal debt limitation is a 60% debt to defined capitalization test contained in its principal credit agreements.
Based on the Company's most restrictive agreement, management believes that PacifiCorp and its subsidiaries could have borrowed an additional $2.5 billion of debt at March 31, 2000.
Under PacifiCorp's principal credit agreements, it is an event of default if any person or group acquires 35% or more of PacifiCorp's common shares or if, during any period of 14 consecutive months, individuals who were directors of PacifiCorp on the
first day of such period (and any new directors whose election or nomination was approved by such individuals and directors) cease to constitute a majority of the Board of Directors. However, no event of default occurred solely as a result of
ScottishPower acquiring all of the outstanding common shares of PacifiCorp, or controlling the election or nomination of directors.
RISK MANAGEMENT
Risk is an inherent part of the Company's business and activities. The risk management process established by the Company is designed to identify, assess, monitor and manage each of the various types of risk involved in its business and activities.
Central to its risk management process, the Company has established a risk management committee with overall responsibility for establishing and reviewing the Company's policies and procedures for
51
controlling and managing its risks. The senior risk management committee relies on the Company's treasury and risk management departments and its operating units to carry out its risk management directives and execute various hedging and energy trading
strategies. The policies and procedures that guide the Company's risk management activities are contained in the Company's derivative policy.
The risk management process established by the Company is designed to measure quantitative market risk exposure and identify qualitative market risk exposure in its businesses. To assist in managing the volatility relating to these exposures, the Company
enters into various derivative transactions consistent with the Company's derivative policy. That policy governs the Company's use of derivative instruments and its energy trading practices and contains the Company's credit policy and management
information systems required to effectively monitor such derivative use. The Company's derivative policy provides for the use of only those instruments that have a close correlation with its portfolio of assets, liabilities or anticipated transactions.
The derivative policy includes as its objective that interest rates and foreign exchange derivative instruments will be used for hedging and not for speculation. The derivative policy also governs the energy trading activities and is generally designed
for hedging the Company's existing energy exposures but does provide for limited speculation activities within defined risk limits.
RISK MEASUREMENT
Value at Risk Analysis
The tests discussed below for exposure to interest rate and currency exchange rate fluctuations are based on a Value at Risk ("VAR") approach using a one-year horizon and a 95% confidence level and assuming a one-day holding period in normal market
conditions. The VAR model is a risk analysis tool that attempts to measure the potential losses in fair value, earnings or cash flow from changes in market conditions and does not purport to represent actual losses in fair value that may be incurred by
the Company. The VAR model also calculates the potential gain in fair market value or improvement in earnings and cash flow associated with favorable market price movements.
52
EXPOSURE ANALYSIS
Interest Rate Exposure
The Company's market risk to interest rate changes is primarily related to long-term debt with fixed interest rates. The Company uses interest rate swaps, forwards, futures and collars to adjust the characteristics of its liability portfolio. This
strategy is consistent with the Company's capital structure policy which provides guidance on overall debt to equity and variable rate debt as a percent of capitalization levels for both the consolidated organization and its principal subsidiaries.
The table below shows the potential loss in fair market value of the Company's interest rate sensitive positions as of December 31, 1998 and March 31, 2000, as well as the Company's quarterly high and low potential losses.
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2000 |
2000 |
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Because of the size of the Company's fixed rate portfolio and lower levels of short-term debt as a result of asset sales, the significant majority of this average daily exposure is a noncash fair market value exposure and generally not a cash or current
interest expense exposure.
53
The table below shows the potential loss in pre-tax cash flow of the Company's currency rate sensitive positions as of December 31, 1998 and March 31, 2000, as well as the Company's quarterly high and low potential losses.
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2000 |
2000 |
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Commodity Price Exposure
The Company's market risk to commodity price change is primarily related to its electricity commodities which are subject to fluctuations due to unpredictable factors, such as weather, which impacts supply and demand. The Company's energy trading
activities are governed by the derivative policy and the risk levels established as part of that policy.
The Company's energy commodity price exposure arises principally from its electric supply obligation in the United States and Australia. In the United States, the Company manages this risk principally through the operation of its 7,829 MW generation and
transmission system in the western Unites States and through its wholesale energy trading activities. Derivative instruments are not significantly utilized in the management of the Unites States electricity position. In Australia, the Victorian government
currently limits the amount of generation that can be owned by an electric supply company and, as a result, the risk associated with Australian Electric Operations energy supply obligations is managed through the use of electricity forward contracts
(referred to as "contracts for differences") with Victorian generators. Under these forward contracts, the Company receives or makes payment based on a differential between a contracted price and the actual spot market of electricity. Additionally,
electricity futures contracts are utilized to hedge Domestic Electric Operations' excess or shortage of net electricity for future months. The changes in market value of such contracts have had a high correlation to the price changes of the hedged
commodity. Derivative instruments, other than contracts for differences, are not significantly utilized in Australian Electric Operations' risk management process.
Gains and losses relating to qualifying hedges of firm commitments or anticipated inventory transactions are deferred on the balance sheet and included in the basis of the underlying transactions.
A sensitivity analysis has been prepared to estimate the Company's exposure to market risk related to commodity price exposure of its derivative positions for electricity. Based on the Company's derivative price exposure at March 31, 2000 and December 31,
1998, a near-term adverse change in commodity prices of 10% would negatively impact pre-tax earnings by $18 million and $16 million, respectively.
54
INFLATION
Due to the capital-intensive nature of the Company's core businesses, inflation may have a significant impact on replacement of property, acquisition and development activities and final mine reclamation costs. To date, management does not believe that
inflation has had a significant impact on any of the Company's other businesses.
NEW ACCOUNTING STANDARDS
In June 1999, SFAS No. 137 was issued, which deferred the effective date of SFAS No. 133 to the fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. A company may implement SFAS No. 133, as of the beginning of any fiscal quarter after the June 1998 issuance; however, the
statement cannot be applied retrospectively. The Company does not plan to adopt SFAS No. 133 early. Adoption of this standard will have an effect on the Company's financial position and results of operations; however, the magnitude of the effect will be
determined by the hedges and derivatives that the Company has in place at the date of adoption of the standard. The effects in future periods will be dependent upon the derivatives and hedges in place at the end of each period and cannot be presently
determined.
In July 1999, the EITF reached a consensus on Issue No. 99-9, "Effect of Derivative Gains and Losses on the Capitalization of Interest" ("EITF 99-9"). EITF 99-9 clarifies the application of SFAS No. 34, which establishes standards for capitalizing
interest cost as part of the historical cost of acquiring certain assets, in conjunction with SFAS No. 133 (see discussion above). The Company anticipates that the cumulative effect of the adoption of EITF 99-9 at April 1, 2001 will be immaterial on the
Company's financial position, results of operations and cash flows.
From November 29, 1999 to March 24, 2000, the SEC issued Staff Accounting Bulletins No. 100, 101 and 101A. The effect of adoption of these bulletins is not expected to have a material effect on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included under "Risk Management," and "Risk Measurement - Value at Risk Analysis," and "Sensitivity Analysis," and "Exposure Analysis - Interest Rate Exposure," "Currency Rate Exposure" and "Commodity Price
Exposure" on pages 51 through 54 of this Report under ITEM 7.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page |
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REPORT OF MANAGEMENT
The management of PacifiCorp and its subsidiaries (the "Company") is responsible for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted
accounting principles. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the
financial statements.
The Company's financial statements were audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") with respect to the year ended March 31, 2000, or by Deloitte & Touche LLP ("Deloitte & Touche") with respect to prior periods, independent
public accountants. Management made available to PricewaterhouseCoopers and Deloitte & Touche all the Company's financial records and related data, as well as the minutes of shareholders' and directors' meetings.
Management of the Company established and maintains an internal control structure that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the
prevention and detection of materially fraudulent financial reporting. The Company maintains an internal auditing program that independently assesses the effectiveness of the internal control structure and recommends possible improvements.
PricewaterhouseCoopers and Deloitte & Touche considered that internal control structure in connection with their audits. Management reviews significant recommendations by the internal auditors, PricewaterhouseCoopers and Deloitte & Touche,
concerning the Company's internal control structure and ensures appropriate cost-effective actions are taken.
56
The Company's "Guide to Business Conduct" is distributed to employees throughout the Company to provide a basis for ethical standards and conduct. The guide addresses, among other things, potential conflicts of interests and compliance with laws,
including those relating to financial disclosure and the confidentiality of proprietary information.
Alan V. Richardson
President and Chief Executive Officer
Karen K. Clark
Chief Financial Officer
57
Report of Independent Accountants
To the Board of Directors and Shareholders of
PacifiCorp:
In our opinion, based on our audit and the report of other auditors, the accompanying consolidated balance sheet and the related statements of consolidated income, common shareholders' equity and cash flows present fairly, in all material respects, the
financial position of PacifiCorp and its subsidiaries at March 31, 2000, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of PacifiCorp Australia Limited Liability Company and
its subsidiaries, a wholly-owned subsidiary, which statements reflect total assets of $1,855,035,000 as of December 31, 1999, and total revenues of $617,563,000 for the year ended December 31, 1999. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for PacifiCorp Australia Limited Liability Company and its subsidiaries, is based solely on the report of the other auditors. We
conducted our audit of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for the opinion expressed above. The financial statements of the Company as of March 31, 1999 (not separately presented herein)
and as of December 31, 1998, and for the three months ended March 31, 1999 and for each of the two years in the period ended December 31, 1998 were audited by other independent accountants whose report dated February 11, 2000 expressed an
unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Portland, Oregon
May 4, 2000, except for the fourth, fourteenth, and twentieth
paragraphs of Note 5, as to which the date is May 31, 2000
58
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF PACIFICORP:
We have audited the accompanying consolidated balance sheet of PacifiCorp and subsidiaries as of December 31, 1998, and the related statements of consolidated income, consolidated changes in common shareholders' equity and consolidated cash flows for the
three months ended March 31, 1999 and each of the years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of PacifiCorp and subsidiaries at December 31, 1998, and the results of their operations and their cash flows for the three months
ended March 31, 1999 and each of the years ended December 31, 1998 and 1997, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Portland, Oregon
February 11, 2000
59
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Three |
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December 31, |
December 31, |
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259.8 64.3 113.2 26.3 - 732.3 |
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57.9 |
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(See accompanying Notes to Consolidated Financial Statements)
60
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Three |
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March 31, |
March 31, |
December 31, |
December 31, |
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(8.1) |
26.1 |
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1,812.0 - - (269.5) (2,099.0) (26.1) 7.0 |
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(See accompanying Notes to Consolidated Financial Statements)
61
CONSOLIDATED BALANCE SHEETS
ASSETS
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As of |
As of |
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2,145.0 3,473.3 1,953.2 312.4 12,862.7 1,281.0 49.4 (4,994.8) 9,198.3 |
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382.7 703.2 196.8 288.3 347.6 2,034.6 |
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(See accompanying Notes to Consolidated Financial Statements)
62
LIABILITIES AND SHAREHOLDERS' EQUITY
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(See accompanying Notes to Consolidated Financial Statements)
63
STATEMENTS OF CONSOLIDATED CHANGES IN COMMON SHAREHOLDERS' EQUITY
Millions of dollars, Thousands of shares
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Accumulated |
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(See accompanying Notes to Consolidated Financial Statements)
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended March 31, 2000, December 31, 1998 and 1997
and the three months ended March 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of PacifiCorp and its subsidiaries (the "Company" or "Companies") include the integrated domestic electric utility operating divisions of Pacific Power and Utah Power and its wholly owned and majority owned
subsidiaries. Major subsidiaries, all of which are wholly owned, are: PacifiCorp Group Holdings Company ("Holdings"), which holds directly or through its wholly owned subsidiary, PacifiCorp International Group Holdings Company, all of the Company's
nonintegrated electric utility investments, including Powercor Australia Ltd. ("Powercor"), an Australian electricity distributor, and PacifiCorp Financial Services, Inc. ("PFS"), a financial services business. Significant intercompany transactions and
balances have been eliminated upon consolidation.
During 2000, no single retail customer accounted for more than 2% of the Company's domestic electric operations' retail utility revenues and the 20 largest retail customers accounted for 14% of total retail electric revenues. The geographical distribution
of the Company's domestic electric operations' retail operating revenues for the year ended March 31, 2000 was Utah, 38%; Oregon, 33%; Wyoming, 13%; Washington, 8%; Idaho, 6%; and California, 2%.
Investments in and advances to affiliated companies represent investments in unconsolidated affiliated companies carried on the equity basis, which approximate the Company's equity in their underlying net book value.
During October 1998, the Company decided to exit its energy trading business, which consisted of TPC Corporation ("TPC") and the eastern United States electricity trading operations of PacifiCorp Power Marketing, Inc. ("PPM"), which was accounted for as
discontinued operation. On April 1, 1999, the Company sold TPC. See Note 4.
The Company sold its wholly owned telecommunications subsidiary on December 1, 1997. See Note 4. The Company sold Pacific Generation Company ("PGC") on November 5, 1997, and the natural gas gathering and processing assets of TPC on December 1, 1997.
During May 1998, the Company sold a majority of the real estate assets held by PFS. See Note 17.
In 1998, the Company also decided to exit the majority of its other energy development businesses and recorded them at estimated net realizable value less selling costs in September 1998. See Note 17.
CHANGE IN FISCAL YEAR
Effective November 30, 1999, the Company changed its fiscal year end from December 31 to March 31, which is the fiscal year end for Scottish Power plc ("ScottishPower"). See Note 2. A report on Form 10-Q for the three-month
65
transition period from January 1, 1999 through March 31, 1999 was filed with the Securities and Exchange Commission on January 13, 2000. The year ending March 31, 2000 and quarterly periods within that year are referred to as 2000. All future years
refer to fiscal years ended March 31. The years ended December 31, 1998 and 1997 are referred to as 1998 and 1997, respectively. Powercor's fiscal year end remains December 31. Consequently, the Company's statement of consolidated income, statement of
consolidated cash flows and consolidated balance sheet as of and for the year ended March 31, 2000 include Powercor's financial statements as of December 31, 1999 and for the year then ended. In accordance with guidelines of the Securities and Exchange
Commission, twelve months of income and expense for Powercor were included in the consolidated statement of income for 2000. Powercor's results of operations for the three months ended March 31, 1999 reported in the Company's transition period were
recorded as a deduction to retained earnings in 2000, and cash flow activity for the same period was reflected as a single line item in the operating activities section of the consolidated statement of cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ from those estimates.
REGULATION
Accounting for the domestic electric utility business conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by agencies and the commissions of the various locations in which the domestic electric
utility business operates. The Company prepares its financial statements as they relate to Domestic Electric Operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of
Regulation." See Note 5.
ASSET IMPAIRMENTS
Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment when events or circumstances indicate costs may not be recoverable. Such reviews are performed in accordance with SFAS No. 121. The
impacts of regulation on cash flows are considered when determining impairment. Impairment losses on long-lived assets are recognized when book values exceed expected undiscounted future cash flows with the impairment measured on a discounted future cash
flows basis.
CASH AND CASH EQUIVALENTS
For the purposes of these financial statements, the Company considers all liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents.
66
FOREIGN CURRENCY
Financial statements for foreign subsidiaries are translated into United States dollars at end of period exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting translation gains or losses
are accumulated in the "accumulated other comprehensive income" account, a component of common equity and comprehensive income. All gains and losses resulting from foreign currency transactions are included in the determination of net income.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost of contracted services, direct labor and materials, interest capitalized during construction and indirect charges for engineering, supervision and similar overhead items. The cost of depreciable
domestic electric utility properties retired, including the cost of removal, less salvage, is charged to accumulated depreciation. Repair and maintenance costs for property, plant and equipment are expensed as incurred.
DEPRECIATION AND AMORTIZATION
At March 31, 2000, the average depreciable lives of property, plant and equipment by category were: Domestic Electric Operations -- Production, 41 years; Transmission, 58 years; Distribution, 42 years; Other, 20 years; and Australian Electric Operations,
26 years.
Depreciation and amortization is generally computed by the straight-line method in one of the following two manners, either as prescribed by the Company's various regulatory jurisdictions for Domestic Electric Operations' regulated assets, or over the
assets' estimated useful lives. Provisions for depreciation (excluding amortization of capital leases) in the domestic electric and Australian electric businesses were 3.2%, 3.3% and 3.4% of average depreciable assets in 2000, 1998 and 1997, respectively.
ENVIRONMENTAL COSTS, MINE RECLAMATION AND CLOSURE COSTS
The Company's mining operations are subject to reclamation and closure requirements. The Company monitors these requirements and periodically revises its cost estimates to meet existing legal and regulatory requirements of the various jurisdictions in
which it operates. The Company expenses current mine reclamation costs. Costs for reclamation are accrued using the units-of-production method such that estimated final mine reclamation and closure costs are fully accrued at completion of mining
activities, except where the Company has decided to close a mine. When a mine is closed, the Company records the estimated cost to complete the mine closure and seeks recovery of any incremental costs through rates. This is consistent with industry
practices, and the Company believes that it has adequately provided for its reclamation obligations, assuming ongoing operations of its mines.
67
The liabilities for environmental clean-up related costs are generally recorded on an undiscounted basis in 2000 dollars. These liabilities are recorded in the balance sheet at March 31, 2000 and December 31, 1998 as follows:
March 31, 2000 |
December 31, 1998 |
|
Mine reclamation (a)(b) |
$ 203.5 |
$ 193.2 |
(a) Amounts include the Company's and minority interest joint owners'
portion of mine reclamation costs.
(b) Amounts are included in "Deferred Credits - Other" on the balance sheet.
(c) Amounts are included in "Regulatory assets - net" on the balance sheet.
The Company had trust fund assets of $100.5 million and $77.9 million at March 31, 2000 and December 31, 1998, respectively, relating to mine reclamation, including minority interest joint owners' portion.
INVENTORY VALUATION
Inventories are generally valued at the lower of average cost or market.
INTANGIBLE ASSETS
Intangible assets consist of license and other intangible costs relating to Australian Electric Operations ($395 million and $31 million, respectively, in 2000 and $375 million and $24 million, respectively, in 1998). These costs are offset by
accumulated amortization ($43 million in 2000 and $30 million in 1998). Licenses and other intangible costs are generally being amortized over 40 years. Intangible assets increased $20 million in 2000 due to changes in foreign currency exchange
rates.
FINANCE ASSETS
Finance assets consist of finance receivables, leveraged leases and operating leases and are not significant to the Company in terms of revenue, net income or assets. The Company's leasing operations consist principally of leveraged aircraft leases.
Investments in finance assets are net of accumulated impairment charges and allowances for credit losses of $35 million and $27 million at March 31, 2000 and December 31, 1998, respectively.
DEFERRED CHARGES AND OTHER
Deferred Charges and Other are comprised primarily of funds held in trust for the final reclamation of a leased coal mining property, unamortized debt expense, long term customer loans and receivables, certain employee benefit plan assets, and net amounts
for corporate owned life insurance.
The Company maintains a trust relating to final reclamation of a leased coal mining property. Amounts funded are based on estimated future reclamation costs and estimated future coal deliveries. In both 2000 and 1998, the Company reviewed funding
requirements based on estimated future gains and interest
68
earnings on trust assets and the projected future reclamation liability. The Company determined that no funding was required for both 2000 and 1998. Securities held in the reclamation trust fund are recorded at market value in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." See Note 11. Trust assets include debt and equity securities classified as available for sale. Securities available for sale are carried at fair value with net unrealized gains or
losses excluded from income and reported as accumulated other comprehensive income, a component of stockholders' equity. Realized gains or losses are determined on the specific identification method.
DERIVATIVES
Gains and losses on hedges of existing assets and liabilities are included in the carrying amounts of those assets or liabilities and are recognized in income as part of the carrying amounts. Gains and losses relating to hedges of anticipated transactions
and firm commitments are deferred on the balance sheet and recognized in income when the transaction occurs. Nonhedged derivative instruments are marked-to-market with gains or losses recognized in the determination of net income.
The derivative policy includes as its objective that interest rates and foreign exchange derivative instruments will be used for hedging and not for speculation. The derivative policy also governs the energy trading activities and is generally designed
for hedging the Company's existing energy exposures but does provide for limited speculation activities within defined risk limits.
INTEREST CAPITALIZED
Costs of debt and equity applicable to domestic electric utility properties are capitalized during construction. The composite capitalization rates were 7.9% for 2000 and 5.7% for 1998 and 1997.
INCOME TAXES
The Company uses the liability method of accounting for deferred income taxes. Deferred tax liabilities and assets reflect the expected future tax consequences, based on enacted tax law, of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts.
Prior to 1980, Domestic Electric Operations did not provide deferred taxes on many of the timing differences between book and tax depreciation. In prior years, these benefits were flowed through to the utility customer as prescribed by the Company's
various regulatory jurisdictions. Deferred income tax liabilities and regulatory assets have been established for those flow through tax benefits. See Note 15.
Investment tax credits for regulated Domestic Electric Operations are deferred and amortized to income over periods prescribed by the Company's various regulatory jurisdictions.
Provisions for United States income taxes are made on the undistributed earnings of the Company's international businesses.
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REVENUE RECOGNITION
The Company accrues estimated unbilled revenues for electric services provided after cycle billing to month-end.
COMPREHENSIVE INCOME
As permitted by SFAS No. 130, "Reporting Comprehensive Income," the Company has not included a statement of comprehensive income. Instead the Company included the amounts on the Statement of Consolidated Changes in Common Shareholders' Equity.
ENERGY TRADING
Revenues and purchased energy expense for the Company's energy trading and marketing activities are recorded upon delivery of electricity. Beginning January 1, 1999, the Company applied mark-to-market accounting for all energy trading activities and
presented the net margin.
PREFERRED STOCK RETIRED
Amounts paid in excess of the net carrying value of preferred stock retired are amortized over five years in accordance with regulatory orders.
STOCK BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation," the Company had elected in prior years to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense was recorded. Upon completion of the merger with
ScottishPower, PacifiCorp stock is no longer being issued for compensatory purposes. See Notes 2 and 16.
NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137, which deferred the effective date of SFAS No. 133 to the fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. A company may implement SFAS No. 133, as of the beginning of any fiscal
quarter after the June 1998 issuance; however, the statement cannot be applied retrospectively. The Company does not plan to adopt SFAS No. 133 early. Adoption of this standard will have an effect on the Company's financial position and results of
operations; however, the magnitude of the effect will be determined by the hedges and derivatives that the Company has in place at the date of adoption of the standard. The effects in future periods will be dependent upon the derivatives and hedges in
place at the end of each period and cannot be presently determined.
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In July 1999, the Emerging Issues Task Force of the FASB (the "EITF") reached a consensus on Issue No. 99-9, "Effect of Derivative Gains and Losses on the Capitalization of Interest" ("EITF 99-9"). EITF 99-9 clarifies the application of SFAS No. 34,
"Capitalization of Interest Cost," which establishes standards for capitalizing interest cost as part of the historical cost of acquiring certain assets, in conjunction with SFAS No. 133 (see discussion above). The Company anticipates that the cumulative
effect of the adoption of EITF 99-9 at April 1, 2001 will be immaterial on the Company's financial position, results of operations and cash flows.
From November 29, 1999 to March 24, 2000, the SEC issued Staff Accounting Bulletins No. 100, 101 and 101A. The effect of adoption of these bulletins is not expected to have a material effect on the Company's financial position or results of operations.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the 2000 method of presentation. These reclassifications had no effect on previously reported consolidated net income.
NOTE 2 SCOTTISHPOWER MERGER
On November 29, 1999, the Company and ScottishPower completed their merger (the "Merger") under which the Company became an indirect subsidiary of ScottishPower. The Company continues to operate under its current name, and its headquarters will remain in
Portland, Oregon. As a result of the merger with ScottishPower, the Company became part of a public utility holding company group. The Company's operations are now subject to the requirements and restrictions of the Public Utility Holding Company Act of
1935.
Each share of the Company's stock was converted tax-free into a right to receive 0.58 American Depositary Shares ("ADS") (each ADS represents four ordinary shares) or 2.32 ordinary shares of ScottishPower. Cash was paid in lieu of fractional shares.
For the years ended March 31, 2000 and December 31, 1998, the Company incurred expense of $212 million ($180 million after-tax) and $13 million pretax and after-tax, respectively, in costs associated with the ScottishPower merger. No costs associated
with the ScottishPower merger were incurred during the three months ended March 31, 1999.
At March 31, 2000, the Company had $5 million of accrued liabilities payable to ScottishPower. These liabilities represent costs incurred by ScottishPower employees employed as Company management and ScottishPower employees temporarily working for the
Company on its transition plan.
On May 4, 2000 the Company announced that as a result of the Merger with ScottishPower, the Company has developed and commenced a transition plan to implement significant organizational and operational changes. The transition plan is the outcome of an
intense five-month review of the Company's business. More than 200 initiatives and changes have been proposed. The Company expects to reduce its workforce company-wide by approximately 1,600 over a
71
five-year period, mainly through early retirement, voluntary severance and attrition. The cost of the early retirement offering will not be determinable until the end of June 2000, the deadline for election by eligible employees. These changes are
intended to lead to improved service to customers, continued strong investment in communities and enhanced value for shareholders.
NOTE 3 BID FOR THE ENERGY GROUP
During 1997 and 1998, the Company sought to acquire The Energy Group PLC ("TEG"), a diversified international energy group with operations in the United Kingdom, the United States and Australia. In March 1998, another United States utility made a tender
offer at a price higher than the Company's offer and on April 30, 1998, the Company announced that it would not increase its revised offer for TEG.
The Company recorded an $89 million pretax charge ($55 million after-tax) to 1998 earnings, included in "TEG costs and option losses," for bank commitment and facility fees, foreign currency option contract expense, legal expenses and other related
costs incurred since the Company's original bid for TEG in June of 1997. These costs had been deferred pending the outcome of the transaction.
Additionally, in connection with the attempt to acquire TEG, a subsidiary of the Company purchased approximately 46 million shares of TEG at a price of 820 pence per share, or $625 million. The Company recorded a pretax gain on the TEG shares of $16
million ($10 million after-tax) when they were sold on June 2, 1998.
Upon initiation of the original tender offer in June 1997, the Company also entered into foreign currency exchange contracts. The financing facilities associated with the June 1997 offer for TEG terminated upon referral to the Monopolies and Mergers
Commission and the Company initiated steps to unwind its foreign currency exchange positions consistent with its policies on derivatives. As a result of the termination of these positions and initial option costs, the Company realized a pretax loss of
approximately $106 million ($65 million after-tax) in the third quarter of 1997.
NOTE 4 DISCONTINUED OPERATIONS
In October 1998, the Company decided to exit its energy trading business by offering for sale TPC, and ceasing PPM's electricity trading operations conducted in the eastern United States. PPM's activities in the eastern United States have been
discontinued and all forward electricity trading has been closed. On April 1, 1999, Holdings sold TPC to NIPSCO Industries, Inc. for $150 million. Exiting these energy trading activities resulted in a net after-tax gain of $1 million in the first quarter
of 2000.
On December 1, 1997, Holdings completed the sale of Pacific Telecom, Inc. ("PTI") to Century Telephone Enterprises, Inc. ("Century"). Pursuant to a stock purchase agreement dated June 11, 1997, Century acquired all the stock of PTI for $1.5 billion
in cash plus the assumption of PTI's debt of $713 million. The sale resulted in a gain of $365 million net of income taxes of $306 million. A portion of the proceeds from the sale of PTI were used to
72
repay short-term debt of Holdings. The remaining proceeds were invested in short-term money market instruments and Holdings temporarily advanced excess funds to Domestic Electric Operations for retirement of short-term debt.
The net assets, operating results and cash flows of the energy trading segment and PTI have been classified as discontinued operations for all periods presented in the consolidated financial statements and notes.
Summarized operating results for PPM's eastern energy trading and TPC were as follows:
|
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Three |
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1998 |
1997 |
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$ - - - 1.1 $ 1.1 |
$ - - - - $ - |
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Summarized operating results for PTI were as follows:
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Three |
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1998 |
1997 |
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As mentioned previously, net assets of the discontinued operations were sold April 1, 1999. Net assets of the discontinued operations of the energy trading segment and assets held for sale consisted of the following:
|
December 31, |
|
|
At March 31, 2000 and December 31, 1998, Holdings had $15 million and $34 million, respectively, of liabilities in "Customer deposits and other" relating to the sale of the discontinued operations.
NOTE 5 ACCOUNTING FOR THE EFFECTS OF REGULATION
Regulated utilities have historically applied the provisions of SFAS No. 71 which is based on the premise that regulators will set rates that allow for the recovery of a utility's costs, including cost of capital. Accounting under SFAS No. 71 is
appropriate as long as: rates are established by or subject to approval by independent, third-party regulators; rates are designed to recover the specific enterprise's cost-of-service; and in view of demand for service, it is reasonable to assume that
rates are set at levels that will recover costs and can be collected from customers. In applying SFAS No. 71, the Company must give consideration to changes in the level of demand or competition during the cost recovery period. In accordance with SFAS No.
71, Domestic Electric Operations capitalizes certain costs as regulatory assets in accordance with regulatory authority whereby those costs will be expensed and recovered in future periods.
The EITF of the FASB concluded in 1997 that SFAS No. 71 should be discontinued when detailed legislation or regulatory order regarding competition is issued. Additionally, the EITF concluded that regulatory assets and liabilities applicable to businesses
being deregulated should be written off unless their recovery is provided for through future regulated cash flows.
Legislative actions in California and Montana during 1996 and 1997 mandated customer choice of electricity supplier, moving away from cost-based regulation to competitive market rates for the generation portion of the electric business. As a result of
these legislative actions, the Company evaluated its generation regulatory assets and liabilities in California and Montana based upon future regulated cash flows and ceased the application of SFAS No. 71 to its generation business allocable to California
and Montana. Domestic Electric Operations recorded an extraordinary loss of $16 million in 1997 for the write off of regulatory assets in those states. The regulatory assets written off resulted primarily from deferred taxes allocated to California and
Montana. The allocation among the states was based on plant balances.
74
During 1998, the Company filed new depreciation rates with the respective regulatory commissions in the states of Oregon, Utah and Wyoming based upon a depreciation study. New depreciation rates were filed in Washington as part of a general rate case
filing. The Utah Public Service Commission (the "UPSC") approved new depreciation rates in an order dated January 6, 2000. The Oregon Public Utility Commission (the "OPUC") approved new depreciation rates in an order dated May 31, 2000. Stipulated rates
have been agreed upon in Wyoming, with a final order still pending. The impact of the proposed changes in depreciation is being incorporated into the current general rate cases in Oregon and Washington and the next general rate case in the other states.
Based on the depreciation rates that have been approved and are pending approval, annual depreciation expense would be increased by approximately $20 million. The increase in depreciation expense is primarily due to revisions of the estimated costs of
removal for steam production and distribution plant. For the period April 1, 2000 to March 31, 2002, the Utah and Wyoming commissions have ordered a reversal of a portion of previously accrued depreciation. These reversals in total, for all
states, will amount to approximately $14 million per year.
Merger Orders
On June 10, 1999, the California Public Utility Commission (the "CPUC") issued an order approving the Merger. The CPUC conditioned its approval on the Company's acceptance of requirements which primarily addressed the Commission's ability to continue to
regulate the Company's California service territory.
On November 22, 1999, the Wyoming Public Service Commission ("WPSC") issued an order approving the Merger. The Company agreed to make an informational filing in 2001 that guarantees $4 million per year in merger savings in future rate cases. The Company
separately agreed to limit any rate increase filing in 1999 to $12 million and in the following year to $8 million plus the effect of any change in depreciation rates.
On October 6, 1999, the OPUC issued an order approving the Merger. As part of this approval, the Company agreed to provide a merger credit to retail customers of $12 million per year for three years beginning in calendar 2001 and $15 million in calendar
2004. In calendar 2003 and 2004, $9 million and $12 million, respectively, of the credit can be partially or wholly eliminated to the extent that merger-related cost savings are reflected in prices.
On October 14, 1999, the Washington Utilities & Transportation Commission (the "WUTC") approved the Merger. As part of this approval, the Company agreed to provide retail customers a merger credit of $3 million per year for four years beginning in
calendar 2001. The credit can be wholly or partially eliminated in all years to the extent that merger-related cost savings are reflected in prices.
On November 15, 1999, the Idaho Public Utilities Commission (the "IPUC") approved the Merger. As part of this approval, the Company agreed to provide a $1.6 million per year merger credit to retail customers for four years beginning in calendar 2000. The
credit can be wholly or partially eliminated in years three and four to the extent that merger-related cost savings are reflected in prices.
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On November 24, 1999, the UPSC approved the Merger. As part of this approval, the Company agreed to provide a merger credit for retail customers of $12 million per year for four years beginning in calendar 2000. The credit can be wholly or
partially eliminated in years three and four to the extent that merger-related cost savings are reflected in prices.
The Company's total obligation for merger credits described above is $133.4 million over the period ending December 31, 2004. Of this amount, $57.2 million must be provided without offset or reduction of any kind and, accordingly, the Company
has recorded $57.2 million as a liability and current expense in its financial statements for the year ended March 31, 2000. The remaining $76.2 million obligation of the Company with respect to merger credits is subject to possible offset if the Company
demonstrates in a future rate case, to the satisfaction of the respective commissions, that merger-related cost reductions have occurred and are being reflected in rates. This $76.2 million obligation will be reflected in future periods.
Regulation
A summary of regulatory and legislative developments in the states where the Company conducts its distribution and retail electric operations is set forth below.
Utah. On March 4, 1999, the UPSC ordered the Company to reduce revenues in Utah by $85 million, or 12%, annually. The ordered reduction was the culmination of a general rate case that began in 1997. Additionally, the UPSC ordered a refund to be
issued through a credit on customer bills of $40 million. The Company recorded a $38 million reduction in revenues in 1998 and recorded the remaining $2 million in the three months ended March 31, 1999. The refund covers the period from March 14,
1997 to February 28, 1999. The beginning date is consistent with the timing of Utah legislation imposing a moratorium on rate changes after the Utah Division of Public Utilities (the "UDPU") and the Utah Committee of Consumer Services (the "UCCS")
requested a general rate case. The $85 million reduction commenced on March 1, 1999. The order also reduced the Company's authorized rate of return on equity from 12.1% to 10.5%.
On September 20, 1999, the Company filed for a rate increase before the UPSC. The Company asked for an increase of $67 million, or 9.9%, based on a test year ended December 31, 1998 and a requested 11.25% return on equity. On March 15, 2000, the
Company filed a revised request of $55.2 million. On May 24, 2000, the Company received an order from the UPSC authorizing the Company to increase prices in Utah for residential, irrigation, small commercial and lighting customers by 4.24% and large
commercial and industrial customers by less than 1%. The price increase is expected to result in annual revenues of $17 million. The order allowed a rate of return on equity of 11% and was effective on May 25, 2000.
The 2000 Utah legislative session passed a bill that could significantly change the way in which utilities are regulated in the state. The bill provides guidelines under which the interests of all parties will be protected and balanced in the ratemaking
process. It directs the UPSC to determine fair rates by balancing the interests of utility customers with the need of
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utilities to maintain financial stability. This legislation also streamlines state government by consolidating the UDPU and the UCCS into one agency - the Office of Public Advocate. The bill modifies the nature of UPSC proceedings by encouraging and
providing an opportunity for timely and reasonable settlements without restricting the rights of all interested persons to participate in a formal administrative process. Finally, the legislation requires Utah regulators to reflect "known and measurable"
changes to financial data when hearing a rate case. This bill is effective July 1, 2001.
The Utah legislature also passed a bill extending the life of a legislative task force created in 1997 to study restructuring issues. The bill authorizes this task force to meet as often as twice a month to prepare legislation to implement an electrical
restructuring plan for presentation and consideration in the 2001 legislative session, unless it is not in Utah's best interest to do so.
Oregon. The OPUC and the Company have agreed to an Alternate Form of Regulation ("AFOR") for the Company's Oregon distribution business. The AFOR allows for index-related price increases in 1998, 1999 and 2000, with an annual cap of 2% of
distribution revenues in any one year and an overall cap of 5% over the three-year period. The annual revenue increase for the twelve months ended December 31, 1999 was approximately $6.2 million. The AFOR also includes incentives to invest in
renewable resources and penalties for failure to maintain the service quality levels. On April 30, 1999, the Company filed for changes in the prices it charges Oregon customers under the AFOR. The filing also contained a request to increase the revenues
collected under the Company's system benefits charge. The changes were approved by the OPUC in June 1999, and became effective July 1, 1999. This resulted in a price increase of approximately 1.3%, or $9 million annually, in Oregon. On April 28,
2000, the Company made an additional AFOR filing for a price increase of 1.8%, or $14 million annually. Of this amount, approximately $10 million is offset by costs mandated by regulators.
On November 5, 1999, the Company filed for a general rate increase in Oregon. The Company is asking for an increase of $61.8 million, or 8.5%. The Company's effective date for this increase is expected to be in the fall of 2000. The OPUC staff has
submitted a preliminary report raising issues that in the aggregate could produce a $101 million rate reduction after giving effect to the Centralia sale. The staff testimony is due in June 2000 and hearings are scheduled for August 2000.
During July 1999, legislation was enacted in Oregon that requires competition for industrial and large commercial customers of both the Company and Portland General Electric by October 1, 2001. Residential customers will receive a portfolio of energy
commodity rate options. The law generally exempts publicly-owned utilities and Idaho Power's Oregon service territory. The law authorizes the OPUC to make decisions on a variety of important issues, including the method for valuation of stranded
costs/benefits, consumer protections, marketer certification, environmental issues, and competitive services. The legislation also calls for the establishment of a code-of-conduct for electric companies and their affiliates to protect consumers against
anti-competitive practices. The legislation directs the investor-owned
77
utilities to collect a 3% public benefit charge from all of its distribution customers. The Company is currently participating in the OPUC proceedings to establish the rules and procedures that will implement the new law. The Company will continue to
evaluate the finance and accounting impacts, including the continued propriety of applying SFAS No. 71, as the OPUC proceedings progress. The impacts, if any, are uncertain.
Wyoming. On July 26, 1999, the Company filed for a rate increase before the WPSC. The Company requested an increase of $12 million, or 4.9%, based on a test year ended December 31, 1998. The Company has also stipulated that any rate increase
filings through May 2001 will not exceed $8 million plus the effects of any change in depreciation rates. On May 23, 2000, the Company received an order from the WPSC authorizing the Company to increase prices in Wyoming, resulting in increased
annual revenues of $11 million. The order allowed a total rate of return of 8.85%, a return on common equity of 11.25% and was effective May 25, 2000. The WPSC did not allow recovery of approximately $1 million of the requested $12 million
increase allocated to partial requirements industrial customers, finding that the cost of service study was not sufficient to support the increase to this class. The Company is in the process of refiling for this $1 million increase with a
supplemental cost of service study.
Washington. On November 23, 1999, the Company filed for a rate increase before the WUTC. This rate increase contains two phases. In the first phase, the Company is asking for an increase of $14.6 million, or 8.10%. Including the systems benefit
charge, which will be used to fund conservation and new renewable development projects, this increase is $17.4 million, or 9.64%. In the second phase, the Company is requesting an increase of $11.2 million, or 5.65%. The effective date for phase one of
this proposed tariff increase is expected to be in the fall of 2000, and phase two would become effective one year following the effective date of phase one.
Idaho. On April 28, 2000, the Company filed documents with the IPUC to implement the next step in the gradual retirement of a BPA energy credit. The proposed reduction in the credit would increase electric prices for the Company's residential and
irrigation customers in southeastern Idaho. The filing, once approved by the IPUC, would reduce the credits from the BPA and increase residential prices 3.35%, or $1 million, and irrigation prices 8%, or $2 million. These price increases phase out the BPA
credit and do not have any impact on earnings.
The move toward an open or competitive marketplace for electric power may result in "stranded costs" relating to certain current investments, deferred costs and contractual commitments incurred under regulation that may not be recoverable in a competitive
market. The calculation of stranded costs requires certain complex and interrelated assumptions to be made, the most critical of which is the expected market price of electricity. The Company and many industry analysts believe that market forces in the
United States will continue to drive retail energy prices down as excess capacity of existing generation resources persists. This projected trend in price decreases is consistent with other commodities and services that have gone through
78
deregulation. Contrary to historical price trends, certain other parties believe prices will increase in the future resulting in a stranded benefit to the Company. The key attributes that affect market price include excess generation capacity, the
marginal cost of the high-cost provider that is required to meet market demand, the cost of adding new capacity and the price of natural gas.
Regulatory assets-net included the following:
|
March 31, |
December 31, |
|
|
|
(a) Excludes $115 million as of March 31, 2000 and $125 million as of December 31, 1998 of investment tax credit regulatory liabilities.
The Company evaluates the recovery of all regulatory assets annually. The evaluation includes the probability of recovery as well as changes in the regulatory environment. Because of the potential regulatory and/or legislative action in Utah, Oregon,
Wyoming, Idaho and Washington, the Company may have regulatory asset write offs and charges for impairment of long-lived assets in future periods. Impairment would be measured in accordance with SFAS No. 121, which requires the recognition of impairment
on long-lived assets when book values exceed expected future cash flows.
NOTE 6 SPECIAL CHARGES
In January 1998, the Company announced a plan to reduce its work force in the United States by approximately 600 positions, or 7% of the work force in the United States. The Company offered enhanced early retirement to approximately 1,200 employees. The
actual net work force reduction from this program was 759 positions, with 981 employees accepting the offer and 222 vacated positions backfilled. The pretax cost of $113 million ($70 million after-tax) was recorded in March 1998.
In the fall of 1998, the Company initiated a cost reduction program that included involuntary employee severance and enhanced early retirement for employees who met certain age and service criteria and were displaced in conjunction with the cost reduction
initiatives. Approximately 167 employees were displaced, with 35 of them eligible for the enhanced early retirement, and the Company recorded a $10 million ($6 million after-tax) expense in special charges.
79
Below is a summary of the accrual recorded and payments made during 1998 relating to the work force reduction initiatives described above.
|
|
Retirement |
Severance |
|
|
|
|
As of March 31, 2000, substantially all of the remaining obligations relating to work force reduction initiatives had been satisfied.
In December 1997, Domestic Electric Operations recorded in operating income special charges of $170 million ($106 million after-tax). The pretax special charges included the write off of $87 million of deferred regulatory pension assets, a $19 million
write off of certain information system assets associated with the Company's decision to proceed with an installation of SAP enterprise-wide software and $64 million of costs resulting from the decision to close Glenrock Coal Company. The decline in both
Powder River Basin coal prices and Burlington Northern rail rates, coupled with changing mine geology, made the continued operation of the Glenrock Mine uneconomical.
Final reclamation efforts are ongoing at the Glenrock Mine. The Company expects most reclamation activities will be completed by 2006. Pursuant to the Surface Mine Control and Reclamation Act, the Company will then be required to monitor the reclamation
work. The monitoring period will last an additional ten years.
NOTE 7 SHORT-TERM DEBT AND BORROWING ARRANGEMENTS
The Companies' short-term debt and borrowing arrangements were as follows:
|
|
Average |
|
|
|
(a) Computed by dividing the total interest on principal amounts outstanding at the end of the period by the weighted daily principal amounts outstanding.
80
At March 31, 2000, PacifiCorp's commercial paper and bank line borrowings were supported by revolving credit agreements totaling $800 million. At March 31, 2000, subsidiaries had committed bank revolving credit agreements totaling $723 million.
The Companies have the intent and ability to support short-term borrowings on a long-term basis through various revolving credit agreements, the earliest of which expires in October 2000. At March 31, 2000, subsidiaries had $429 million of
short-term debt classified as long-term. See Note 8.
NOTE 8 LONG-TERM DEBT
The Company's long-term debt was as follows:
|
March 31, |
December 31, |
|
|
|
|
428.6 - 1,103.8 0.7 1,103.1 $4,221.5 |
|
81
(a) Secured by pledged first mortgage bonds generally at the same interest rates, maturity dates and redemption provisions as the pollution control revenue bonds.
(b) Interest rates fluctuate based on various rates, primarily on certificate of deposit rates, interbank borrowing rates, prime rates or other short-term market rates.
(c) Interest rates fluctuate based on Australian Bank Bill Acceptance Rates. A revolving loan agreement requires that at least 50% of the borrowings must be hedged against variations in interest rates. Approximately $413 million was hedged
at March 31, 2000 at an average rate of 7% and for an average life of 4.5 years.
(d) The Companies have the ability to support short-term borrowings and current debt being refinanced on a long-term basis through revolving lines of credit and, therefore, based upon management's intent, have classified $429 million of
short-term debt as long-term debt.
First mortgage bonds of the Company may be issued in amounts limited by Domestic Electric Operations' property, earnings and other provisions of the mortgage indenture. Approximately $12 billion of the eligible assets (based on original cost) of
PacifiCorp is subject to the lien of the mortgage.
The junior subordinated debentures are unsecured obligations of the Company and are subordinated to the Company's first mortgage bonds, pollution control revenue bonds, commercial paper, bank debt and any future senior indebtedness.
The annual maturities of long-term debt, capitalized lease obligations and redeemable preferred stock outstanding are $187 million, $731 million, $155 million, $140 million and $244 million in 2001 through 2005, respectively.
The Company made interest payments, net of capitalized interest, of $402 million, $116 million, $444 million and $414 million in 2000, the three months ended March 31, 1999, and the years 1998 and 1997, respectively.
NOTE 9 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
COMPANY'S JUNIOR SUBORDINATED DEBENTURES
Wholly owned subsidiary trusts of the Company (the "Trusts") have issued, in public offerings, redeemable preferred securities ("Preferred Securities") representing preferred undivided beneficial interests in the assets of the Trusts, with liquidation
amounts of $25 per Preferred Security. The sole assets of the Trusts are Junior Subordinated Deferrable Interest Debentures of the Company that bear interest at the same rates as the Preferred Securities to which they relate, and certain rights under
related guarantees by the Company.
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Preferred Securities outstanding were as follows:
|
March 31, |
December 31, |
|
|
|
|
|
NOTE 10 COMMON AND PREFERRED STOCK
Common Dividend Restrictions - ScottishPower is the sole shareholder of the Company's common stock. The Company is restricted from paying dividends or making other distributions to ScottishPower without prior OPUC approval to the extent such
payment or distribution would reduce the Company's common stock equity below a specified percentage of its total capitalization. The percentage of total capitalization is between 35% after December 31, 1999 to 40% after December 31, 2004. In addition, the
Company must give the OPUC 30 days prior notice of any special cash dividend or any transfer involving more than five percent of PacifiCorp's retained earnings in a six-month period.
Under the Public Utility Holding Company Act of 1935, the Company may pay dividends out of capital or unearned surplus only with SEC approval. Dividends from earned surplus are permitted without approval.
Preferred Stock Thousands of shares At January 1, 1997 Redemptions and repurchases At December 31, 1997 Redemptions and repurchases At December 31, 1998 Redemptions and repurchases At March 31, 2000 |
|
83
Generally, preferred stock is redeemable at stipulated prices plus accrued dividends, subject to certain restrictions. Upon involuntary liquidation, all preferred stock is entitled to stated value or a specified preference amount per share plus accrued
dividends. Any premium paid on redemptions of preferred stock is capitalized, and recovery is sought through future rates.
|
|
|
||
Shares |
Amount |
Shares |
Amount |
|
|
|
|
|
|
|
|
|
|
|
Mandatory redemption requirements at stated value plus accrued dividends on No Par Serial Preferred Stock are as follows: the $7.70 series is redeemable in its entirety on August 15, 2001; and 37,500 shares of the $7.48 series are redeemable on each
June 15 from 2002 through 2006, with all shares outstanding on June 15, 2007 redeemable on that date. If the Company is in default in its obligation to make any future redemptions on the $7.48 series, it may not pay cash dividends on common stock.
84
NOTE 11 SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of reclamation trust securities and other investments, which are classified as available for sale, were as follows:
|
Gross |
Gross |
|
|
|
|
|
|
|
The quoted market price of securities is used to estimate the securities' fair value.
The amortized cost and estimated fair value of debt securities at March 31, 2000 and December 31, 1998 by contractual maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
|
March 31, 2000 |
December 31, 1998 |
||
Amortized |
Estimated |
Amortized |
Estimated |
|
|
|
|
|
|
85
Proceeds, gross gains and gross losses from realized sales of available-for-sale securities using the specific identification method were as follows for the year ended March 31, 2000, the three months ended March 31, 1999 and the years ended December
31, 1998 and 1997:
|
|
|
|
|
December 31, |
December 31, |
|||
|
|
|
|
|
NOTE 12 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Through the application of its capital structure policies that govern the use of equity and debt, including duration, maturity and repricing intervals, the Company seeks to reduce its net income and cash flow exposure to changing interest and other
commodity price risks. The Company utilizes derivative instruments to modify or eliminate its exposure from adverse movements in interest and foreign currency rates. The use of these derivative instruments is governed by the Company's derivative policy,
which includes as its objective that interest rates and foreign exchange derivative instruments will be used for hedging and not for speculation. As such, only those instruments that have a high correlation with the Company's underlying commodity exposure
can be utilized. The derivative policy also governs energy trading activities and is generally designed for hedging the Company's existing energy exposures but does provide for limited speculative activities within defined risk limits.
Notional Amounts and Credit Exposure of Derivatives - The notional amounts of derivatives summarized below do not represent amounts exchanged and, therefore, are not a measure of the exposure of the Company through its use of derivatives. The
amounts exchanged are calculated on the basis of the notional amounts and other terms of the derivatives, which relate to interest rates, exchange rates or other indexes.
The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company's
derivative policy provides that counterparties must satisfy established credit ratings and currently a majority of the Company's counterparties are rated "A" or better. The credit exposure of interest rate, foreign exchange and forward contracts is
represented by the fair value of contracts with a positive fair value at the reporting date.
86
Interest Rate Risk Management - The Company enters into various types of interest rate contracts to assist in managing its interest rate risk, as indicated in the following table:
|
Notional Amount |
|
March 31, |
December 31, |
|
|
|
|
The Company uses interest rate swaps, collars, futures and forwards to adjust the characteristics of its liability portfolio, allowing the Company to establish a mix of fixed or variable interest rates on its outstanding debt within the Company's overall
capital structure guidelines for leverage and variable interest rate risk.
The use of interest rate collars, futures and forwards has been limited to use in the Australian Electric Operations. The futures and forwards, when used, are accounted for as hedges of the Australian bank bill borrowings.
Under the various interest rate swap agreements, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and variable-rate interest amounts calculated by reference to an agreed notional principal
amount. The following table indicates the weighted-average interest rates of the swaps. Average variable rates are based on rates implied in the yield curve at year end; these may change significantly, affecting future cash flows. Swap contracts are
principally between one and eight years in duration. Maturation of derivatives over the next five years consists of $255 million, $95 million and $36 million in 2001 through 2003, respectively, with none maturing in 2004 and 2005.
March 31, |
December 31, |
|
|
|
|
Foreign Exchange Risk Management - The Company's principal foreign exchange exposure relates to its investment in its Australian Electric Operations. The Company has hedged its exposure through both Australian-dollar denominated bank borrowings,
which hedge approximately 55% to 60% of its total exposure, and through a series of amortizing currency swaps, which hedge approximately half of the remaining exposure. In January 1998, Australian Electric Operations issued $400 million of 6.15% Notes due
2008. At the same time, in order to mitigate foreign currency exchange risk and consistent with the directives in the Company's derivative policy, Australian Electric Operations entered into a series of cross currency swaps in the same amount and for the
same duration as the underlying United States denominated notes.
87
At March 31, 2000, Holdings held three combined interest rate and currency swaps that terminate in 2002, with an aggregate notional amount of $202 million to hedge a portion of its net investment in Powercor to fluctuations in the Australian
dollar. The interest rate portions of these three swaps were effectively offset in 1997 by the purchase of an overlay swap transaction with approximately the same terms. The net amounts of these swaps have not had a significant impact on net income.
Commodity Risk Management - The Company has utilized electricity forward contracts (referred to as "contracts for differences") to hedge exposure to electricity price risk on anticipated transactions or firm commitments in its Australian Electric
Operations. Under these forward contracts, the Company receives or makes payment based on a differential between a contracted price and the actual spot market of electricity. Additionally, electricity futures contracts are utilized to hedge Domestic
Electric Operations' excess or shortage of net electricity for future months.
At March 31, 2000, Australian Electric Operations had 309 forward contracts with electricity generation companies on notional quantities amounting to approximately 31.7 million megawatt hours ("MWh"). The average fixed price to be paid by Australian
Electric Operations was $20.80 per MWh compared to the average price of similar contracts at March 31, 2000 of $25.29. At December 31, 1998, Australian Electric Operations had 290 forward contracts with electricity generation companies on notional
quantities amounting to approximately 34.4 million MWh through the year 2007. The average fixed price to be paid by Australian Electric Operations was $17.99 per MWh compared to the average price of similar contracts at December 31, 1998 of $22.20. It is
not practicable to determine the fair value of the forward contracts held by Australian Electric Operations because of the limited number of transactions and the inactive trading in the electricity spot market.
The Company had open NYMEX futures contracts as follows:
March 31, |
December 31, |
|
|
|
|
Trading Activities - The fair market values of open positions at March 31, 2000 was $1 million. Such transactions involve delivery of electricity, which is accounted for as revenue or purchased power expense. At March 31, 2000, the Company had open
purchase positions with a notional amount of approximately $67.2 million, or 2.0 million MWh, and open sell positions for approximately $57.5 million, or 1.7 million MWh.
88
NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
March 31, 2000 |
December 31, 1998 |
|||
|
Carrying |
Fair |
Carrying |
Fair |
|
|
|
|
|
The carrying value of cash and cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. The fair value of the finance note receivable
approximates its carrying value at March 31, 2000 and December 31, 1998.
The fair value of the Company's long-term debt has been estimated by discounting projected future cash flows, using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same maturities. Current
maturities of long-term debt were included. The fair value of the Preferred Securities was based on closing market prices and the fair value of redeemable preferred stock was based on bid prices from an investment bank.
The fair value of interest rate derivatives and currency swaps is the estimated amount the Company would receive (pay) to terminate the agreements, taking into account current interest and currency exchange rates and the current creditworthiness of the
agreement counterparties.
NOTE 14 COMMITMENTS AND CONTINGENCIES
The Company is subject to numerous environmental laws including: the Federal Clean Air Act, as enforced by the Environmental Protection Agency and various state agencies; the 1990 Clean Air Act Amendments; the Endangered Species Act as it relates to
certain potentially endangered species of salmon; the Comprehensive Environmental Response, Compensation and Liability Act, relating to environmental cleanups; along with the Federal Resource Conservation and Recovery Act and the Clean Water Act relating
to water quality. These laws could potentially impact future operations. For those contingencies identified at March 31, 2000, principally the Superfund sites where the Company has been or may be designated as a potentially responsible party and Clean Air
Act matters, future costs associated with the disposition of these matters are not expected to be material to the Company's consolidated financial statements.
On October 9, 1996, the Sierra Club filed an action against the Company and the other joint owners of Units 1 and 2 of the Craig Electric Generating Station (the "Station") under the citizen's suit provisions of the Federal Clean Air Act alleging, based
upon reports from emissions monitors at the Station, that over 14,000 violations of state and federal opacity standards have occurred over a five-year period at Units 1 and 2 of the Station. (Sierra
89
Club v. Tri-State Generation and Transmission Association, Inc., Public Service Company of Colorado, Inc., Salt River Project Agricultural Improvement and Power District, PacifiCorp and Platte River Power Authority, Civil Action No. 96-B2368,
US District Court for the District of Colorado). The Company has a 19.28% interest in Units 1 and 2 of the Station, which is operated by Tri-State Generation and Transmission Association and located in Craig, Colorado.
The action seeks injunctive relief requiring the defendants to operate the Station in compliance with applicable statutes and regulations, the imposition of civil penalties, litigation costs, attorneys' fees and mitigation. The Federal Clean Air Act
provides for penalties of up to $27,500 per day for each violation, but the level of penalties imposed in any particular instance is discretionary. The complaint alleges that the Company and Public Service Company of Colorado are responsible for the
alleged violations beginning with the second quarter of 1992, when they acquired their interests in the Station, and that the other owners are responsible for the alleged violations during the entire period. The complaint alleges that there were
approximately 10,000 violations since the second quarter of 1992. On March 18, 1999, the district court issued its order regarding summary judgment motions filed by the parties. The court ruled, among other things, that the emission monitors may be used
by the plaintiff to establish violations of opacity standards, but that the plant owners are entitled to prove that the reported information is flawed.
Over the period from November 1997 to May 1998, Powercor entered into 11 electricity hedging contracts with a NSW State-owned generator (the "Generator") for the notional supply of electricity between 1998 and 2008. The contracts were designed to support
the long-term supply of electricity by Powercor to its customers and to minimize Powercor's exposure to large fluctuations in the spot electricity price. When the wholesale market price for electricity moved against the Generator in May 1998, the
Generator denied that any final and binding contracts had been entered into with Powercor, as both parties had not signed final versions of the confirmations setting out the terms and conditions of each transaction. However, an ISDA Master Agreement was
in place between the parties which governed the negotiation, contracting and settlement process of individual contracts between them.
The Generator refused to honor the contracts and Powercor issued proceedings against the Generator, claiming in the Supreme Court of Victoria that the contracts were valid and enforceable. (Powercor Australia Ltd. v. Pacific Power, Commercial List No.
4931, Case No. 2067 of 1998, Supreme Court of Victoria.) In December 1999 a ruling was issued in favor of Powercor. Specific performance was ordered of the 11 electricity hedge contracts, which were in dispute. Further, the following orders were made
requiring payments by the Generator to Powercor: the Generator made payment of $29 million on December 17, 1999 attributable to the performance of the contracts from July 1, 1998 to judgment. This amount reflects the difference between actual
payments and payments under the hedges plus interest of $1 million; and the Generator made payment of $2 million on December 24, 1999 as an agreed sum for legal expenses and other costs relating to the proceedings.
On December 21, 1999, the Generator appealed the judgments, declarations and orders on 80 grounds, including substantially all of the key aspects of the decision. The appeal is listed for hearing on October 2, 2000 for eight days.
90
The Company announced the closure of the Trail Mountain mine on April 12, 2000. Mining operations at Trail Mountain will cease in the fall of 2001. With the early closure of the mine, there may be additional reclamation costs for which the Company
would seek recovery through future rates.
The Company and its subsidiaries are parties to various legal claims, actions and complaints, certain of which involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these
legal proceedings or, if not, what the impact might be, management currently believes that disposition of these matters will not have a materially adverse effect on the Company's consolidated financial statements.
Construction and Other - Construction and acquisitions are estimated at $429 million for 2001. As a part of these programs, substantial commitments have been made.
Leases - The Company has certain properties under leases with various expiration dates and renewal options. Rentals on lease renewals are subject to negotiation. Certain leases provide for options to purchase at fair market value. The Company is also
committed to pay all taxes, expenses of operation (other than depreciation) and maintenance applicable to the leased property.
Net rent expense for the year ended March 31, 2000, the three months ended March 31, 1999, and the years ended December 31, 1998 and December 31, 1997 was $16 million, $5 million, $17 million and $15 million, respectively.
Future minimum lease payments under noncancellable operating leases are $5 million, $4 million, $4 million, $3 million and $2 million for 2001 through 2005, respectively.
Jointly Owned Facilities - At March 31, 2000, Domestic Electric Operations' participation in jointly owned facilities was as follows:
|
Electric |
Plant |
|
Construction |
|
|
|
|
|
(a) Includes kilovolt lines and substations.
91
(b) Plant, inventory, fuel and decommissioning costs totaling $21 million relating to the Trojan Plant were included in regulatory assets-net at March 31, 2000.
(c) Excludes unallocated acquisition adjustments of $104 million at March 31, 2000, that represents, for regulatory accounting, the excess of the cost of the acquired interest in the facilities over their original cost net of
accumulated depreciation.
(d) Additionally, the Company has contracted to purchase the remaining 50% of the output of the plant.
(e) The owners sold the plant on May 4, 2000. For additional information on the sale, see Note 17.
Under the joint agreements, each participating utility is responsible for financing its share of construction, operating and leasing costs. Domestic Electric Operations' portion is recorded in its applicable operations, maintenance and tax accounts, which
is consistent with wholly owned plants.
Long-Term Wholesale Sales and Purchased Power Contracts - Domestic Electric Operations manages its energy resource requirements by integrating long-term firm, short-term and spot market purchases with its own generating resources to economically
dispatch the system (within the boundaries of the Federal Energy Regulatory Commission (the "FERC") requirements) and meet commitments for wholesale sales and retail load growth. The long-term wholesale sales commitments include contracts with minimum
sales requirements of $410 million, $346 million, $334 million, $312 million and $280 million for the years 2001 through 2005, respectively. As part of its energy resource portfolio, Domestic Electric Operations acquires a portion
of its power through long-term purchases and/or exchange agreements which require minimum fixed payments of $291 million, $286 million, $281 million, $245 million and $227 million for the years 2001 through 2005, respectively. The purchase
contracts include agreements with the Bonneville Power Administration, the Hermiston Plant and a number of cogenerating facilities.
Excluded from the minimum fixed annual payments above are commitments to purchase power from several hydroelectric projects under long-term arrangements with public utility districts. These purchases are made on a "cost-of-service" basis for a stated
percentage of project output and for a like percentage of project annual costs (operating expenses and debt service). These costs are included in operations expense. Domestic Electric Operations is required to pay its portion of the debt service, whether
or not any power is produced. The arrangements provide for nonwithdrawable power and the majority also provide for additional power, withdrawable by the districts upon one to five years' notice. For 2000, such purchases approximated 3% of energy
requirements.
92
At March 31, 2000, Domestic Electric Operations' share of long-term arrangements with public utility districts was as follows:
Generating |
Year Contract |
Capacity |
Percentage |
Annual |
|
|
|
|
|
(a) Annual costs, in millions of dollars, include debt service of $7.8 million.
The Company has a 4% interest in the Intermountain Power Project (the "Project"), located in central Utah. The Company and the city of Los Angeles have agreed that the City will purchase capacity and energy from Company plants equal to the Company's 4%
entitlement of the Project at a price equivalent to 4% of the expenses and debt service of the Project.
The Klamath Cogeneration Project plant, being constructed in conjunction with the City of Klamath Falls, has a planned commercial operation date of July 2001. Upon commercial operation, PPM is under contract to purchase approximately 47% of the total
megawatt capacity from the plant for resale to third parties, and market on behalf of the City the remaining output to municipal and commercial buyers in the Pacific Northwest and northern California. PPM is also under contract for management, operations
and fuel supply. Holdings has provided a guarantee of $60 million of subordinated debt of the project.
Powercor has an unconditional purchase obligation agreement that requires them to purchase a cogenerator's production in excess of that required for the cogenerator's use. The amount of energy required to be purchased cannot be estimated at this time. In
2000, 1998 and 1997, Powercor purchased 137,655 MWh, 155,311 MWh and 171,217 MWh, respectively, at $49.68, $50.44 and $57.61 per MWh.
Fuel Contracts - Domestic Electric Operations has take or pay coal and natural gas contracts which require minimum fixed payments of $115 million, $118 million, $134 million, $138 million and $142 million for 2001 through 2005,
respectively.
In May 1999, Domestic Electric Operations entered into a coal mining lease agreement for exclusive rights to mine the Mill Fork Tract in Emery County, Utah. The agreement calls for a lease bonus bid payment of $25 million, payable annually in March in
installments of $5 million through 2003.
93
NOTE 15 INCOME TAXES
The Company's combined federal and state effective income tax rate from continuing operations was 62% for the year ended March 31, 2000, 39% for the three months ended March 31, 1999, 35% for calendar year 1998 and 32% for calendar year 1997. The primary
driver for the increase in the tax rate for the year ended March 31, 2000 was the non-deductible nature of many Merger costs. The difference between taxes calculated as if the statutory federal tax rate of 35% was applied to income from continuing
operations before income taxes and the recorded tax expense is reconciled as follows:
|
|
Three |
|
|
March 31, |
March 31, |
December 31, |
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes is summarized as follows:
|
|
Three |
|
|
March 31, |
March 31, |
December 31, |
December 31, |
|
|
|
|
|
|
94
The tax effects of significant items comprising the Company's net deferred tax liability were as follows:
|
March 31, |
December 31, |
|
|
|
|
|
|
The Company has received an Internal Revenue Service ("IRS") examination report for 1991, 1992 and 1993, proposing adjustments that would increase current taxes payable by $97 million. The Company filed a protest of many of these proposed adjustments in
December 1998. Discussions with the Appeals Division of the IRS commenced in November 1999 with the intent to reach resolution of many of the disputed issues.
The Company completed its discussions with the Appeals Division for the 1989 and 1990 tax years during 1998. A total of $8 million was paid as part of resolution of many of the issues. In 1999, the Company filed for relief in Tax Court with respect to two
issues where it still has disagreement. The tax impact for these two issues is $4 million.
During 1999, the IRS commenced examination of the Company's tax returns for the years 1994 through 1999.
The Company received net income tax refunds of $2 million each for 2000 and the three months ended March 31, 1999. The Company made income tax payments of $504 million and $134 million in 1998 and 1997, respectively.
95
NOTE 16 EMPLOYMENT BENEFIT PLANS
Retirement Plans - The Company has pension plans covering substantially all employees. Benefits under the plan in the United States are based on the employee's years of service and average monthly pay in the 60 consecutive months of highest pay out
of the last 120 months, with adjustments to reflect benefits estimated to be received from Social Security. Pension costs are funded annually by no more than the maximum amount of pension expense which can be deducted for federal income tax purposes.
Unfunded prior service costs are amortized over the remaining service period of employees expected to receive benefits. At March 31, 2000, plan assets were primarily invested in common stocks, bonds and United States government obligations.
All permanent employees of Powercor engaged prior to October 4, 1994 are members of Division B or C of the Superannuation Fund (the "Fund") which provides defined benefits in the form of pensions (Division B) or lump sums (Division C). Both
defined benefit Funds are closed to new members. Members who choose to contribute do so at rates of 3% or 6% of eligible salaries. Powercor employees engaged after October 4, 1994 are members of Division D of the Fund, which is a defined contribution fund
in which members may contribute up to 20% of eligible salaries. In 2000, Powercor made contributions of approximately $2 million to Division B and C funds. During the year ended December 31, 1998, Powercor made no contributions to Division B and C
funds due to surplus amounts in these funds. Powercor contributed to the Division D Fund at rates ranging from 6%-10% of eligible salaries in both years.
The net periodic pension cost and significant assumptions are summarized as follows:
|
|
Three |
|
|
March 31, |
March 31, |
December 31, |
December 31, |
|
|
|
|
|
|
96
The change in the projected benefit obligation, change in plan assets and funded status are as follows:
|
March 31, |
December 31, |
|
|
|
|
|
|
|
|
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Employee Savings and Stock Ownership Plan - The Company has an employee savings and stock ownership plan that qualifies as a tax-deferred arrangement under Sections 401(k), 401(a), 409, 501 and 4975(e)(7) of the Internal Revenue Code. Participating
United States employees may defer up to 16% of their compensation, subject to certain regulatory limitations. The Company matches a portion of employee contributions with ScottishPower ADS, vesting that portion over five years. The Company makes an
additional contribution of ScottishPower ADS to qualifying employees equal to a percentage of the employee's eligible
97
earnings. These contributions are immediately vested. Company contributions to the savings plan were $19 million for the year ended March 31, 2000, $5 million for the three months ended March 31, 1999, and $18 million and $20 million for
the years 1998 and 1997, respectively.
Other Postretirement Benefits - Domestic Electric Operations provides health care and life insurance benefits through various plans for eligible retirees on a basis substantially similar to those who are active employees. The cost of postretirement
benefits is accrued over the active service period of employees. The transition obligation represents the unrecognized prior service cost and is being amortized over a period of 20 years. For those employees retired at January 1, 1994, the Company
funds postretirement benefit expense on a pay-as-you-go basis and has an unfunded accrued liability of $144 million at March 31, 2000. For those employees retiring after January 1, 1994, the Company funds postretirement benefit expense through a
combination of funding vehicles. The Company contributed to the funded plan $6 million of postretirement benefits for the year ended March 31, 2000, nothing for the three months ended March 31, 1999, $27 million for 1998 and $18 million for 1997.
These funds are invested in common stocks, bonds and United States government obligations.
The net periodic postretirement benefit cost and significant assumptions are summarized as follows:
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The change in the accumulated postretirement benefit obligation (the "APBO"), change in plan assets and funded status are as follows:
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benefit obligation Accumulated postretirement benefit obligation - beginning of period Service cost Interest cost Plan amendments Plan participant contributions Curtailment loss Special termination benefit loss Actuarial (gain) loss Benefits paid Cost reduction program adjustment Accumulated postretirement benefit obligation - end of period |
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The assumed health care cost trend rate gradually decreases over 16 years. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rate by one percentage point would have
increased the APBO as of March 31, 2000 by $25 million, and the annual net periodic postretirement benefit costs by $2 million. Decreasing the assumed health care cost trend rate by one percentage point would have reduced the APBO as of March
31, 2000 by $24 million, and the annual net periodic postretirement benefit costs by $2 million.
99
Postemployment Benefits - Domestic Electric Operations provides certain postemployment benefits to former employees and their dependants during the period following employment but before retirement. The costs of these benefits are accrued as
they are incurred. Benefits include salary continuation, severance benefits, disability benefits and continuation of health care benefits for terminated and disabled employees and workers compensation benefits. Accrued costs for postemployment benefits
were $8 million for the year ended March 31, 2000, $2 million for the three months ended March 31, 1999 and $12 million for the year ended December 31, 1998.
Early Retirement Offer - See Note 6 for details of the early retirement offering in 1998.
Stock Option Incentive Plan - During 1997, the Company adopted a Stock Option Incentive Plan (the "Plan"). The exercise price of options granted under the Plan have been at 100% of the fair market value of the common stock on the date of the grant.
Stock options generally become exercisable in two or three equal installments on each of the first through third anniversaries of the grant date. The maximum exercise period under the Plan is ten years. In early 1998, the Company registered 11,500,000
shares of its common stock with the Securities and Exchange Commission for issuance under the Plan.
Upon completion of the Merger, all stock options granted prior to January 1999 became 100% vested. All outstanding stock options were converted into options to purchase ScottishPower ADSs.
100
The table below summarizes the stock option activity under the Plan.
Weighted |
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At March 31, 2000, options for 2,214,455 ScottishPower ADSs were exercisable with a weighted average exercise price of $37.85 per share. The weighted average life of the options outstanding at March 31, 2000 was eight years. At December 31, 1998, options
for 591,201 PacifiCorp shares were exercisable with a weighted average exercise price of $20.18 per share. The weighted average life of the options outstanding at December 31, 1998 was nine years.
101
As permitted by SFAS No. 123, the Company has elected to account for these options under APB No. 25. Accordingly, no compensation expense has been recognized for these options. Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts below:
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The fair value of options granted during the year was $9 million and $14 million in 2000 and 1998, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
assumptions used:
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NOTE 17 ACQUISITIONS AND DISPOSITIONS
The Company's discontinued energy trading business included the eastern United States electricity trading operations of PPM and the natural gas marketing and storage operations of TPC. PPM's wholesale power trading activities in the eastern United States
have been discontinued, and all forward energy trading has been closed. On April 1, 1999, Holdings sold TPC to NIPSCO Industries, Inc. for $150 million. This activity resulted in a net after-tax gain of $1 million in the first quarter of 2000.
On May 4, 2000, the utility partners (including the Company) who owned the 1,340 MW coal-fired Centralia Power Plant sold the plant and the adjacent coal mine, wholly owned and operated by the Company, to TransAlta for approximately $500 million,
subject to certain post-closing adjustments. The Company operated the plant and owned a 47.5% share. After the return to customers required by the regulatory approvals, the Company estimates a $14 million loss will be realized on the sale. The timing of
this return to customers varies by state. The sale was pursued by the owners, in part, because of emerging deregulation, competition in the electricity industry and the need for environmental compliance expenditures. Pursuant to the sale, TransAlta has
agreed to assume the reclamation costs for the Centralia coal mine. At March 31, 2000, the Company had approximately $26 million accrued for its share of the Centralia mine reclamation costs, which was used to reduce the selling price and has been
incorporated into the estimate of net loss on the sale.
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On November 5, 1998, the Company sold its Montana distribution assets to Flathead Electric Cooperative, Inc. and received proceeds of $89 million, net of taxes and customer refunds. The Company returned $4 million of the $8 million gain to Montana
customers.
In October 1998, the Company decided to exit the majority of its other energy development businesses as a result of its refocus on the western United States and Australian electricity businesses. These energy development businesses are generally wholly
owned subsidiaries of the Company or subsidiaries in which the Company has a majority ownership. The pretax loss associated with exiting the energy development businesses was $52 million ($32 million after-tax) and is included in "Write down of investment
in energy development businesses" on the income statement. The remaining values for these businesses were arrived at using cash flow projections and estimated market value for fixed assets. Some of these businesses have been exited through the
discontinuance of their operations while others are held for sale. Through September 1998, these businesses recorded pretax losses of $18 million ($13 million after-tax). From October 1, 1998 through December 31, 1998, Holdings recorded a pretax expense
of $5 million ($3 million after-tax) relating to these operations.
During May 1998, PFS received approximately $80 million in cash proceeds for the sale of a majority of its real estate assets, which approximated book value.
On December 1, 1997, TPC sold all of the capital stock of three subsidiaries that hold its natural gas gathering and processing systems for $195 million in cash, before tax payments of $23 million. No gain or loss was recognized on the sale. In October
1998, the Company announced its intention to sell the remaining business of TPC. See Note 4.
On November 5, 1997, Holdings completed the sale of PGC for approximately $150 million in cash. A pretax gain on the sale of $57 million ($30 million after-tax) was recognized in the fourth quarter of 1997.
During January 2000, the Company decided to seek a buyer for Powercor.
In July 1998, the Company announced its intent to sell its California electric distribution assets. This action was in response to the continued decline in earnings on the assets and the changes in the legislative and regulatory environments in
California. On April 9, 1999, the Company announced it had entered into a letter of intent with Nor-Cal Electric Authority for the sale of the assets to Nor-Cal for $178 million. A definitive agreement was signed on July 15, 1999. The FERC approved the
sale on January 28, 2000. The California Public Utility Commission must now approve the sale, which is expected to close in the fall of 2000.
In October 1998, the Company announced its intention to sell its 19.9% interest in the Hazelwood Power Partnership ("Hazelwood") as a result of its refocus on the western United States. Hazelwood is an equity investment included in the Company's financial
statements as part of Australian Electric Operations. The Company recorded a pretax loss of $28 million ($17 million after-tax), which is included in "Write down of investment in energy
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development businesses" on the income statement, to reduce its carrying value in the Hazelwood Power Station to estimated net realizable value less selling costs. This write down was arrived at using cash flow projections. For 2000, the three months
ended March 31, 1999, and 1998, Hazelwood recorded losses of $3 million pretax ($2 million after-tax), $4 million pretax ($2 million after tax) and $7 million pretax ($5 million after-tax), respectively.
All assets subject to disposition, other than discontinued operations, continued to be utilized in operations of the Company. As such, no separate accounting treatment or classification has been given to such assets.
NOTE 18 SEGMENT INFORMATION
The Company operates in two business segments (excluding other and discontinued operations): Domestic Electric Operations and Australian Electric Operations. The Company identified the segments based on management responsibility within the United States
and Australia. Domestic Electric Operations includes the regulated retail and wholesale electric operations in the six western states in which it operates. Australian Electric Operations includes the deregulated electric operations in Australia. Other
Operations consists of PFS, the western energy trading activities and other energy development businesses, as well as the activities of Holdings, including financing costs. None of the businesses within Other Operations are significant enough for segment
treatment.
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SELECTED FINANCIAL INFORMATION (UNAUDITED)
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(a) Other Operations includes the operations of PFS, PGC, the western United States wholesale trading activities of PPM, as well as the activities of Holdings, including financing costs, and elimination entries.
(b) Discontinued operations includes the Company's interest in PTI, TPC and the eastern energy trading business of PPM.
(c) Extraordinary item includes a regulatory asset impairment pertaining to generation resources that are allocable to operations in California and Montana.
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DOMESTIC ELECTRIC OPERATIONS (UNAUDITED)
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957.9 388.2 168.1 200.1 406.0 99.3 - 2,704.4(b) |
191.0 96.3 34.9 46.9 97.0 25.9 - 611.6 |
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*Not a meaningful number.
(a) Does not reflect elimination of interest on intercompany borrowing
arrangements and includes income taxes on a separate-company basis.
(b) Includes ScottishPower merger costs of $16.0 million.
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DOMESTIC ELECTRIC OPERATIONS STATISTICS (UNAUDITED)
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(a) Excludes off-system sales.
(b) Includes firm off-system sales.
(c) Generating capability and firm purchases at time of firm peak.
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AUSTRALIAN ELECTRIC OPERATIONS (UNAUDITED)(a)
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*Not a meaningful number.
(a) Results of operations are included since dates of acquisition, December 12, 1995 for Powercor and September 13, 1996 for Hazelwood.
(b) Comparison done without consideration of the changes in currency exchange rates.
(c) Australian Electric Operations' financial results for the year ended December 31, 1999 are included in PacifiCorp's consolidated results for the year ended March 31, 2000. See Note 1.
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OTHER OPERATIONS (UNAUDITED)
Other Operations include the operations of PFS, PGC, the western United States energy trading activities of PPM and several start-up-phase ventures, as well as the activities of Holdings, including financing costs. PGC assets were sold on November 5, 1997
and a majority of the real estate assets of PFS were sold during May 1998.
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$ - |
$ 53 |
$ 140 |
$ 56 |
$ 44 |
(a) During 1997, the Company generated $1.8 billion of cash, excluding $370 million of current income tax liabilities, from sales of assets with carrying values of $822 million. See Notes 4 and 17.
(b) Includes $3.1 million in ScottishPower merger costs.
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SUPPLEMENTAL INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
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A significant portion of the operations are of a seasonal nature.
Effective November 30, 1999, the Company changed its year end from December 31 to March 31. See Note 1 to the consolidated financial statements. Quarterly data presented for the 2000 period is for the fiscal year ended March 31, 2000. Quarterly data for
the 1998 period is for the calendar year ended December 31, 1998. The quarterly data for the stub period January 1, 1999 through March 31, 1999 is presented on the Statement of Consolidated Income.
In the quarter ended June 30, 1999, the Company recorded an after-tax charge of $8 million relating to ScottishPower merger costs. See Note 2 to the consolidated financial statements.
In the quarter ended September 30, 1999, the Company recorded an after-tax charge of $4 million relating to ScottishPower merger costs. See Note 2 to the consolidated financial statements.
In the quarter ended December 31, 1999, the Company recorded an after-tax charge of $190 million relating to ScottishPower merger costs, $15 million relating to the write-off of projects under construction and $11 million
111
relating to recalculation of contract fees owed by Powercor. In addition, the Company recorded after-tax earnings $18 million relating to the favorable outcome of a contract dispute Powercor was having with one of its suppliers. See Note 2 to the
consolidated financial statements.
In the quarter ended March 31, 2000, the Company recorded after-tax earnings of $22 million relating to the overaccrual of ScottishPower merger costs. See Note 2 to the consolidated financial statements.
In the quarter ended March 31, 1998, the Company recorded an after-tax charge of $54 million relating to the write off of TEG transaction costs and $70 million relating to the early retirement offer. See Notes 3 and 6 to the consolidated financial
statements.
In the quarter ended September 30, 1998, the Company recorded an after-tax charge of $119 million relating to the provision for losses anticipated in the disposition of PPM and TPC. In addition, the Company recorded an after-tax charge of $32 million
relating to the provision for losses anticipated in the disposition of the Company's other energy businesses. See Notes 4 and 17 to the consolidated financial statements.
In the quarter ended December 31, 1998, the Company recorded $13 million relating to ScottishPower merger costs, $17 million relating to the write down of its investment in Hazelwood and $14 million of income relating to revised losses for discontinued
operations due to the pending sale of TPC for $133 million plus a working capital adjustment at closing. See Notes 2, 4 and 17 to the consolidated financial statements.
See Note 4 to the consolidated financial statements for information regarding discontinued operations.
On March 31, 2000, there was one common shareholder of record.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No information is required to be reported pursuant to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of directors of the Company.
Sir Ian Robinson, (58), Chairman of the Board of the Company.
Sir Ian Robinson was elected Chairman of the Board of the Company effective upon the merger with ScottishPower in November 1999. He has served as Chief Executive of ScottishPower since 1995 and is a member of the ScottishPower Board of Directors.
112
Karen K. Clark, (39), Chief Financial Officer of the Company. Director since 2000.
Ms. Clark was elected Chief Financial Officer on January 16, 2000. She was Senior Vice President-Finance at Sunbeam, Inc. from May 1998 to January 2000. From 1997 to 1998, Ms. Clark was Vice President-Finance of The Coleman Company, Inc. and was Corporate
Controller for Precision Castparts Corp. from 1994 to 1997.
Terry Hudgens, (45), Senior Vice President of the Company. Director since 2000.
Mr. Hudgens was elected Senior Vice President on April 1, 2000. He was President of Texaco Natural Gas from 1996 to 2000. From 1990 to 1996, he was the Vice President of Business Development and Tariffs for Texaco Trading and Transportation, Inc.
Nolan E. Karras, (55). Director since 1993.
Mr. Karras is President of The Karras Company, Inc., investment advisers, Roy, Utah, since 1983. He is Chief Executive Officer of Western Hay Company, Inc., and a non-executive director of Beneficial Life Insurance Company and American General Savings
Bank. He also served as a Member of the Utah House of Representatives from 1981 to 1990, and as Speaker of the Utah House of Representatives from 1989 to 1990.
William D. Landels, (57), Executive Vice President of the Company. Director since 1999.
Mr. Landels was elected Executive Vice President and Director of the Company effective upon the merger with ScottishPower in November 1999. Formerly, he served with the ScottishPower Group in various senior management roles, including as Managing Director
of Manweb, Managing Director of Energy Supply, and Managing Director of Distribution.
Andy MacRitchie, (36), Senior Vice President of the Company. Director since 2000.
Mr. MacRitchie has been with ScottishPower since 1986. He led the ScottishPower merger team through the successful negotiation and settlement process with state regulatory commissions and then took up the role of Transition Director, leading a combined
PacifiCorp/ScottishPower senior management team (50 people) in the development of comprehensive change plans for PacifiCorp.
113
Keith R. McKennon, (66). Director since 1990.
Mr. McKennon served as PacifiCorp Board Chairman from 1994 until November 1999 and as President and Chief Executive Officer from 1998 until November 1999. Prior to joining PacifiCorp, he was Chairman from 1992 until 1994 and CEO of Dow Corning
Corporation, Midland, Michigan from 1992 until 1993. He is a director of the Oregon Historical Society and a member of the Oregon State University President's Advisory Council, Foreign & Colonial Investment Trust plc, The Law Debenture Corporation plc
and Pantheon International Participations plc.
Timothy E. Meier, (47), Senior Vice President of the Company. Director since 2000.
Mr. Meier was elected Senior Vice President of the Company on May 15, 2000. He was Senior Vice President of U.S. Bancorp from 1991 until joining PacifiCorp in September 1997.
Robert G. Miller, (56). Director since 1994.
Mr. Miller joined the Board as non-executive director on November 30, 1999. He is a director of PacifiCorp, and formerly served as Chairman of the PacifiCorp Board's Finance Committee. He was elected Chairman and CEO of Rite Aid Corp in December 1999,
having previously been Vice Chairman of The Kroger Company from May to December 1999 and, prior to that, President and CEO of Fred Meyer, Inc., since 1997, and Chairman since 1991.
Mike Pittman, (47), Senior Vice President of the Company. Director since 2000.
Mr. Pittman was elected a Senior Vice President of the Company in May 2000. He formerly served as a Vice President of the Company from May 1993.
Alan V. Richardson, (53), President and Chief Executive Officer of the Company. Director since 1999.
Mr. Richardson was elected Chief Executive Officer and Director of the Company effective upon the merger with ScottishPower in November 1999 and was named President on March 16, 2000. He is a member of the ScottishPower Board of Directors. Prior to the
merger, Mr. Richardson was Managing Director of Power Systems at ScottishPower from 1995 to 1999, and has been with ScottishPower since 1991.
Ian M. Russell, (47). Director since 1999.
Mr. Russell was appointed Deputy Chief Executive of ScottishPower in November 1998, having previously been appointed Finance Director of ScottishPower in April 1994 and serving in both capacities from November 1998 to December 1999. In his present
capacity, he is responsible for UK and US operations and is also non-executive Chairman of Thus plc.
114
Kenneth L. Vowles, (58). Director since 1999.
Mr. Vowles joined ScottishPower in September 1990 and was appointed to the ScottishPower Board in September 1994.
The following is a list of the executive officers of the Company not named above. There are no family relationships among the executive officers of the Company. Officers of the Company are normally elected annually.
Paul G. Lorenzini, (58), Senior Vice President of the Company.
Mr. Lorenzini was elected a Senior Vice President of the Company in May 1994. He served as President of Pacific Power from January 1992 to May 1994.
C. Alex Miller, (42), Vice President of the Company.
Mr. Miller was elected a Vice President in November of 1999. Mr. Miller was President and CEO of Edison Source, a division of Edison International from 1996 to 1997. From 1993-1996, Mr. Miller was Vice President and Treasurer of Southern California Edison
Company.
Robert R. Dalley, (46), Controller and Chief Accounting Officer of the Company.
Mr. Dalley was elected Controller and Chief Accounting Officer of the Company in August 1998. He served as Assistant Controller from March 1998 to August 1998 and as an Assistant Vice President of the Company from July 1992 to March 1998.
Bruce N. Williams, (41), Treasurer of the Company
Mr. Williams was elected Treasurer of the Company on February 16, 2000. He served as Assistant Treasurer from 1990.
ITEM 11. EXECUTIVE COMPENSATION
Board Report on Executive Compensation
Introduction
PacifiCorp merged with ScottishPower on November 29, 1999 (the "Merger") and the Company has shifted from a calendar fiscal year to a fiscal year ending March 31. Therefore, this Board report on executive compensation covers the period which began
January 1, 1999 and ended March 31, 2000.
Prior to the Merger, the Personnel Committee of the PacifiCorp Board, which was composed entirely of independent, non-employee directors, was responsible for approving compensation levels for officers of PacifiCorp, administering executive compensation
plans as authorized by the PacifiCorp Board and recommending executive compensation plans and compensation of the Chief Executive Officer to the PacifiCorp Board for approval. Since the Merger,
115
these responsibilities have been assumed by the PacifiCorp Board of Directors. However, as it relates to any stock based compensation, these matters must also be approved by the Remuneration Committee of the Board of ScottishPower, which is comprised
entirely of independent, non-employee directors. The following Board report describes the components of PacifiCorp's executive compensation program and the basis upon which determinations were made for the period from January 1, 1999 to March 31, 2000.
Compensation Philosophy
PacifiCorp's philosophy is that executive compensation should be linked closely to corporate performance and increases in shareholder value. PacifiCorp's compensation program has the following objectives:
. Provide competitive total compensation that enables PacifiCorp to attract and retain key executives.
. Provide variable compensation opportunities that are linked to company and individual performance.
. Establish an appropriate balance between incentives focused on short-term objectives and those encouraging sustained earnings performance and increases in shareholder value.
Qualifying compensation for deductibility under IRC Section 162(m) is one of the factors the Board considers in designing its incentive compensation arrangements. IRC Section 162(m) limits to $1,000,000 the annual deduction by a publicly held corporation
of compensation paid to any executive, except with respect to certain forms of incentive compensation that qualify for exclusion. Although it is the Board's intent to design and administer compensation programs that maximize deductibility, the Board views
the objectives outlined above as more important than compliance with the technical requirements necessary to exclude compensation from the deductibility limit of IRC Section 162(m). Nevertheless, the Board believes that nearly all compensation paid to the
executive officers for services rendered in the fiscal year ended March 31, 2000 is fully deductible, with the exception of severance compensation paid to certain former executives.
Compensation Program Components
The Board, assisted by its outside consultant, evaluates the total compensation package of executives (excluding ScottishPower executives on international assignment) annually in relation to competitive pay levels. Given the increasingly competitive
global environment in which PacifiCorp must operate and the competitive marketplace for executive talent required for future success, in 1996 PacifiCorp reevaluated its historical practice of using the electric utility industry as its primary market
reference point. In 1997, the Personnel Committee began using the general industry as the market reference base for long-term incentive purposes.
In the fiscal year ended March 31, 2000, the Board continued to focus its market-based comparisons on the relevant industry for each officer. The Board utilized the electric utility industry as its exclusive basis for market
116
comparison for positions with a principal focus on electric operations. For positions with a corporate-wide focus, the Board used a weighting of approximately 67% general industry and 33% electric utility industry. For officers with responsibilities
outside the electric operations, relevant industry data were used for comparison. In all cases, compensation is targeted at market median levels, with a recognition that total compensation greater than market median requires, in any specific time period,
that company performance exceed the median performance of peer companies.
PacifiCorp's executive compensation programs have three principal elements: base salary, annual incentive compensation and long-term incentive compensation, as described below.
Base Salaries
Base salaries and target incentive amounts are reviewed for adjustment at least annually based upon competitive pay levels, individual performance and potential, and changes in duties and responsibilities. Base salary and the incentive target are set at a
level such that total annual compensation for satisfactory performance would approximate the midpoint of pay levels in the comparison group used to develop competitive data. In the fiscal year ended March 31, 2000, the base salaries of executive officers
were increased, based on market analysis, by an average of 2.3% to reflect competitive market changes and changes in the responsibilities of some officers.
Annual Incentives
All corporate officers (except ScottishPower executives on international assignment), including those listed in the Summary Compensation Table, with the exception of Mr. Richardson, participated in the PacifiCorp executive incentive program. The
performance goals for calendar 1999 were exclusively company earnings per share ("EPS"). All executive incentive program participants may have their incentive awards modified (in the range of zero to 120%) by their individual performance, relative to
established objectives, as evaluated by their immediate supervisor. The maximum allowable award from the executive incentive program for all participants is 150% of their guideline award. Considering the challenges of measuring earnings performance
following the Merger, the Board assigned an EPS factor of 121% for the year of 1999. Mr. McKennon, the Chief Executive Officer until November 29, 1999, received 121% of his 1999 target award for the year 1999.
Long-Term Incentives
The PacifiCorp Board approved grants of restricted stock and stock options in early 1999 and again in early 2000 under the Stock Incentive Plan. In determining restricted stock awards, the Board considered criteria such as:
. total shareholder return relative to peer companies;
. earnings per share growth over time relative to peer companies;
. and other factors such as achievement of long-term goals, strategies and plans.
117
Based upon an assessment of these criteria, PacifiCorp established a pool of restricted stock equal to 50% of competitive award levels in 1999 and 130% in 2000. The shares in the pool were allocated to participants based on individual performance.
The Board also approved grants of stock options based upon competitive award levels. Restricted stock awards under the Stock Incentive Plan are subject to terms, conditions and restrictions as may be determined by the Board to be consistent with the plan
and the best interests of the shareholders. The restrictions include stock transfer restrictions and forfeiture provisions designed to facilitate the participants' achievement of specified stock ownership goals. Participants are also required to invest
their own personal resources in company stock (PacifiCorp common stock before the Merger and ScottishPower American Depository Shares or ordinary shares since the Merger) in order to meet the vesting requirements associated with these grants. The Summary
Compensation Table below shows the grants of restricted stock made to the listed executive officers under the Stock Incentive Plan in fiscal years 1998, 1999 and 2000.
All stock options awarded to officers and senior management of PacifiCorp in fiscal years 1998, 1999 and 2000 are non-statutory, non-discounted options with a three-year vesting requirement and a ten-year term from the date of the grant. Grants of stock
options in fiscal year 2000 to named executives are shown in the table under "Option Grants in Last Fiscal Year."
In May 1998 and again in May 1999, the Board also approved a grant of non-statutory and non-discounted stock options to all employees except officers and senior managers. Full-time employees received options for 100 shares while part-time employees were
granted options for 75 shares. These grants become fully vested two years from the grant, and employees have ten years to exercise the options. All restricted stock awards and stock options granted prior to February 1999 became fully vested upon the Merger.
ScottishPower Executive Officers on International Assignment
Executive officers who are international assignees from ScottishPower are maintained on their home country remuneration program. The compensation for these individuals is determined by the ScottishPower Remuneration Committee, which consists solely of
independent non-executive directors.
The ScottishPower Remuneration Committee is responsible for ensuring that the rewards for executives attracts and retains executives of high quality, who have the requisite skills and are incentivized to achieve performance which exceeds that of
ScottishPower's competitors. Furthermore, the Committee's objective is to ensure that incentive schemes are in line with best practice and promote the interests of shareholders.
The Remuneration Committee believes that to attract and retain key executives of high caliber, the remuneration package it offers must be market-competitive. The remuneration strategy is to adopt a market median position on all senior management
remuneration packages, and to provide packages above the market median only where supported by demonstrably superior personal performance.
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In setting remuneration levels, the Remuneration Committee commissioned an independent evaluation of the roles of the executives, and also of the next levels of management within the company. The Committee has also continued to take independent advice
from external remuneration consultants on market-level remuneration, based on comparison with companies of similar size and complexity. In considering the comparator companies, the consultants have included a number of other utilities but have not
restricted their study solely to utilities.
After careful consideration, the Remuneration Committee is confident that the remuneration policy stated for ScottishPower is appropriate. In line with its objectives to build an international multi-utility business, ScottishPower has recruited a number
of executives with key business skills, and hence a reward structure broadly equivalent to other large UK listed companies with international operations was necessary. The major components of ScottishPower's remuneration programs are described below.
Base Salaries
The Remuneration Committee sets the base salary for each PacifiCorp executive on international assignment by reference both to individual performance through a formal appraisal system, and to external market data, based on the job evaluation principles
and reflecting similar roles in other comparable companies.
Annual Performance-Related Bonus
Executives participate in ScottishPower's performance-related pay schemes. All payments under the schemes are non-pensionable and non-contractual and are subject to the approval of the Remuneration Committee.
The 1999/2000 scheme provided a bonus of a maximum of 50% of salary, with up to a maximum of 25% of base salary determined by the company's performance. Measurement is by reference to a matrix of performance against targets of earnings per share and
return on capital employed, to reflect shareholder value. The balance of the bonus, a maximum of 25% of base salary, is linked to each executive's achievement of key strategic objectives, both short-term and long-term. Objectives are set annually and
performance against these is reviewed every six months. Mr. Richardson earned the maximum incentive award during the performance period ended March 31, 2000.
Long Term Incentive Plan
ScottishPower operates a Long Term Incentive Plan for executives that links the rewards closely between management and shareholders, and focuses on long-term corporate performance.
Under the current plan, awards to earn shares in ScottishPower are made to the participants up to a maximum value equal to 60% of base salary if certain performance measures are met. These measures relate to the sustained underlying financial performance
of the company and customer service standards.
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The number of shares which the executive will actually receive is dependent upon ScottishPower's comparative total shareholder return performance over a three-year performance period. Half of each award is measured against the constituent companies of
the FTSE 100 Index and half against the electricity and water sector.
The arrangements provide for a percentage of each half of the award to be earned depending upon ScottishPower's ranking within the relevant comparator group as follows: 100% if the company ranks in the top decile; 90% if the company ranks in the second
decile; 80% if the company ranks in the third decile; 60% if the company ranks in the fourth decile; 40% if the company ranks in the fifth decile; and no award is made if the company ranks in the sixth decile or lower.
Once the awards have been earned, they must be held for another year before they may be exercised. The plan participant may elect to receive the shares at any time between the fourth year and the seventh year after the award has been fully earned.
Compensation of the Chief Executive Officer
In February 1999, the PacifiCorp Board approved a grant of 3,500 restricted shares of PacifiCorp common stock to Mr. McKennon under the Stock Incentive Plan based upon a review of company performance during 1998. The PacifiCorp Board also granted to Mr.
McKennon, in February 1999, non-qualified stock options for 250,000 shares of PacifiCorp common stock as part of its effort to provide motivation for future stock price appreciation. These restricted shares and stock options were converted on November 29,
1999, in the Merger, to ScottishPower American Depository Shares ("ADS"). Using the conversion formula specified in the Merger agreement, this resulted in 2,030 restricted ScottishPower ADS shares and 145,000 ScottishPower ADS stock options. Mr.
McKennon's salary did not increase during his employment with PacifiCorp.
On November 29, 1999, the effective date of the Merger, Mr. McKennon resigned as Chairman of the Board, Chief Executive Officer and President and became a non-employee director of ScottishPower in the position of Vice Chairman. Mr. McKennon was not
eligible for severance pay and benefits. Mr. McKennon's restricted stock and stock options were partially vested in February 2000 and will continue to vest as long as Mr. McKennon remains on the Board of PacifiCorp or ScottishPower.
On November 29, 1999, Mr. Richardson assumed Mr. McKennon's responsibilities as Chief Executive Officer and President. The ScottishPower Board approved an employment agreement with Mr. Richardson that provides him a base salary of $341,000 and a maximum
annual incentive award of 60% of base salary. He is also eligible for participation in the ScottishPower Long Term Incentive Program which provides an opportunity to earn a maximum long term award equal to 60% of base salary. Mr. Richardson is on an
international assignment in the
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U.S. and, therefore, receives international assignment benefits as described in the "Summary Compensation Table" below.
BOARD OF DIRECTORS
Sir Ian Robinson, Chairman
Karen K. Clark
Terry Hudgens
Nolan E. Karras
William D. Landels
Andy MacRitchie
Keith R. McKennon
Timothy E. Meier
Robert G. Miller
Mike Pittman
Alan V. Richardson
Ian M. Russell
Kenneth L. Vowles
Executive Compensation
The following table sets forth information concerning compensation for services in all capacities to PacifiCorp and its subsidiaries for fiscal years ended March 31, 2000, 1999 and 1998 of those persons who were the Chief Executive Officer of PacifiCorp
during any portion of the fiscal year, the four other most highly compensated executive officers of PacifiCorp who were serving as executive officers at the end of the last completed fiscal year and one other individual for whom disclosure would have
otherwise been required but for the fact that this individual was no longer an executive officer as of March 31, 2000.
Summary Compensation Table
Annual Compensation(1) |
Long-Term Compensation |
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Restricted |
Securities |
ScottishPower |
All Other |
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___________
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preset future date, receipt of cash compensation to a stock account to be invested in company common stock or to a cash account on which interest is paid at a rate equal to the Moody's Intermediate Corporate Bond Yield for AA rated Public Utility Bonds.
(2) Includes amounts paid to executive officers in the form of international assignment benefits, including foreign housing allowances. These amounts were $65,273 and $60,400 for Messrs. Richardson and Lorenzini, respectively, in the fiscal
year ended March 31, 2000. Included in 1999 is $371,133 for international assignment benefits for Mr. Lorenzini.
(3) Please refer to the Board Report on Executive Compensation for a description of PacifiCorp's annual executive incentive plans. Incentive amounts are reported for the year in which the related services were performed. Amounts in this column
for 2000 include a special bonus that was paid upon the closure of the Merger with ScottishPower. These amounts are $46,500, $350,000, $250,000, $75,000, $25,000, $138,200, and $125,000 for Messrs. Richardson, McKennon, O'Brien, Lorenzini, Sickels, Miller
and Pittman, respectively. Amounts in this column for 1999 include special incentive awards for accomplishments in 1998 and 1999. These amounts are $250,000; $80,000; $40,000; and $75,000 for Messrs. O'Brien, Lorenzini, Miller and Pittman, respectively.
(4) Includes restricted stock grants made in (a) February 2000, 1999 and 1998 pursuant to the Stock Incentive Plan. In general, restricted stock awards vest over a four-year period from the date of grant, subject to compliance with the stock
ownership and other terms of the grant. The 1998 grants became vested at the time of the Merger. At March 31, 2000, the aggregate value of all restricted stock holdings, based on the market value of the shares at March 31, 2000, without giving effect
to the diminution of value attributed to the restrictions on such stock, and the aggregate number of restricted share holdings of Messrs. McKennon, Lorenzini, Sickels, Miller and Pittman were $48,244, $167,246, $59,223, $52,886 and $96,995, respectively.
Regular quarterly dividends are paid on the restricted stock. Participants may defer receipt of restricted stock awards to their stock accounts under the Compensation Reduction Plan.
(5) Amounts shown for the fiscal year ended March 31, 2000 include (a) contributions to the PacifiCorp K Plus Employee Savings and Stock Ownership Plan for each of Messrs. McKennon, O'Brien, Lorenzini, Sickels, Miller and Pittman and (b)
portions of premiums on term life insurance policies which PacifiCorp paid for Messrs. McKennon, O'Brien, Lorenzini, Sickels, Miller and Pittman in the amounts of $842, $547, $418, $346, $300 and $338, respectively. These benefits are available to all
employees.
(6) Mr. Richardson became President and Chief Executive Officer after Mr. McKennon's resignation in November 1999.
(7) Represents the number of ScottishPower ordinary performance shares contingently granted in 1999 which can be earned under the terms of the ScottishPower Long Term Incentive Plan.
(8) Mr. McKennon resigned as Chairman, President and Chief Executive Officer on November 29, 1999.
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(9) Includes $1,322,400 of severance compensation. Mr. O'Brien's 1999 grant of restricted stock awards became fully vested as a consequence of his employment separation in February, 2000. He will receive four additional cash severance
payments of $600,000 each on September 1, 2000; March 1, 2001; September 1, 2001; and March 1, 2002.
Option Grants in Last Fiscal Year
Individual Grants (1) |
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10% ($) |
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Value |
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___________
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Compensation Table, with the exception of Messrs. Richardson, McKennon and O'Brien (who has terminated and is receiving benefits). To qualify for severance benefits, the executive must have terminated employment for one of the following reasons:
(1) voluntary termination as a result of a material alteration in the executive's assignment that has a detrimental impact on the executive's employment. A "material alteration in assignment" includes any of the following:
(a) a material reduction in the scope of the executive's duties and responsibilities;
(b) a material reduction in the executive's authority; or
(c) any reduction in base pay or a reduction in annualized base salary and target bonus of at least 15%, if the change is not due to a general reduction unrelated to the change in assignment; or
(2) involuntary termination (including a company-initiated resignation) for reasons other than for cause.
In addition, the Severance Plan provides enhanced severance benefits in the event of certain terminations during the 24-month period following a qualifying change-in-control transaction, including the Merger with ScottishPower. Executives designated by
the PacifiCorp Board are eligible for change-in-control benefits resulting from either a PacifiCorp-initiated termination without "cause", or a resignation generally within two months after a "material alteration of position". During the 24-month
protection period under the Severance Plan, "cause" means the executive's gross misconduct or gross negligence or conduct which indicates a reckless disregard for the consequences and has a material adverse effect on PacifiCorp or its affiliates, and
"material alteration in position" means the occurrence of any of the following:
(1) a change in reporting relationship to a lower level;
(2) a material reduction in the scope of duties and responsibilities;
(3) a material reduction in authority;
(4) a "material reduction in compensation"; or
(5) relocation of executive's work location to an office more than 100 miles from the executive's office or more than 60 miles from the executive's home.
A "material reduction in compensation" occurs when an executive's annualized base salary is reduced by any amount or the annualized base salary and target bonus opportunity combined is reduced by at least 15% of the combined total opportunity before the
change in compensation.
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If qualified, an executive would receive severance pay in an amount equal to either two, two and one-half or three times the "annual cash compensation" of such executive, depending on the level set by the Board. "Annual cash compensation" is defined as
annualized base salary, target annual incentive opportunity and annualized auto allowance in effect on a material alteration or termination, whichever is greater. If the payment would result in imposition of an excise tax under IRC Section 4999,
PacifiCorp is required to make an additional payment to compensate the executive for the effect of such excise tax. The executive would also receive continuation of subsidized health insurance from six to 24 months depending on length of service, and a
minimum of 12 months' executive-level outplacement services. Several executives, including Mr. O'Brien, have terminated and qualified to receive change-in-control benefits.
Other than in connection with a change-in-control, the definition of cause is determined by PacifiCorp in its discretion and by the Board in the event of an appeal by the employee. The Severance Plan does not apply to the termination of an executive for
reasons of normal retirement, death or total disability or to a termination for cause or for voluntary termination other than as specified above. Other than in connection with a change-in-control, executives named in the Summary Compensation Table (other
than Messrs. Richardson, McKennon and O'Brien) are eligible for a severance payment equal to one to two times the executive's total cash compensation, three months of health insurance benefits and outplacement benefits. Total cash compensation is defined
as the annualized base salary, target annual incentive opportunity and the annualized auto allowance in effect on the earlier of a material alteration or termination.
Mr. Richardson's employment is governed by his 12-month rolling service contract with ScottishPower. There is no pre-determined amount in the event of a company-initiated termination.
Retirement Plans
PacifiCorp and most of its subsidiaries have adopted noncontributory defined benefit retirement plans for their employees, other than employees subject to collective bargaining agreements that do not provide for coverage. Certain executive officers,
including the executive officers named in the Summary Compensation Table (other than Messrs. Richardson and McKennon), are also eligible to participate in PacifiCorp's non-qualified supplemental executive retirement plan. The following description assumes
participation in both the retirement plans and the supplemental plan. Participants receive benefits at retirement payable for life based on length of service with PacifiCorp or its subsidiaries and average pay in the 60 consecutive months of highest pay
out of the last 120 months, and pay for this purpose would include salary and bonuses as reflected in the Summary Compensation Table above. Benefits are based on 50% of final average pay plus up to an additional 15% of final average pay depending upon
whether PacifiCorp meets certain performance goals set for each calendar year by the Board. Participants may also elect actuarially equivalent alternative forms of benefits. Retirement benefits are reduced to reflect Social Security benefits as well as
certain prior employer retirement benefits. Participants are entitled to receive full benefits upon
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retirement after age 60 with at least 15 years of service. Participants are also entitled to receive reduced benefits upon early retirement after age 55 or after age 50 with at least 15 years of service and 5 years of participation in the non-qualified
supplemental plan.
The supplemental plan provides executives "involuntarily terminated" during the 24 months following the ScottishPower Merger, or who resign for any reason effective no earlier than 12 months and no later than 14 months after the Merger, with enhanced
supplemental retirement benefits. For purposes of the plan, a termination of employment is "involuntary" if the participant is discharged for reasons other than cause or resigns under certain circumstances following a change-in-control. A resignation is
treated as an involuntary termination when any of the following occur:
(1) the executive's annualized base salary or target bonus opportunity is decreased;
(2) the executive is reassigned to a position in an office located more than 100 miles from the executive's then-current office or 60 miles from the executive's residence, whichever is greater;
(3) the executive's reporting level in PacifiCorp is changed and is lower after the change than it was before;
(4) there is a material reduction in the scope of the executive's duties or responsibilities; or
(5) there is a material reduction in the executive's authority.
The following table shows the estimated annual retirement benefit payable upon retirement at age 60 as of January 1, 2000. Amounts in the table reflect payments from the retirement plans and the supplemental plan combined.
Estimated Annual Pension at Retirement
Years of Service(2) |
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(2) The number of credited years of service used to compute benefits under the plans for Messrs. O'Brien, Lorenzini, Sickels, Miller and Pittman are 16, 12, 15, 2 and 20, respectively. Messrs. McKennon and Richardson are not participants in
this plan.
Mr. Richardson is provided retirement benefits through the main pension scheme of ScottishPower, and through an executive top-up pension plan which provides a maximum pension of two thirds of final salary on retirement at age 63. This benefit is reduced
where service is less than 20 years. Pensionable salary is base salary in the 12 months prior to leaving the company. Mr. Richardson does not participate in any of the pension programs sponsored by PacifiCorp.
Details of pension benefits earned by Mr. Richardson are shown below:
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Transfer value |
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___________
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The list of all financial statements filed as a part of this report is included in ITEM 8.
2. Schedules:*
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*All schedules have been omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements included under ITEM 8.
3. Exhibits:
*(2)a -- Agreement and Plan of Merger, dated as of December 6, 1998, by and among Scottish Power plc, NA General Partnership, Scottish Power NA 1 Limited and Scottish Power NA 2 Limited. (Incorporated by
reference to Exhibit 1 to the Form 6-K, dated December 11, 1998, filed by Scottish Power plc, File No. 1-14676).
*(2)b -- Amended and Restated Agreement and Plan of Merger, dated as of December 6, 1998, as amended as of January 29, 1999 and February 9, 1999, and amended and restated as of February 23, 1999, by and
among New Scottish Power PLC, Scottish Power plc, NA General Partnership and PacifiCorp (Exhibit (2)b, Form 10-K for fiscal year ended December 31, 1998, File No. 1-5152).
(2)c - Centralia Plant Purchase and Sale Agreement, dated as of May 7, 1999, by and among PacifiCorp, Public Utility District No. 1 of Snohomish County, Washington, Puget Sound Energy, Inc., City
of Tacoma, Washington, Avista Corporation, City of Seattle, Washington, Portland General Electric Company, Public Utility District No. 1 of Gray Harbor County, Washington and TECWA Power, Inc.
(2)d - Centralia Coal Mine Purchase and Sale Agreement, dated as of May 7, 1999, by and among PacifiCorp, Centralia Mining Company and TECWA Fuel, Inc.
(2)e - Asset Purchase Agreement dated as of July 15, 1999, between PacifiCorp and Nor-Cal Electric Authority.
*(3)a -- Third Restated Articles of Incorporation of the Company (Exhibit (3)b, Form 10-K for the fiscal year ended December 31, 1996, File No. 1-5152).
(3)b -- Bylaws of the Company effective November 29, 1999.
*(4)a -- Mortgage and Deed of Trust dated as of January 9, 1989, between the Company and Morgan Guaranty Trust Company of New York (The Chase Manhattan Bank, successor), Trustee, as supplemented and modified
by thirteen Supplemental Indentures (Exhibit 4-E, Form 8-B, File No. 1-5152; Exhibit (4)(b), File No. 33-31861; Exhibit (4)(a), Form 8-K dated January 9, 1990,
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File No. 1-5152; Exhibit 4(a), Form 8-K dated September 11, 1991, File No. 1-5152; Exhibit 4(a), Form 8-K dated January 7, 1992, File No. 1-5152; Exhibit 4(a), Form 10-Q for the quarter ended March 31, 1992, File No. 1-5152; and Exhibit
4(a), Form 10-Q for the quarter ended September 30, 1992, File No. 1-5152; Exhibit 4(a), Form 8-K dated April 1, 1993, File No. 1-5152; Exhibit 4(a), Form 10-Q for the quarter ended September 30, 1993, File No. 1-5152; Exhibit 4(a), Form
10-Q for the quarter ended June 30, 1994, File No. 1-5152; Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1994, File No. 1-5152; and Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1995, File No. 1-5152; Exhibit (4)b,
Form 10-K for the fiscal year ended December 31, 1996, File No. 1-5152); and (Exhibit (4)b, Form 10-K for fiscal year ended December 31, 1998, File No. 1-5152).
(4)b -- Third Restated Articles of Incorporation and Bylaws. See (3)a and (3)b above.
In reliance upon item 601(4)(iii) of Regulation S-K, various instruments defining the rights of holders of long-term debt of the Registrant and its
subsidiaries are not being filed because the total amount authorized under each such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any
such instrument to the Commission upon request.
*(10)a -- Short-Term Surplus Firm Capacity Sale Agreement executed July 9, 1992 by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Pacific
Power & Light Company (Exhibit (10)n, Form 10-K for the fiscal year ended December 31, 1992, File No. 1-5152).
*(10)b -- Restated Surplus Firm Capacity Sale Agreement executed September 27, 1994 by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Pacific
Power & Light Company (Exhibit (10)t, Form 10-K for the fiscal year ended December 31, 1994, File No. 1-5152).
(21) -- Subsidiaries.
(23)a -- Consent of Deloitte & Touche LLP with respect to Annual Report on Form 10-K.
(23)b -- Consent of PricewaterhouseCoopers LLP with respect to Annual Report on Form 10-K.
(23)c -- Consent of Deloitte Touche Tohmatsu with respect to Annual Report on Form 10-K.
(23)d -- Report of Independent Accountants with respect to PacifiCorp Australia Limited Liability Company and its subsidiaries.
(24) -- Powers of Attorney.
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(27) -- Financial Data Schedule (filed electronically only).
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*Incorporated herein by reference.
(b) Reports on Form 8-K.
On Form 8-K dated May 3, 2000, under "Item 5. Other Events," the Company filed two news releases. One concerning a transition plan for the Company and the other concerning the sale of the Centralia plant and mine to TransAlta.
(c) See (a) 3. above.
(d) See (a) 2. above.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PacifiCorp |
Date: June 16, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
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Exhibit 2(d)
CENTRALIA PLANT PURCHASE AND SALE AGREEMENT
******
PACIFICORP;
PUBLIC UTILITY DISTRICT NO. 1 OF SNOHOMISH COUNTY, WASHINGTON;
PUGET SOUND ENERGY, INC.;
CITY OF TACOMA, WASHINGTON; AVISTA CORPORATION;
CITY OF SEATTLE, WASHINGTON;
PORTLAND GENERAL ELECTRIC COMPANY; and
PUBLIC UTILITY DISTRICT NO. 1 OF GRAYS HARBOR COUNTY, WASHINGTON
As Sellers
AND
TECWA POWER, INC.
As Buyer
Dated: May 7, 1999
CENTRALIA PLANT PURCHASE AND SALE AGREEMENT
Table of Contents
PREAMBLE |
1 |
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Section 2.1 Purchased Assets Section 2.2 Excluded Assets Section 2.3 Assumed Liabilities Section 2.4 Excluded Liabilities Section 2.5 Other Agreements (a) Related Agreements (b) Transmission Arrangements |
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Section 2.6 Purchase Price |
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Section 4.6 Brokers |
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Section 7.3 Conduct Pending Closing |
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Section 8.1 Performance of Agreement Section 8.2 Accuracy of Representations and Warranties Section 8.3 Officers' Certificate Section 8.4 Approvals Section 8.5 No Restraint Section 8.6 Title Insurance Section 8.7 Related Agreements Section 8.8 Casualty; Condemnation (a) Casualty (b) Condemnation Section 8.9 Opinion of Counsel Section 8.10 Receipt of Other Documents Section 8.11 Limitation on Adjustments Section 8.12 RACT Orders Section 8.13 Transmission and Interconnection Agreements Section 8.14 All Sellers Section 8.15 Material Adverse Effect Section 8.16 Transmission Arrangements Section 8.17 Centralia Coal Mine Sale Section 8.18 Title Section 8.19 LLC Contribution |
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ARTICLE 10 CLOSING Section 10.1 LLC Transaction Section 10.2 Closing (a) Deliveries by Sellers (b) Deliveries by Buyer Section 10.3 Escrow Section 10.4 Prorations |
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Section 11.1 Termination Section 11.2 Effect of Termination Section 11.3 Modification of Terms |
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(i) Costs and Attorney's Fees |
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LIST OF SCHEDULES
1.1(j) |
Persons With Knowledge |
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3.3(a) |
Sellers' Private Party Consents |
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CENTRALIA PLANT PURCHASE AND SALE AGREEMENT
This CENTRALIA PLANT PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into as of the 7th day of May, 1999 by and among PACIFICORP; PUBLIC UTILITY DISTRICT NO. 1 OF SNOHOMISH COUNTY, WASHINGTON; PUGET SOUND
ENERGY, INC.; CITY OF TACOMA, WASHINGTON; AVISTA CORPORATION; CITY OF SEATTLE, WASHINGTON; PORTLAND GENERAL ELECTRIC COMPANY; AND PUBLIC UTILITY DISTRICT NO. 1 OF GRAYS HARBOR COUNTY, WASHINGTON (each a "Seller" and collectively "Sellers"), and TECWA
Power, Inc., a Washington corporation ("Buyer"), with reference to the following facts:
A. Sellers are engaged in the business of generating, transmitting and distributing electric energy and in connection therewith own as tenants in common the Centralia Steam Electric Generating Plant ("the
Plant") located near Centralia, Washington, consisting of two generating units, each with 650 megawatt nameplate rating and other related facilities.
B. Buyer desires to purchase from Sellers, and Sellers desires to sell to Buyer, the interests in the LLC to which Sellers will contribute thePlant, the Supplies and the Coal Inventory (as those terms are
hereinafter defined) upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Affiliate" of a specified Person shall mean any corporation, partnership, sole proprietorship or other Person which directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with the Person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person.
(b) "Auction" means the procedures employed by Sellers through which the Plant was offered for sale to competing buyers.
Page 1 - CENTRALIA PLANT PURCHASE AND SALE AGREEMENT
(c) "Benefit Plan" means any employee benefit plan, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, or any other
employee benefit arrangement, including but not limited to (i) any employment agreement, (ii) any arrangement providing for insurance coverage or workers' compensation benefits, (iii) any incentive or bonus arrangement, (iv) any arrangement providing
termination or severance benefits, or (v) any deferred compensation plan that is or was sponsored, maintained or contributed to by any Seller or any ERISA Affiliate.
(d) "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in the State of Washington are not required to be open.
(e) "Environmental Law" shall mean all applicable Laws and Licenses for or relating to: (i) air emissions, hazardous materials, storage, use and release to the
environment of Hazardous Materials, generation, treatment, storage, and disposal of hazardous wastes, wastewater discharges and similar environmental matters, and (ii) the protection and enhancement of the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.; the Resource Conservation and Recovery Act, 42. U.S.C. Section 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section 7401
et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.; the Oil Pollution Act, 33 U.S.C. Section 2701 et
seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; and the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq.; Surface Mining Control and Reclamation Act, Title
30 U.S.C. Ch. 25 (30 U.S.C. 1201 et.seq.).
(f) "ERISA Affiliate" means any other person that, together with any Seller as of the relevant measuring date, was or is required to be treated as a single
employer under Section 414 of the Internal Revenue Code.
(g) "Existing Soils Contamination" shall mean the actual presence prior to the Closing of Hazardous Materials in the soil, subsurface strata, surface water,
groundwater, drinking water supply, any sediments associated with any water bodies, or any other environmental medium (other than ambient air) ("environmental media") of the real properties conveyed to the LLC or Buyer and included in the Assets, as well
as the migration through soil or groundwater of Hazardous Materials actually present prior to the Closing through the environmental media of the real property conveyed to the LLC or Buyer and included in the Assets, if (i) Sellers, as of the date
hereof, have Knowledge of such presence of such Hazardous Materials, it being agreed that Sellers have Knowledge of matters disclosed in the Phase I and Phase II environmental assessments referred to in Section 3.6 and of matters otherwise
disclosed in Schedule 3.6, (ii) such presence of such Hazardous Materials prior to
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the Closing is demonstrated through the investigations that Buyer makes post-closing subject to the provisions and conditions of Section 6.4, or (iii) such Hazardous Materials are otherwise proven by clear and convincing evidence on or before
the fifteenth anniversary of the Closing to have been present in such environmental media prior to the Closing. Existing Soils Contamination does not include (a) the presence of Hazardous Materials arising from the normal application of pesticides,
fungicides, or other agricultural products, or (b) contamination of a type or at levels below which would not require remediation under applicable Environmental Law in effect as of the date hereof. The written determination by a Governmental Body
that remediation is not required or not further required shall be conclusive in regard to such issue.
(h) "Governmental Body" means any federal, state, local, municipal, or other government; any governmental, regulatory or administrative agency, commission, body
or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal; but does not include any Seller, Buyer, Buyer Subsidiary,
or any of their respective successors in interest or any owner or operator of the Assets (if otherwise a Governmental Body) acting in their role as owner or operator.
(i) "Hazardous Materials" means any chemicals, materials, substances, or items in any form, whether solid, liquid, gaseous, semisolid, or any combination
thereof, whether waste materials, raw materials, chemicals, finished products, by-products, or any other materials or articles, which are listed as hazardous, toxic or dangerous under Environmental Law, including without limitation, petroleum products,
asbestos, urea formaldehyde foam insulation, lead-containing paints or coatings and "hazardous debris," "hazardous substances" and "hazardous wastes" as defined by WAC 173-303-040.
(j) "Knowledge" of a party shall mean with respect to such party, the extent of the actual knowledge of the Persons listed on Schedule 1.1(j) with respect
to such party. Actual knowledge of any individual Seller shall not be imputed to any other individual Seller.
(k) "LLC" shall mean "Centralia Plant, LLC," a Washington limited liability company to be formed for purposes of the LLC transaction.
(l) "Laws" shall mean all statutes, rules, regulations, ordinances, orders, common law and their legal and equitable principles, and codes of federal, foreign,
state and local governmental and regulatory authorities.
(m) "Licenses" shall mean registrations, licenses, permits, authorizations and other consents or approvals of Governmental Bodies.
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(n) "Person" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or Governmental Body.
(o) "Plant Decommissioning Costs" means any decontamination or remediation of any portion of a site included in the Assets which is not required to be
undertaken under Environmental Law (including as a result of action by a Governmental Body in connection with the administration of Environmental Law) until (i) the dismantling or demolition of all or a portion of the Plant on such site, including
all or any portion of the substructure or foundation of the Plant, in a fashion that disturbs or exposes the soil or groundwater beneath such site, or (ii) the restoration of the real property on which the Plant or such material portion thereof is
located to unrestricted use or a use not associated with generation of electrical power.
(p) "Release" means any release, spill, emission, leaking, pumping, emptying, dumping, injection, abandonment, deposit, disposal, discharge, dispersal,
leaching, or migration of Hazardous Materials (including, without limitation, the abandonment or discarding of Hazardous Materials in barrels, drums, or other containers) into or within the environment, including, without limitation, the migration of
Hazardous Materials into, under, on, through, soil, subsurface strata, surface water, groundwater, drinking water supply, any sediments associated with any water bodies, or any other environmental medium, regardless of where such migration originates.
(q) "Remediation Measures" means any (i) investigation, monitoring, clean-up, containment, remediation, mitigation, removal, disposal or treatment of
Existing Soils Contamination to remediation standards required by applicable Laws in effect at the date hereof, including without limitation the preparation and implementation of any work plans and the obtaining of authorizations, approvals and permits
from Governmental Bodies with respect thereto, and (ii) any response to, or preparation for, any inquiry, order, hearing or other proceeding by or before any Governmental Body with respect to any Existing Soils Contamination.
(r) "Sellers' Environmental Obligations" means:
(i) Any liability, fine, penalty, levy or assessment imposed upon the
LLC, Sellers or Buyer or Buyer Affiliate by any Governmental Body with respect to
Sellers' operation of the Plant;
(ii) The offsite transport prior to the Closing of Hazardous Materials
from the real property included in the Assets, or the treatment, storage or disposal of
Hazardous Materials transported from the real property included in the Assets to
another site prior to Closing;
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(iii) The Release of Hazardous Materials from the Plant prior to the
Closing into the atmosphere or any water course or body of water not included in the
Assets; and
(iv) The obligations of Sellers for Remediation Measures in respect of
Existing Soils Contamination as set forth in, and subject to the provisions and
conditions of, Section 6.4;
provided that Sellers' Environmental Obligations do not include any obligations or liabilities to the extent that they arise from or are related to:
(v) The existence of Hazardous Materials used as construction
materials in, on or otherwise affixed to structures or improvements included in the
Assets, including without limitation, asbestos, urea, formaldehyde foam insulation and
lead-based paint or coatings;
(vi) Hazardous Materials introduced after the Closing into the soil or
groundwater of the real properties included in the Assets as well as the migration
through soil or groundwater after the Closing of such Hazardous Materials;
(vii) Any increase in soils or groundwater contamination or
exacerbation of Existing Soils Contamination, or any increase in the costs or burdens of
any Remediation Measures required by any Governmental Body or any other third
Person, as a result of the acts or omissions after the Closing of Persons other than
Sellers and their Affiliates, including, without limitation, the imposition of any
remediation standard with respect to Existing Soils Contamination that is different from
the standard that is or would have been applicable to Sellers as of Closing; or
(viii) Any increase in the costs or burdens of any Remediation
Measures required by any Governmental Body or any other third Person as a result of
changes in Laws subsequent to the date hereof; or
(ix) Plant Decommissioning Costs.
(s) "Sellers Group" shall mean the Sellers acting hereunder in a collective capacity as a result of decisions of the Sellers Committee.
(t) "Taxes" shall mean (i) all federal, state, county and local sales, use, property, recordation and transfer taxes, and (ii) any interest, penalties
and additions to tax attributable to any of the foregoing, but shall not include income and other taxes described in Section 2.4(b).
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(u) "Washington Ruling" shall mean a ruling letter to be issued by the Washington State Department of Revenue in response to the request to be filed by Stoel
Rives, LLP no earlier than 45 days prior to the Closing seeking confirmation that no Washington State sales or use tax will be due in respect of (i) the transfer of the assets by the Sellers to the LLC; and (ii) the transfer of the membership
interests in the LLC by the Sellers to the Buyer.
Section 1.2 Index of Other Defined Terms. In addition to those terms defined above, the following terms shall have the respective meanings given thereto in the Sections indicated below:
Defined Term |
Section |
|
|
|
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Indemnitee |
12.5 |
ARTICLE 2
BASIC TRANSACTIONS
Section 2.1 Purchased Assets. On the terms and subject to the conditions contained in this Agreement, at the Closing Buyer shall, or shall cause the applicable Buyer Subsidiary to, purchase, and Sellers
shall sell, convey, assign, transfer and deliver to Buyer, or the applicable Buyer Subsidiary, all of Sellers' right, title and interest in the LLC (the "LLC Interests") after the Sellers have contributed, conveyed, assigned, transferred and delivered to
the LLC the following assets that (except to the extent otherwise noted) are used in and
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necessary for the conduct of the operations of the Plant (the "Assets"), but excluding all Excluded Assets (as defined in Section 2.2):
(a) All of Sellers' right, title and interest in and to the real property owned in fee (the "Owned Real Property") that is identified in Schedule 2.1(a)
together with all buildings, fixtures and improvements located thereon (including all construction work-in-progress).
(b) ll of Sellers' rights, privileges and easements appurtenant to its ownership of the Owned Real Property or associated with their operation of the Plant as
set forth in Schedule 2.1(b) (the "Easements").
(c) The fixed or mobile machinery and equipment, as well as similar items of tangible personal property, including, without limitation, vehicle refueling tanks,
pumps, pipelines, fittings, trucks, tractors, trailers and other vehicles, tools, water pumps and water transport equipment, furniture and revenue metering equipment (including revenue metering equipment installed in contemplation of sale of the Assets )
(collectively "Equipment") that (i) are not by their nature consumed in the ordinary course of business such that they constitute "Supplies" (as defined below), (ii) are used, owned or leased by Sellers as of the Closing Date, are used primarily
in connection with the ownership or operation of the Plant and its related support facilities (including Assets temporarily off-site for repair or other purposes). All such items of Equipment (other than furnishings or office equipment) having a net book
value of $10,000 or more as of the close of the most recent fiscal quarter ended at least one month prior to the date of this Agreement are identified on Schedule 2.1(c).
(d) The inventories of spare parts and non-coal fuels, lubricants and other fluids intended to be consumed in the ordinary course of business, maintenance, shop
and office supplies, and other similar items of tangible personal property on hand at the Plant as of the Closing and intended to be consumed in the ordinary course of business ("Supplies").
(e) All of Sellers' right, title and interest in and to all written contracts and agreements specifically and exclusively relating to the Plant to which Sellers
are a party at the Closing (the "Assigned Contracts") including, without limitation, the agreements identified on Schedule 2.1(e), which contains a list of the agreements (i) pursuant to which Sellers paid or received or expects to pay or receive in
excess of $50,000 during the 365 days prior to the Closing, and (ii) which cannot be canceled by Sellers without penalty on written notice of 90 days or less. The Assigned Contracts shall also include, without limitation, construction contracts
relating to construction work-in-progress at the Plant; equipment leases (whether operating or capital leases) and installment purchase contracts; contracts or arrangements binding on the Plant which restrict the nature of the business activities in which
the Plant may engage; leases with respect to which Sellers are lessor or sublessor; and outstanding contracts related to the supply of external fuel to the Plant.
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(f) All of Sellers' right, title and interest in and to all of the Licenses in favor of Sellers or any Sellers Affiliates as of Closing that relate to or are
necessary for or used in connection with the operation of the Assets as heretofore operated by Sellers, all of such Licenses being included on Schedule 2.1(f), except for and to the extent that such Licenses relate to Excluded Assets; provided that such
Licenses shall be included within the Assets only to the extent they relate exclusively to the Assets and are lawfully transferable to the LLC.
(g) All of Sellers' right, title and interest in and to all of the books, records, plans, sepias, drawings, instruction manuals and similar items, whether in
written or electronic form, and which relate exclusively to the Plant and the Assets or the operation thereof, and other procedural manuals of Sellers related primarily to the operation of the Plant, subject to the rights of Sellers to make copies of and
make non-exclusive use of the same and except to the extent such materials are subject to confidentiality or non-disclosure agreements in favor of third parties whose consent to transfer is not obtained.
(h) All of Sellers' right, title and interest, if any, in and to unexpired warranties as of the Closing that are transferable to the LLC wholly owned by Buyer
which Sellers have received from third parties which relate specifically to the Assets, including, without limitation, warranties set forth in any equipment purchase agreement, construction agreement, lease agreement, consulting agreement or agreement for
architectural or engineering services, it being understood that nothing in this paragraph shall be construed as a representation by Sellers that any such unexpired warranty remains enforceable.
(i) All of Sellers' right, title and interest in and to advance payments, prepayments, prepaid expenses, deposits and the like (i) made by Sellers on their
behalf in the ordinary course of business specifically with respect to the Assets prior to the Closing, (ii) which exist as of such Closing, and (iii) with respect to which the LLC and Buyer will receive the benefit after the Closing
(collectively, "Prepayments"), which Prepayments are listed by category and approximate amount in Schedule 2.1(i) as of the close of the most recent fiscal quarter ended at least one month prior to the date of this Agreement.
(j) All of Sellers' right, title and interest in and to certain emission allowances allocated to the Plant which are identified on Schedule 2.1(j).
(k) All of Sellers' right, title and interest in and to those miscellaneous and sundry assets identified by category on Schedule 2.1(k), if any, which assets
are ancillary to the ownership and operation of the Assets and the Plant and customarily utilized in connection therewith but not otherwise enumerated above.
(l) All of Sellers' right, title and interest to coal owned and being held by Sellers for use at the Plant or which is in transit to the Plant ("Coal Inventory").
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(m) Any rights respecting computer and data processing hardware, software or firmware and any computer and data processing hardware, software or firmware
located at the Plant and used in the operation of the Plant, not including SAP accounting software or software that is part of the computer network of any Seller.
(n) All of Sellers' right, title and interest in certain 500 kV transmission facilities located near the Plant consisting of two 500 kV lines, each
approximately 4,000 feet in length, two step-up transformers at the Plant and line termination facilities at the C.W. Paul Substation of the Bonneville Power Administration as delineated on Schedule 2.1(n).
(o) Any of the foregoing owned by an Affiliate of a Seller.
Section 2.2 Excluded Assets. The Assets shall not include any of the assets, properties, rights, Licenses, or contracts of Sellers not specifically enumerated in Section 2.1 above, all such other
assets, properties, rights, Licenses, and contracts collectively constituting "Excluded Assets," including, without limitation, the following specifically enumerated Excluded Assets:
(a) The property comprising or constituting any part of any of the 230 kV transmission equipment and switchyard facilities located at or adjacent to the Plant
and associated easements (but not step-up transformers or unit circuit breaker controls), including the radial transmission line from its interconnection with the 230 kV transmission facilities of the Bonneville Power Administration to the Plant and
Centralia Mine Substation, as described on Schedule 2.2(a).
(b) The fixtures, equipment and other personal property located at the Plant comprising or constituting a part of the proprietary or specialized communications
systems used by any or all of Sellers to communicate between and among their facilities or to transmit voltage and other control data and information utilized in Sellers' transmission and distribution systems as described on Schedule 2.2(b).
(c) Claims, choses in action, rights of recovery, rights of set-off, rights to refunds and similar rights of any kind in favor of any one or all of Sellers
relating to or arising out of the period prior to Closing, including, but not limited to, any refund related to real estate or sales taxes paid prior to the Closing, whether such refund is received as a payment or as a credit against future real estate or
other taxes.
(d) Subject to the provisions of Section 2.7, all privileged or proprietary (to any or all of Sellers) materials, documents, information, media, methods, and
processes owned by or licensed to any or all of Sellers and any and all rights to use same, including, without limitation, intangible assets of an intellectual property nature such as trademarks, service marks and trade names (whether or not registered),
computer software that is proprietary to
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any or all of Sellers, or the use of which under the pertinent license therefor is limited to operation by any or all of Sellers or their Affiliates or on equipment owned by any or all of Sellers or their Affiliates, all promotional or marketing materials
(including all marketing computer software), and any and all trade names under which Sellers or the Plant prior to Closing have done business or offered programs, and all abbreviations and variations thereof.
(e) Any and all personnel and employment records of or related to the operation of the Plant or otherwise related to Sellers' personnel, whether or not
maintained at or by the Plant.
(f) The rights of any or all of Sellers under any insurance policy, except to the extent such policy insures for occurrences that are included in the Assumed
Liabilities (it being understood, however, that Sellers will have no obligation to take any action under any such policy to seek any recovery except at the reasonable request, and at the sole expense, of Buyer or to continue any such policies in force
except to the extent expressly set forth herein).
(g) Any and all rights respecting computer and data processing hardware or firmware that is proprietary to any or all of Sellers and any computer and data
processing hardware or firmware, whether or not located at the Plant, that is part of a computer system the central processing unit of which is not located at the Plant.
(h) Except for the Prepayments, Supplies and items of petty cash that may be on hand at the Plant as of the time of Closing, all assets constituting working
capital, whether cash, cash equivalents, securities, rights to payment, rights to refunds and other current assets and similar rights.
(i) Any and all of Sellers' rights arising under contracts related to Sellers' sale of electric power or transmission capacity and contracts related to the
purchase of transmission capacity on the Bonneville Power Administration transmission network or on transmission facilities owned by any Seller.
(j) Any and all data and information pertaining to customers of Sellers or their Affiliates, whether or not located at the Plant.
(k) Miscellaneous and sundry assets, if any, identified by category on Schedule 2.2(k), which assets may have been utilized by Sellers in the ownership and
operation of the Plant but which are not intended to be included in the Assets and which are not otherwise enumerated above.
Sellers may remove at any time or from time to time, up to ninety (90) days following the Closing, any and all of the Excluded Assets from the Plant (at Sellers' expense, but without charge by Buyer for storage), provided that Sellers shall do so
in a manner that does not
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unduly or unnecessarily disrupt Buyer's normal business activities at the Plant, and provided further that Excluded Assets may be retained at the Plant pursuant to easements, licenses or similar arrangement retained by Sellers and described above
or otherwise in the Schedules to this Agreement.
Section 2.3 Assumed Liabilities. Subject to the terms and conditions set forth in this Agreement, the LLC and Buyer shall, and may also cause a pertinent Buyer Subsidiary or Buyer Subsidiaries to, jointly
and severally with the LLC and Buyer, assume and pay, discharge and perform as and when due, only the following obligations and liabilities of Sellers (the "Assumed Liabilities"):
(a) All liabilities and obligations of Sellers which both (i) pertain to or are to be paid or performed during the period following the Closing Date (except to
the extent that, but for the breach of Sellers, such liabilities and obligations would have been paid or performed prior to the Closing Date), and (ii) arise under any contract, License, agreement, arrangement, understanding or undertaking included in the
Assets, including the Assigned Contracts, and any other obligation or liability of Sellers or any Affiliate of Sellers (including letters of credit and performance bonds) which is in the nature of a guaranty of the foregoing, to the extent the same are
enumerated in Schedule 2.3(a) (together, the "Assumed Contracts").
(b) All liabilities and obligations of Sellers under open purchase orders pertaining to any Asset that were entered into by Sellers in the ordinary course of
business with respect to operation of the Plant on or prior to the Closing and which provide for the delivery of goods or services subsequent to the Closing Date.
(c) Without limiting Sellers' representations and warranties contained in Article 3 or Buyer's right under Article 12 with respect to a breach
thereof, any and all liabilities and obligations to third parties respecting any changes or improvements needed to the Plant, if any, for them to be in material compliance following the Closing with respect to safety, building, fire, land use, access
(including, without limitation, the Americans With Disabilities Act ("ADA")) or similar Laws respecting the physical condition of the Plant.
(d) Without limiting Sellers' representations and warranties contained in Article 3 or Buyer's rights under Article 12 for a breach thereof, and
except for the Excluded Liabilities specifically listed in Section 2.4 (including those described in Section 2.4(i)), any and all liabilities, claims, and expenses (including, without limitation, those arising under Environmental Laws, or otherwise)
in any way arising out of or related to or associated with the ownership, possession, use or operation of the Assets or any business conducted therewith or therefrom after the Closing or any and all such liabilities, claims and expenses in any way arising
from a change in Laws after the date hereof.
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(e) Such miscellaneous and sundry liabilities, identified by category on Schedule 2.3(e), if any, which liabilities are ancillary to the ownership and operation
of the Assets and the Plant but are not otherwise enumerated above.
Section 2.4 Excluded Liabilities. The parties agree that liabilities and obligations of Sellers not described in Section 2.3 as Assumed Liabilities are not part of the Assumed Liabilities, and neither
the LLC nor Buyer shall assume or become obligated with respect to any other obligation or liability of Sellers or any Affiliate of Sellers (collectively, "Excluded Liabilities"), including, without limitation, the liabilities and obligations described in
this Section, all of which shall remain the sole responsibility of, and be discharged and performed as and when due by, Sellers. In particular, neither the LLC nor Buyer shall have any liability or obligation with respect to any of the following
liabilities or obligations of Sellers as the same may exist at the Closing:
(a) Liabilities associated with or arising from the Excluded Assets and the ownership, operation and conduct of any business by Sellers or their successors in
interest in connection therewith or therefrom, and liabilities associated with or arising from Sellers' obligations under the Related Agreements and Transmission Arrangements.
(b) Subject to Section 5.3 respecting certain expenses incurred in connection with the transactions contemplated hereby and by the Related Agreements, any
of Sellers' or their Affiliates' liabilities or obligations with respect to franchise taxes and with respect to foreign, federal, state or local taxes imposed upon or measured, in whole or in part, by the income for any period of Sellers or any member of
any combined or consolidated group of companies of which any of Sellers are, or were at any time, a part, or with respect to interest, penalties or additions to any of such taxes, and any income, franchise, tax recapture, transfer tax, sales tax or use
tax that may arise upon consummation of the transactions contemplated hereby and be due from or payable by Sellers, it being understood that neither the LLC nor Buyer shall be deemed to be Sellers' transferee with respect to any such tax liability.
(c) Liabilities or obligations of Sellers or their Affiliates arising from the breach by Sellers prior to the Closing Date of any term, covenant, or provision
of any of the Assumed Contracts.
(d) Liabilities of Sellers for Third Party Claims (as defined in Section 12.5(a)) where the injury or damage involved occurred prior to the Closing, provided
that Third Party Claims related to Existing Soil Contamination or to Remediation Measures shall be subject to the further provisions of Section 6.4.
(e) Liabilities of Sellers incurred in connection with Sellers' obtaining any consent, authorization or approval necessary for them to sell, convey, assign,
transfer or
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deliver the Assets to the LLC or to sell, convey, assign, transfer or deliver the LLC Interests to Buyer hereunder.
(f) Any liability of Sellers representing indebtedness for money borrowed or the deferred portion of the purchase price for any of the Assets or any LLC
Interest (and any refinancing thereof). With respect to any such indebtedness or obligation not so assumed by the LLC or Buyer that constitutes a lien or encumbrance upon any Asset or LLC Interest, Sellers agree that on or prior to the Closing they will
either pay or discharge such indebtedness or obligation in full or otherwise cause such lien or encumbrance to be removed from the Asset or the LLC Interest, so that such Asset or LLC Interest is sold, conveyed, assigned, transferred and delivered to the
LLC or Buyer, as the case may be, at the Closing free and clear of such lien or encumbrance.
(g) Any liabilities of Sellers or any Affiliates of Sellers to employees at the Plant for pre-Closing activities, including but not limited to liabilities for
such activities arising (i) under any collective bargaining agreement, (ii) under any Benefit Plan, (iii) for wages, overtime, bonuses, employment taxes, severance pay, transition payments, vacation pay, or workers' compensation benefits, or (iv) for
personal injury, death, discrimination, harassment, civil or human rights violations, wrongful discharge, grievances, or unfair labor practices, (it being understood, however, that nothing herein is intended to affect Buyer's obligations, if any, under
the National Labor Relations Act).
(h) Liabilities which would be Assumed Liabilities but for other express provisions of this Agreement providing for their retention by Sellers and such other
liabilities and obligations, if any, which would otherwise be Assumed Liabilities but which are identified on Schedule 2.4(h).
(i) Any and all liabilities arising out of or related to Sellers' Environmental Obligations.
Section 2.5 Other Agreements.
(a) Related Agreements. On even date herewith, the parties or their Affiliates have entered into the following agreements (the "Related Agreements"):
Mine Purchase and Sale Agreement (in substantially the form set forth in
Schedule 2.5(a)(1))
Guarantee Agreement
Escrow Agreement (in substantially the form set forth in Schedule
2.5(a)(2)
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(b) Transmission Arrangements. Prior to the Closing Date, (i) the Sellers other than PacifiCorp shall convey their interests in the facilities described
in Section 2.2(a) to PacifiCorp pursuant to a separate purchase and sale agreement and (ii) PacifiCorp, the Buyer and the "Buyer" under the Centralia Coal Mine Purchase and Sale Agreement of even date herewith, or their Affiliates, shall enter into one or
more contracts pursuant to which (A) PacifiCorp provides transmission services necessary to deliver certain electric power requirements of the Plant and the Centralia Coal Mine from the 230 kV facilities of the Bonneville Power Administration to the Plant
and the Centralia Coal Mine and (B) such parties address access, maintenance and other matters with respect to these retained facilities. These agreements shall be collectively referred to as the "Transmission Arrangements."
Section 2.6 Purchase Price. The total purchase price for the LLC Interests shall be the sum of the Plant Purchase Price, the Supplies Purchase Price, the Coal Inventory Purchase Price and the RACT Compliance
Costs as each amount is defined in this Section 2.6.
(a) Plant Purchase Price. The "Plant Purchase Price" shall be U.S. $452,598,000, subject to such adjustments, if any, as may occur pursuant to this
Section 2.6 and other provisions of this Agreement. Buyer shall, or shall cause one or more Buyer Subsidiaries to, pay to Sellers the Plant Purchase Price in cash at the Closing by wire transfer of immediately available funds in U.S. dollars to an
account specified in writing by Sellers to Buyer not later than the second Business Day prior to the Closing Date.
(b) Supplies Purchase Price and Coal Inventories Purchase Price. The "Supplies Purchase Price" shall equal Sellers' original cost basis in the Supplies
as of the Closing Date. The"Coal Inventory Purchase Price" shall equal the product of the number of tons of coal constituting the Coal Inventory on the Closing Date and the average per ton price (F.O.B. Centralia) of the last 100,000 tons of coal
delivered to the Plant by rail prior to the Closing Date; provided however; in respect to coal in the Coal Inventory which was delivered from the Centralia Mine, the per ton purchase price shall be multiplied by a fraction whose numerator is the average
heating value of coal in the Coal Inventory that was delivered from the Centralia Mine and whose denominator is the average heating value of coal in the Coal Inventory delivered to the Plant by rail. Consistent with Section 6.3, Sellers agree not to alter
their customary practices for coal procurement in effect prior to the date hereof with respect to coal deliveries that form the basis of such price adjustment. PacifiCorp shall notify Buyer of the amount of the Supplies Purchase Price and the Coal
Inventory Purchase Price and deliver supporting workpapers to Buyer within 45 days following the Closing Date. Buyer shall, or shall cause one or more Buyer Subsidiaries to, pay to Sellers the Supplies Purchase Price and the Coal Inventory Purchase Price
in cash (U.S.$) within 15 days of such notification by wire transfer of immediately available funds to the same account to which the Plant Purchase Price was paid.
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(c) RACT Compliance Costs. In addition to the Plant Purchase Price, Buyer shall reimburse Sellers for costs expended between the date of this Agreement
and the Closing Date in connection with RACT Compliance, as such costs are described in Section 2.9. Costs reimbursed by Buyer pursuant to this Section 2.6(c) shall not include PacifiCorp's internal costs to the extent they are charged or accounted for in
a manner that is inconsistent with the manner in which PacifiCorp has typically charged and accounted for its internal costs associated with the Plant that are partially reimbursed to PacifiCorp in its role as Plant Operator by the Sellers other than
PacifiCorp. PacifiCorp shall notify Buyer of the amount of such costs and deliver supporting work papers to Buyer within 45 days following the Closing Date. Buyer shall pay or cause one or more Buyer subsidiaries to pay to Sellers the amount of such RACT
Compliance costs in cash (U.S.$) within 15 days of such notification by wire transfer of immediately available funds to the same account which the Plant Purchase Price was paid.
(d) Reduction to Reflect Reclamation Accruals. The Plant Purchase Price shall be reduced by an amount equal to the amount that has been accrued by or on
behalf of Sellers for reclamation costs at the Centralia Coal Mine as of the Closing Date in the form of liabilities on PacifiCorp's balance sheet and balances held in separate trust accounts by some Sellers. As of the date of this Agreement, Sellers have
estimated this amount to be approximately $54,000,000. The parties shall determine this amount based on a final accounting as of the Closing Date,
(e) Plant Purchase Price Allocation. No later than ten Business Days prior to the Closing, Buyer and the Sellers Group shall use their reasonable good
faith efforts to reach agreement upon the manner in which the Plant Purchase Price is to be allocated among the Assets in accordance with the Internal Revenue Code. Upon any such agreement being reached, the agreed allocation shall be set forth in a
schedule (the "Allocation Schedule") to be attached to this Agreement as Schedule 2.6. Sellers and Buyer shall allocate the Plant Purchase Price in accordance with the Allocation Schedule and shall be bound by such allocations for all purposes, shall
account for and report the purchases and sales contemplated hereby for all purposes (including, without limitation, financial, accounting, and federal and state tax purposes) in accordance with such allocations, and shall not take any position (whether in
financial statements, tax returns, or tax audits, or otherwise), which is inconsistent with such allocations without the prior written consent of the other party, except to the extent, if any, required by applicable Law or generally accepted accounting
principles. In the event that Buyer and the Sellers Group do not agree on an allocation of the Plant Purchase Price pursuant to this Section, then the Plant Purchase Price shall be allocated among the Assets in proportion to Sellers' net book value therefor
.
(f) Certain Post-Closing Adjustments. The Plant Purchase Price shall be subject to the following post-Closing adjustments, but only if such adjustments,
in the aggregate, will result in a change in the Plant Purchase Price of $250,000 or more:
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(i) The Plant Purchase Price shall be increased by the amount
expended by Sellers between the date hereof and the Closing Date for capital additions
to or replacements of property, plant and equipment included in the Assets and other
expenditures or repairs on property, plant and equipment included in the Assets that
would be capitalized by Sellers in accordance with their normal capitalization policies
(together "Capital Expenditures"), which Capital Expenditures either appear on
Schedule 2.6(f)(i) or, subject to the provisions of Section 6.3(f), are otherwise deemed
reasonably necessary by Sellers for the continued operation or maintenance of the Plant
and the Assets or for compliance with Law, provided that such Capital Expenditures
shall not include Remediation Measures in respect of Existing Soils Contamination or
spare parts, materials and supplies which constitute Supplies, Coal Inventories, or costs
of RACT Compliance.
(ii) In order to implement the foregoing, PacifiCorp shall cause to be
prepared and shall provide Buyer, as soon as possible after the Closing Date and in no
event later than 60 days thereafter, with a schedule setting forth Sellers' Capital
Expenditures between the date hereof and the Closing Date in reasonable detail so as to
permit Buyer to be able to determine the extent to which such Capital Expenditures are
or are not listed on Schedule 2.6(f)(i).
Any adjustments to the Plant Purchase Price shall be consistent with the Allocation Schedule (if such schedule has been previously agreed to).
Section 2.7 License of Non-Transferred Intangible Assets. Although trade names of Sellers are Excluded Assets, such names appear on certain of the Assets, such as certain fixtures and Equipment, and on
supplies, materials, stationery and similar consumable items which will be on hand at the Plant at the Closing. Notwithstanding that such names are Excluded Assets, the LLC, Buyer and the Buyer Subsidiaries shall be entitled to use such consumable items
for a period of three months following the Closing and shall have up to six months following the Closing to remove such names from fixed Assets, provided that none of such parties shall send correspondence or other materials to third parties on any stationery that contains a trade name or trademark of Sellers or any Affiliates of Sellers. Sellers hereby grant to the LLC and Buyer the
irrevocable, fully paid-up, royalty-free, nontransferable, non-exclusive right and license to use, solely in connection with the operation of the Plant, such proprietary computer software of Sellers located at the Plant that is presently used at the
Plant's location exclusively in connection with the operation of such Plant and that is an Excluded Asset under Section 2.2(d) or (k), except for such computer software that is designed to be part of a networked computer system providing data processing
capabilities or services beyond the Plant in question and provided that in no event shall the LLC or Buyer or any successor have access under such license to Sellers' own computer networks. The licenses contained in this Section 2.7 may, at the Sellers'
option, be made the subject of a separate
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agreement between the parties, in which case the parties shall negotiate the terms thereof in good faith.
Section 2.8 Assignment of Rights and Obligations to Buyer Subsidiaries. For purposes of this Agreement, the term "Buyer Subsidiary" shall refer to any direct or indirect subsidiary of Buyer and any
constituent partner or participant in Buyer (if Buyer is a partnership, joint venture, consortium or other association or organization) to which any of Buyer's rights and obligations hereunder are assigned in compliance with the requirements of this
Section. Notwithstanding any contrary provisions contained herein, the parties hereto agree that, prior to and after the Closing, Buyer, in its sole discretion, may assign any or all of its rights and obligations arising under this Agreement, any Related
Agreement or any other agreement contemplated hereby to one or more Buyer Subsidiaries, provided that no such assignment shall relieve Buyer of any obligation or liability to Sellers hereunder or under any Related Agreement or any other agreement contemplated hereby, and provided further that the following shall apply:
(a) Buyer will provide Sellers with prior written notice of any such assignment.
(b) No such assignment shall be effective if the making of the assignment will result in Sellers' or Buyer's inability to obtain any consent or authorization
reasonably required to consummate the transactions contemplated hereby or to avoid economic detriment to Sellers arising from the consummation of such transactions.
(c) Each such Buyer Subsidiary that is an assignee of Buyer shall irrevocably appoint Buyer as an authorized representative and agent authorized to act for, to
bind and to receive notices and payments on behalf of the Buyer Subsidiaries in all matters arising from or related to this Agreement and the transactions contemplated hereby.
(d) Irrespective of any such assignment or the identity of the party or parties executing any Related Agreements or any other agreement contemplated hereby:
(i) Buyer shall remain jointly and severally liable with each
Buyer Subsidiary to Sellers and to third parties with respect to any Assumed
Liabilities transferred to or undertaken by a Buyer Subsidiary, and shall remain
jointly and severally liable with each Buyer Subsidiary to Sellers with respect to
any other covenant, obligation or liability to Sellers hereunder or under any
Related Agreement or any other agreement contemplated hereby that is
transferred to, or undertaken by, a Buyer Subsidiary, including without
limitation, the payment of all sums due to Sellers hereunder or under any
Related Agreement or any other agreement contemplated hereby, it being
understood that all such covenants, obligations and liabilities shall constitute the
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direct and primary obligation of Buyer to Sellers (and to third parties in the case
of the Assumed Liabilities); and
(ii) Without limiting the generality of the foregoing, if and to
the extent that the application of any principle of Law would construe the
retention by Buyer of the direct and primary obligation to perform any and all
obligations, liabilities or covenants assigned to or assumed or undertaken by a
Buyer Subsidiary to be a guaranty by Buyer of the Buyer Subsidiary's
performance, then Buyer hereby irrevocably, absolutely and unconditionally
guarantees to Sellers the full, prompt and faithful performance by such Buyer
Subsidiary of all covenants and obligations to be performed by such Buyer
Subsidiary under this Agreement and any Related Agreement or any other
agreement contemplated hereby assigned to such Buyer Subsidiary.
(e) Buyer further hereby agrees that a separate action or actions may be brought and prosecuted against Buyer for any such covenant, obligation or liability
assigned to a Buyer Subsidiary, whether action is brought against the pertinent Buyer Subsidiary or whether such Buyer Subsidiary is joined in any such action or actions (Buyer hereby waiving any right to require Sellers to proceed against a Buyer
Subsidiary).
(f) Buyer hereby authorizes Sellers, without notice and without affecting Buyer's liability hereunder, from time to time to (i) renew, compromise, extend,
accelerate, or otherwise change the terms of any obligations of a Buyer Subsidiary hereunder or under any Related Agreement or any other agreement contemplated hereby with the agreement of such Buyer Subsidiary, (ii) take and hold security for the
obligations of any such Buyer Subsidiary and exchange, enforce, waive and release any such security, and (iii) apply such security and direct the order or manner of sale thereof as Sellers in its discretion may determine.
(g) Buyer hereby further waives:
(i) Any defense that may arise by reason of the incapacity or
lack of authority of any Buyer Subsidiary;
(ii) Any defense based upon any Law or legal or equitable
principle which provides that the obligations of a surety must be neither larger
in amount nor in other respects more burdensome than those of the principal;
(iii) Any duty on the part of Sellers to disclose to Buyer any
facts that Sellers may now or hereafter know about a Buyer Subsidiary; and
(iv) Any right to subrogation, reimbursement, exoneration or
contribution or any other rights that would result in Buyer being deemed a
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creditor of a Buyer Subsidiary under the federal Bankruptcy Code or any other
Law, in each case arising from the existence or performance by Buyer of any
obligation of a Buyer Subsidiary hereunder or under any Related Agreement or
any other agreement contemplated hereby.
Section 2.9 RACT Compliance. Buyer is aware that commencing in August 1995, the Southwest Washington Air Pollution Control Agency issued and reissued a series of "RACT" Orders pertaining to the Plant. The
last such RACT Order was issued in February 1998, and provided for an annual limit of 10,000 tons of sulphur dioxide emissions and specified additional limits on nitrogen dioxide emissions. In order to comply with this RACT Order the Sellers have
determined to initiate the actions necessary to install a flue gas desulferization system ("Scrubbers") and certain nitrogen dioxide control equipment ("Burners"). For purposes of this Agreement, the installation of the Scrubbers and the Burners as a
means of timely complying with the RACT Order shall be referred to as "RACT Compliance." Upon the Closing, Buyer shall assume project management responsibility for RACT Compliance. Costs of RACT Compliance are estimated by PacifiCorp to be approximately
$190,000,000, consisting of payments pursuant to a turn-key contract for installation of the Scrubbers; payments pursuant to a turn-key contract for the installation of the Burners; PacifiCorp's internal costs associated with project management,
engineering and support and capitalized interest ("RACT Compliance Costs"). The cost of the Burners is estimated by PacifiCorp to be approximately $17,000,000.
Section 2.10 Scrubbers. No later than May 31, 1999, PacifiCorp on behalf of itself and the other Sellers shall use its best efforts to negotiate and execute a turn-key contract for Scrubber installation
in substantially the form set out in Schedule 2.10 (the "Scrubber Contract") including terms and conditions no less favorable than those contained in the ABB Flakt, Inc. and Stone & Webster Corporation proposal dated April 1, 1999. Absent the written
consent of Buyer, Sellers shall maintain the Scrubber Contract in full force and effect without any material breach by the Sellers. At the Closing, the Scrubber Contract shall be assigned by the Sellers and assumed by the LLC and Buyer. If,
notwithstanding its best efforts, PacifiCorp is not able to timely enter into the Scrubber Contract or the "target price," "target price contingency amount" (as those terms are defined in the Scrubber Contract) or completion date are different than those
provided for in the Scrubber Contract, the Sellers Group must elect, within 30 days of such occurrence, to either: (i) terminate this Agreement or (ii) agree to make the LLC and Buyer economically whole in regard to such difference and/or pay the amount
of any such increased price and/or the amount of any fines or civil penalties that are incurred by the LLC and Buyer as a result of not adhering to the milestone associated with a scrubber contract contained in the RACT Order.
Section 2.11 Escrow. At the Closing, Sellers shall deposit $6,000,000 in an escrow account held by an escrow agent identified by Buyer and acceptable to Sellers. To the extent that total costs ultimately
paid pursuant to the Scrubber Contract for activities within the scope
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of the Scrubber Contract executed in accordance with Section 2.10 exceed $150,600,000, 50 percent of such exceedance shall be paid from the escrow account to Buyer and the balance remaining in the escrow account (if any) upon completion or termination of
such Scrubber Contract shall be paid over to PacifiCorp on behalf of itself and the other Sellers. Except as provided for herein, Sellers shall have no liability or obligation for the payment of costs of RACT Compliance incurred subsequent to the Closing
Date.
Section 2.12 Burners. If the Closing Date has not previously occurred, no later than January 1, 2000, PacifiCorp on behalf of itself and the other Sellers, shall use its best efforts to negotiate and
enter into a turn-key contract for the installation of the Burners ("Burner Contract") on terms reasonably acceptable to Buyer and Sellers other than PacifiCorp. The Burner Contract shall provide that it is freely assignable to the LLC and Buyer and it
shall be assigned by the Sellers and assumed by the LLC and Buyer at the Closing. Prior to the Closing Date, absent the written consent of Buyer, Sellers shall maintain the Burner Contract in full force and effect without any material breach by the Sellers.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below:
Section 3.1 Authority and Enforceability. The execution, delivery and performance of this Agreement, the Related Agreements and all other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the board of directors or other applicable governing body of each Seller; no other corporate act or proceeding on the part of any Seller is necessary to authorize this Agreement or
any Related Agreement or any other agreement contemplated hereby or the transactions contemplated thereby. This Agreement has been, and each of the Related Agreements and other agreements contemplated hereby will, as of the Closing, have been, duly
executed and delivered by each of Sellers, and this Agreement constitutes, and each Related Agreements and such other agreements when executed and delivered will constitute, a valid and binding obligation of Sellers, enforceable against Sellers in
accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in affect relating to creditors' rights generally and that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought.
Section 3.2 No Breach or Conflict. Subject to the provisions of Sections 3.3(a) and 3.3(b) below regarding private party and governmental consents, and except for compliance with the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
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amended (the "HSR Act"), and any regulatory or licensing Laws applicable to the businesses and assets represented by the Assets, the execution, delivery and performance by Sellers of this Agreement and the Related Agreements and any other agreements
contemplated hereby do not: (a) conflict with or result in a breach of any of the provisions of the Articles of Incorporation or Bylaws or similar charter documents (the "Charter Documents") of Sellers; (b) contravene any Law presently in effect
or cause the suspension or revocation of any License presently in effect, which affects or binds Sellers or any of their properties, except where such contravention, suspension or revocation will not have a Material Adverse Effect (as defined below) on
the LLC Interests or the Assets and will not affect the validity or enforceability of this Agreement, the Related Agreements or any other agreement contemplated hereby or the validity of the transactions contemplated hereby and thereby; or (c)
conflict with or result in a breach of or a default (with or without notice or lapse of time or both) under any material agreement or instrument to which Sellers are a party or by which they or any of their properties may be affected or bound, the effect
of which conflict, breach, or default, either individually or in the aggregate, would be a Material Adverse Effect on the Assets or the LLC Interests. As used herein, a "Material Adverse Effect": (w) when used with respect to the LLC Interests, means a
material adverse effect on the value or transferability of the LLC Interests, (x) when used with respect to the Assets, means a material adverse effect on the Assets and on the operation thereof, taken as a whole; (y) when used with respect to
any portion of the Assets (including, without limitation, the Plant), means a material adverse effect on such portion of the Assets and on the operation thereof, taken as a whole; and (z) when used with respect to a Person, such as a Seller or Buyer,
means a material adverse effect on the business, condition (financial or otherwise) and results of operations of such Person taken as a whole (including any subsidiaries of such entity) or on the ability of such Person to consummate the transactions
contemplated hereby.
Section 3.3 Approvals.
(a) Except as set forth in Schedule 3.3(a), the execution, delivery and performance by Sellers of this Agreement, the Related Agreements and any other
agreements contemplated hereby do not require the authorization, consent or approval of any non-governmental third party of such a nature that the failure to obtain the same would have a Material Adverse Effect on the LLC Interests, the Assets or the
Plant substantially as they have heretofore operated.
(b) Except as set forth in Schedule 3.3(b), the execution, delivery and performance by Sellers of this Agreement, the Related Agreements and any other
agreements contemplated hereby do not require the authorization, consent, approval, certification, license or order of, or any filing, with, any court or Governmental Body of such a nature that the failure to obtain the same would have a Material Adverse
Effect on the LLC Interests or the Assets.
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Section 3.4 Permits. Except as set forth in Schedule 3.4, at the date hereof to Sellers' Knowledge, Sellers possess all Licenses necessary for their operation of the Plant at the locations and in the
manner presently operated, other than those the absence of which would not have a Material Adverse Effect on the LLC Interests or the Assets. A true and correct copy of each such License has previously been delivered to or made available for inspection by
Buyer.
Section 3.5 Compliance with Law. Except as set forth in Schedule 3.5, and except for the matters that are the subject of Sections 3.4 and 3.6 and the Schedules, if any, related thereto, to Sellers'
Knowledge, Sellers are in compliance in all material respects with all pertinent Laws and Licenses related to the ownership and operation of the LLC Interests or the Assets, other than violations that would not, individually or in the aggregate, have a
Material Adverse Effect on the ownership, use or operation of the LLC Interests or the Assets or on the ability of Sellers to execute and deliver this Agreement, the Related Agreements or any other agreements contemplated hereby and consummate the
transactions contemplated hereby and thereby.
Section 3.6 Hazardous Materials. To Sellers' Knowledge, except as disclosed by the "Phase I" and Phase II" environmental site assessments prepared by Sellers' outside environmental consultants and
made available for inspection by Buyer, or as otherwise disclosed on Schedule 3.6:
(a) There has not been a Release of Hazardous Material on or otherwise affecting the Assets (other than Releases involving de minimis quantities of Hazardous
Materials) that: (i) constitutes an unremedied material violation of any Environmental Law by Sellers or by any third party if the effect of such violation by such third party imposes a current remediation obligation on the part of Sellers; (ii)
currently imposes any material release-reporting obligations on Sellers under any Environmental Law that have not been or are not being complied with; or (iii) currently imposes any material clean-up or remediation obligations of Sellers under any
Environmental Law.
(b) Sellers, during at least the last three years, have complied, and currently are in compliance, in all material respects, with all Environmental Laws that
govern the Assets;
(c) Sellers have all material Licenses required under Environmental Laws for its operation of the Assets, are in compliance in all material respects with all
such Licenses and during the three-year period preceding the date of this Agreement have not received any notice that: (i) any such existing Licensing will be revoked; or (ii) any pending application for any new such License or renewal of any
existing Licensing will be denied;
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(d) Sellers have not received any currently outstanding written notice of any material proceedings, action, or other claim or liability arising under any
Environmental Laws (including, without limitation, notice of potentially responsible party status under the Comprehensive Environmental Response, Compensation, and Liability Act , 42 U.S.C. Sections 9601 et seq. or any state counterpart) from any Person or Governmental Body regarding the Assets; and
(e) No portion of the Assets has ever contained an underground storage tank, surface impoundment or similar device used for the management of wastewater, or
other waste management unit dedicated to the disposal, treatment, or long-term (greater than 90 days) storage of Hazardous Materials.
Section 3.7 Title to Personal Property. Sellers have good and defensible title, or valid and effective leasehold rights in the case of leased property, to the LLC Interests and all tangible personal property
included in the Assets to be sold, conveyed, assigned, transferred and delivered to the LLC, Buyer or a Buyer Subsidiary, as the case may be, by Sellers, free and clear of all liens, charges, claims, pledges, security interests, equities and encumbrances
of any nature whatsoever, except for those created or allowed to be suffered by Buyer or such Buyer Subsidiary and except for the following (individually and collectively, the "Permitted Encumbrances"): (i) the lien of current taxes not delinquent,
(ii) liens listed on Schedule 3.7, (iii) the Assumed Liabilities, (iv) such consents, authorizations approvals and Licenses referred to in Section 3.3(a), 3.3(b) and 3.4, and (v) liens, charges, claims, pledges, security,
interests, equities and encumbrances which will be discharged or released either prior to, or substantially simultaneously with, the Closing Date and other liens and possible minor matters that in the aggregate are not substantial in amount and do not
materially detract from or interfere with the present or intended use of such property.
Section 3.8 Independent Engineer Report. Sellers have reviewed the report, dated July 22, 1998, (the "Independent Engineer Report") of the independent engineers retained to assist the bidders in the
Auction in their respective evaluations of the Assets, and while Sellers have not independently verified the information and data contained therein, to Sellers' Knowledge, except as may be set forth in Schedule 3.8, there is no misstatement of facts
contained in the sections of the Independent Engineer Report specified in Schedule 3.8, other than matters which individually or in the aggregate do not have a Material Adverse Effect on the Assets.
Section 3.9 Contracts. Except for such matters which individually and in the aggregate do not have a Material Adverse Effect on the LLC Interests or the Assets, or except as otherwise disclosed on
Schedule 3.9, to Sellers' Knowledge (a) there is no liability to any third party by reason of the default by Sellers under any Assumed Contract, (b) Sellers have not received notice that any Person intends to cancel or terminate any Assumed
Contract, and (c) all of the Assumed Contracts are in full force and effect; provided that notwithstanding the
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foregoing representations and warranties, Sellers make no separate representation or warranty under this Section 3.9 respecting compliance with the provisions of Laws generally, Hazardous Materials, title to or condition of property, Licenses,
environmental conditions or Environmental Laws, it being the intent of the parties that warranties respecting such matters shall be made exclusively under the provisions of Sections 3.4, 3.5, 3.6, and 3.7. Sellers have previously made available for
inspection by Buyer true and complete copies of all written Assumed Contracts except where the failure to so deliver a copy thereof will not have a Material Adverse Effect on Buyer.
Section 3.10 Litigation. Except for (a) ordinary routine claims and litigation incidental to the businesses represented by the Assets (including, without limitation, actions for negligence, workers'
compensation claims and the like), (b) Governmental Body inspections and reviews customarily made of businesses such as those operated from the Plant, (c) proceedings before regulatory authorities, and (d) as set forth on Schedule
3.10, there are no actions, suits, claims or proceedings pending, or to Sellers' Knowledge, threatened against or affecting the LLC Interests or the Assets or relating to the operations of the Assets, at law or in equity, or before or by any Governmental
Body. Except as disclosed on Schedule 3.10, there is no condemnation proceeding pending or, to Sellers' Knowledge, threatened against any of the LLC Interests or the Assets.
Section 3.11 Plant Data. Attached hereto as Schedule 3.11, is the following selected historical operating or performance data of the generating units included in the Assets (the "Operating Data"):
(i) PacifiCorp's most recent recorded measurement of the "dependable operating capacity" (as defined in such Schedule) of each such unit for which PacifiCorp has historical records of such measurements and the dependable operating capacity recorded
by PacifiCorp at such time in accordance with the procedures and parameters described in such Schedule; (ii) PacifiCorp's most recent annual so-called "wide-open valve heat rate test" for each such unit and the outcomes of such tests recorded by
PacifiCorp, subject to the procedures, parameters and assumptions that are further described in such Schedule; and (iii) the last major scheduled turbine overhaul recorded for each unit included in the Assets and the results recorded by PacifiCorp,
if any (as part of its customary overhaul procedure), of a so-called "wide-open valve heat rate test" immediately prior to such overhaul and immediately after such overhaul, subject to the procedures, parameters and assumptions that are further described
in such Schedule. To Sellers' Knowledge, the measurements and tests referred to in clauses (i) through (iii) above were all conducted in accordance with practices reasonably likely to result in information that was materially accurate as of the dates on
which it was recorded, subject to the accuracy of the measurement devices used and the other assumptions and qualifications contained in such Schedule. Since the date of the Independent Engineer Report referred to in Section 3.8, Sellers have
operated the Plant only in the usual and ordinary course, except as identified in Schedule 3.11, and there has not been:
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(a) Any material casualty, physical damage, destruction or physical loss respecting, or, to Sellers' Knowledge, material adverse change in the physical
condition of, the Plant, subject to ordinary wear and tear and to routine maintenance;
(b) Any sale or other disposition other than in the ordinary course of business of any fixed Asset that has a net book value in excess of $100,000;
(c) Any material pledge or imposition of lien on any of such Assets, except for such as will be removed as of the Closing or except for Permitted
Encumbrances; or
(d) Any material amendment (other than general amendments which the insurance carrier makes for a category of policy) or termination or failure to renew
any material insurance covering the Assets.
Section 3.12 Brokers. Except as shown on Schedule 3.12, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the
transactions contemplated hereby based upon any agreements or arrangements or commitments written or oral, made by or on behalf of Sellers. Sellers shall be solely responsible for the payment of any such fee or commission to any Person listed on
Schedule 3.12.
Section 3.13 Assets Used in the Operation of the Plant. Except as delineated on Schedule 3.13, there are no material assets or properties that are used in and necessary for the conduct of the operations of
the Plant that are owned by Sellers and that individually or in the aggregate are necessary for the operation of the Assets as currently operated by Sellers that are not included in the Assets.
Section 3.14 Option Rights. None of the Persons constituting Sellers retain any rights of first refusal, option rights or other similar rights to purchase all or any portion of the LLC Interests or the
Assets in connection with a contribution of the Assets to the LLC or a sale of the LLC Interests to the Buyer pursuant to this Agreement.
Section 3.15 Real Property. The Owned Real Property and Easements constitute all the real property that is necessary for the ownership and operation of the Plant pursuant to good industry practices. As of
the Closing Date, Sellers will have good, valid and marketable title to all such real property free and clear of all liens, mortgages, deed restrictions, charges, claims, pledges, security interests, equities and encumbrances that could materially affect
the value of such real property or the use of such real property in connection with the ownership and operation of the Plant.
Section 3.16 Year 2000 Readiness. PacifiCorp hereby represents and warrants to Buyer that except as delineated on Schedule 3.16, all of the hardware, software and firmware
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product (including embedded microcontrollers in non-computer equipment) which are included in the Assets (the "Computer Systems") are (and will remain) Year 2000 Ready and will reliably operate the Assets into the Year 2000, and that Computer Systems
delineated on Schedule 3.16 are either not necessary for the reliable operation of the Assets into the Year 2000 or will be made Year 2000 Ready prior to January 1, 2000. For purposes hereof, "Year 2000 Ready" shall mean a Computer System or component
thereof that has been determined to be suitable for continued use into the Year 2000, but is not necessarily Year 2000 compliant, which implies fully correct date manipulations. PacifiCorp has developed and will maintain and implement a plan to achieve
Year 2000 Readiness using standard industry practices and shall consult and cooperate with the Buyer regarding such implementation during the period prior to the Closing Date.
Section 3.17 Taxes. Those Sellers which are for-profit corporations hereby warrant to Buyers that such Sellers have filed all returns required to be filed by them with respect to Taxes, and such Sellers have
paid all Taxes that have become due, except where such Tax is being contested in good faith by appropriate proceedings. Sellers which are for-profit corporations have complied with all applicable laws, rules and regulations relating to withholding of
Taxes and have, within the time and manner prescribed by law, paid over to the proper governmental authorities all amounts so withheld. All tax returns filed by such Sellers are true, correct and complete. None of the Assets is property that is required
to be treated as being owned by any other person pursuant to the so-called "safe harbor lease" provision of former Section 168(h) of the Internal Revenue Code of 1954, and none of the Assets is "tax-exempt use" property within the meaning of Section
103(a) of the Internal Revenue Code. Those Sellers which are for-profit corporations are not "foreign persons" as defined in Internal revenue Code Section 1445(f)(3). Schedule 3.17 sets forth the taxing authorities to which notification of any of the
transaction contemplated by this Agreement must be made or which require the Buyer to withhold any portion of the Plant Purchase Price. Those Sellers which are for-profit corporations do not have any liability pursuant to Section 6901 of the Internal
Revenue Code or otherwise under applicable state or federal law by virtue of the acquisition by it of any of the Assets (or interest or interests therein), and Buyer will not be subject to such liability as a result of any of the transactions contemplated
by this Agreement.
Section 3.18 LLC Interests. The LLC Interests that Sellers will transfer to Buyer at the Closing constitute Sellers' entire interest in the LLC and the Assets.
Section 3.19 Liability. Prior to the Closing, the LLC has no direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, liability for Taxes, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured, due or to become due or otherwise.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below:
Section 4.1 Organization and Corporate Power. Buyer is a corporation duly incorporated and validly existing under the Laws of, and is authorized to exercise its corporate powers, rights and privileges and is
in good standing in, the State of Washington and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on
its part contemplated by this Agreement and all other agreements contemplated hereby.
Section 4.2 Authority and Enforceability. The execution, delivery and performance of this Agreement, the Related Agreements and any other agreements contemplated hereby and the consummation of the
transaction contemplated hereby and thereby have been duly authorized by the board of directors of Buyer; no other corporate act or proceeding on the part of Buyer is necessary to authorize this Agreement, any Related Agreement any other agreement
contemplated hereby, or the transactions contemplated hereby and thereby. This Agreement has been, and each of the Related Agreements and other agreements contemplated hereby will, as of the Closing, have been, duly executed and delivered by Buyer, and
this Agreement constitutes, and each Related Agreement and such other agreement when executed and delivered will constitute, a valid and binding obligation of Buyer, enforceable against Buyer, in accordance with its terms, except as it may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any proceeding may be brought.
Section 4.3 No Breach or Conflict. Subject to the provisions of Sections 4.4(a) and 4.4(b) below regarding private party and governmental consents, and except for compliance with the requirements of the HSR
Act and any regulatory or licensing Laws applicable to the businesses and assets represented by the Assets, the execution, delivery and performance by Buyer and the Buyer Subsidiaries of this Agreement, the Related Agreements and any other agreement
contemplated hereby do not: (a) conflict with or result in a breach of any of the provisions of the Charter Documents of Buyer or any Buyer Subsidiary; (b) contravene any Law or cause the suspension or revocation of any License presently in
effect, which affects or binds Buyer or any Buyer Subsidiary or any of their material properties; or (c) conflict with or result in a breach of or default under any material agreement or instrument to which Buyer or any Buyer Subsidiary is a party or
by which it or they or any of their properties may be affected or bound.
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Section 4.4 Approvals.
(a) Except as set forth on Schedule 4.4(a), the execution, delivery and performance by Buyer and any Buyer Subsidiary of this Agreement, the Related Agreements
and any other agreement contemplated hereby do not require the authorization, consent or approval of any non-governmental third party.
(b) Except as set forth on Schedule 4.4(b), the execution, delivery and performance by Buyer and any Buyer Subsidiary of this Agreement, the Related Agreements
and any other agreement contemplated hereby do not require the authorization, consent, approval, certification, license or order of, or any filing with, any court or Governmental Body, to consummate the transactions contemplated hereby and to permit Buyer
to acquire the LLC Interests and the LLC to acquire the Assets and to generate electricity therefrom for sale.
Section 4.5 Litigation. Except as set forth on Schedule 4.5, there are no actions, suits, claims or proceedings pending, or to Buyer's Knowledge, threatened against Buyer or any Buyer Subsidiary likely
to impair the consummation of the transactions contemplated thereby or otherwise material to such transactions or to Buyer or any Buyer Subsidiary, and Buyer is not aware of facts likely to give rise to such litigation.
Section 4.6 Brokers. Except as set forth on Schedule 4.6, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or
the transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Buyer. Buyer shall be solely responsible for the payment of any such fee or commission to any Person listed on Schedule
4.6.
Section 4.7 Exculpation. BUYER AGREES THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, THE ASSETS ARE BEING SOLD ON AN "AS IS" BASIS AND IN "WITH ALL FAULTS"
CONDITION, AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLERS MAKES NO WRITTEN OR ORAL REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE FITNESS, MERCHANTABILITY, OR SUITABILITY OF THE ASSETS FOR ANY PARTICULAR PURPOSE
OR THE OPERATION OF THE ASSETS BY BUYER.
Section 4.8 Financing. Buyer has liquid capital or committed sources therefor sufficient to permit it and the pertinent Buyer Subsidiaries, if any, and the LLC to perform timely its or their obligations
hereunder, under the Related Agreements and under any other agreements contemplated hereby.
Section 4.9 No Knowledge of Sellers' Breach. Buyer has no Knowledge of any
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breach of any representation or warranty by Sellers or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligation hereunder. Buyer shall notify Sellers as promptly as practicable if any such information
comes to its attention prior to Closing.
Section 4.10 Qualified for Licenses. To Buyer's Knowledge, Buyer and any pertinent Buyer Subsidiary and the LLC are, or by Closing will be, qualified to obtain any Licenses necessary for the operation by
Buyer, such Buyer Subsidiary or the LLC of the Assets as of the Closing in substantially the same manner as the Assets are presently operated by Sellers.
Section 4.11 Buyer Subsidiaries.
(a) As of the Closing, each Buyer Subsidiary will be an entity duly organized, validly existing and in good standing under the Laws of its state of
incorporation. Each Buyer Subsidiary will at the Closing have all requisite power and authority to carry on its business as then conducted and to own or lease and operate its properties and assets then owned or leased and operated by it and to perform the
transactions on its part contemplated by this Agreement and all other agreements contemplated hereby.
(b) The governing body of each Buyer Subsidiary and, if required, its shareholders or other owners, will have, by the date of the Closing, duly and
effectively authorized (i) the purchase of the LLC Interests to be purchased by such Buyer Subsidiary, and (ii) the execution, delivery and performance of this Agreement, the Related Agreements and any other agreements contemplated hereby and
thereby to which such Buyer Subsidiary is a party. No other organizational act or proceeding on the part of any Buyer Subsidiary, its governing body or its shareholders or other owners will be necessary to authorize this Agreement, any Related Agreement
or other agreement contemplated hereby and thereby or the transactions contemplated hereby and thereby.
(c) This Agreement, the Related Agreements and all other agreements contemplated hereby and thereby to which any Buyer Subsidiary is a party will, as of
the Closing, have been duly executed and delivered by each such Buyer Subsidiary, and each such agreement, when executed and delivered will constitute, a valid and binding obligation of such Buyer Subsidiary, enforceable against such Buyer Subsidiary in
accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought.
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ARTICLE 5
COVENANTS OF EACH PARTY
Section 5.1 Efforts to Close.
(a) Reasonable Efforts. Subject to the terms and conditions herein provided including, without limitation, Articles 8 and 9 hereof, each of the
parties hereto agrees to take all reasonable actions and to do all reasonable things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby, including
the satisfaction of all conditions thereto set forth herein and including, without limitation, enforcing the provisions of the Auction Protocol Agreements entered into with those proposing to bid to purchase the Plant. Such action shall also include,
without limitation, exerting their reasonable efforts to obtain the consents, authorizations and approvals of all private parties and Governmental Bodies whose consent is reasonably necessary to effectuate the transactions contemplated hereby, and
effecting all other necessary registrations and filings, including, without limitation, filings under Laws relating to the transfer, reissuance or otherwise obtaining of necessary Licenses, under the HSR Act and all other necessary filings with any
Governmental Bodies. Sellers shall cooperate with Buyer's efforts to obtain the requisite Licenses and regulatory consents, provided Sellers shall not be obligated to incur any liabilities or assume any obligations in connection therewith. Other than
Buyer's and Sellers' obligations under Section 5.3, no party shall have any liability to the other parties if, after using its reasonable commercial efforts, it is unable to obtain any consents, authorizations or approvals necessary for such party to
consummate the transactions contemplated hereby. As used herein, the terms "reasonable efforts" or "reasonable actions" do not include the provision of any consideration to any third party, the commencement of litigation or the suffering of any economic
detriment to a party's ongoing operations for the procurement of any such consent, authorization or approval except for the costs of gathering and supplying data or other information or making any filings, the fees and expenses of counsel and consultants
and the customary fees and charges of Governmental Bodies. Sellers shall fully cooperate with Buyer regarding the making of offers of employment to employees whose principal work location is at the Plant and Buyer's hiring of such employees and Sellers
shall use reasonable efforts to facilitate the orderly hiring of such employees. Furthermore, Sellers and Buyer shall execute and deliver such other agreements, documents and instruments as are required to be delivered by such party or prior to closing to
effectuate the transactions contemplated by this Agreement.
(b) Control Over Proceedings. All analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party before any Governmental Body (other than any governing board or other governing body of any of the publicly owned utility Sellers) in connection with the approval of the transactions contemplated hereby shall be subject to the joint
approval or disapproval and the joint control of Buyer and the Sellers, it being the intent that the Parties will consult and
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cooperate with one another, and consider in good faith the views of one another, in connection with any such analysis, appearance, presentation, memorandum, brief, argument, opinion and proposal; provided that nothing will prevent a party from
responding to a subpoena or other legal process as required by Law or submitting factual information in response to a request therefor. Each Party will promptly provide the other with copies of all written communications from Governmental Bodies relating
to the approval or disapproval of the transactions contemplated by the Agreement and the Related Agreements. The Sellers will promptly report to Buyer with respect to matters and events involving Governmental Bodies that could have a Material Adverse
Effect on the LLC Interests or the Assets and shall timely provide Buyer with copies of relevant documents and notices. Sellers shall consult and cooperate with Buyer in good faith in regard to such matters and events and incorporate Buyer's suggestions
where they deem reasonably appropriate. Provided, however, nothing herein shall limit Buyer's ability to intervene or otherwise participate in regulatory proceedings related to the LLC Interests or the Assets.
Section 5.2 Post-Closing Cooperation. After the Closing, upon prior reasonable written request, each party shall cooperate with the other parties in furnishing records, information, testimony and other
assistance in connection with any inquiries, actions, audits, proceedings or disputes involving any of the parties hereto (other than in connection with disputes between the parties hereto) and based upon contracts, arrangements or acts of Sellers which
were in effect or occurred on or prior to Closing and which relate to the LLC Interests or the Assets, including, without limitation, arranging discussions with (and the calling as witness of) officers, directors, employees, agents, and representatives of
the LLC, Buyer and Buyer Subsidiaries. The requesting party shall in each instance be responsible for payment of any costs and expenses incurred by any other party in affording such cooperation, including any out-of-pocket expenses incurred by such party
to third parties; provided, however, that in no event shall the costs and expenses for which any such requesting party shall be liable include any wages or other benefits paid or provided by any such cooperating party to its officers, directors or
employees.
Section 5.3 Expenses. Whether or not the transactions contemplated hereby or by the Related Agreements are consummated, except as otherwise provided in this Agreement and the Related Agreements, all costs
and expenses incurred in connection with this Agreement and the transactions contemplated hereby or thereby shall be paid by the party incurring such expenses. Notwithstanding the foregoing:
(a) Costs associated with preliminary title reports and title insurance policies shall be borne by Sellers up to the costs that would have been incurred had the
title policies been standard coverage policies of title insurance, and the remaining costs, if any, including costs for extended coverage and any endorsements shall be borne by Buyer (except that any costs of surveys that are reasonably required shall be
borne by Sellers);
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(b) All costs of the "Phase I" and "Phase II" environmental site assessments provided by Sellers to Buyer shall be borne by Sellers, and except as
specifically set forth herein, any additional environmental investigations shall be borne by Buyer;
(c) Costs associated with the Independent Engineer Report within the scope of its initial engagement shall be borne by Sellers, and additional costs for
services requested by Buyer, if any, shall be borne by Buyer;
(d) Documentary transfer taxes will be borne by Sellers, and recording costs and charges respecting real property will be borne one-half by Buyer and one-half
by Sellers;
(e) All fees and charges of Governmental Bodies shall be borne by the party incurring the fee or charge, except that all fees and charges of Governmental Bodies
in connection with the transfer, issuance or authorization of any License shall be borne by Buyer; and
(f) All liabilities or obligations for Taxes in the nature of sales or use taxes or real estate excise taxes incurred as a result of the contribution of the
Assets to the LLC or the sale of the LLC Interests hereunder to Buyer shall be borne by Buyer.
(g) Each party will bear its own expenses in preparing regulatory filings (including without limitation its own HSR Act filings) and seeking required consents
and approvals.
All such charges and expenses shall be promptly settled between the parties at the Closing or upon termination or expiration of further proceedings under this Agreement, or with respect to such charges and expenses not determined as of such time, as soon
thereafter as is reasonably practicable.
Section 5.4 Employees.
(a) Assumption of Collective Bargaining Agreements. PacifiCorp shall assign and the LLC and Buyer shall assume the obligations of the employer to the
employees at the Plant under the collective bargaining agreement with IBEW Local 125 (the "Collective Bargaining Agreement").
(b) Transferred Employees. Buyer shall, no later than three months following the date of this Agreement, notify Sellers of the names of employees not
covered by the Collective Bargaining Agreement whose principal work location is at the Plant to whom Buyer will make offers of employment. Except as provided in this Agreement, such offers shall be on such terms as Buyer shall decide. Sellers shall
cooperate with Buyer regarding the making of such offers of employment and shall use reasonable efforts, within the meaning of
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Section 5.1(a), to facilitate the orderly hiring by Buyer of such employees. Employees of Seller with a principal work location at the Plant who accept Buyer's offer and who are not Union Employees ("Transferred Employees") shall commence employment with
Buyer on the Closing Date.
(c) Nonsolicitation. Except to the extent that refraining from doing so would be inconsistent with the provisions of the Collective Bargaining Agreement,
without the prior consent of Buyer, Sellers shall refrain and PacifiCorp, Avista Corporation and Puget Sound Energy, Inc. shall use their best efforts to cause any Affiliate to refrain, from offering or otherwise making available any employment or
transfer from the date of this Agreement through the date that is 12 months following the Closing Date to any employee whose principal work location is at the Plant as of the date of this Agreement.
(d) Benefits in General. Buyer shall provide the Transferred Employees with Benefit Plans that are comparable, in the aggregate, to the Benefit Plans of
PacifiCorp covering them just prior to the Closing Date but are no less favorable than those provided by the Buyer to its similarly situated employees. Such Benefit Plans provided by Buyer shall include, but not be limited to, a defined benefit pension
plan and a group health plan that provides medical, dental, and vision coverage. The Transferred Employees and their dependents shall be eligible for immediate participation on the Closing Date in such group health plan of Buyer, with no preexisting
condition limitations. Amounts incurred prior to the Closing Date by the Transferred Employees and their dependents toward deductibles and out-of-pocket limits shall be counted by Buyer toward parallel limits under its Benefit Plans. Buyer shall give
credit to the Transferred Employees for service with Seller for purposes of eligibility to participate and vesting under Buyer's defined benefit pension plan and any other retirement plans of Buyer and for purposes of benefit accruals under Buyer's paid
time-off and other service-based welfare benefit plans. Buyer shall provide post-retirement welfare benefits to Transferred Employees and Union Employees that are comparable to those provided to such employees under Sellers' Benefit Plans.
(e) Transition of Pension Benefits. Sellers shall cause the PacifiCorp Retirement Plan to make available to each Transferred Employee and to each Union
Employee a lump sum distribution equal to the actuarial equivalent present value of the employee's accrued benefit under the terms of such plan as of the Closing Date. Buyer shall cause its defined benefit pension plan to accept, for a period of 90 days
beginning on the Closing Date, a direct rollover of the entire lump sum distribution elected by a Transferred Employee or Union Employee and to provide to each employee making such an election a life annuity benefit that is no less than the life annuity
benefit accrued under the PacifiCorp Retirement Plan as of the Closing Date, including any increases in compensation from the Closing Date to the date of the employee's termination of all employment with the controlled group of corporations of which the
Buyer is a member. The Purchase Price provided by Section 2.6 has been reduced by U.S. $1,000,000 in the aggregate for this Agreement and the Centralia Coal
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Mine Purchase and Sale Agreement of even date herewith, on account of the obligation described in the preceding sentence. If counsel to Buyer and counsel to Sellers agree there is a material risk that the provisions of this paragraph (e) will prevent
Buyer's defined benefit pension plan from qualifying under Section 401(a) of the Internal Revenue Code, the parties shall agree upon an alternative which achieves, in the opinion of an actuarial firm, substantially the same economic result for each party
as well as affected employees. Such actuarial firm shall be selected jointly by Buyer and Sellers or, if they cannot agree on such selection, by the actuarial firms selected by each of them.
(f) Severance. In the event a Transferred Employee is involuntarily terminated from employment with Buyer within two years after the Closing Date, Buyer
shall pay such Transferred Employee a severance benefit equal to an amount based on the employee's compensation level (the "Guideline Severance") plus an additional amount based on the employee's length of service (the "Service-Based Severance). The
Guideline Severance shall be determined under the following table based on the employee's annual base salary plus target annual bonus level in effect at the time of termination from employment with Buyer:
Base Salary Plus Target Bonus |
Severance Amount |
$30,000 or less |
1 month's base salary |
The Service-Based Severance shall be one week of base salary for each year of service. For this purpose, year of service means the number of completed 12-month periods between the employee's original date of hire with Seller and the date of employment
termination with Buyer.
(g) Workers' Compensation and Disability. Seller shall retain the obligation to provide disability and workers compensation benefits with respect to
Plant employees who do not become employed by Buyer. Buyer shall provide disability and workers compensation benefits to Transferred Employees and Union Employees. In addition, Buyer shall use reasonable efforts, within the meaning of 5.1(a), to provide
return-to-work opportunities for Plant employees for whom Seller retained the obligation to provide disability and workers compensation benefits.
ARTICLE 6
ADDITIONAL COVENANTS OF SELLERS
Sellers hereby additionally covenant, promise and agree as follows:
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Section 6.1 Access. Provided that Buyer has complied with each and every provision thereof, PacifiCorp, on behalf of the Sellers, shall, in accordance with the terms and subject to the conditions of that
certain Auction Protocols Agreement by and among Buyer and Sellers, afford Buyer, and the counsel, accountants and other representative of Buyer, reasonable access, throughout the period from the date hereof to the Closing Date, to the Assets and the
managerial and technical personnel associated therewith and all the properties, books, contracts, commitments, and records included in the Assets which Sellers have in their possession or to which they have access in order to facilitate transition
planning. Such records shall include, but not be limited to, personnel records with respect to employees whose principal work location is at the Plant. Such access shall be afforded to Buyer after no less than 24 hours' prior written notice, during normal
business hours and only in such manner as not to disturb or interfere with the normal operation of Sellers, and may include, without limitation, discussion and access relating to Buyer's engineering of Plant air pollution and other modifications Buyer
plans to construct after Closing. In addition, with the reasonable approval of the Sellers Group, during the period prior to the Closing Date, Buyer make modifications to the Assets at Buyer's sole cost and expense in order to reduce the requirement for
transition services provided for in Section 6.9. PacifiCorp's covenants under this Section are made with the understanding that Buyer shall use all such information in compliance with all Laws. The foregoing notwithstanding, Buyer acknowledges and agrees
that Buyer's access to the books and records of the Assets shall not include access to, and PacifiCorp shall not have any obligation to deliver to Buyer, any information concerning any alleged dispute or any pending litigation, investigation or proceeding
involving Sellers or their Affiliates that is protected by or subject to the attorney-client privilege, or the disclosure of which is restricted by an agreement entered into in connection with such dispute, litigation, investigation or proceeding or an
order entered by any court.
Section 6.2 Updating. Sellers shall notify Buyer of any changes or additions to any of Sellers' Schedules to this Agreement with respect to the Assets or Assumed Liabilities related thereto by the delivery
of updates thereof, if any, as of a reasonably current date prior to the Closing not later than three Business Days prior to the Closing. No such updates made pursuant to this Section shall be deemed to cure an inaccuracy of any representation or warranty
made in this Agreement as of the date hereof, unless Buyer specifically agrees thereto in writing nor shall any such notification be considered to constitute or give rise to a waiver by Buyer of any condition set forth in this Agreement. Without limiting
the generality of the foregoing, Sellers shall notify Buyer reasonably promptly of the occurrence of any material casualty, physical damage, destruction or physical loss respecting, or, to Sellers' Knowledge, material adverse change in the physical
condition of, the Plant, not including ordinary wear and tear and routine maintenance.
Section 6.3 Conduct Pending Closing. Prior to consummation of the transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Buyer shall otherwise
consent in writing, which consent shall not be unreasonably
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withheld or delayed, and except for actions taken pursuant to Assumed Contracts, or which are required by Law or arise from or are related to the anticipated transfer of the Assets or as otherwise contemplated by this Agreement or disclosed in
Schedule 6.3 or another Schedule to this Agreement, Sellers shall:
(a) Operate and maintain the Assets only in the usual and ordinary course, materially consistent with practices followed prior to the execution of this Agreement;
(b) Except as required by their terms, not amend, terminate, renew, or renegotiate any existing material Assumed Contract or enter into any new Assumed
Contract, except in the ordinary course of business and consistent with practices of the recent past, or default (or take or omit to take any action that, with or without the giving of notice or passage of time, would constitute a default) in any of its
obligation under any such contracts;
(c) Not (i) sell, lease, transfer or dispose of, or make any contract for the sale, lease, transfer or disposition of, the LLC Interests or any assets or
properties which would be included in the Assets, other than sales in the ordinary course of business which would not individually, or in the aggregate, have a Material Adverse Effect upon the operations or value of the Plant or the LLC Interests;
(ii) incur, assume, guaranty, or otherwise become liable in respect of any indebtedness for money borrowed which would result in the LLC or Buyer assuming such liability hereunder after the Closing; (iii) delay the payment and discharge of any
liability which, upon Closing, would be an Assumed Liability, because of the transactions contemplated hereby; or (iv) encumber or voluntarily subject to any lien any Asset or LLC Interest (except for Permitted Encumbrances); or (v) sell, lease,
transfer or dispose of, to any Seller or any Affiliate of any Seller, any LLC Interest or any assets or properties which would be included in the Assets, or remove any such assets or property to or for the benefit of any Seller or any Affiliate of any
Seller;
(d) Maintain in force and effect the material property and liability insurance policies related to the Assets;
(e) Subject to Section 6.2, not take any action which would cause any of Sellers' representations and warranties set forth in Article 3 to be
materially false as of the Closing;
(f) Not make Capital Expenditures, other than those contemplated on Schedule 2.6(f)(i), which would, pursuant to the provisions of Section 2.6(f), result in an
upward adjustment of the Purchase Price pursuant to Section 2.6(f)(i) in excess of $1,000,000 in the aggregate, except for purchases under agreements in existence as of the date hereof that would constitute Assumed Liabilities as of such date, Capital
Expenditures set forth on Schedule 2.6(f)(i), or Capital Expenditures otherwise approved in writing by Buyer;
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(g) Not (i) adopt any new plan or program for severance, continuation or termination pay for employees at the Plant, (ii) enter into any new collective
bargaining agreement or any amendment to the existing collective bargaining agreement for employees at the Plant, (iii) increase benefits payable under any Benefit Plan, (iv) increase compensation payable to employees at the Plant, (v) represent to any
employee at the Plant that Buyer would assume or continue to maintain any Benefit Plan after the Closing Date, or (vi) hire out or transfer any employees to or from the Plant unless essential to maintain the business or operations of the Plant.
Provided that nothing in this Section shall (i) obligate Sellers to make expenditures other than in the ordinary course of business and consistent with practices of the recent past or to otherwise suffer any economic detriment, (ii)
preclude Sellers from paying, prepaying or otherwise satisfying any liability which, if outstanding as of the Closing Date, would be an Assumed Liability or an Excluded Liability, (iii) preclude Sellers from incurring any liabilities or obligations
to any third party in connection with obtaining such party's consent to any transaction contemplated by this Agreement, the Related Agreements or any other agreement contemplated hereby, provided such liabilities and obligations under this clause (iii) shall be Excluded Liabilities pursuant to Section 2.4(h) hereof if not approved in advance by Buyer (which approval shall not be unreasonably withheld or delayed), or (iv)
preclude Sellers from instituting or completing any program designed to promote compliance or comply with Laws or other good business practices respecting the Plant.
Section 6.4 Environmental Matters.
(a) Remediation of Existing Soils Contamination. Subject to the terms and conditions of this Agreement, including but not limited to the terms and
conditions of this Section, Sellers shall remain responsible for the cost and performance of Remediation Measures. In addition, subject to Section 6.4(b), the Sellers may undertake such Remediation Measures when and as they reasonably determine are
required under Environmental Law or which they otherwise reasonably believe are appropriate. Notwithstanding the foregoing, Sellers shall have no obligation to undertake Remediation Measures in respect of environmental conditions that are excluded from
Sellers' Environmental Obligations by virtue of the provisos to Section 1.1(r) and neither shall the Sellers have any responsibility for the cost or performance of Remediation Measures undertaken by the Buyer, any Buyer Subsidiary or any Affiliate of
Buyer or of any Buyer Subsidiary, except to the extent such costs are included in Losses (as defined in Section 12.3(a)) for which Buyer or such Buyer Subsidiary is entitled to indemnification under Article 12. With respect to any Remediation Measure
undertaken by Sellers pursuant to the first sentence of this paragraph, Sellers shall be deemed to have discharged such undertaking and their obligation with respect thereto whenever they have paid the cost of such Remediation Measure and they have either
received written notice from the pertinent Governmental Body or Bodies that no further material Remediation Measures are then required with respect to the Existing Soils Contamination in question or, if
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such Governmental Body or Bodies have not responded within a reasonable time to Sellers' request for such written notice, whenever Sellers have reasonably and in good faith determined that no such further material Remediation Measures are then required.
(b) Performance of Work. Prior to commencing any Remediation Measures after the Closing or presenting after the Closing any plan for Remediation Measures
to any Governmental Body having jurisdiction over such Remediation Measures or to any Person making a Third Party Claim for which Sellers are responsible under the provisions of Article 12, the Sellers Group shall meet and consult with Buyer in good
faith concerning such Remediation Measures or plan, as the cases may be. In connection with the performance of any Remediation Measures by Sellers, the Sellers Group shall:
(i) Provide Buyer with reasonable notice of any meetings
with any such Governmental Body or any such other Person to afford Buyer or
its representatives the right to participate in such meetings, and provide Buyer
with copies of all correspondence and documents (hard copy or electronic) to
and from such Governmental Body or other Person;
(ii) Provide the Buyer with a reasonable opportunity to
preview and comment upon any submissions the Sellers Group plans to deliver
or submit to any such Governmental Body or any such other Persons and
incorporate Buyer's requests which are reasonably justified to avoid adverse
impact in accordance with paragraph (iii) below;
(iii) Meet and consult with the Buyer in good faith over the
time, manner and conditions for the completion of the Remediation Measures,
so as to avoid, to the extent reasonably practicable and consistent with the
effective, economical, efficient and timely completion of the Remediation
Measures, unreasonable interference with business conducted or planned to be
conducted at the site in question;
(iv) Except to the extent that exigencies require shorter or no
notice, provide the Buyer with five business Days' prior notice (which may be
oral) of material action to be taken at the site in question in connection with
Remediation Measures undertaken by Sellers, and permit Buyer the opportunity
to have its representatives present to observe such Remediation Measures and
take and/or receive from Sellers samples of removed and adjacent materials;
(v) Properly dispose of all Hazardous Materials removed
from the soil or groundwater of the site in question in connection with such
Remediation Measures, Sellers hereby agreeing that they shall be deemed to be
the "owner," "operator," "generator," or other Person responsible for "
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arranging for the transportation" of such Hazardous Materials and "in charge"
of the "facility" for such purposes, as such terms are defined in applicable
Environmental Laws, and further agreeing that no such removed Hazardous
Materials shall be stored on any real estate included in the Assets for longer than
is reasonably necessary (which may, if necessary, include time to characterize
such materials and arrange for disposal);
(vi) Defend and protect the site in question, and indemnify the
LLC (from and after the Closing), the Buyer, any applicable Buyer Subsidiary
and any applicable lender from the imposition of any lien of contractors and
subcontractors performing work in connection with the Remediation Measures;
(vii) Be responsible for, and indemnify, defend and protect the
LLC (from and after the Closing), Buyer and any applicable Buyer Subsidiary
against, any property damage or personal injury incurred by the LLC (from and
after the Closing), Buyer or such Buyer Subsidiary or any other Person as a
result of Remediation Measures conducted by or under the auspices of Sellers
except to the extent that such damage or injury is caused by or results from or
arise out of any negligence or intentional misconduct of the LLC (from and after
the Closing), Buyer or any Buyer Subsidiary; and
(viii) After completion of any remediation project, make
reasonable efforts to restore the surface of the site involved to a condition
substantially similar to its condition prior to the performance of the Remediation
Measures, subject to any intervening changes in surface conditions not caused
by such Remediation Measures.
(ix) Retain a reputable environmental consulting firm for the
purpose of consulting upon such Remediation Measures;
(x) Comply with all applicable Law, including Laws relating
to worker safety; and
(xi) Permit the Buyer to have one or more representatives
present to observe physical work conducted at the Plant or Owned Real
Properties in the course of carrying out such Remediation Measures, and
provide Buyer with reasonable access to and copies of records concerning the
performance of such physical work, including copies of all correspondence to
and from pertinent Governmental Bodies.
(c) Buyer Covenants. With respect to Sellers' rights and obligations in respect of Remediation Measures, Buyer agrees as follows:
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(i) It will grant to Sellers any easements or licenses (in
recordable form, and in form and substance reasonably acceptable to Sellers or
as required by Governmental Bodies) allowing Sellers and their representatives
and agents, at any time, to enter upon the real property included in the Assets
after reasonable notice and shall have reasonable use of all facilities or
equipment located thereon and to install equipment for the purpose of
performing the Remediation Measures and carrying out their rights and
obligations under this Section 6.4, and it will not relocate, disturb or interfere
with such equipment or the performance of such Remediation Measures in
compliance with the provisions of this Section 6.4;
(ii) It will provide Sellers and their representatives and agents
with reasonable access to environmental and other relevant records respecting
the site for the purpose of carrying out such Remediation Measures subject to
reasonable confidentiality agreements and will provide Sellers with copies of
all material correspondence and communications with Governmental Bodies about
Existing Soils Contamination and Remediation Measures or otherwise pertaining
to Sellers' Environmental Obligations;
(iii) It will not submit, or cause to be submitted, to any
Governmental Body any information or comments concerning any Existing Soils
Contamination or Remediation Measures undertaken by Sellers except for
information routinely submitted to Governmental Bodies or as may be otherwise
required by Law nor will it urge a Governmental Body to require more
expensive or stringent remediation than reasonably required to protect health or
the environment; and
(iv) It will consult with Sellers in good faith prior to
extracting, excavating or removing any soil or groundwater at the Plant or
otherwise disturbing or disrupting the same and will otherwise make reasonable
efforts to avoid taking any action, and will take reasonable steps to cause others
to avoid taking any action, that will increase or accelerate any of Sellers'
Environmental Obligations hereunder including with respect to Remediation
Measures, it being understood, however that nothing herein shall prohibit Buyer
from engaging in any modifications of the Assets which Buyer deems desirable.
Section 6.5 Skookumchuck Dam. Sellers shall not convey to others the Skookumchuck Dam or any rights with respect to the reservoir formed by such dam, without reserving for the benefit of the Plant and the
Assets, and the owners from time to time thereof, the level of flow therefrom as the Sellers now enjoy for the benefit of the Plant. The form and substance of any such rights shall be subject to the approval of Buyer, which shall not be unreasonably
withheld.
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Section 6.6 Curing of Title Defects. Sellers shall seek diligently to cure prior to Closing any material defects in title to real property other than those permitted by clauses (a), (b) and (c) of Section
8.6, provided Sellers shall not be obligated to expend in the aggregate more than $1,000,000 in connection with effecting any such cures. In addition, Sellers shall remove of record on or before Closing any liens, defects or encumbrances which evidence or
secure any obligations for payment of money, without regard to the limitations set forth in the previous sentence.
Section 6.7 COBRA. Sellers agree to retain the obligation to provide continuation coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act, as amended ("COBRA"), for any
individual with respect to whom a "qualifying event", as defined under COBRA, has occurred on or prior to the Closing Date.
Section 6.8 WARN Act. As of the Closing Date Sellers shall terminate the employment of all employees whose principal work location is at the Plant. Sellers agree to be responsible for giving notice of such
termination under the WARN Act and to be solely responsible for all wages and compensation earned or accrued prior to the Closing Date or payable on account of termination, including without limitation any amount attributable to the period for which a
WARN Act notice was required but not given.
Section 6.9 Transition Services. PacifiCorp agrees to provide the transition services delineated on Schedule 6.9 for a period up to 90 days after the Closing Date with all reasonable expenses paid by Buyer.
Section 6.10 Benefit Plans.
(a) With respect to any Transferred Employee or Union Employee who meets the age and service requirements for eligibility for benefits under the retiree
welfare benefit plans of PacifiCorp (referred to in the aggregate as "Retiree Benefit Plans"), as of the Closing Date or who will meet such age and service requirements before the end of the current term of the Collective Bargaining Agreement covering
such employee ("Eligible Employees"). Buyers shall provide, and shall recover, the cost of providing benefits to Eligible Employees as set forth in (b) below. Sellers shall retain the obligation of providing benefits to former employees who have retired
prior to the Closing Date.
(b) Buyer shall assume the obligation of Sellers to provide benefits under the Retiree Benefit Plans to Eligible Employees. The Purchase Price under
Section 2.6 has been reduced by U.S. $1,100,000 in the aggregate for this Agreement and for the Centralia Coal Mine Purchase and Sale Agreement of even date herewith. Buyer shall indemnify and hold harmless Sellers from any claim by such Eligible
Employees for benefits provided by the Retiree Benefit Plans.
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ARTICLE 7
ADDITIONAL COVENANTS OF BUYER
Section 7.1 Waiver of Bulk Sales Law Compliance. Subject to the indemnification provisions of Section 12.3(a)(iii) hereof, Buyer hereby waives compliance by Sellers with the requirements, if any, of
Article 6 of the Uniform Commercial Code as in force in any state in which Assets are located and all other similar Laws applicable to bulk sales and transfers.
Section 7.2 Resale Certificate. Buyer agrees, and will cause each Buyer Subsidiary, to furnish to Sellers any resale certificate or certificates or other similar documents reasonably requested by Sellers to
comply with pertinent sales and use tax Laws.
Section 7.3 Conduct Pending Closing. Prior to consummation of the transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Sellers shall otherwise
consent in writing, which consent shall not be unreasonably withheld or delayed, and except for actions which are required by Law or arise from or are related to the anticipated transfer of the LLC Interests and the Assets, Buyer shall not take any action
which would cause any of Buyer's representations and warranties set forth in Article 4 to be materially false as of the Closing.
Section 7.4 Securities Offerings. Buyer hereby agrees to indemnify and hold harmless Sellers and each of them, and the Affiliates of Sellers and each of them, in accordance with the provisions of Section
12.4(a)(ii), against any and all Losses, as incurred, arising out of the offer or sale by Buyer or any Buyer Subsidiary of securities, except to the extent that such Loss arises from any untrue statement or alleged untrue statement of a material fact
contained in any such securities offering materials or prospectus used by Buyer or any Buyer Subsidiary or its or their representatives, or from the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, which untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with written information furnished to Buyer by Sellers under a cover
letter from Sellers' counsel stating that such information is expressly for use in such offering materials or prospectus.
Section 7.5 Release. Without limiting Sellers' obligations hereunder, under any Related Agreement or under any other agreement contemplated hereby, including without limitation their obligations under
Section 6.4 and Article 12, Buyer on behalf of itself and each Buyer Subsidiary hereby waives its right to recover from Sellers and each of them, and forever releases and discharges and indemnifies and holds harmless Sellers and each of them,
from and against any and all damages, claims, losses, liabilities, penalties, fines, liens, judgments, costs, or expenses whatsoever (including, without limitation, attorneys' fees and costs), whether direct or indirect, known or unknown, foreseen or
unforeseen, that may arise on account of or in any way be connected with the application of any Environmental Law to Sellers' ownership,
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possession, use or operation of the Assets.
ARTICLE 8
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the transactions contemplated with respect to the LLC Interests, the Plant and the Assets and Assumed Liabilities related thereto shall be subject to fulfillment at or prior to the
Closing of the following conditions, unless Buyer waives in writing such fulfillment.
Section 8.1 Performance of Agreement. Except for such matters which individually and in the aggregate do not have a Material Adverse Effect on the Plant or on the Assets or the LLC Interests, Sellers shall
have performed in all material respects their agreements and obligations contained in this Agreement required to be performed on or prior to the Closing.
Section 8.2 Accuracy of Representations and Warranties. The representations and warranties of Sellers set forth in Article 3 of this Agreement shall be true in all material respects as to the Assets or
the LLC Interests in question and as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured as of the Closing) and as of the Closing (as updated by the revising of
Schedules contemplated by Section 6.2) as if made as of such time, provided that any such update shall not have disclosed any change in the physical condition, ownership, or transferability of the Assets or the LLC Interests that would have a
Material Adverse Effect on the Assets or the LLC Interests.
Section 8.3 Officers' Certificate. Buyer shall have received from Sellers an officers' certificate, executed on behalf of each Seller by its chief executive officer, president, superintendent, general
manager, vice president, chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the Knowledge of such individual, the conditions in Sections 8.1 and 8.2 above have been met with respect to such
Seller.
Section 8.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated, and all approvals, consents, authorizations and waivers from Governmental Bodies (as delineated on Schedule
4.4(b)) and all approvals, consents, authorizations and waivers from other third parties (collectively "Approvals") required for Sellers to transfer the Assets to the LLC and for Buyer to purchase the LLC Interests and operate the Plant materially in
accordance with the manner in which it was operated by Sellers prior to the Closing, shall have been obtained.
Section 8.5 No Restraint. There shall be no:
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(a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or Governmental Body which directs that the
transactions contemplated hereby shall not be consummated as herein provided or compels or would compel Buyer to dispose of or discontinue, or materially restrict the operations of, the Plant or any significant portion of the Assets with respect thereto
or the LLC Interests as a result of the consummation of the transactions contemplated hereby;
(b) Suit, action or other proceeding by any Governmental Body pending or threatened (pursuant to a written notification), wherein such complainant seeks
the restraint or prohibition of the consummation of the transactions contemplated hereby or seeks to compel, or such complainant's actions would compel, Buyer to dispose of or discontinue, or materially restrict the operations of, the Plant or any
significant portion of the Assets or the LLC Interests as a result of the consummation of the transactions contemplated hereby; or
(c) Action taken, or Law enacted, promulgated or deemed applicable to the transactions contemplated hereby, by any Governmental Body which would render
the purchase and sale of the LLC Interests illegal or which would threaten the imposition of any penalty or material economic detriment upon Buyer if such purchase and sale were consummated;
Provided that the Parties shall use their reasonable efforts to litigate against, and to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, Law or penalty.
Section 8.6 Title Insurance. Title to Assets comprised of interests in real property shall have been evidenced by the willingness (evidenced as set forth below) of Stewart Title Company (or an Affiliate
thereof) or other title company mutually acceptable to the parties (the "Title Insurer") to issue at regular rates ALTA owner's, or lessee's, as the case may be, extended coverage policies of title insurance (1990 Form B) (the "Title Policies"), with
the general survey and creditors' rights exceptions removed, in amounts equal to the respective portions of the Plant Purchase Price allocated to such interests, showing title to such interests in such real property vested in the LLC subject to transfer
of such interest to the LLC. Such Title Policies shall show title vested in the LLC, subject only to:
(a) A lien or liens to secure payment of real estate taxes not delinquent;
(b) Exceptions disclosed by the current standard ALTA Preliminary Title Reports and surveys, delivered to and approved (except as shown on Schedule
8.6(b)) by Buyer prior to the Closing Date (as indicated by Buyer's signature of approval appended thereto);
(c) Matters created by, or with the consent of, Buyer; and
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(d) Other possible matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or
intended use of such real property, including such minor matters as may be disclosed by surveys taken after the date hereof.
The willingness of the Title Insurer to issue the Title Policies shall be evidenced either by the issuance thereof at the Closing or by the Title Insurer's delivery of written commitments or binders, dated as of the Closing, to issue such Title Policies
within a reasonable time after the Closing Date, subject to actual transfer of the real property in question. If the Title Insurer is unwilling to issue any such Title Policy, it shall be required to provide Buyer and Sellers, in writing, notice setting
forth the reason(s) for such unwillingness as soon as practicable. Sellers shall have the right to seek to cure any defect which is the reason for such unwillingness, and to extend the Closing and the Termination Date, if necessary, for a period of up to
ten Business Days to provide to Sellers the opportunity to cure. In the event that, despite Sellers' efforts to cure, the Title Insurer remains unwilling to issue any such Title Policy on the Closing Date (as may be extended as provided herein), then
Buyer, at its option, may terminate this Agreement. Notwithstanding the foregoing, Buyer may elect to cause the LLC to accept such title to any such property interests as the Sellers may be able to convey, and such title insurance with respect to the same
as the Title Insurer is willing to issue, in which case such interests shall be conveyed as part of the Assets without reduction of the Purchase Price or any credit or allowance against the same and without any other liability on the part of Sellers.
Section 8.7 Related Agreements. Sellers shall have executed and delivered, effective upon consummation of the Closing, each of the Related Agreements.
Section 8.8 Casualty; Condemnation.
(a) Casualty. If any part of the Plant is damaged or destroyed (whether by fire, theft, vandalism or other casualty) in whole or in part prior to
the Closing, and the fair market value of the damaged Assets or destruction or the cost of repair of the Assets that were damaged, lost or destroyed is less than 15 percent of the aggregate Plant Purchase Price, the Sellers Group shall, at its option,
either (i) reduce the Plant Purchase Price by the lesser of the fair market value of the Assets damaged or destroyed (such value to be determined as of the date immediately prior to such damage or destruction), or the estimated cost to repair or
restore the same, (ii) upon the Closing, transfer the proceeds or the rights to the proceeds of applicable insurance to Buyer, provided that the proceeds or the rights to the proceeds are obtainable without delay and are sufficient to fully restore
the damaged Assets, or (iii) repair or restore such damaged or destroyed Assets and, at Sellers' election, delay the Closing and the Termination Date for a reasonable time necessary to accomplish the same. If any part of the Assets related to the
Plant are damaged or destroyed (whether by fire, theft, vandalism or other cause or casualty) in whole or in part prior to the Closing and the lesser of the fair market value of such Assets or the cost of repair is greater than 15 percent of the aggregate
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Plant Purchase Price, then Buyer may elect to terminate this Agreement or require Sellers upon the Closing to transfer the proceeds (or the right to the proceeds) of applicable insurance to Buyer and Buyer may restore or repair the Assets.
(b) Condemnation. From the date hereof until the Closing, in the event that any material portion of the Plant becomes subject to or is threatened
with any condemnation or eminent domain proceedings, then Buyer, at its option, may, (i) if such condemnation, if successful, would not practically preclude the operation of the balance of the Plant for the purposes for which it was intended, elect
to terminate this Agreement with respect only to that part which is condemned or threatened to be condemned with a reduction in the Purchase Price determined as provided in Section 8.8(a) above, or (ii) if such condemnation, if successful, would
practically preclude the operation of the balance of the Plant for purposes for which it is intended, elect to terminate this Agreement.
Section 8.9 Opinion of Counsel. Buyer shall have received, on and as of the Closing Date, a closing opinion in respect to this Agreement and the Related Agreements of either inside or outside counsel for
each Seller, subject to customary conditions and limitations.
Section 8.10 Receipt of Other Documents. Buyer shall have received the following:
(a) Certified copies of the resolutions of each of Seller's board of directors or governing bodies respecting this Agreement, the Related Agreements and
any other agreement contemplated hereby;
(b) Certified copies of each Seller's Charter Documents, together with a certificate of the corporate secretary (or equivalent official of Sellers that
are public agencies) of each Seller that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each officer of a Seller who has signed this Agreement, any Related Agreement, any other agreement
contemplated hereby, or any certificate, document or instrument delivered pursuant to this Agreement, any Related Agreement or any other agreement contemplated hereby;
(d) A good standing certificate for each Seller which is a corporation from the Secretary of State of the state of its incorporation, dated as of a date
not earlier than 15 Business Days prior to the Closing Date; and
(e) Copies of all current Licenses relevant to operation of the Plant and all third party and Governmental Body consents, permits and authorizations that
Sellers has received in connection with this Agreement, the Related Agreements, any other agreement contemplated hereby and the transactions contemplated hereby and thereby to occur at the Closing; and
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(f) All other documents, instruments and writings required to be delivered to Buyer at or prior to Closing pursuant to the Agreement and such other
certificates of authority and documents as Buyer reasonably requests.
Section 8.11 Limitation on Adjustments. There shall not have been an increase to the Plant Purchase Price arising under Section 2.6(f) exceeding in the aggregate 5 percent of the aggregate Plant Purchase Price
.
Section 8.12 RACT Orders. The RACT Order shall be in effect and Sellers shall be in compliance with the provisions of the RACT Order or shall have obtained an extension of the applicable material provisions
of the RACT Order.
Section 8.13 Transmission and Interconnection Agreements. Bonneville Power Administration shall have offered to Buyer interconnection and transmission agreements with respect to the power generated at the
Plant, on terms and conditions typical in transactions of this type.
Section 8.14 All Sellers. All of the Persons constituting Sellers shall have delivered all documents, instruments and writings required to be delivered to Buyer at or prior to Closing pursuant to this
Agreement and none of the Persons constituting Sellers shall have retained any right, title or interest in any of the Assets or the LLC Interests.
Section 8.15 Material Adverse Effect. There shall not have been an impairment of any Asset or the LLC Interests, as a result of a degradation of its physical condition, a change in Law, or provision of any
approval that could reasonably be expected to have a Material Adverse Effect on the LLC Interests or Buyer's ability to operate the Assets.
Section 8.16 Transmission Arrangements. Transmission Arrangements shall have been entered into on a basis reasonably acceptable to the parties.
Section 8.17 Centralia Coal Mine Sale. The closing of the sale of the Centralia Coal Mine to the Buyer or an Affiliate of the Buyer shall have occurred.
Section 8.18 Title. Title reports and surveys shall have established that the Owned Real Property and Easements constitute all real property that is necessary for the ownership and operation of the Plant
pursuant to good industry practices and that Sellers have good, valid and marketable title to such real property free and clear of all liens, mortgages, deed restrictions, charges, claims, pledges, security interests, equities and encumbrances that could
materially affect the value of such real property or the use of such real property in connection with the ownership and operation of the Plant.
Section 8.19 LLC Contribution. Sellers shall have contributed, transferred, conveyed
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and assigned all right, title and interest in the Assets to the LLC.
ARTICLE 9
SELLERS' CONDITIONS TO CLOSING
The obligations of Sellers to consummate the transactions contemplated hereby with respect to the LLC Interests, the Plant and the Assets and Assumed Liabilities related thereto shall be subject to the fulfillment at or prior
to the Closing of the following conditions, unless Sellers waives in writing such fulfillment.
Section 9.1 Performance of Agreement. Buyer shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or prior to the Closing.
Section 9.2 Accuracy of Representations and Warranties. The representations and warranties of Buyer set forth in Article 4 of this Agreement shall be true in all material respects as of the date of this
Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Closing) and as of the Closing as if made as of such time.
Section 9.3 Officers' Certificate. Sellers shall have received from Buyer an officers' certificate, executed on Buyer's behalf by its chief executive officer, president, chief financial officer or treasurer
(in his or her capacity as such) dated the Closing Date and stating that to the Knowledge of such individual, the conditions in Sections 9.1 and 9.2 above have been met.
Section 9.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated, and all approvals, consents, authorizations and waivers from Governmental Bodies as delineated on Schedule
3.3(b) shall have been obtained in form and substance (including the regulatory treatment and financial impacts thereof) satisfactory to each Seller affected by any such approval in its reasonable discretion. All approvals, consents, authorizations and
waivers from other third parties required for Sellers to transfer the Assets to the LLC and for Buyer to purchase the LLC Interests shall have been obtained.
Section 9.5 No Restraint. There shall be no:
(a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or Governmental Body which directs that the
transactions contemplated hereby shall not be consummated as herein provided;
(b) Suit, action or other proceeding by any Governmental Body pending or threatened (pursuant to a written notification), wherein such complainant seeks
the restraint or prohibition of the consummation of the transactions contemplated hereby or otherwise
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constrains consummation of such transactions on the terms contemplated herein; or
(c) Action taken, or Law enacted, promulgated or deemed applicable to the transactions contemplated hereby, by any Governmental Body which would render
the purchase and sale of the LLC Interests, the Plant and related Assets illegal or which would threaten the imposition of any penalty or material economic detriment upon Sellers if such transactions were consummated;
Provided that the Parties will use their reasonable efforts to litigate against, and to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, Law or penalty.
Section 9.6 Related Agreements. Buyer and each pertinent Buyer Subsidiary shall have executed and delivered, effective upon consummation of the Closing, each of the Related Agreements.
Section 9.7 Opinion of Counsel. Sellers shall have received, on and as of the Closing Date, a customary closing opinion in respect to this Agreement and the Related Agreements of outside counsel to Buyer,
subject to customary conditions and limitations.
Section 9.8 Receipt of Other Documents. Sellers shall have received the following:
(a) Certified copies of the resolutions of Buyer's and each pertinent Buyer Subsidiary's board of directors respecting this Agreement, the Related
Agreements, any other agreements contemplated hereby and the transactions contemplated hereby, together with certified copies of any shareholder resolutions which are necessary to approve the execution and delivery of this Agreement, the Related
Agreements and any other agreement contemplated hereby, or performance of the obligations of Buyer and each pertinent Buyer Subsidiary hereunder and thereunder;
(b) Certified copies of Buyer's and each pertinent Buyer Subsidiary's Charter Documents, together with a certificate of the corporate secretary of Buyer
and each pertinent Buyer Subsidiary that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each officer of Buyer and each pertinent Buyer Subsidiary who has signed this Agreement, any Related
Agreement, any other agreement contemplated hereby, or any certificate, document or instrument delivered pursuant to this Agreement, any Related Agreement or any other agreement contemplated hereby;
(d) Copies of all current Licenses of Buyer and each pertinent Buyer Subsidiary relevant to operation of the Plant and all third party and Governmental Body
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consents, permits and authorizations that Buyer and each pertinent Buyer Subsidiary has received in connection with this Agreement, the Related Agreements and any other agreements contemplated hereby; and
(e) All other documents, instruments and writings required to be delivered to Sellers at or prior to Closing pursuant to the Agreement and such other
certificates of authority and documents as Sellers reasonably requests.
Section 9.9 Limitation on Adjustments. There shall not have been reductions to the Plant Purchase Price exceeding in the aggregate 30 percent of the aggregate Plant Purchase Price arising pursuant to Section
8.8.
Section 9.10 Guarantee Agreement. A Guarantee Agreement substantially in the form set forth in Schedule 9.10 shall have been executed and delivered to Sellers and shall be in full force and effect.
Section 9.11 Mine Sale. Closing shall have occurred under the Mine Purchase and Sale Agreement.
ARTICLE 10
CLOSING
Section 10.1 LLC Transaction. If, as of the first day that the Closing may occur pursuant to Section 10.2, the Washington Ruling has been issued, immediately prior to the Closing Sellers shall, and shall
cause the LLC to, take all actions necessary to consummate, and shall consummate, the transactions described in the Washington Ruling in order to allow the Buyer to obtain the Washington State sales tax benefits contemplated thereby (collectively, the
"LLC Transaction"). Without limiting the generality of the foregoing, the parties agree that (a) immediately prior to the Closing, all of the Assets will be contributed by the Sellers to the LLC in exchange for all the membership interests in the LLC;
and (b) from and after the Closing, the LLC shall jointly and severally with Buyer assume and pay, discharge and perform when due, the Assumed Liabilities. If at such time the Washington Ruling has not issued, the parties shall promptly negotiate in
good faith amendments to this Agreement that will provide for the conveyance of the Assets by the Sellers directly to the Buyer with such amended Agreement being substantially in the form of the Other Form of Agreement. The Parties will endeavor to
execute such amended Agreement prior to the last date the Closing may occur pursuant to Section 10.2. In no event, however, shall the failure of the Washington Ruling to timely issue or the failure of the Parties to amend this Agreement be a condition to
Closing hereunder.
Section 10.2 Closing. Subject to the terms and conditions hereof, the consummation of the transactions contemplated hereby (the "Closing") shall occur at the offices of Stoel Rives
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LLC in Portland, Oregon, or a mutually agreeable place or places within five Business Days after all of the conditions set forth in Article 8 and Article 9 hereof have been satisfied or waived or at such other time as the parties may agree, but
in no event later than the Termination Date set forth in Section 11.1(d). The date on which the Closing actually occurs is referred to herein as the "Closing Date". The Closing shall be effective for all purposes at 11:59 p.m., Pacific time, on the
Closing Date. At the Closing and subject to the terms and conditions hereof, the following will occur:
(a) Deliveries by Sellers. Sellers shall deliver to the LLC such instruments of transfer and conveyance properly executed and acknowledged by
Sellers in customary form mutually agreed to by the Sellers and Buyer necessary to transfer to and vest in the LLC all of Sellers' right, title and interest in and to the Assets or which may be required by the Title Insurer, including, without limitation:
(i) Bills of Sale and assignment in respect of the Assets;
(ii) Grant deeds properly executed and acknowledged by Sellers with respect to each of the Owned Real
Properties included in the Assets;
(iii) Assignment and assumption agreements properly executed and acknowledged by Sellers with respect to each
Real Property Lease included in the Assets;
(iv) Instruments of transfer, sufficient to transfer personal property interests that are included in the
Assets but not otherwise transferred by the bills of sale and assignment referred to in clause (i) above, properly executed and acknowledged in the form customarily used in commercial transactions in Washington; and
(v) Possession of the Assets which shall include without limitation, keys, codes, passcodes and/or
combinations to all locks and vehicles.
(b) Sellers shall deliver to Buyer an assignment of all of the interests in the LLC.
(c) Deliveries by Buyer. Buyer shall, or shall cause the Buyer Subsidiaries to, deliver to Sellers immediately available funds, by way of
wire transfer to an account designated by Sellers, in an aggregate amount equal to the Plant Purchase Price and such instruments of assumption properly executed and acknowledged by Buyer and the pertinent Buyer Subsidiaries in customary form mutually
agreed to by Buyer and Sellers necessary for Buyer and the LLC to assume the Assumed Liabilities, including, without limitation:
(i) Assignment and assumption agreements properly executed and
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acknowledged by the LLC with respect to each Real Property Lease included in the
Assets; and
(ii) An assumption agreement or assumption agreements in favor of Sellers.
Section 10.3 Escrow. If either the Buyer or the Sellers Group desires to consummate the Closing through an escrow, an escrow shall be opened with, and the escrow agent shall be, the Title Insurer or an
Affiliate thereof (the "Escrow Agent"), by depositing a fully executed copy of this Agreement with the Escrow Agent to serve as escrow instructions. This Agreement shall be considered the primary escrow instructions between the parties, but the parties
shall execute such additional standard escrow instructions as the Escrow Agent shall require in order to clarify the duties and responsibilities of the Escrow Agent. In the event of any conflict between this Agreement and such additional standard escrow
instructions, this Agreement shall prevail. If the Closing is to be consummated through the Escrow Agent, the parties shall deliver the funds, instruments of sale, assignment, conveyance and assumption called for by Sections 10.1 and 10.2 to the
Escrow Agent, and on the Closing Date, the Escrow Agent shall close the escrow by:
(a) Causing the deeds for the Owned Real Properties, the assignment of the Real Property Leases, and any other documents which the parties may
mutually designate to be recorded in the official records of the appropriate counties in which the pertinent Assets are located;
(b) Delivering to Sellers by wire transfer of immediately available funds, to an account or accounts designated by Sellers, the amounts called for
in Section 10.2; and
(c) Delivering to Buyer or Sellers, as the case may be, the other instruments referred to in Section 10.2.
Section 10.4 Prorations. Items of expense and income (if any) affecting the Assets and the Assumed Liabilities that are customarily pro-rated, including, without limitation, real and personal property taxes,
utility charges, charges arising under leases, insurance premiums, and the like, shall be pro-rated between Sellers and Buyer and the pertinent Buyers Subsidiaries as of the Closing Date.
ARTICLE 11
TERMINATION
Section 11.1 Termination. Any transactions contemplated hereby that have not been consummated may be terminated:
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(a) At any time, by mutual written consent of the Sellers Group and Buyer; or
(b) By either Buyer or the Sellers Group, as the case may be, upon 30 days' written notice given any time after (i) the issuance of an order by
a Governmental Body in a manner that fails to meet the conditions of the terminating party set forth in Sections 8.4 or 9.4, as the case may be, (ii) 180 days have elapsed from the filing after the date hereof of all applications for approval of this
Agreement and the transactions contemplated hereby by Governmental Bodies and a final order has not been obtained with respect to each such Application, it being understood that such 180-day period shall not include any period after such order during
which applications for rehearing or modification or judicial appeals or remedies are pending; or
(c) By one Party upon written notice to the other if there has been a material default or breach under this Agreement by another party which is not
cured by the earlier of the Closing Date or the date 30 days after receipt by the other party of written notice from the terminating party specifying with particularity such breach or default; or
(d) By either Buyer or the Sellers Group upon written notice to the other Party, if (i) the Closing shall not have occurred by the Termination
Date; or (ii) (A) in the case of termination by the Sellers Group, the conditions set forth in Article 9 for the Closing cannot reasonably be met by the Termination Date and (B) in the case of termination by Buyer, the conditions set
forth in Article 8 for the Closing cannot reasonably be met by the Termination Date, unless in either of the cases described in clauses (A) or (B), the failure of the condition is the result of the material breach of this Agreement by the party
seeking to terminate. The Termination Date for the Closing shall be the date that is twelve months from the date hereof. Such date, or such later date as may be specifically provided for in this Agreement (including any date arising under operation of
Sections 8.6 and 8.8(a) hereof) or agreed upon by the parties, is herein referred to as the "Termination Date." Each Party's right of termination hereunder is in addition to any other rights it may have hereunder or otherwise.
Section 11.2 Effect of Termination. If there has been a termination pursuant to Section 11.1, then this Agreement shall be deemed terminated, and all further obligations of the parties hereunder shall
terminate, except that the obligations set forth in Sections 5.3, 11.1(b) and in Articles 12 and 13.9 shall survive. In the event of such termination of this Agreement, there shall be no liability for damages on the part of a party to another under
and by reason of this Agreement or the transactions contemplated hereby except as set forth in Article 12 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by the provisions of this Agreement. The
foregoing provisions shall not, however, limit or restrict the availability of specific performance or other injunctive or equitable relief to the extent that specific performance or such other relief would otherwise be available to a party hereunder.
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Section 11.3 Modification of Terms. In the event any Governmental Body entertains, as an alternative to approval of this Agreement, the Related Agreements and any other agreement contemplated hereby, any
proposal of one or more third parties to acquire the Assets from Sellers on terms and conditions that include a higher purchase price than the Purchase Price set forth herein, and such terms and conditions are acceptable to Sellers, then and in that
event, subject to such restrictions and requirements as such Governmental Body may impose upon Sellers, Sellers shall exercise their best efforts to afford to Buyer the right to enter into appropriate amendments and modifications of this Agreement to
match such proposed alternate terms and conditions. Buyer shall be entitled to exercise such right by delivery of written notice thereof to Sellers within three Business Days after its receipt of written notice from Sellers that, in Sellers' good faith
belief, the proposals of such third party or parties makes it unlikely that such Governmental Body will approve this Agreement and the transactions contemplated hereby in a timely fashion and that the alternate terms and conditions are acceptable to
Sellers. If such right is not exercised and such Governmental Body proceeds to decline to grant its approval, the termination provisions of Section 11.1 shall apply.
ARTICLE 12
SURVIVAL AND REMEDIES; INDEMNIFICATION
Section 12.1 Survival. Except as may be otherwise expressly set forth in this Agreement, the representations, warranties, covenants and agreements of Buyer and Sellers set forth in this Agreement, or in any
writing required to be delivered in connection with this Agreement, shall survive the Closing Date.
Section 12.2 Exclusive Remedy. Absent intentional fraud or unless otherwise specifically provided herein, the sole exclusive remedy for damages of a party hereto for any breach of the representations,
warranties, covenants and agreements of the other party contained in this Agreement shall be the remedies contained in this Article 12.
Section 12.3 Indemnity by Sellers.
(a) Sellers shall indemnify and hold harmless the LLC (from and after the Closing), Buyer, each Buyer Subsidiary, and each Affiliate of Buyer or any
Buyer Subsidiary from and against any and all claims, demands, suits, losses, liabilities, damages and expenses, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment, and including any costs and expenses
incurred by any such Indemnitee as a result or arising out of any obligation or election (whether arising out of or in connection with any Law, any contract, any Charter Document, or otherwise) of any such Indemnitee to indemnify its directors, officers,
attorneys, employees, subcontractors, agents and assigns (collectively "Losses"), which they or any of them may sustain or suffer or to which they or any of them may become subject as a result of:
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(i) The inaccuracy of any representation or the breach of any
warranty made by Sellers in this Agreement;
(ii) The nonperformance or breach of any covenant or agreement
made or undertaken by Sellers in this Agreement; and
(iii) If the Closing occurs, the failure of Sellers to pay, discharge or
perform, as and when due, any of the Excluded Liabilities (including, without
limitation, the Excluded Liabilities enumerated in Sections 2.4 (b), (c), (d) and (f)).
(iv) If the Closing occurs, the ongoing operations of Sellers (including
in respect of the Excluded Assets and Excluded Liabilities) after the Closing Date.
(b) The indemnification obligations of Sellers provided above shall, in addition to the qualifications and conditions set forth in Sections 12.5 and
12.6, be subject to the following qualifications with respect to claims of indemnity for Losses:
(i) Written notice to Sellers of such claim specifying the basis
thereof must be made, or an action at law or in equity with respect to such claim
must be served, before the second anniversary of the earlier to occur of the
Closing Date or the date on which this Agreement is terminated, as the case may
be, except that such time limitation shall not apply to breaches of the covenants
contained in Sections 2.10, 6.4, 6.7 or 6.10;
(ii) If the Closing occurs, the LLC, Buyer, the Buyer
Subsidiaries and their respective Affiliates shall be entitled only to recover the
amount by which the aggregate Losses sustained or suffered by them exceed one
percent of the Purchase Price (the "Deductible Amount"), provided, however,
that individual claims of $5,000 or less shall not be aggregated for purposes of
calculating either the Deductible Amount or the excess of Losses over the
Deductible Amount and Buyer shall be entitled to recover on a dollar for dollar
basis all claims for Losses covered under insurance maintained by Sellers;
provided further that recovery of Losses sustained or suffered as a result of
Sellers' failure to perform under Sections 6.7 or 6.10 shall not be limited by the
foregoing provision; and
(iii) If the Closing occurs, in no event shall Sellers and their
Affiliates be liable to the LLC, Buyer, the Buyer Subsidiaries and their
respective Affiliates for Losses in the nature of consequential damages,
incidental damages, indirect damages, punitive damages, special damages, lost
profits, damage to reputation or the like, but such damages shall be limited to
out-of-pocket Losses and diminution in value and damages for all Losses shall
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be limited to an aggregate limit under this Agreement and the Related Agreements and the Transmission Arrangements of $556,000,000.
(c) The liability of the Sellers under this Agreement shall be several and not joint or collective and no individual Seller shall be jointly or
severally liable for the acts, omissions or obligations of any other Seller.
Section 12.4 Indemnity by Buyer.
(a) Buyer shall indemnify and hold harmless Sellers and each of them, and each Affiliate of Sellers or any of them, from and against any and all
Losses which they or any of them may sustain or suffer or to which they may become subject as a result of:
(i) The inaccuracy of any representation or the breach of any
warranty made by Buyer in this Agreement;
(ii) The nonperformance or breach of any covenant or agreement
made or undertaken by Buyer in this Agreement;
(iii) If the Closing occurs, the failure of the LLC or Buyer to pay,
discharge or perform as and when due, any of the Assumed Liabilities; and
(iv) If the Closing occurs, the ongoing operations of the LLC, Buyer,
the Buyer Subsidiaries and the Assets after the Closing Date, including, without
limitation, the continuation or performance by the LLC, Buyer or the Buyer
Subsidiaries after the Closing Date of any agreement or practice of Sellers.
(b) The indemnification obligations of Buyer provided above shall, in addition to the qualifications and conditions set forth in Sections 12.5 and
12.6, be subject to the following qualifications:
(i) Sellers and their Affiliates shall not be entitled to indemnity for
Losses unless written notice to Buyer of such claim specifying the basis thereof is
made, or an action at law or in equity with respect to such claim is served, before the
second anniversary of the earlier to occur of the Closing Date or the date on which this
Agreement is terminated, as the case may be;
(ii) If the Closing occurs, Sellers and their Affiliates shall be entitled
only to recover the amount by which the aggregate Losses suffered or sustained by
them exceed the Deductible Amount, provided, however, that individual claims of
$5,000 or less shall not be aggregated for purposes of calculating either the Deductible
Amount or the excess of Losses over the Deductible Amount; and
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(iii) If the Closing occurs, in no event shall the LLC, Buyer and its
Affiliates be liable to Sellers or their respective Affiliates for Losses in the nature of
consequential damages, incidental damages, indirect damages, punitive damages,
special damages, lost profits, damage to reputation or the like, but such damages shall
be limited to out-of-pocket Losses and diminution in value and all Losses shall be
limited to an aggregate limit under this Agreement and the Related Agreements and the
Transmission Arrangements of $556,000,000.
Section 12.5 Further Qualifications Respecting Indemnification. The right of a party (an "Indemnitee") to indemnity hereunder shall be subject to the following additional qualifications:
(a) The Indemnitee shall promptly upon its discovery of facts or circumstances giving rise to a claim for indemnification, including receipt by it
of notice of any demand, assertion, claim, action or proceeding, judicial, governmental or otherwise, by any third party (such third party actions being collectively referred to herein as "Third Party Claims"), give notice thereof to the indemnifying
party (the "Indemnitor"), such notice in any event to be given within 60 days from the date the Indemnitee obtains actual knowledge of the basis or alleged basis for the right of indemnity or such shorter period as may be necessary to avoid material
prejudice to the Indemnitor provided, however, the failure to provide or timely provide the Indemnitor with notice of any Third Party Claim shall only affect the Indemnitee's rights to indemnification to the extent that the Indemnitor is materially
prejudiced as a result of the Indemnitee's failure to give timely notice of such Third Party Claim; and
(b) In computing Losses, such amounts shall be computed net of any related recoveries to which the Indemnitee is entitled under insurance policies,
or other related payments received or receivable from third parties, and net of any tax benefits actually received by the Indemnitee or for which it is eligible, taking into account the income tax treatment of the receipt of indemnification.
Section 12.6 Procedures Respecting Third Party Claims. In providing notice to the Indemnitor of any Third Party Claim (the "Claim Notice"), the Indemnitee shall provide the Indemnitor with a copy of such
Third Party Claim or other documents received and shall otherwise make available to the Indemnitor all relevant information material to the defense of such claim and within the Indemnitee's possession. The Indemnitor shall have the right, by notice given
to the Indemnitee within 15 days after the date of the Claim Notice, to assume and control the defense of the Third Party Claim that is the subject of such Claim Notice, including the employment of counsel selected by the Indemnitor after consultation
with the Indemnitee, and the Indemnitor shall pay all expenses of, and the Indemnitee shall cooperate fully with the Indemnitor in connection with, the conduct of such defense. The Indemnitee shall have the right to employ separate counsel in any such
proceeding and to participate in (but not control) the defense of such Third Party Claim, but the fees and expenses of such counsel shall be
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borne by the Indemnitee unless the Indemnitor shall agree otherwise; provided, however, if the named parties to any such proceeding (including any impleaded parties) include both the Indemnitee and the Indemnitor, the Indemnitor requires that the
same counsel represent both the Indemnitee and the Indemnitor, and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Indemnitee shall have the right to retain
its own counsel at the cost and expense of the Indemnitor. If the Indemnitor shall have failed to assume the defense of any Third Party Claim in accordance with the provisions of this Section, then the Indemnitee shall have the absolute right to control
the defense of such Third Party Claim, and, if and when it is finally determined that the Indemnitee is entitled to indemnification from the Indemnitor hereunder, the fees and expenses of Indemnitee's counsel shall be borne by the Indemnitor, provided that the Indemnitor shall be entitled, at its expense, to participate in (but not control) such defense. The Indemnitor shall have the right to settle or compromise any such Third Party Claim for which it is providing indemnity so long as
such settlement does not impose any obligations on the Indemnitee (except with respect to providing releases of the third party). The Indemnitor shall not be liable for any settlement effected by the Indemnitee without the Indemnitor's consent except
where the Indemnitee has assumed the defense because Indemnitor has failed or refused to do so. The Indemnitor may assume and control, or bear the costs, of any such defense subject to its reservation of a right to contest the Indemnitee's right to
indemnification hereunder, provided that it gives the Indemnitee notice of such reservation within 15 days of the date of the Claim Notice.
ARTICLE 13
GENERAL PROVISIONS
Section 13.1 Notices. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by telegraphic, facsimile or other
electronic means, by overnight air courier or by mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by telegraphic, facsimile or other electronic means, (b) one (1) Business
Day after having been delivered to an air courier for overnight delivery or (c) three (3) Business Days after having been deposited in the U.S. mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties
or their permitted assignees at the following addresses (or at such other address as shall be given in writing by a party hereto):
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If to Sellers or the Sellers Group, addressed to:
Vice President
Power Supply
PacifiCorp
One Utah Center, 23rd Floor
Salt Lake City, Utah 94140
Facsimile: (801) 220-4900
with a copy to:
George M. Galloway
Stoel Rives LLP
900 SW Fifth Avenue
Portland, OR 97204
Facsimile: (503) 220-2480
If to Buyer or any Buyer Subsidiary, addressed to:
TECWA Power, Inc.
110 12
ARTICLE 14
SELLERS COMMITTEE
Section 14.1 Function. Pursuant to a separate agreement among the Sellers, the Sellers have formed a committee (the "Sellers Committee") charged with administering this
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Agreement on behalf of the Sellers and determining what actions should be taken hereunder by the Sellers Group.
ARTICLE 15
POTENTIAL SALE
Section 15.1 Sale of Portland General Electric Company's ("PGE's") Interest to Avista Corporation ("Avista"). The parties are aware that PGE has entered into an agreement to sell its 2.5% interest to Avista.
Avista hereby represents and warrants to the other Sellers that at the close of the sale of PGE's interest to Avista, Avista shall fully assume all of PGE's rights and obligations with respect to said interest under all applicable agreements among the
owners of the Plant, including this Agreement and the Centralia Fuel Supply Agreement and the parties to this Agreement consent to such sale, and agree that at such time, PGE shall thereafter be released from its obligations as a Seller under this
Agreement, and the parties to this Agreement shall thereafter look to Avista as the Seller with respect to said 2.5% interest; provided, however subsequent to such sale, PGE shall refrain from any effort to interfere in the consummation of the
transactions contemplated by this Agreement and the Related Agreements and the Transmission Arrangements. The Sellers hereby waive any and all rights of first refusal pursuant to Section 24(e) of the Agreement for the Construction and Ownership of
Centralia Steam Electric Generating Plant of May 15, 1969. PGE and Avista shall ensure that Buyer and Other Sellers are promptly notified of the closing between Avista and PGE.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.
BUYER: |
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|
SELLERS: |
Page 67 - CENTRALIA PLANT PURCHASE AND SALE AGREEMENT
Exhibit 2(e)
PREAMBLE |
1 |
|
|
Section 2.1 Purchased Assets |
|
i
Section 2.2 Excluded Assets |
10 |
|
|
|
|
ii
Section 4.10 Qualified for Licenses |
25 |
|
|
|
|
|
|
iii
Section 8.1 Performance of Agreement Section 8.2 Accuracy of Representations and Warranties Section 8.3 Officers' Certificate Section 8.4 Approvals Section 8.5 No Restraint Section 8.6 Title Insurance Section 8.7 Casualty; Condemnation (a) Casualty (b) Condemnation Section 8.8 Opinion of Counsel Section 8.9 Receipt of Other Documents Section 8.10 Limitation on Adjustments Section 8.11 Plant Sale Section 8.12 Material Adverse Effect Section 8.13 Real Property Section 8.14 LLC Contribution |
|
|
|
|
|
Section 11.1 Termination |
|
iv
Section 11.2 Effect of Termination |
49 |
|
|
|
|
v
LIST OF SCHEDULES
1.1(n) |
Additional Persons With Knowledge |
vi
3.8 |
Contracts |
vii
CENTRALIA COAL MINE PURCHASE AND SALE AGREEMENT
This CENTRALIA COAL MINE PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into as of the 7th day of May, 1999 by and between PACIFICORP and CENTRALIA MINING COMPANY ("Sellers"), and TECWA FUEL, INC., a
Washington corporation ("Buyer"), with reference to the following facts:
A. PacifiCorp owns the Centralia Coal Mine, which is located in Lewis and Thurston Counties, Washington (the "Mine").
B. Centralia Mining Company ("CMC") is the operator of the Mine and a wholly-owned subsidiary of PacifiCorp.
C. Sellers desire to sell, and Buyer desires to purchase, the interests in the LLC to which Sellers will contribute the assets used in connection with the Mine, all upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Affiliate" of a specified Person shall mean any corporation, partnership, sole proprietorship or other Person which directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with the Person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies
of a Person.
(b) "Auction" means the procedures employed by Sellers through which the Mine was offered for sale to competing bidders.
(c) "Benefit Plan" means any employee benefit plan, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
or any other employee benefit arrangement, including but not limited to (i) any employment agreement, (ii) any arrangement providing for insurance coverage or workers' compensation benefits, (iii) any
Page 1 - CENTRALIA MINE PURCHASE AND SALE AGREEMENT
incentive or bonus arrangement, (iv) any arrangement providing termination or severance benefits, or (v) any deferred compensation plan that is or was sponsored, maintained or contributed to by any Seller or any ERISA Affiliate.
(d) "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in the State of Washington are not required
to be open.
(e) "Charter Documents" means a party's Articles of Incorporation or Bylaws or similar charter documents.
(f) "Coal Mine Operating Agreement" means the Coal Mine Operating Agreement between PacifiCorp and CMC dated February 1, 1995.
(g) "Collective Bargaining Agreement" means the Coal Mining Operation Agreement between CMC and the Operating Engineers, Local No. 612-B for the
term February 1, 1995 to January 31, 2000, as amended.
(h) "Environmental Law" shall mean all applicable Laws and Licenses for or relating to: (i) air emissions, hazardous materials, storage use and
release to the environment of Hazardous Materials, generation, treatment, storage, and disposal of hazardous wastes, wastewater discharges and similar environmental matters, and (ii) the protection and enhancement of the environment, including without
limitation the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.; the Resource Conservation and Recovery Act, 42. U.S.C. Section 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section 7401
et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.; the Oil Pollution Act, 33 U.S.C. Section 2701
et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; and the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq.; Surface Mining Control and Reclamation
Act, Title 30 U.S.C. Ch. 25 (30 U.S.C. 1201 et.seq.).
(i) "ERISA Affiliate" means any other person that, together with any Seller as of the relevant measuring date, was or is required to be treated as a
single employer under Section 414 of the Internal Revenue Code.
(j) "Existing Soils Contamination" shall mean the actual presence before the Closing of Hazardous Materials in the soil or groundwater of the real
properties conveyed to the LLC or Buyer and included in the Assets, as well as the migration through soil or groundwater of Hazardous Materials actually present before the Closing in the soil or groundwater of the real property conveyed to the LLC or
Buyer and included in the Assets, if (i) Sellers, as of the date hereof, has Knowledge of such presence of such Hazardous Materials, it being agreed that Sellers has Knowledge of matters disclosed in the Phase I and
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Phase II environmental assessments referred to in Section 3.6 and of matters otherwise disclosed in Schedule 3.6, (ii) such presence of such Hazardous Materials before the Closing is demonstrated through the investigations that Buyer is entitled to
make under Section 6.4, or (iii) such Hazardous Materials are proven by clear and convincing evidence on or before the fifteenth anniversary of the Closing to have been present in such soil or groundwater before the Closing. Existing Soils
Contamination does not include (a) the presence of Hazardous Materials arising from the normal application of pesticides, fungicides, or other agricultural products, or (b) contamination of a type or at levels below those which would require
remediation under applicable Environmental Law in effect as of the date hereof. The determination by a Governmental Body that remediation is not required or not further required shall be conclusive in regard to such issue.
(k) "Fuel Agreement" means the Centralia Fuel Supply Agreement dated January 1, 1991 between PacifiCorp and the other owners of the
Centralia Steam Electric Generating Plant.
(l) "Governmental Body" means any federal, state, local, municipal, or other government; any governmental, regulatory or administrative agency,
commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal; but does not include Buyer, any Buyer
Subsidiary, or any of respective successors in interest or any owner or operator of the Assets (if otherwise a Governmental Body).
(m) "Hazardous Materials" means any chemicals, materials, substances, or items in any form, whether solid, liquid, gaseous, semisolid, or any
combination thereof, whether waste materials, raw materials, chemicals, finished products, by-products, or any other materials or articles, which are listed as hazardous, toxic or dangerous under Environmental Law, including without limitation, petroleum
products, asbestos, urea formaldehyde foam insulation, lead-containing paints or coatings and "hazardous debris," "hazardous substances" and "hazardous wastes" as defined by WAC 173-303-040.
(n) "Knowledge" of a party shall mean with respect to such party, the extent of the actual knowledge of the persons listed on Schedule 1.1(n) with
respect to such party and with respect to the Assets, Sellers' knowledge about the Assets shall include the extent of the actual knowledge of the manager of the Mine, and the Knowledge of the manager of the mine shall be imputed to both Sellers.
(o) "LLC" shall mean "Centralia Mine, LLC," a Washington limited liability company to be formed for purposes of the LLC transaction.
Page 3 - CENTRALIA MINE PURCHASE AND SALE AGREEMENT
(p) "Laws" shall mean all statutes, rules, regulations, ordinances, orders, common law and other legal and equitable principles, and codes of
federal, state and local governmental and regulatory authorities.
(q) "Licenses" shall mean registrations, licenses, permits, authorizations and other consents or approvals of Governmental Bodies, including but not
limited to the OSM Permit.
(r) "OSM" means the Office of Surface Mining, Reclamation and Enforcement.
(s) "OSM Permit" means the permit issued for the Mine by the OSM under the Surface Mining Control and Reclamation Act of 1977, as amended.
(t) "Person" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.
(u) "Other Agreements" means the Related Agreements and Transmission Arrangements as those terms are defined in the Centralia Plant Purchase and
Sale Agreement of even date herewith.
(v) "Reclamation Funding Agreement" means the Reclamation Funding Agreement dated January 1, 1991 between PacifiCorp and the other owners of the
Centralia Steam Electric Generating Plant.
(w) "Release" means any release, spill, emission, leaking, pumping, emptying, dumping, injection, abandonment, deposit, disposal, discharge,
dispersal, leaching, or migration of Hazardous Materials (including, without limitation, the abandonment or discarding of Hazardous Materials in barrels, drums, or other containers) into or within the environment, including, without limitation, the
migration of Hazardous Materials into, under, on, through, or in the air, soil, subsurface strata, surface water, groundwater, drinking water supply, any sediments associated with any water bodies, or any other environmental medium, regardless of where
such migration originates.
(x) "Remediation Measures" means any (i) investigation, monitoring, clean-up, containment, remediation, mitigation, removal, disposal or
treatment of Existing Soils Contamination to remediation standards required by applicable Laws in effect at the date hereof, including without limitation the preparation and implementation of any work plans and the obtaining of authorizations, approvals
and permits from Governmental Bodies with respect thereto, and (ii) any response to, or preparation for, any inquiry, order, hearing or other
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proceeding by or before any Governmental Body with respect to any Existing Soils Contamination.
(y) "Sellers' Environmental Obligations" means:
(i) Any fine, penalty, levy or assessment imposed upon the LLC,
Sellers or Buyer or Buyer Affiliate by any Governmental Body with respect to Sellers'
operation of the Mine before the Closing;
(ii) The offsite transport prior to the Closing of Hazardous Materials
from the real property included in the Assets, or the treatment, storage or disposal of
Hazardous Materials transported from the real property included in the Assets to
another site prior to Closing;
(iii) The Release of Hazardous Materials from the Mine before the
Closing into the atmosphere or any water course or body of water not included in the
Assets; and
(iv) The obligations of Sellers for Remediation Measures in respect of
Existing Soils Contamination as set forth in, and subject to the provisions and
conditions of, Section 6.4;
provided that Sellers' Environmental Obligations do not include any obligations or liabilities to the extent that they arise from or are related to:
(v) The existence of Hazardous Materials used as construction
materials in, on or otherwise affixed to structures or improvements included in the
Assets, including without limitation, asbestos, urea formaldehyde foam insulation and
lead-based paint or coatings;
(vi) Hazardous Materials introduced after the Closing into the soil or
groundwater of the real properties included in the Assets as well as the migration
through soil or groundwater after the Closing of such Hazardous Materials;
(vii) Any increase in soils or groundwater contamination or
exacerbation of Existing Soils Contamination, or any increase in the costs or burdens of
any Remediation Measures required by any Governmental Body or any other third
Person, as a result of the acts or omissions after the Closing of Persons other than
Sellers and its Affiliates, including, without limitation, the imposition of any
remediation standard with respect to Existing Soils Contamination that is different from
the standard that is or would have been applicable to Sellers as of Closing; or
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(viii) Any increase in the costs or burdens of any Remediation
Measures required by any Governmental Body or any other third Person as a result of
changes in Laws subsequent to the date hereof; or
(ix) The reclamation and mine closure obligations assumed by the
Buyer under Section 2.3(b) of this Agreement.
(z) "Taxes" shall mean (i) all federal, state, county and local sales, use, property, recordation and transfer taxes, and (ii) any
interest, penalties and additions to tax attributable to any of the foregoing, but shall not include income and other taxes described in Section 2.4(b).
(aa) "Washington Ruling" shall mean a ruling letter to be issued by the Washington State Department of Revenue in response to the request to be filed by
Stoel Rives, LLP no earlier than 45 days prior to the Closing seeking confirmation that no Washington State sales or use tax will be due in respect of (i) the transfer of the assets by the Sellers to the LLC; and (ii) the transfer of the
membership interests in the LLC by the Sellers to the Buyer.
Section 1.2 Index of Other Defined Terms. In addition to those terms defined above, the following terms shall have the respective meanings given thereto in the Sections indicated below:
Defined Term |
Section |
|
|
|
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Deductible Amount |
12.3(b)(ii) |
ARTICLE 2
BASIC TRANSACTIONS
Section 2.1 Purchased Assets. On the terms and subject to the conditions contained in this Agreement, at the Closing Buyer shall, or shall cause the applicable Buyer Subsidiary to, purchase, and
Sellers shall sell, convey, assign, transfer and deliver to Buyer, or the applicable Buyer Subsidiary, all of Sellers' right, title and interest in the LLC (the "LLC
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Interests") after the Sellers have contributed, conveyed, assigned, transferred and delivered to the LLC the following assets that (except to the extent otherwise noted) are used in and necessary for the conduct of the operations of the Mine (the
"Assets"), but excluding all Excluded Assets (as defined in Section 2.2):
(a) All of Sellers' right, title and interest in and to the real property owned in fee (the "Owned Real Property") that is identified in Schedule
2.1(a) on which the Mine is located, together with all buildings, fixtures and improvements located thereon (including all construction work-in-progress).
(b) The real property leases described on Schedule 2.1(b), including all leasehold improvements (the "Real Property Leases").
(c) The easements, rights-of-way, water rights, licenses, franchises, and similar real property rights described on Schedule 2.1(c) (the
"Appurtenant Rights").
(d) The fixed or mobile machinery and equipment, as well as similar items of tangible personal property, including, without limitation, vehicle
refueling tanks, pumps, pipelines, fittings, trucks, tractors, trailers and other vehicles, tools, water pumps and water transport equipment and furniture (collectively "Equipment") that (i) are not by their nature consumed in the ordinary course of
business such that they constitute "Supplies" (as defined below), (ii) are used, owned or leased by Sellers as of the Closing Date, and are used primarily in connection with the ownership or operation of the Mine and its related support facilities
(including Assets temporarily off-site for repair or other purposes). All such items of Equipment (other than furnishings or office equipment) having a net book value of $10,000 or more as of the close of the most recent fiscal quarter ended at least one
month before the date of this Agreement are identified on Schedule 2.1(d).
(e) The inventories of spare parts and non-coal fuels, lubricants and other fluids intended to be consumed in the ordinary course of business,
maintenance, shop and office supplies, and other similar items of tangible personal property on hand at the Mine as of the Closing and intended to be consumed in the ordinary course of business ("Supplies").
(f) All of Sellers' right, title and interest in and to all written contracts and agreements specifically and exclusively relating to the Mine to
which Sellers are a party at the Closing (the "Assigned Contracts") including, without limitation, the agreements identified on Schedule 2.1(f), which contains a list of the agreements (i) pursuant to which Sellers paid or received or expects to pay
or receive in excess of $50,000 during the 365 days before the Closing, and (ii) which cannot be canceled by Sellers without penalty on written notice of 90 days or less. The Assigned Contracts shall also include, without limitation, construction
contracts relating to construction work-in-progress at the Mine; equipment leases (whether operating or capital leases) and installment purchase contracts; contracts or arrangements
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binding on the Mine which restrict the nature of the business activities in which the Mine may engage; and leases with respect to which Sellers are lessor or sublessor. The Assigned Contracts shall not include the Fuel Agreement, the Reclamation Funding
Agreement and the Coal Mine Operating Agreement which Buyer acknowledges and agrees are to terminate following the sale of the Assets.
(g) All of Sellers' right, title and interest in and to all of the Licenses in favor of Sellers as of Closing that relate to or are necessary for or
used in connection with the operation of the Assets as heretofore operated by Sellers, all of such Licenses being included on Schedule 2.1(g), except for and to the extent that such Licenses relate to Excluded Assets; provided that such Licenses shall be
included within the Assets only to the extent they relate exclusively to the Assets and are lawfully transferable to the LLC.
(h) All of Sellers' right, title and interest in and to all of the books, records, plans, sepias, drawings, instruction manuals and similar items,
whether in written or electronic from, and which relate exclusively to the Mine and the Assets or the operation thereof, and other procedural manuals of Sellers related primarily to the operation of the Mine, subject to the rights of Sellers to make
copies of and make non-exclusive use of the same and except to the extent such materials are subject to confidentiality or non-disclosure agreements in favor of third parties whose consent to transfer is not obtained.
(i) All of Sellers' right, title and interest, if any, in and to unexpired warranties as of the Closing that are transferable to the LLC wholly
owned by Buyer that Sellers have received from third parties and that relate specifically to the Assets, including, without limitation, warranties set forth in any equipment purchase agreement, construction agreement, lease agreement, consulting agreement
or agreement for architectural or engineering services, it being understood that nothing in this paragraph shall be construed as a representation by Sellers that any such unexpired warranty remains enforceable.
(j) All of Sellers' right, title and interest in and to advance payments, prepayments, prepaid expenses, deposits and the like (i) made by
Sellers on their behalf in the ordinary course of business specifically with respect to the Assets before the Closing, (ii) which exist as of such Closing, and (iii) with respect to which the LLC and Buyer will receive the benefit after the
Closing (collectively, "Prepayments"), which Prepayments are listed by category and approximate amount in Schedule 2.1(j) as of the close of the most recent fiscal quarter ended at least one month before the date of this Agreement.
(k) All of Sellers' right, title and interest in and to those miscellaneous and sundry assets identified by category on Schedule 2.1(k), if any,
which assets are ancillary to the ownership and operation of the other Assets and the Mine and customarily utilized in connection therewith but not otherwise enumerated above.
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(l) Any rights respecting computer and data processing hardware, software or firmware and any computer and data processing hardware, software or
firmware located at the Mine and used in the operation of the Mine, not including SAP accounting software or software that is part of the computer network of any Sellers.
Section 2.2 Excluded Assets. The Assets shall not include any of the assets, properties, rights, Licenses, or contracts of Sellers not specifically enumerated in Section 2.1 above, all such
other assets, properties, rights, Licenses, and contracts collectively constituting "Excluded Assets," including, without limitation, the following specifically enumerated Excluded Assets:
(a) Claims, choses in action, rights of recovery, rights of set-off, rights to refunds and similar rights in favor of Sellers of any kind relating
to or arising out of the period before Closing, including, but not limited to, any refund related to real estate taxes paid before the Closing, whether such refund is received as a payment or as a credit against future real estate taxes.
(b) Privileged or proprietary (to either Seller) materials, documents, information, media, methods, and processes owned by or licensed to either
Seller and any and all rights to use same, including, without limitation, intangible assets of an intellectual property nature such as trademarks, service marks and trade names (whether or not registered), computer software that is proprietary to Sellers,
or the use of which under the pertinent license therefor is limited to operation by Sellers or their Affiliates or on equipment owned by Sellers or their Affiliates, all promotional or marketing materials (including all marketing computer software), and
any and all trade names under which Sellers or the Mine before Closing have done business or offered programs, and all abbreviations and variations thereof.
(c) The rights of Sellers under any insurance policy, except to the extent such policy insures for occurrences that are included in the Assumed
Liabilities (it being understood, however, that Sellers will have no obligation to take any action under any such policy to seek any recovery except at the reasonable request, and at the sole expense, of Buyer or to continue any such policies in force
except to the extent expressly set forth herein).
(d) Any and all rights respecting computer and data processing hardware or firmware that is proprietary to Sellers and any computer and data
processing hardware or firmware, whether or not located at the Mine, that is part of a computer system the central processing unit of which is not located at the Mine.
(e) Except for the Prepayments, Supplies and items of petty cash that may be on hand at the Mine as of the time of Closing, all assets constituting
working capital, whether cash, cash equivalents, securities, rights to payment, rights to refunds and other current assets and similar rights.
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(f) Miscellaneous and sundry assets, if any, identified by category on Schedule 2.2(f), which assets may have been utilized by Sellers in the
ownership and operation of the Mine but which are not intended to be included in the Assets and which are not otherwise enumerated above.
(g) The Fuel Agreement, the Reclamation Funding Agreement and the Coal Mine Operating Agreement.
Sellers may remove at any time or from time to time, up to ninety (90) days following the Closing, any and all of the Excluded Assets from the Mine (at Sellers' expense, but without charge by Buyer for storage), provided that Sellers shall do so in
a manner that does not unduly or unnecessarily disrupt Buyer's normal business activities at the Mine, and provided further that Excluded Assets may be retained at the Mine pursuant to easements, licenses or similar arrangements retained by Sellers and described above or otherwise in the Schedules to this Agreement.
Section 2.3 Assumed Liabilities. Subject to the terms and conditions set forth in this Agreement, the LLC and Buyer shall, and may also cause a pertinent Buyer Subsidiary or Buyer Subsidiaries
to, jointly and severally with the LLC and Buyer, assume and pay, discharge and perform as and when due, only the following obligations and liabilities of Sellers (the "Assumed Liabilities"):
(a) All liabilities and obligations of Sellers which pertain to or are to be paid or performed during the period following the Closing Date (except
to the extent that, but for the breach of Sellers, such liabilities and obligations would have been paid or performed before the Closing Date), and which arise under any contract, License, agreement, arrangement, understanding or undertaking included in
the Assets, including the Assigned Contracts, and any other obligation or liability of Sellers or any Affiliate of the Sellers (including letters of credit and performance bonds) which is in the nature of a guaranty of the foregoing to the extent the same
are enumerated in Scheduled 2.3(a) (together, the "Assumed Contracts").
(b) All liabilities and obligations of Sellers under any bond, License, or Law, whether existing before or on the Closing Date or taking effect
after the Closing Date, relating to restoration, reclamation, or mine closure of the Mine, whether such liabilities or obligations arose before, on or after the Closing Date, whether such liabilities or obligations were known or unknown as of the Closing
Date, and whether such liabilities or obligations exceed the amount of any bond posted before, on or after the Closing Date to secure their performance.
(c) All liabilities and obligations of Sellers under open purchase orders pertaining to any Asset that were entered into by Sellers in the ordinary
course of business with
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respect to operation of the Mine on or before the Closing and which provide for the delivery of goods or services subsequent to the Closing Date.
(d) Without limiting Sellers' representations and warranties contained in Article 3 or Buyer's right under Article 12 with respect to a
breach thereof, any and all liabilities and obligations to third parties respecting any changes or improvements needed to the Mine, if any, for it to be in material compliance following the Closing with respect to safety, building, fire, land use, access
(including, without limitation, the Americans With Disabilities Act ("ADA")) or similar Laws respecting the physical condition of the Mine.
(e) Without limiting Sellers' representations and warranties contained in Article 3 or Buyer's rights under Article 12 for a breach
thereof, and except for the Excluded Liabilities specifically listed in Section 2.4, any and all liabilities, claims, and expenses (including, without limitation, those arising under Environmental Laws, or otherwise) in any way arising out of or
related to or associated with the ownership, possession, use or operation of the Assets or any business conducted therewith or therefrom after the Closing or any and all such liabilities, claims and expenses in any way arising from a change in Laws after
the date hereof.
(f) Such miscellaneous and sundry liabilities, identified by category on Schedule 2.3(f), if any, which liabilities are ancillary to the ownership
and operation of the Assets and the Mine but are not otherwise enumerated above.
Section 2.4 Excluded Liabilities. The parties agree that liabilities and obligations of Sellers not described in Section 2.3 as Assumed Liabilities are not part of the Assumed Liabilities,
and neither the LLC nor Buyer shall assume or become obligated with respect to any other obligation or liability of Sellers or any Affiliate of Sellers (collectively, "Excluded Liabilities"), including, without limitation, the liabilities and obligations
described in this Section, all of which shall remain the sole responsibility of, and be discharged and performed as and when due by, Sellers. In particular, neither the LLC or Buyer shall have any liability or obligation with respect to any of the
following liabilities or obligations of Sellers as the same may exist at the Closing:
(a) Liabilities associated with or arising from the Excluded Assets and the ownership, operation and conduct of any business by Sellers or their
successors in interest in connection therewith or therefrom.
(b) Subject to Section 5.3 respecting certain expenses incurred in connection with the transactions contemplated hereby, any of Sellers' or
their Affiliates' liabilities or obligations with respect to franchise taxes and with respect to foreign, federal, state or local taxes imposed upon or measured, in whole or in part, by the income for any period of Sellers or any member of any combined or
consolidated group of companies of which Sellers is, or
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were at any time, a part, or with respect to interest, penalties or additions to any of such taxes, and any income, franchise, tax recapture, transfer tax, sales tax or use tax that may arise upon consummation of the transactions contemplated hereby and
be due from or payable by Sellers, it being understood that neither the LLC nor Buyer shall be deemed to be Sellers' transferee with respect to any such tax liability.
(c) Liabilities or obligations of Sellers or their Affiliates arising from the breach by Sellers before the Closing Date of any term, covenant, or
provision of any of the Assumed Contracts.
(d) Liabilities of Sellers for Third Party Claims where the injury or damage involved occurred before the Closing, provided that Third Party Claims
related to Existing Soil Contamination or to Remediation Measures shall be subject to the further provisions of Section 6.4.
(e) Liabilities of Sellers incurred in connection with Sellers' obtaining any consent, authorization or approval necessary for it to sell, convey,
assign, transfer or deliver the Assets to the LLC or to sell, convey, assign, transfer or deliver the LLC Interests to Buyer hereunder.
(f) Any liability of Sellers representing indebtedness for money borrowed or the deferred portion of the purchase price for any of the Assets or any
LLC Interest (and any refinancing thereof). With respect to any such indebtedness or obligation not so assumed by the LLC or Buyer that constitutes a lien or encumbrance upon any Asset or LLC Interest, Sellers agree that on or before the Closing they will
either pay or discharge such indebtedness or obligation in full or otherwise cause such lien or encumbrance to be removed from the Asset or the LLC Interest, so that such Asset or LLC Interest is sold, conveyed, assigned, transferred and delivered to the
LLC or Buyer, as the case may be, at the Closing free and clear of such lien or encumbrance.
(g) Any liabilities of Sellers or any Affiliate of Sellers to employees at the Mine for pre-Closing activities, including but not limited to
liabilities for such activities arising (i) under any collective bargaining agreement, (ii) under any Benefit Plan, (iii) for wages, overtime, bonuses, employment taxes, severance pay, transition payments, vacation pay, or workers' compensation benefits,
or (iv) for personal injury, death, discrimination, harassment, civil or human rights violations, wrongful discharge, grievances, or unfair labor practices, (it being understood, however, that nothing herein is intended to affect Buyer's obligations, if any, under the National Labor Relations Act).
(h) Liabilities which would be Assumed Liabilities but for other express provisions of this Agreement providing for their retention by Sellers and
such other liabilities
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and obligations, if any, which would otherwise be Assumed Liabilities but which are identified on Schedule 2.4(h).
(i) Any and all liabilities arising out of or related to Sellers's Environmental Obligations.
Section 2.5 Purchase Price. The total purchase price for the LLC Interests shall be the sum of the Mine Purchase Price and the Inventories Purchase Price as each amount is defined in this Section
2.5.
(a) Mine Purchase Price. The "Mine Purchase Price" shall be U.S. $101,400,000, subject to such adjustments, if any, as may occur pursuant to
this Section 2.5 and other provisions of this Agreement. Buyer shall, or shall cause one or more Buyer Subsidiaries to, pay to PacifiCorp the Mine Purchase Price in cash at the Closing by wire transfer of immediately available funds in U.S. dollars
to an account specified in writing by PacifiCorp to Buyer not later than the second Business Day before the Closing Date.
(b) Inventory Purchase Price. The"Inventory Purchase Price" shall equal Sellers' original cost basis in the Supplies as reflected on Sellers'
books and records as of the date of Closing. Sellers shall notify Buyer of the amount of the Inventory Purchase Price and deliver supporting work papers to Buyer within 45 days following the date of closing. Buyer shall, or shall cause one or more Buyer
Subsidiaries to, pay to PacifiCorp the Inventory Purchase Price in cash (U.S.$) within 15 days of such notification by wire transfer of immediately available funds to the same account to which the Mine Purchase Price was paid.
(c) Mine Purchase Price Allocation. No later than ten Business Days before the Closing, Buyer and the Sellers shall use their reasonable good
faith efforts to reach agreement upon the manner in which the Mine Purchase Price is to be allocated among the Assets. Upon any such agreement being reached, the agreed allocation shall be set forth in a schedule (the "Allocation Schedule") to be attached
to this Agreement as Schedule 2.5. Sellers and Buyer shall allocate the Mine Purchase Price in accordance with the Allocation Schedule and shall be bound by such allocations for all purposes, shall account for and report the purchases and sales
contemplated hereby for all purposes (including, without limitation, financial, accounting, and federal and state tax purposes) in accordance with such allocations, and shall not take any position (whether in financial statements, tax returns, or tax
audits, or otherwise), which is inconsistent with such allocations without the prior written consent of the other party, except to the extent, if any, required by applicable Law or generally accepted accounting principles. In the event that Buyer and
Sellers do not agree on an allocation of the Mine Purchase Price pursuant to this Section, then the Mine Purchase Price shall be allocated among the Assets in proportion to Sellers' net book value therefor.
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(d) Certain Post-Closing Adjustments. The Mine Purchase Price shall be subject to the following post-Closing adjustments, but only if such
adjustments, in the aggregate, will result in a change in the Purchase Price of $250,000 or more:
(i) The Mine Purchase Price shall be increased by the amount
expended by Sellers between the date hereof and the Closing Date for capital additions
to or replacements of property, plant and equipment included in the Assets and other
expenditures or repairs on property, plant and equipment included in the Assets that
would be capitalized by Sellers in accordance with its normal capitalization policies
(together "Capital Expenditures"), which Capital Expenditures either appear on
Schedule 2.5(d)(i) or, subject to the provisions of Section 6.3(f), are otherwise deemed
reasonably necessary by Sellers for the continued operation or maintenance of the Mine
and the Assets or for compliance with Law, provided that such Capital Expenditures
shall not include Remediation Measures in respect of Existing Soils Contamination or
spare parts, materials and supplies which constitute supplies.
(ii) In order to implement the foregoing, Sellers shall cause to be
prepared and shall provide Buyer, as soon as possible after the Closing Date and in no
event later than 60 days thereafter, with a schedule setting forth Sellers' Capital
Expenditures between the date hereof and the Closing Date in reasonable detail so as to
permit Buyer to be able to determine the extent to which such Capital Expenditures are
or are not listed on Scheduled 2.5(d)(i).
Any adjustments to the Mine Purchase Price shall be consistent with the Allocation Schedule (if such schedule has been previously agreed to).
Section 2.6 License of Non-Transferred Intangible Assets. Although trade names of Sellers are Excluded Assets, such names appear on certain of the Assets, such as certain fixtures and Equipment,
and on supplies, materials, stationery and similar consumable items which will be on hand at the Mine at the Closing. Notwithstanding that such names are Excluded Assets, the LLC, Buyer and the Buyer Subsidiaries shall be entitled to use such consumable
items for a period of three months following the Closing and shall have up to six months following the Closing to remove such names from fixed Assets, provided that none of such parties shall send correspondence or other materials to third parties on any stationery that contains a trade name or trademark of Sellers or any Affiliates of Sellers. Sellers hereby grant to the LLC and Buyer the
irrevocable, fully paid-up, royalty-free, nontransferable, non-exclusive right and license to use, solely in connection with the operation of the Mine, such proprietary computer software of Sellers located at the Mine that is presently used at the Mine's
location exclusively in connection with the operation of such Mine and that is an Excluded Asset under Section 2.2(d) or (f), except for such computer software that is designed to be part of a networked computer system providing data processing
capabilities or services beyond the Mine in question and provided that in no event shall the LLC or Buyer or any
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successor have access under such license to Sellers' own computer networks. The licenses contained in this Section 2.6 may, at the Sellers' option, be made the subject of a separate agreement between the parties, in which case the parties shall
negotiate the terms thereof in good faith.
Section 2.7 Assignment of Rights and Obligations to Buyer Subsidiaries. For purposes of this Agreement, the term "Buyer Subsidiary" shall refer to any direct or indirect subsidiary of Buyer and
any constituent partner or participant in Buyer (if Buyer is a partnership, joint venture, consortium or other association or organization) to which any of Buyer's rights and obligations hereunder are assigned in compliance with the requirements of this
Section. Notwithstanding any contrary provisions contained herein, the parties hereto agree that, before and after the Closing, Buyer, in its sole discretion, may assign any or all of its rights and obligations arising under this Agreement or any other
agreement contemplated hereby to one or more Buyer Subsidiaries, provided that no such assignment shall relieve Buyer of any obligation or liability to Sellers hereunder or under any other agreement contemplated hereby, and provided further that the following shall apply:
(a) Buyer will provide Sellers with prompt written notice of any such assignment.
(b) No such assignment shall be effected if the making of the assignment will result in Sellers' or Buyer's inability to obtain any consent or
authorization reasonably required to consummate the transactions contemplated hereby or to avoid economic detriment to Sellers arising from the consummation of such transactions.
(c) Each such Buyer Subsidiary that is an assignee of Buyer shall irrevocably appoint Buyer as an authorized representative and agent authorized to
act for, to bind and to receive notices and payments on behalf of the Buyer Subsidiaries in all matters arising from or related to this Agreement and the transactions contemplated hereby.
(d) Irrespective of any such assignment or the identity of the party or parties executing any other agreement contemplated hereby:
(i) Buyer shall remain jointly and severally liable with each
Buyer Subsidiary to Sellers and to third parties with respect to any Assumed
Liabilities transferred to or undertaken by a Buyer Subsidiary, and shall remain
jointly and severally liable with each Buyer Subsidiary to Sellers with respect to
any other covenant, obligation or liability to Sellers hereunder or under any
other agreement contemplated hereby that is transferred to, or undertaken by, a
Buyer Subsidiary, including without limitation, the payment of all sums due to
Sellers hereunder or under any other agreement contemplated hereby, it being
understood that all such covenants, obligations and liabilities shall constitute the
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direct and primary obligation of Buyer to Sellers (and to third parties in the case
of the Assumed Liabilities); and
(ii) Without limiting the generality of the foregoing, if and to
the extent that the application of any principle of Law would construe the
retention by Buyer of the direct and primary obligation to perform any and all
obligations, liabilities or covenants assigned to or assumed or undertaken by a
Buyer Subsidiary to be a guaranty by Buyer of the Buyer Subsidiary's
performance, then Buyer hereby irrevocably, absolutely and unconditionally
guarantees to Sellers the full, prompt and faithful performance by such Buyer
Subsidiary of all covenants and obligations to be performed by such Buyer
Subsidiary under this Agreement or under any other agreement contemplated
hereby assigned to such Buyer Subsidiary.
(e) Buyer further hereby agrees that a separate action or actions may be brought and prosecuted against Buyer for any such covenant, obligation or
liability assigned to a Buyer Subsidiary, whether action is brought against the pertinent Buyer Subsidiary or whether such Buyer Subsidiary is joined in any such action or actions (Buyer hereby waiving any right to require Sellers to proceed against a
Buyer Subsidiary).
(f) Buyer hereby authorizes Sellers, without notice and without affecting Buyer's liability hereunder, from time to time to (i) renew,
compromise, extend, accelerate, or otherwise change the terms of any obligations of a Buyer Subsidiary hereunder or under any other agreement contemplated hereby with the agreement of such Buyer Subsidiary, (ii) take and hold security for the
obligations of any such Buyer Subsidiary and exchange, enforce, waive and release any such security, and (iii) apply such security and direct the order or manner of sale thereof as Sellers in its discretion may determine.
(g) Buyer hereby further waives:
(i) Any defense that may arise by reason of the incapacity or
lack of authority of any Buyer Subsidiary;
(ii) Any defense based upon any Law or legal or equitable
principle which provides that the obligations of a surety must be neither larger
in amount nor in other respects more burdensome than those of the principal;
(iii) Any duty on the part of Sellers to disclose to Buyer any
facts that Sellers may now or hereafter know about a Buyer Subsidiary; and
(iv) Any right to subrogation, reimbursement, exoneration or
contribution or any other rights that would result in Buyer being deemed a
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creditor of a Buyer Subsidiary under the federal Bankruptcy Code or any other
law, in each case arising from the existence or performance by Buyer of any
obligation of a Buyer Subsidiary hereunder or under any other agreement
contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below:
Section 3.1 Authority and Enforceability. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by Sellers' board of directors; no other corporate act or proceeding on the part of Sellers is necessary to authorize this Agreement or any other agreement contemplated hereby or the transactions
contemplated thereby. This Agreement has been, and each of the other agreements contemplated hereby will, as of the Closing, have been, duly executed and delivered by Sellers, and this Agreement constitutes, and when executed and delivered, will
constitute, a valid and binding obligation of Sellers, enforceable against Sellers in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in affect relating to
creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought.
Section 3.2 No Breach or Conflict. Subject to the provisions of Sections 3.3(a) and 3.3(b) below regarding private party and governmental consents, and except for compliance with the requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any regulatory or licensing Laws applicable to the businesses and assets represented by the Assets, the execution, delivery and performance by Sellers of this
Agreement and any other agreements contemplated hereby do not: (a) conflict with or result in a breach of any of the provisions of the Sellers' Charter Documents; (b) contravene any Law presently in effect or cause the suspension or revocation
of any License presently in effect, which affects or binds Sellers or any of their properties, except where such contravention, suspension or revocation will not have a Material Adverse Effect (as defined below) on the LLC Interests or the Assets and will
not affect the validity or enforceability of this Agreement or any other agreement contemplated hereby or the validity of the transactions contemplated hereby and thereby; or (c) conflict with or result in a breach of or a default (with or without
notice or lapse of time or both) under any material agreement or instrument to which Sellers are a party or by which it or any of its properties may be affected or bound, the effect of which conflict, breach, or default, either individually or in the
aggregate, would be a Material Adverse Effect on the LLC Interests or the Assets. As used herein, a "Material Adverse
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Effect": (w) when used with respect to the LLC Interests, means a material adverse effect on the value or transferability of the LLC Interests, (x) when used with respect to the Assets, means a material adverse effect on the Assets and on the
operation thereof, taken as a whole; (y) when used with respect to any portion of the Assets, means a material adverse effect on such portion of the Assets and on the operation thereof, taken as a whole; and (z) when used with respect to an
entity, such as a Sellers or Buyer, means a material adverse effect on the business, condition (financial or otherwise) and results of operations of such entity taken as a whole (including any subsidiaries of such entity) or on the ability of such entity
to consummate the transactions contemplated hereby.
Section 3.3 Approvals.
(a) Except as set forth in Schedule 3.3(a), the execution, delivery and performance by Sellers of this Agreement and any other agreements
contemplated hereby do not require the authorization, consent or approval of any non-governmental third party of such a nature that the failure to obtain the same would have a Material Adverse Effect on the LLC Interests or the Assets substantially as
they have heretofore operated.
(b) Except as set forth in Schedule 3.3(b), the execution, delivery and performance by Sellers of this Agreement and any other agreements
contemplated hereby do not require the authorization, consent, approval, certification, license or order of, or any filing, with, any court or Governmental Body of such a nature that the failure to obtain the same would have a Material Adverse Effect on
the LLC Interests or the Assets.
Section 3.4 Permits. Except as set forth in Schedule 3.4, at the date hereof Sellers possesses all Licenses necessary for its operation of the Mine at the locations and in the manner
presently operated, other than those the absence of which would not have a Material Adverse Effect on the LLC Interests or the Assets. A true and correct copy of each such License has previously been delivered to or made available for inspection by Buyer.
Section 3.5 Compliance with Law. Except as set forth in Schedule 3.5, and except for the matters that are the subject of Sections 3.4 and 3.6 and the Schedules, if any, related thereto, to
Sellers' Knowledge, Sellers are in compliance in all material respects with all pertinent Laws and Licenses related to the ownership and operation of the LLC Interests or the Assets, other than violations that would not, individually or in the aggregate,
have a Material Adverse Effect on the ownership, use or operation of the LLC Interests or the Assets or on the ability of Sellers to execute and deliver this Agreement or any other agreements contemplated hereby and consummate the transactions
contemplated hereby and thereby.
Section 3.6 Hazardous Materials. To Sellers' Knowledge, except as disclosed by the "Phase I" and Phase II" environmental site assessments for the Centralia Coal Mine prepared by
Sellers' outside environmental consultants and made available for inspection by Buyer, by
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the additional investigations by Buyer, if any, pursuant to Section 6.4, or as otherwise disclosed on Schedule 3.6:
(a) There has not been a Release of Hazardous Material on or otherwise affecting the Assets (other than Releases involving de minimis quantities of
Hazardous Materials) that: (i) constitutes an unremedied material violation of any Environmental Law by Sellers or by any third party if the effect of such violation by such third party imposes a current remediation obligation on the part of Sellers;
(ii) currently imposes any material release-reporting obligations on Sellers under any Environmental Law that have not been or are not being complied with; or (iii) currently imposes any material clean-up or remediation obligations of Sellers
under any Environmental Law.
(b) Sellers, during at least the last three years, have complied, and currently is in compliance, in all material respects, with all Environmental
Laws that govern the Mine;
(c) Sellers have all material Licenses required under the Environmental Laws for its operation of the Mine, is in compliance in all material
respects with all such Licenses and during the three-year period preceding the date of this Agreement has not received any notice that: (i) any such existing Licensing will be revoked; or (ii) any pending application for any new such License or
renewal of any existing Licensing will be denied;
(d) Sellers have not received any currently outstanding written notice of any material proceedings, action, or other claim or liability arising
under any Environmental Laws (including, without limitation, notice of potentially responsible party status under the Comprehensive Environmental Response, Compensation, and Liability Act , 42 U.S.C. Sections 9601 et seq. or any state counterpart) from any Person or Governmental Body regarding the Mine; and
(e) No portion of the Assets contains or has ever contained an underground storage tank, surface impoundment or similar device used for the
management of wastewater, or other waste management unit dedicated to the disposal, treatment, or long-term (greater than 90 days) storage of Hazardous Materials.
Section 3.7 Title to Personal Property. Sellers have good and defensible title, or valid and effective leasehold rights in the case of leased property, to the LLC Interests and all tangible
personal property included in the Assets to be sold, conveyed, assigned, transferred and delivered to the LLC, Buyer or a Buyer Subsidiary, as the case may be, by Sellers, free and clear of all liens, charges, claims, pledges, security interests, equities
and encumbrances of any nature whatsoever, except for those created or allowed to be suffered by Buyer or such Buyer Subsidiary and except for the following (individually and collectively, the "Permitted Encumbrances"): (i) the lien of current taxes
not delinquent, (ii) liens listed on Schedule 3.7, (iii) the Assumed Liabilities, (iv) such consents, authorizations approvals and Licenses referred
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to in Sections 3.3(a), 3.3(b) and 3.4, and (v) liens, charges, claims, pledges, security, interests, equities and encumbrances which will be discharged or released either before, or substantially simultaneously with, the Closing and other liens and
possible minor matters that in the aggregate are not substantial in amount and do no materially detract from or interfere with the present or intended use of such property.
Section 3.8 Contracts. Except for such matters which individually and in the aggregate do not have a Material Adverse Effect on the Assets or the LLC Interests, or except as otherwise disclosed
on Schedule 3.8, to Sellers' Knowledge (a) there is no liability to any third party by reason of the default by Sellers under any Assumed Contract, (b) Sellers have not received notice that any Person intends to cancel or terminate any
Assumed Contract, and (c) all of the Assumed Contracts are in full force and effect; provided that notwithstanding the foregoing representations and warranties, Sellers make no separate representation or warranty under this Section 3.8
respecting compliance with the provisions of Laws generally, Hazardous Materials, title to or condition of property, Licenses, environmental conditions or Environmental Laws, it being the intent of the parties that warranties respecting such matters shall
be made exclusively under the provisions of Sections 3.4, 3.5, and 3.6. Sellers have previously made available for inspection by Buyer true and complete copies of all written Assumed Contracts except where the failure to so deliver a copy thereof will not
have a Material Adverse Effect on Buyer.
Section 3.9 Litigation. Except for (a) ordinary routine claims and litigation incidental to the businesses represented by the Mine (including, without limitation, actions for negligence,
workers' compensation claims and the like), (b) Governmental Body inspections and reviews customarily made of businesses such as those operated from the Mine, (c) proceedings before regulatory authorities, and (d) as set forth on
Schedule 3.9, there are no actions, suits, claims or proceedings pending, or to Sellers' Knowledge, threatened against or affecting the LLC Interests, the Assets or CMC or relating to the operations of the Mine, at law or in equity, or before or by
any Governmental Body. Except as disclosed on Schedule 3.9, there is no condemnation proceeding pending or, to Sellers' Knowledge, threatened against any of the LLC Interests or the Assets.
Section 3.10 Mine Data. Since January 1, 1991, Sellers have operated the Mine only in the usual and ordinary course, except as identified in Schedule 3.10, and there has not been:
(a) Any material casualty, physical damage, destruction or physical loss respecting, or, to Sellers' Knowledge, material adverse change in the
physical condition of, the Mine, subject to the ordinary wear and tear and to routine maintenance;
(b) Any sale or other disposition other than in the ordinary course of business of any fixed Asset that has a net book value in excess of $100,000;
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(c) Any material pledge or imposition of lien on any of such Assets, except for such as will be removed as of the Closing or except for Permitted
Encumbrances; or
(d) Any material amendment (other than general amendments which the insurance carrier makes for a category of policy) or termination or failure to
renew any material insurance covering the Assets.
Section 3.11 Brokers. Except as shown on Schedule 3.11, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement
or the transactions contemplated hereby based upon any agreements or arrangements or commitments written or oral, made by or on behalf of Sellers. Sellers shall be solely responsible for the payment of any such fee or commission to any Person listed on
Schedule 3.11.
Section 3.12 Assets Used in the Operation of the Mine. There are no material assets or properties that are used in and necessary for the conduct of the operations of the Mine that are owned by Sellers
and that individually or in the aggregate are necessary for the operation of the Mine as currently operated by Sellers that are not included in the Assets.
Section 3.13 Taxes. Sellers have filed all returns required to be filed by them with respect to Taxes, and Sellers have paid all Taxes that have become due, except where such Tax is being contested in
good faith by appropriate proceedings. Sellers have complied with all applicable laws, rules and regulations relating to withholding of Taxes and have, withing the time and manner prescribed by law, paid over to the proper governmental authorities all
amounts so withheld. All tax returns filed by Sellers are true, correct and complete. None of the Assets is property that is required to be treated as being owned by any other person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(h) of the Internal Revenue Code of 1954, and none of the Assets is "tax-exempt use" property within the meaning of Section 103(a) of the Internal Revenue Code. Sellers are not "foreign persons" as defined in Internal Revenue Code Section 1445
(f)(3). Schedule 3.13 sets forth the taxing authorities to which notification of any of the transactions contemplated by this Agreement must be made or which require the Buyer to withhold any portion of the Mine Purchase Price. Sellers do not have any
liability pursuant to Section 6901 of the Internal Revenue Code or otherwise under applicable state or federal law by virtue of the acquisition by it of any of the Assets (or interest or interests therein), and Buyer will not be subject to such liability
as a result of any of the transactions contemplated by this Agreement.
Section 3.14 Representations and Warranties Concerning CMC. CMC is a corporation duly incorporated and validly existing under the Laws of, and is authorized to exercise its corporate powers, rights and
privileges and is in good standing in, the State of Washington and has full corporate power to carry on its business as presently conducted.
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Section 3.15 Year 2000 Readiness. Except as delineated in Schedule 3.15, all of the hardware, software and firmware products (including embedded microcontrollers in non-computer equipment) which are
included in the Assets (the "Computer Systems") are (and will remain) Year 2000 Ready and will reliably operate the Assets into the Year 2000. None of the Computer Systems delineated on Schedule 3.15 are necessary for the reliable operation of the Assets
into the Year 2000 or if they are necessary, they will be made (and will remain) Year 2000 Ready prior to January 1, 2000. For purposes hereof, "Year 2000 Ready" shall mean a Computer System or component thereof has been determined to be suitable for
continued use into the year 2000, but is not necessarily Year 2000 Compliant, which implies fully correct date manipulations. Sellers have developed and will maintain and implement a plan to achieve Year 2000 Readiness using standard industry practices
and shall consult and cooperate with Buyer regarding such implementation during the period using standard industry practices.
Section 3.16 Real Property. The Owned Real Property, Real Property Leases, and Appurtenant rights constitute all the real property that is necessary for the ownership and operation of the Mine pursuant
to good industry practices and as of the Closing Date, Sellers will have good, valid and marketable title to all such real property free and clear of all liens, mortgages, deed, restrictions, charges, claims, pledges, security interests, equities and
encumbrances that could materially affect the value of such real property or the use of such real property in connection with the ownership and operation of the Mine.
Section 3.17 LLC Interests. The LLC Interests that Sellers will transfer to Buyer at the Closing constitute Sellers' entire interest in the LLC and the Assets.
Section 3.18 Liability. Prior to the Closing, the LLC has no direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, liability for Taxes, guaranty or endorsement
of any type, whether accrued, absolute, contingent, matured, unmatured, due or to become due or otherwise.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below:
Section 4.1 Organization and Corporate Power. Buyer is a corporation duly incorporated and validly existing under the Laws of, and is authorized to exercise its corporate powers, rights and
privileges and is in good standing in, the State of [Washington] and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform
the transactions on its part contemplated by this Agreement and all other agreements contemplated
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hereby.
Section 4.2 Authority and Enforceability. The execution, delivery and performance of this Agreement and any other agreements contemplated hereby and the consummation of the transaction
contemplated hereby and thereby have been duly authorized by the board of directors of Buyer; no other corporate act or proceeding on the part of Buyer is necessary to authorize this Agreement, any other agreement contemplated hereby, or the transactions
contemplated hereby and thereby. This Agreement has been, and each of the other agreements contemplated hereby will, as of the Closing, have been, duly executed and delivered by Buyer, and this Agreement constitutes, and each such other agreement when
executed and delivered will constitute, a valid and binding obligation of Buyer, enforceable against Buyer, in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding
may be brought.
Section 4.3 No Breach or Conflict. Subject to the provisions of Sections 4.4(a) and 4.4(b) below regarding private party and governmental consents, and except for compliance with the requirements
of the HSR Act and any regulatory or licensing Laws applicable to the businesses and assets represented by the Assets, the execution, delivery and performance by Buyer and the Buyer Subsidiaries of this Agreement and any other agreement contemplated
hereby do not: (a) conflict with or result in a breach of any of the provisions of the Charter Documents of Buyer or any Buyer Subsidiary; (b) contravene any Law or cause the suspension or revocation of any License presently in effect, which
affects or binds Buyer or any Buyer Subsidiary or any of their material properties; or (c) conflict with or result in a breach of or default under any material agreement or instrument to which Buyer or any Buyer Subsidiary is a party or by which it
or they or any of their properties may be affected or bound.
Section 4.4 Approvals.
(a) Except as set forth on Schedule 4.4(a), the execution, delivery and performance by Buyer and any Buyer Subsidiary of this Agreement and any
other agreement contemplated hereby do not require the authorization, consent or approval of any non-governmental third party.
(b) Except as set forth on Schedule 4.4(b), the execution, delivery and performance by Buyer and any Buyer Subsidiary of this Agreement and any
other agreement contemplated hereby do not require the authorization, consent, approval, certification, license or order of, or any filing with, any court or Governmental Body, necessary to consummate the transactions contemplated hereby and to permit
Buyer to acquire the LLC Interests and the LLC to acquire the Mine and to produce coal therefrom for sale.
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Section 4.5 Litigation. Except as set forth on Schedule 4.5, there are no actions, suits, claims or proceedings pending, or to Buyer's Knowledge, threatened against Buyer or any Buyer
Subsidiary likely to impair the consummation of the transactions contemplated thereby or otherwise material to such transactions or to Buyer or any Buyer Subsidiary, and Buyer is not aware of facts likely to give rise to such litigation.
Section 4.6 Brokers. Except as set forth on Schedule 4.6, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this
Agreement or the transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Buyer. Buyer shall be solely responsible for the payment of any such fee or commission to any Person
listed on Schedule 4.6.
Section 4.7 Exculpation. BUYER AGREES THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, THE ASSETS ARE BEING SOLD ON AN "AS IS" BASIS AND IN
"WITH ALL FAULTS" CONDITION, AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLERS MAKE NO WRITTEN OR ORAL REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE FITNESS, MERCHANTABILITY, OR SUITABILITY OF THE
ASSETS FOR ANY PARTICULAR PURPOSE OR THE OPERATION OF THE MINE BY BUYER.
Section 4.8 Financing. Buyer has liquid capital or committed sources therefor sufficient to permit it and the pertinent Buyer Subsidiaries, if any, and the LLC to perform timely its or their
obligations hereunder and under any other agreements contemplated hereby.
Section 4.9 No Knowledge of Sellers' Breach. Buyer has no Knowledge of any breach of any representation or warranty by Sellers or of any other condition or circumstance that would excuse Buyers
from their timely performance of its obligation hereunder. Buyer shall notify Sellers as promptly as practicable if any such information comes to its attention before Closing.
Section 4.10 Qualified for Licenses. To Buyer's Knowledge, Buyer and any pertinent Buyer Subsidiary and the LLC are, or by Closing will be, qualified to obtain any Licenses necessary for the operation
by Buyer, or such Buyer Subsidiary or the LLC of the Assets as of the Closing in substantially the same manner as the Assets are presently operated by Sellers.
Section 4.11 Buyer Subsidiaries.
(a) As of the Closing, each Buyer Subsidiary will be an entity duly organized, validly existing and in good standing under the laws of its state of
incorporation. Each Buyer Subsidiary will at the Closing have all requisite power and authority to carry on its
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business as then conducted and to own or lease and operate its properties and assets then owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby.
(b) The governing body of each Buyer Subsidiary and, if required, its shareholders or other owners, will have, by the date of the Closing, duly and
effectively authorized (i) the purchase of the LLC Interests to be purchased by such Buyer Subsidiary, and (ii) the execution, delivery and performance of this Agreement and any other agreements contemplated hereby and thereby to which such
Buyer Subsidiary is a party. No other organizational act or proceeding on the part of any Buyer Subsidiary, its governing body or its shareholders or other owners will be necessary to authorize this Agreement or any other agreement contemplated hereby or
the transactions contemplated hereby and thereby.
(c) This Agreement and all other agreements contemplated hereby and thereby to which any Buyer Subsidiary is a party will, as of the Closing, have
been duly executed and delivered by each such Buyer Subsidiary, and each such agreement, when executed and delivered will constitute, a valid and binding obligation of such Buyer Subsidiary, enforceable against such Buyer Subsidiary in accordance with its
terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought.
ARTICLE 5
COVENANTS OF EACH PARTY
Section 5.1 Efforts to Close.
(a) Reasonable Efforts. Subject to the terms and conditions herein provided including, without limitation, Articles 8 and 9 hereof, each
of the parties hereto agrees to take all reasonable actions and to do all reasonable things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby,
including the satisfaction of all conditions thereto set forth herein. Such action shall include, without limitation, exerting their reasonable efforts to obtain the consents, authorizations and approvals of all private parties and Governmental Bodies
whose consent is reasonably necessary to effectuate the transactions contemplated hereby, and effecting all other necessary registrations and filings, including, without limitation, filings under Laws relating to the transfer, reissuance or otherwise
obtaining of necessary Licenses, under the HSR Act and all other necessary filings with any Governmental Bodies. Sellers shall cooperate with Buyer's efforts to obtain the requisite Licenses and regulatory consents, provided Sellers shall not be obligate
to incur any liabilities or assume any obligations in connection therewith. Other than Buyer's and Sellers' obligations under Section 5.3, no party
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shall have any liability to the other parties if, after using its reasonable commercial efforts, it is unable to obtain any consents, authorizations or approvals necessary for such party to consummate the transactions contemplated hereby. As used herein,
the terms "reasonable efforts" or "reasonable actions" do not include the provision of any consideration to any third party, the commencement of litigation or the suffering of any economic detriment to a party's ongoing operations for the procurement of
any such consent, authorization or approval except for the costs of gathering and supplying data or other information or making any filings, the fees and expenses of counsel and consultants and the customary fees and charges of Governmental Bodies.
Sellers shall fully cooperate with Buyer regarding the making of offers of employment to employees of the Sellers whose principal work location is at the mine and Buyer's hiring of such employees. Furthermore, Sellers and Buyer shall execute and deliver
such other agreements, documents and instruments as are required to be delivered by such party at or prior to closing to effectuate the transactions contemplated by this Agreement.
(b) Control Over Proceedings. All analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party before any Governmental Body in connection with the approval of the transactions contemplated hereby shall be subject to the joint approval or disapproval and the joint control of Buyer and the Sellers, acting with
the advice of their respective counsel, it being the intent that the Parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analysis, appearance, presentation, memorandum,
brief, argument, opinion and proposal; provided that in the event of a disagreement concerning any such analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal, the determinations of the Sellers shall be controlling; and provided, further, that
nothing will prevent a party from responding to a subpoena or other legal process as required by law or submitting factual information in response to a request therefor. Each Party will promptly provide the other with copies of all written communications
from Governmental Bodies relating to the approval or disapproval of the transactions contemplated by this Agreement. The Sellers will promptly report to Buyer with respect to matters and events involving Governmental Bodies that could have a Material
Adverse Effect on the Assets or the LLC Interests and shall timely provide Buyer with copies of relevant documents and notices. Sellers shall consult and cooperate with Buyer in good faith in regard to such matters and events and incorporate Buyer's
suggestions where they deem reasonably and appropriate. Provided, however, nothing herein shall limit Buyer's ability to intervene or otherwise participate in regulatory proceedings related to the Assets or the LLC Interests.
Section 5.2 Post-Closing Cooperation. After the Closing, upon prior reasonable written request, each party shall cooperate with the other in furnishing records, information, testimony and other
assistance in connection with any inquiries, actions, audits, proceedings or disputes involving any of the parties hereto (other than in connection with disputes between the parties hereto) and based upon contracts, arrangements or acts of Sellers which
were in effect
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or occurred on or before Closing and which relate to the LLC Interests or the Assets, including, without limitation, arranging discussions with (and the calling as witness of) officers, directors, employees, agents, and representatives of the LLC, Buyer
and Buyer Subsidiaries. The requesting party shall in each instance be responsible for payment of any costs and expenses incurred by any other party in affording such cooperation, including any out-of-pocket expenses incurred by such party to third
parties; provided, however, that in no event shall the costs and expenses for which any such requesting party shall be liable include any wages or other benefits paid or provided by any such cooperating party to its officers, directors or employees.
Section 5.3 Expenses. Whether or not the transactions contemplated hereby are consummated, except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. Notwithstanding the foregoing:
(a) Costs associated with preliminary title reports and title insurance policies shall be borne by Sellers up to the costs that would have been
incurred had the title policies been standard coverage policies of title insurance, and the remaining costs, if any, including costs for extended coverage and any endorsements shall be borne by Buyer (except that any survey costs shall be borne by Sellers);
(b) All costs of the "Phase I" and "Phase II" environmental site assessments provided by Sellers to Buyer shall be borne by Sellers, and
except as specifically set forth herein, any additional environmental investigations shall be borne by Buyer;
(c) Documentary transfer taxes will be borne by Sellers, and recording costs and charges respecting real property will be borne by Buyer;
(d) All fees and charges of Governmental Bodies shall be borne by the party incurring the fee or charge, except that all fees and charges of
Governmental Bodies in connection with the transfer, issuance or authorization of any License shall be borne by Buyer; and
(e) All liabilities or obligations for Taxes in the nature of sales or use taxes or real estate excise taxes incurred as a result of the
contribution of the Assets to the LLC or the sale of the LLC Interests hereunder to Buyer shall be borne by Buyer.
(f) Each party will bear its own expenses in preparing regulatory filings (including without limitation its own HSR Act filings) and seeking
required consents and approvals.
All such charges and expenses shall be promptly settled between the parties at the Closing or
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upon termination or expiration of further proceedings under this Agreement, or with respect to such charges and expenses not determined as of such time, as soon thereafter as is reasonably practicable.
Section 5.4 Employees.
(a) Assumption of Collective Bargaining Agreements. CMC shall assign and the LLC and Buyer shall assume the obligations of the employer to
the employees at the Mine under the Collective Bargaining Agreement with the Operating Engineers, Local 612-B ("Union Employees").
(b) Transferred Employees. Buyer shall, no later than three months following the date of this Agreement, notify Sellers of the names of
employees not covered by the Collective Bargaining Agreement whose principal work location is at the Mine to whom Buyer will make offers of employment. Except as provided in this Agreement, such offers shall be on such terms as Buyer shall decide. Sellers
shall cooperate with Buyer regarding the making of such offers of employment and shall use reasonable efforts, within the meaning of Section 5.1(a), to facilitate the orderly hiring by Buyer of such employees. Employees of Sellers with a principal work
location at the Mine who accept Buyer's offer and who are not Union Employees ("Transferred Employees") shall commence employment with Buyer on the Closing Date.
(c) Nonsolication. Except to the extent that refraining from doing so would be inconsistent with the provisions of Collective Bargaining
Agreement, without the prior consent of Buyer, Sellers shall refrain and use their best efforts to cause any Affiliate to refrain, from offering or otherwise making available any employment or transfer from the date of this Agreement through the date that
is 12 months following the Closing Date to any employee whose principal work location is at the Mine as of the date of this Agreement.
(d) Benefits in General. Buyer shall provide the Transferred Employees with Benefit Plans that are comparable, in the aggregate, to the
Benefit Plans of Sellers covering them just prior to the Closing Date but are no less favorable than those provided by the Buyer to its similarly situated employees. Such Benefit Plans provided by Buyer shall include, but not be limited to, a defined
benefit pension plan and a group health plan that provides medical, dental, and vision coverage. The Transferred Employees and their dependents shall be eligible for immediate participation on the Closing Date in such group health plan of Buyer, with no
preexisting condition limitations. Amounts incurred prior to the Closing Date by the Transferred Employees and their dependents toward deductibles and out-of-pocket limits shall be counted by Buyer toward parallel limits under its Benefit Plans. Buyer
shall give credit to the Transferred Employees for service with Sellers for purposes of eligibility to participate and vesting under Buyer's defined benefit pension plan and any other retirement plans of Buyer and for purposes of benefit accruals under
Buyer's paid time off and
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other service-based welfare benefit plans. Buyer shall provide post-retirement welfare benefits to Transferred Employees and employees subject to the Collective Bargaining Agreement that are comparable to those provided to such employees under Sellers'
Benefit Plans.
(e) Transition of Pension Benefits. Sellers shall cause the PacifiCorp Retirement Plan to make available to each Transferred Employee and to
each Union Employee a lump sum distribution equal to the actuarial equivalent present value of the employee's accrued benefit under the terms of such plan as of the Closing Date. Buyer shall cause its defined benefit pension plan to accept, for a period
of 90 days beginning on the Closing Date, a direct rollover of the entire lump sum distribution elected by a Transferred Employee or Union Employee and to provide to each employee making such an election a life annuity benefit that is no less than the
life annuity benefit accrued under the PacifiCorp Retirement Plan as of the Closing Date, including any increases in compensation from the Closing Date to the date of the employee's termination of all employment with the controlled group of corporations
of which the Buyer is a member. The Purchase Price provided for in Section 2.6 of the Centralia Plant Purchase Agreement has been reduced by U.S. $1,000,000 in the aggregate for this Agreement and the Centralia Plant Purchase and Sale Agreement of even
date herewith, on account of the obligation described in the preceding sentence. If counsel to Buyer and counsel to Sellers agree there is a material risk that the provisions of this paragraph (e) will prevent Buyer's defined benefit pension plan from
qualifying under Section 401(a) of the Internal Revenue Code, the parties shall agree upon an alternative which achieves, in the opinion of an actuarial firm, substantially the same economic result for each party as well as affected employees. Such
actuarial firm shall be selected jointly by Buyer and Sellers or, if they cannot agree on such selection, by the actuarial firms selected by each of them.
(f) Severance. In the event a Transferred Employee is involuntarily terminated from employment with Buyer within two years after the Closing
Date, Buyer shall pay such Transferred Employee a severance benefit equal to an amount based on the employee's compensation level (the "Guideline Severance") plus an additional amount based on the employee's length of service (the "Service-Based
Severance). The Guideline Severance shall be determined under the following table based on the employee's annual base salary plus target annual bonus level in effect at the time of termination from employment with Buyer:
Base Salary Plus Target Bonus |
Severance Amount |
|
|
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The Service-Based Severance shall be one week of base salary for each year of service. For this purpose, year of service means the number of completed 12-month periods between the employee's original date of hire with Sellers and the date of employment
termination with Buyer.
(g) Workers' Compensation and Disability. Sellers shall retain the obligation to provide disability and workers compensation benefits with
respect to Mine employees who do not become employed by Buyer. Buyer shall provide disability and workers compensation benefits to Transferred Employees and Union Employees. In addition, Buyer shall use reasonable efforts, within the meaning of Section
5.1(a), to provide return-to-work opportunities for Mine employees for whom Sellers retained the obligation to provide disability and workers compensation benefits.
ARTICLE 6
ADDITIONAL COVENANTS OF SELLERS
Sellers hereby additionally covenants, promises and agrees as follows:
Section 6.1 Access. Provided that Buyer has complied with each and every provision thereof, Sellers shall, in accordance with the terms and subject to the conditions of that certain Auction
Protocols Agreement between Buyer and PacifiCorp, afford Buyer, and the counsel, accountants and other representative of Buyer, reasonable access, throughout the period from the date hereof to the Closing Date, to the Assets and the managerial and
technical personnel associated therewith and all the properties, books, contracts, commitments, and records included in the Assets which Sellers have in their possession or to which it has access in order to facilitate transition planning. Such records
shall include, but not be limited to, personnel records with respect to employees whose principal work location is at the Mine. Such access shall be afforded to Buyer after no less than 24 hours' prior written notice, during normal business hours and only
in such manner as not to disturb or interfere with the normal operation of Sellers. In addition, with the reasonable consent of Sellers, Buyer may make modifications to the Assets during the period prior to Closing at Buyer's sole cost and expense in
order to reduce the requirements for transition services under Section 6.8. Specifically, within 30 days of the date hereof, Buyer may submit a proposal for the replacement or upgrade of the materials system. Sellers' covenants under this Section are
made with the understanding that Buyer shall use all such information in compliance with all Laws. The foregoing notwithstanding, Buyer acknowledges and agrees that Buyer's access to the books and records of the Assets shall not include access to, and
Sellers shall not have any obligation to deliver to Buyer, any information concerning any alleged dispute or any pending litigation, investigation or proceeding involving Sellers or their Affiliates that is protected by or subject to the attorney-client
privilege, or the disclosure of which is restricted by an agreement entered into in connection with such dispute, litigation, investigation or proceeding or an order entered by any court.
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Section 6.2 Updating. Sellers shall notify Buyer of any changes or additions to any of Sellers' Schedules to this Agreement with respect to the Assets or Assumed Liabilities related thereto by
the delivery of updates thereof, if any, as of a reasonably current date before the Closing not later than three Business Days before the Closing. No such updates made pursuant to this Section shall be deemed to cure an inaccuracy of any representation or
warranty made in this Agreement as of the date hereof, unless Buyer specifically agrees thereto in writing nor shall any such notification be considered to constitute or give rise to a waiver by Buyer of any condition set forth in this Agreement. Without
limiting the generality of the foregoing, Sellers shall notify Buyer reasonably promptly of the occurrence of any material casualty, physical damage, destruction or physical loss respecting, or, to Sellers' Knowledge, material adverse change in the
physical condition of, the Mine, not including ordinary wear and tear and routine maintenance.
Section 6.3 Conduct Pending Closing. Before consummation of the transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Buyer shall
otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, and except for actions taken pursuant to Assumed Contracts, or which are required by law or arise from or are related to the anticipated transfer of the Assets, or
as otherwise contemplated by this Agreement or disclosed in Schedule 6.3 or another Schedule to this Agreement, Sellers shall:
(a) Operate and maintain the Assets only in the usual and ordinary course, materially consistent with practices followed before the execution of
this Agreement;
(b) Except as required by their terms, not amend, terminate, renew, or renegotiate any existing material Assumed Contract or enter into any new
Assumed Contract, except in the ordinary course of business and consistent with practices of the recent past, or default (or take or omit to take any action that, with or without the giving of notice or passage of time, would constitute a default) in any
of its obligation under any such contracts;
(c) Not: (i) sell, lease, transfer or dispose of, or make any contract for the sale, lease, transfer or disposition of, the LLC Interests or
any assets or properties which would be included in the Assets, other than sales in the ordinary course of business which would not individually, or in the aggregate, have a Material Adverse Effect upon the operations or value of the Mine or the LLC
Interests; (ii) incur, assume, guaranty, or otherwise become liable in respect of any indebtedness for money borrowed which would result in the LLC or Buyer assuming such liability hereunder after the Closing; (iii) delay the payment and
discharge of any liability which, upon Closing, would be an Assumed Liability, because of the transactions contemplated hereby; or (iv) encumber or voluntarily subject to any lien any Asset or LLC Interest (except for Permitted Encumbrances);
(d) Maintain in force and effect the material property and liability insurance
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policies related to the Assets;
(e) Subject to Section 6.2, not take any action which would cause any of Sellers's representations and warranties set forth in Article 3
to be materially false as of the Closing;
(f) Not make Capital Expenditures, other than those contemplated on Schedule 2.5(d)(i), which would, pursuant to the provisions of Section 2.5(d),
result in an upward adjustment of the Purchase Price pursuant to Section 2.5(d)(i) in excess of $1,000,000 in the aggregate, except for purchases under agreements in existence as of the date hereof that would constitute Assumed Liabilities as of such
date, Capital Expenditures set forth on Schedule 2.5(d)(i), or Capital Expenditures otherwise approved in writing by Buyer;
(g) Not (i) adopt any new plan or program for severance, continuation or termination pay for employees at the Mine, (ii) enter into any new
collective bargaining agreement or any amendment to the Collective Bargaining Agreement for employees at the Mine, (iii) increase benefits payable under any Benefit Plan, (iv) increase compensation payable to employees at the Mine, (v) represent to any
employee at the Mine that Buyer would assume or continue to maintain any Benefit Plan after the Closing Date, or (vi) hire out or transfer any employees to or from the Mine unless essential to maintain the business or operations of the Mine.
Provided that nothing in this Section shall (i) obligate Sellers to make expenditures other than in the ordinary course of business and consistent with practices of the recent past or to otherwise suffer any economic detriment, (ii)
preclude Sellers from paying, prepaying or otherwise satisfying any liability which, if outstanding as of the Closing Date, would be an Assumed Liability or an Excluded Liability, (iii) preclude Sellers from incurring any liabilities or obligations
to any third party in connection with obtaining such party's consent to any transaction contemplated by this Agreement or any other agreement contemplated hereby, provided such liabilities and obligations under this clause (iii) shall be Excluded Liabilities pursuant to Section 2.4(h) hereof if not approved in advance by Buyer (which approval shall not be unreasonably withheld or delayed), (iv) preclude
Sellers from instituting or completing any program designed to promote compliance or comply with Laws or other good business practices respecting the Mine.
Section 6.4 Environmental Matters.
(a) Remediation of Existing Soils Contamination. Subject to the terms and conditions of this Agreement, including but not limited to the
terms and conditions of this Section, Sellers shall remain responsible for the cost and performance of Remediation Measures. In addition, subject to Section 6.4(b), the Sellers may undertake such Remediation Measures when and as they reasonably determine
are required under Environmental Law or
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which it otherwise reasonably believes are appropriate. Notwithstanding the foregoing, Sellers shall have no obligation to undertake Remediation Measures in respect of environmental conditions that are excluded from Sellers' Environmental Obligations by
virtue of the proviso to Section 1.1(y) and neither shall the Sellers have any responsibility for the cost or performance of Remediation Measures undertaken by the Buyer, any Buyer Subsidiary or any Affiliate of Buyer or of any Buyer Subsidiary, except to
the extent such costs are included in Losses (as defined in Section 12.3(a)) for which Buyer or such Buyer Subsidiary is entitled to indemnification under Article 12. With respect to any Remediation Measure undertaken by Sellers pursuant to the first
sentence of this paragraph, Sellers shall be deemed to have discharged such undertaking and its obligation with respect thereto whenever it has paid the cost of such Remediation Measure and it has either received written notice from the pertinent
Governmental Body or Bodies that no further material Remediation Measures are then required with respect to the Existing Soils Contamination in question or, if such Governmental Body or Bodies have not responded within a reasonable time to Sellers'
request for such written notice, whenever Sellers has reasonably and in good faith determined that no such further material Remediation Measures are then required.
(b) Performance of Work. Before commencing any Remediation Measures after the Closing or presenting after the Closing any plan for
Remediation Measures to any Governmental Body having jurisdiction over such Remediation Measures or to any Person making a Third Party Claim for which Sellers is responsible under the provisions of Article 12, the Sellers shall meet and consult with
Buyer in good faith concerning such Remediation Measures or plan, as the cases may be. In connection with the performance of any Remediation Measures by Sellers, the Sellers shall:
(i) Provide Buyer with reasonable notice of any meetings
with any such Governmental Body or any such other Person to afford Buyer or
its representatives the right to participate in such meetings, and provide Buyer
with copies of all correspondence and documents (hard copy or electronic) to
and from such Governmental Body or other Person;
(ii) Provide the Buyer with a reasonable opportunity to
preview and comment upon any submissions the Sellers plan to deliver or
submit to any such Governmental Body or any such other Persons and
incorporate Buyer's requests which are reasonably justified to avoid adverse
impact in accordance with paragraph (iii) below;
(iii) Meet and consult with the Buyer in good faith over the
time, manner and conditions for the completion of the Remediation Measures,
so as to avoid, to the extent reasonably practicable and consistent with the
effective, economical, efficient and timely completion of the Remediation
Measures, unreasonable interference with business conducted or planned to be
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conducted at the site in question;
(iv) Except to the extent that exigencies require shorter or no
notice, provide the Buyer with five business Days' prior notice (which may be
oral) of material action to be taken at the site in question in connection with
Remediation Measures undertaken by Sellers, and permit Buyer the opportunity
to have its representatives present to observe such Remediation Measures and
take and/or receive from Sellers samples of removed and adjacent materials;
(v) Properly dispose of all Hazardous Materials removed
from the soil or groundwater of the site in question in connection with such
Remediation Measures, Sellers hereby agreeing that it shall be deemed to be the
"owner," "operator," "generator," or other Person responsible for "arranging
for the transportation" of such Hazardous Materials and "in charge" of the
"facility" for such purposes, as such terms are defined in applicable
Environmental Laws, and further agreeing that no such removed Hazardous
Materials shall be stored on any real estate included in the Assets for longer than
is reasonably necessary (which may, if necessary, include time to characterize
such materials and arrange for disposal);
(vi) Defend and protect the site in question, and indemnify the
LLC (from and after the Closing), Buyer, any applicable Buyer Subsidiary and
any applicable lender from the imposition of any lien of contractors and
subcontractors performing work in connection with the Remediation Measures;
(vii) Be responsible for, and indemnify, defend and protect the
LLC (from and after the Closing), Buyer and any applicable Buyer Subsidiary
against, any property damage or personal injury incurred by the LLC (from and
after the Closing), Buyer or such Buyer Subsidiary or any other Person as a
result of Remediation Measures conducted by or under the auspices of Sellers
except to the extent that such damage or injury is caused by or results from or
arise out of any negligence or intentional misconduct of the LLC (from and after
the Closing), Buyer or any Buyer Subsidiary; and
(viii) After completion of any remediation project, make
reasonable efforts to restore the surface of the site involved to a condition
substantially similar to its condition before the performance of the Remediation
Measures, subject to any intervening changes in surface conditions not caused
by such Remediation Measures.
(ix) Retain a reputable environmental consulting firm for the purpose
of consulting upon such Remediation Measures;
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(x) Comply with all applicable Law, including Laws relating
to worker safety; and
(xi) Permit the Buyer to have one or more representatives
present to observe physical work conducted at the Mine or Owned Real
Properties in the course of carrying out such Remediation Measures, and
provide Buyer with reasonable access to and copies of records concerning the
performance of such physical work, including copies of all correspondence to
and from pertinent Governmental Bodies.
(c) Buyer Covenants. With respect to Sellers' rights and obligations in respect of Remediation Measures, Buyer agrees as follows:
(i) It will grant to Sellers any easements or licenses (in
recordable form, and in form and substance reasonably acceptable to Sellers or
as required by governmental bodies) allowing Sellers and its representatives and
agents, at any time, to enter upon the real property included in the Assets after
reasonable notice and shall have reasonable use of all facilities or equipment
located thereon and to install equipment for the purpose of performing the
Remediation Measures and carrying out its rights and obligations under this
Section 6.4, and it will not relocate, disturb or interfere with such equipment or
the performance of such Remediation Measures in compliance with the
provisions of this Section 6.4;
(ii) It will provide Sellers and their representatives and agents
with reasonable access to environmental and other relevant records respecting
the site for the purpose of carrying out such Remediation Measures subject to
reasonable confidentiality agreements and will provide Sellers with copies of all
material correspondence and communications with Governmental Bodies about
Existing Soils Contamination and Remediation Measures or otherwise pertaining
to Sellers' Environmental Obligations;
(iii) It will not submit, or cause to be submitted, to any
Governmental Body any information or comments concerning any Existing Soils
Contamination or Remediation Measures undertaken by Sellers except for
information routinely submitted to Governmental Bodies or as may be otherwise
required by Law nor will it urge a Governmental Body to require more
expensive or stringent remediation than reasonably required to protect health or
the environment; and
(iv) It will consult with Sellers in good faith before extracting,
excavating or removing any soil or groundwater at the Mine or otherwise disturbing or
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disrupting the same and will otherwise make reasonable efforts to avoid taking any
action, and will take reasonable steps to cause others to avoid taking any action, that
will increase or accelerate any of Sellers' Environmental Obligations hereunder
including with respect to Remediation Measures, it being understood, however that
nothing herein shall prohibit Buyer from engaging in any modifications of the Assets
which Buyer deems desirable.
Section 6.5 Curing of Title Defects. Sellers shall seek diligently to cure prior to Closing any material defects in title to the real property other than those permitted by clauses (a), (b) and
(c) of Section 8.6, provided Sellers shall not be obligated to expend in the aggregate more than $1,000,000 in connection with effecting any such cures. In addition, Sellers shall remove of record on or before Closing any liens, defects or encumbrances
which evidence or secure any obligations for payment of money, without regard to the limitations set forth in the previous sentence.
Section 6.6 COBRA. Sellers agree to retain the obligation to provide continuation coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act, as amended ("COBRA"),
for any individual with respect to whom a "qualifying event", as defined under COBRA, has occurred on or prior to the Closing Date.
Section 6.7 WARN Act. As of the Closing Date Sellers shall terminate the employment of all employees whose principal work location is at the Mine. Sellers agree to be responsible for giving
notice of such termination under the WARN Act and to be solely responsible for all wages and compensation earned or accrued prior to the Closing Date or payable on account of termination, including without limitation any amount attributable to the period
for which a WARN Act notice was required but not given.
Section 6.8 Transition Services. Sellers agree to provide the transition services delineated on Schedule 6.8 for a period up to 90 after the Closing Date with all reasonable expenses paid by Buyer.
Section 6.9 Benefit Plans.
(a) With respect to any Transferred Employee or Union Employee who meets the age and service requirements for eligibility for benefits under the retiree welfare benefit plans of CMC or the retiree medical, dental,
life insurance or vision plans of PacifiCorp, as applicable (referred to in the aggregate as "Retiree Benefit Plans"), as of the Closing Date or who will meet such age and service requirements before the end of the current term of the Collective
Bargaining Agreement covering such employee ("Eligible Employees"), Buyers shall provide, and shall recover the cost of providing benefits to Eligible Employees as set forth in (b) below. Sellers shall retain the obligation of providing benefits to former
employees who have retired prior to the Closing Date.
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(b) Buyer shall assume the obligation of Sellers to provide benefits under the Retiree Benefit Plans to Eligible Employees. The Purchase Price under Section 2.6 of the Centralia Plant Purchase and Sale Agreement
has been reduced by U.S. $1,100,000 in the aggregate for this Agreement and for the Centralia Plant Purchase and Sale Agreement of even date herewith. Buyer shall indemnify and hold harmless Sellers from any claim by such Eligible Employees for benefits
provided by the Retiree Benefit Plans.
ARTICLE 7
ADDITIONAL COVENANTS OF BUYER
Section 7.1 Waiver of Bulk Sales Law Compliance. Subject to the indemnification provisions of Section 12.3(a)(iii) hereof, Buyer hereby waives compliance by Sellers with the requirements, if any,
of Article 6 of the Uniform Commercial Code as in force in any state in which Assets are located and all other similar Laws applicable to bulk sales and transfers.
Section 7.2 Resale Certificate. Buyer agrees, and will cause each Buyer Subsidiary, to furnish to Sellers any resale certificate or certificates or other similar documents reasonably requested by
Sellers to comply with pertinent sales and use tax Laws.
Section 7.3 Conduct Pending Closing. Before consummation of the transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Sellers shall
otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, and except for actions which are required by Law or arise from or are related to the anticipated transfer of the LLC Interest and the Assets, Buyer shall not take
any action which would cause any of Buyer's representations and warranties set forth in Article 4 to be materially false as of the Closing.
Section 7.4 Securities Offerings. Buyer hereby agrees to indemnify and hold harmless Sellers, and the Affiliates of Sellers, in accordance with the provisions of Section 12.4(a)(ii), against any
and all Losses, as incurred, arising out of the offer or sale by Buyer or any Buyer Subsidiary of securities, except to the extent that such Loss arises from any untrue statement or alleged untrue statement of a material fact contained in any such
securities offering materials or prospectus used by Buyer or any Buyer Subsidiary or its or their representatives, or from the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, which untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with written information furnished to Buyer by Sellers under a cover letter from
Sellers's counsel stating that such information is expressly for use in such offering materials or prospectus.
Section 7.5 Release. Without limiting Sellers' obligations hereunder or under any other agreement contemplated hereby, including without limitation its obligations under
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Section 6.4 and Article 12, Buyer on behalf of itself and each Buyer Subsidiary hereby waives its right to recover from Sellers, and forever releases and discharges and indemnifies and holds harmless Sellers, from and against any and all
damages, claims, losses, liabilities, penalties, fines, liens, judgments, costs, or expenses whatsoever (including, without limitation, attorneys' fees and costs), whether direct or indirect, known or unknown, foreseen or unforseen, that may arise on
account of or in any way be connected with the application of any Environmental Law to Sellers's ownership, possession, use or operation of the Assets.
ARTICLE 8
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the transactions contemplated with respect to the LLC Interests, the Mine and the Assets and Assumed Liabilities related thereto shall be subject to fulfillment at or before the Closing
of the following conditions, unless Buyer waives in writing such fulfillment.
Section 8.1 Performance of Agreement. Sellers shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or before the
Closing.
Section 8.2 Accuracy of Representations and Warranties. The representations and warranties of Sellers set forth in Article 3 of this Agreement shall be true in all material respects as to
the LLC Interests or the Assets in question and as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured as of the Closing) and as of the Closing (as updated by the
revising of Schedules contemplated by Section 6.2) as if made as of such time, provided that any such update shall not have disclosed any change in the physical condition, ownership, or transferability of the LLC Interests or the Assets that would
have a Material Adverse Effect on the LLC Interests or the Assets.
Section 8.3 Officers' Certificate. Buyer shall have received from Sellers an officers' certificate, executed on behalf of each Sellers by its chief executive officer, president, general manager,
chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the Knowledge of such individual, the conditions in Sections 8.1 and 8.2 above have been met with respect to such Sellers.
Section 8.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated, and all approvals, consents, authorizations and waivers from Governmental Bodies as set forth on
Schedule 4.4(b) and all approvals, consents, authorizations and waivers from other third parties (collectively "Approvals") required for Sellers to transfer the Assets to the LLC and Buyer to purchase the LLC Interests and operate the Mine materially
in accordance with the manner in which it was operated by Sellers before the Closing, shall have
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been obtained.
Section 8.5 No Restraint. There shall be no:
(a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or Governmental Body which directs that the
transactions contemplated hereby shall not be consummated as herein provided or compels or would compel Buyer to dispose of or discontinue, or materially restrict the operations of, the Mine or any significant portion of the Assets or the LLC Interests
with respect thereto as a result of the consummation of the transactions contemplated hereby;
(b) Suit, action or other proceeding by any Governmental Body pending or threatened (pursuant to a written notification), wherein such complainant
seeks the restraint or prohibition of the consummation of the transactions contemplated hereby or seeks to compel, or such complainant's actions would compel, Buyer to dispose of or discontinue, or materially restrict the operations of, the Mine or any
significant portion of the Assets or the LLC Interests as a result of the consummation of the transactions contemplated hereby; or
(c) Action taken, or Law enacted, promulgated or deemed applicable to the transactions contemplated hereby, by any Governmental Body which would
render the purchase and sale of the LLC Interests illegal or which would threaten the imposition of any penalty or material economic detriment upon Buyer if such purchase and sale were consummated;
provided that the Parties shall use their reasonable efforts to litigate against, and to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, Law or penalty.
Section 8.6 Title Insurance. Title to Assets comprised of interests in real property shall have been evidenced by the willingness (evidenced as set forth below) of Stewart Title Company (or an
Affiliate thereof) or other title company mutually acceptable to the parties (the "Title Insurer") to issue at regular rates ALTA owner's, or lessee's, as the case may be, extended coverage policies of title insurance (1990 Form B) (the "Title
Policies"), with the general survey and creditors' rights exceptions removed, in amounts equal to the respective portions of the Mine Purchase Price allocated to such interests, showing title to such interests in such real property vested in the LLC
subject to transfer of such interest to the LLC; provided, however, that (1) if Sellers cannot obtain such title policies for the severed mineral interests at the Mine on commercially reasonable terms despite the Sellers' best efforts to do so, Sellers
may deliver a limited liability report or comparable report that provides the best protection other than a title policy that the Title Insurer is willing to issue with respect to the severed mineral interests at the Mine; and (2) if the costs of
completing a general survey are not commercially reasonable or the general survey cannot be reasonably completed before the
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Termination Date, Sellers may, with Buyer's prior written consent, undertake a more limited survey with appropriate adjustments in the scope of the title insurance coverage. Such Title Policies shall show title vested in the LLC, subject only to:
(a) A lien or liens to secure payment of real estate taxes not delinquent;
(b) Exceptions disclosed by the current standard ALTA Preliminary Title Reports and surveys, delivered to and approved (except as shown on Schedule
8.6(b)) by Buyer before the Closing Date (as indicated by Buyer's signature of approval appended thereto);
(c) Matters created by, or with the consent of, Buyer; and
(d) Other possible matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or
intended use of such real property, including such minor matters as may be disclosed by surveys taken after the date hereof.
The willingness of the Title Insurer to issue the Title Policies shall be evidenced either by the issuance thereof at the Closing or by the Title Insurer's delivery of written commitments or binders, dated as of the Closing, to issue such Title Policies
within a reasonable time after the Closing Date, subject to actual transfer of the real property in question. If the Title Insurer is unwilling to issue any such Title Policy, it shall be required to provide Buyer and Sellers, in writing, notice setting
forth the reason(s) for such unwillingness as soon as practicable. Sellers shall have the right to seek to cure any defect which is the reason for such unwillingness, and to extend the Closing and the Termination Date, if necessary, for a period of up to
ten Business Days to provide to Sellers the opportunity to cure. In the event that, despite Sellers's efforts to cure, the Title Insurer remains unwilling to issue any such Title Policy on the Closing Date (as may be extended as provided herein), then
Buyer, at its option, may terminate this Agreement. Notwithstanding the foregoing, Buyer may elect to cause the LLC to accept such title to any such property interests as the Sellers may be able to convey, and such title insurance with respect to the same
as the Title Insurer is willing to issue, in which case such interests shall be conveyed as part of the Assets without reduction of the Purchase Price or any credit or allowance against the same and without any other liability on the part of Sellers.
Section 8.7 Casualty; Condemnation.
(a) Casualty. If any part of the Mine is damaged or destroyed (whether by fire, theft, vandalism or other casualty) in whole or in part
before the Closing, and the fair market value of the damaged Assets or destruction or the cost of repair of the Assets that were damaged, lost or destroyed is less than 15 percent of the aggregate Mine Purchase Price, the Sellers shall, at its option,
either (i) reduce the Mine Purchase Price by the lesser of the fair
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market value of the Assets damaged or destroyed (such value to be determined as of the date immediately before such damage or destruction), or the estimated cost to repair or restore the same, (ii) upon the Closing, transfer the proceeds or the
rights to the proceeds of applicable insurance to Buyer, provided that the proceeds or the rights to the proceeds are obtainable without delay and are sufficient to fully restore the damaged Assets, or (iii) repair or restore such damaged or
destroyed Assets and, at Sellers' election, delay the Closing and the Termination Date for a reasonable time necessary to accomplish the same. If any part of the Assets related to the Mine are damaged or destroyed (whether by fire, theft, vandalism or
other cause or casualty) in whole or in part before the Closing and the lesser of the fair market value of such Assets or the cost of repair is greater than 15 percent of the aggregate Mine Purchase Price, then Buyer may elect to terminate this Agreement
or require Sellers upon the Closing to transfer the proceeds (or the right to the proceeds) of applicable insurance to Buyer and Buyer may restore or repair the Assets.
(b) Condemnation. From the date hereof until the Closing, in the event that any material portion of the Mine becomes subject to or is
threatened with any condemnation or eminent domain proceedings, then Buyer, at its option, may, (i) if such condemnation, if successful, would not practically preclude the operation of the balance of the Mine for the purposes for which it was
intended, elect to terminate this Agreement with respect only to that part which is condemned or threatened to be condemned with a reduction in the Purchase Price determined as provided in Section 8.7(a) above, or (ii) if such condemnation, if
successful, would practically preclude the operation of the balance of the Mine for purposes for which it is intended, elect to terminate this Agreement.
Section 8.8 Opinion of Counsel. Buyer shall have received, on and as of the Closing Date, a customary closing opinion of counsel for Sellers, subject to customary conditions and limitations.
Section 8.9 Receipt of Other Documents. Buyer shall have received the following:
(a) Certified copies of the resolutions of Sellers' board of directors or governing bodies respecting this Agreement and any other agreement
contemplated hereby;
(b) Certified copies of each Sellers' Charter Documents, together with a certificate of the corporate secretary of each Sellers that none of such
documents have been amended;
(c) One or more certificates as to the incumbency of each officer of Sellers who has signed this Agreement, any other agreement contemplated hereby,
or any certificate, document or instrument delivered pursuant to this Agreement or any other agreement contemplated hereby;
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(d) A good standing certificate for Sellers from the Secretary of State of Oregon, dated as of a date not earlier than 15 Business Days before the
Closing Date; and
(e) Copies of all current Licenses relevant to operation of the Mine and all third party and Governmental Body consents, permits and authorizations
that Sellers has received in connection with this Agreement, any other agreement contemplated hereby and the transactions contemplated hereby and thereby to occur at the Closing; and
(f) All other documents, instruments and writings required to be delivered to Buyer at or before Closing pursuant to the Agreement and such other
certificates of authority and documents as Buyer reasonably requests.
Section 8.10 Limitation on Adjustments. There shall not have been an increase to the Mine Purchase Price arising under Section 2.5(d) exceeding in the aggregate 5 percent of the aggregate Mine Purchase
Price.
Section 8.11 Plant Sale. The Closing of the sale of the Centralia Steam Electric Generating Plant to Buyer or an Affiliate of Buyer shall have occurred.
Section 8.12 Material Adverse Effect. There shall not have been an impairment of any Asset or LLC Interest as a result of a degradation of its physical condition, a change in Law or provision of any
approval that could reasonably be expected to have a Material Adverse Effect on the LLC Interests or Buyer's ability to operate the Mine.
Section 8.13 Real Property. Title reports and surveys shall have established that the Owned Real Property, the Real Property Leases and the Appurtenant Rights constitute all the real property that is
necessary for the ownership and operation of the Mine pursuant to good industry practices and that Sellers have good, valid marketable title to all such real property free and clear of all liens, mortgages, deed restrictions, charges, claims, pledges,
security interests, equities and encumbrances that could materially affect the value of such real property or the use of such real property in connection with the ownership and operation of the Mine.
Section 8.14 LLC Contribution. Sellers shall have contributed, transferred, conveyed and assigned all right, title and interest in the Assets to the LLC.
ARTICLE 9
SELLERS' CONDITIONS TO CLOSING
The obligations of Sellers to consummate the transactions contemplated hereby with respect to the LLC Interests, the Mine and the Assets and Assumed Liabilities related thereto shall be subject to the fulfillment at or before
the Closing of the following conditions, unless
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Sellers waives in writing such fulfillment.
Section 9.1 Performance of Agreement. Buyer shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or before the
Closing.
Section 9.2 Accuracy of Representations and Warranties. The representations and warranties of Buyer set forth in Article 4 of this Agreement shall be true in all material respects as of the
date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Closing) and as of the Closing as if made as of such time.
Section 9.3 Officers' Certificate. Sellers shall have received from Buyer an officers' certificate, executed on Buyer's behalf by its chief executive officer, president, chief financial officer
or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the Knowledge of such individual, the conditions in Sections 9.1 and 9.2 above have been met.
Section 9.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated, and all approvals, consents, authorizations and waivers from Governmental Bodies (as delineated
on Schedule 3.3(b)) shall have been obtained in form and substance (including the regulatory treatment and financial impacts thereof) satisfactory to Sellers in its reasonable discretion. All approvals, consents, authorizations and waivers from other
third parties required for Sellers to transfer the Assets to the LLC and for Buyer to purchase the LLC Interests shall have been obtained.
Section 9.5 No Restraint. There shall be no:
(a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or Governmental Body which directs that the
transactions contemplated hereby shall not be consummated as herein provided;
(b) Suit, action or other proceeding by any Governmental Body pending or threatened (pursuant to a written notification), wherein such complainant
seeks the restraint or prohibition of the consummation of the transactions contemplated hereby or otherwise constrains consummation of such transactions on the terms contemplated herein; or
(c) Action taken, or Law enacted, promulgated or deemed applicable to the transactions contemplated hereby, by any Governmental Body which would
render the purchase and sale of the LLC Interests, the Mine and related Assets illegal or which would threaten the imposition of any penalty or material economic detriment upon Sellers if such transactions were consummated;
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provided that the Parties will use their reasonable efforts to litigate against, and to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, law or penalty.
Section 9.6 Opinion of Counsel. Sellers shall have received, on and as of the Closing Date, a customary closing opinion of outside counsel to Buyer, subject to customary conditions and limitations.
Section 9.7 Receipt of Other Documents. Sellers shall have received the following:
(a) Certified copies of the resolutions of Buyer's and each pertinent Buyer Subsidiary's board of directors respecting this Agreement, any other
agreements contemplated hereby and the transactions contemplated hereby and thereby, together with certified copies of any shareholder resolutions which are necessary to approve the execution and delivery of this Agreement and any other agreement
contemplated hereby, or performance of the obligations of Buyer and each pertinent Buyer Subsidiary hereunder and thereunder;
(b) Certified copies of Buyer's and each pertinent Buyer Subsidiary's Charter Documents, together with a certificate of the corporate secretary of
Buyer and each pertinent Buyer Subsidiary that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each officer of Buyer and each pertinent Buyer Subsidiary who has signed this Agreement, any
other agreement contemplated hereby or any certificate, document or instrument delivered pursuant to this Agreement or any other agreement contemplated hereby;
(d) Copies of all current Licenses of Buyer and each pertinent Buyer Subsidiary relevant to operation of the Mine and all third party and
governmental consents, permits and authorizations that Buyer and each pertinent Buyer Subsidiary has received in connection with this Agreement and any other agreements contemplated hereby;
(e) All other documents, instruments and writings required to be delivered to Sellers at or before Closing pursuant to the Agreement and such other
certificates of authority and documents as Sellers reasonably requests;
(f) Closing shall have occurred in regard to sale of the Centralia Steam Electric Generating Plant to Buyer or an Affiliate of Buyer; and
(g) The OSM shall have approved the assignment of PacifiCorp's Surface Mining Coal Reclamation Act permit related to the operation of the Mine to
the Buyer.
Section 9.8 Limitation on Adjustments. There shall not have been a reduction to the
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Mine Purchase Price arising from Sections 8.7 exceeding in the aggregate 30 percent of the aggregate Mine Purchase Price.
Section 9.9 Guarantee Agreement. A Guarantee Agreement substantially in the form set forth in Schedule 9.9 shall have been executed and delivered to Sellers and be in full force and effect.
ARTICLE 10
CLOSING
Section 10.1 LLC Transaction. If, as of the first day that the Closing may occur pursuant to Section 10.2, the Washington Ruling has been issued, immediately prior to the Closing Sellers shall, and
shall cause the LLC to, take all actions necessary to consummate, and shall consummate, the transactions described in the Washington Ruling in order to allow the Buyer to obtain the Washington State sales tax benefits contemplated thereby (collectively,
the "LLC Transaction"). Without limiting the generality of the foregoing, the parties agree that (a) immediately prior to the Closing, all of the Assets will be contributed by the Sellers to the LLC in exchange for all the membership interests in the
LLC; and (b) from and after the Closing, the LLC shall jointly and severally with Buyer assume and pay, discharge and perform when due, the Assumed Liabilities. If at such time the Washington Ruling has not issued, the parties shall promptly
negotiate in good faith amendments to this Agreement that will provide for the conveyance of the Assets by the Sellers directly to the Buyer with such amended Agreement being substantially in the form of the Other Form of Agreement. The Parties will
endeavor to execute such amended Agreement prior to the last date the Closing may occur pursuant to Section 10.2. In no event, however, shall the failure of the Washington Ruling to timely issue or the failure of the Parties to amend this Agreement be a
condition to Closing hereunder.
Section 10.2 Closing. Subject to the terms and conditions hereof, the consummation of the transactions contemplated hereby (the "Closing") shall occur simultaneously with the closing of the sale of the
Centralia Steam Electric Generating Plant pursuant to the Centralia Plant Purchase and Sale Agreement of even date herewith at the offices of Stoel Rives LLP in Portland, Oregon, or a mutually agreeable place or places within five Business Days after all
of the conditions set forth in Article 8 and Article 9 hereof have been satisfied or waived or at such other time as the parties may agree, but in no event later than the Termination Date. The date on which the Closing actually occurs is
referred to herein as the "Closing Date". The Closing shall be effective for all purposes at 11:59 p.m., Pacific time, on the Closing Date. At the Closing and subject to the terms and conditions hereof, the following will occur:
(a) Deliveries by Sellers. Sellers shall deliver to the LLC such instruments of transfer and conveyance properly executed and acknowledged by
Sellers in customary form mutually agreed to by the Sellers and Buyer necessary to transfer to and vest in the LLC all of
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Sellers's right, title and interest in and to the Assets or which may be required by the Title Insurer, including, without limitation:
(i) Bills of sale and assignment in respect of the Assets;
(ii) Grant deeds properly executed and acknowledged by Sellers with
respect to each of the Owned Real Property included in the Assets;
(iii) Assignment and assumption agreements properly executed and
acknowledged by Sellers with respect to each Real Property Lease included in the
Assets;
(iv) Instruments of transfer, sufficient to transfer personal property
interests that are included in the Assets but not otherwise transferred by the bills of sale
and assignment referred to in clause (i) above, properly executed and acknowledged in
the form customarily used in commercial transactions in Washington; and
(v) Possession of the Assets which shall include without limitation,
keys, codes, passcodes and/or combinations to all locks and vehicles.
(b) Sellers shall deliver to Buyer an assignment of all of the interests in the LLC.
(c) Deliveries by Buyer. Buyer shall, or shall cause the Buyer Subsidiaries to, deliver to Sellers immediately available funds, by way of
wire transfer to an account or accounted designated by Sellers, in an aggregate amount equal to the Mine Purchase Price and such instruments of assumption properly executed and acknowledged by Buyer and the pertinent Buyer Subsidiaries in customary form
mutually agreed to by Buyer and Sellers necessary for the LLC and Buyer to assume the Assumed Liabilities, including, without limitation:
(i) Assignment and assumption agreements properly executed and
acknowledged by the LLC with respect to each Real Property Lease included in the
Assets;
(ii) An assumption agreement or assumption agreements in favor of
Sellers; and
(iii) Substitute, at the expense of Buyer or the applicable Buyer
Subsidiary, a replacement reclamation bond or bonds in the name of the LLC, Buyer or
the Buyer Subsidiary to which the OSM Permit will be transferred and cooperate with
Sellers in securing OSM's full release of any reclamation bond posted by Sellers with
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respect to the Mine.
Section 10.3 Escrow. If either the Buyer or the Sellers desire to consummate the Closing through an escrow, an escrow shall be opened with, and the escrow agent shall be, the Title Insurer or an
Affiliate thereof (the "Escrow Agent"), by depositing a fully executed copy of this Agreement with the Escrow Agent to serve as escrow instructions. This Agreement shall be considered the primary escrow instructions between the parties, but the parties
shall execute such additional standard escrow instructions as the Escrow Agent shall require in order to clarify the duties and responsibilities of the Escrow Agent. In the event of any conflict between this Agreement and such additional standard escrow
instructions, this Agreement shall prevail. If the Closing is to be consummated through the Escrow Agent, the parties shall deliver the funds, instruments of sale, assignment, conveyance and assumption called for by Sections 10.1 and 10.2 to the
Escrow Agent, and on the Closing Date, the Escrow Agent shall close the escrow by:
(a) Causing the deeds for the Owned Real Property, the assignment of the Real Property Leases, and any other documents which the parties may
mutually designate to be recorded in the official records of the appropriate counties in which the pertinent Assets are located;
(b) Delivering to PacifiCorp by wire transfer of immediately available funds, to an account or accounts designated by PacifiCorp, the amounts called
for Section 10.2; and
(c) Delivering to Buyer or Sellers, as the case may be, the other instruments referred to in Section 10.2.
Section 10.4 Prorations. Items of expense and income (if any) affecting the Assets and the Assumed Liabilities that are customarily pro-rated, including, without limitation, real and personal property
taxes, utility charges, charges arising under leases, insurance premiums, and the like, shall be pro-rated between Sellers and Buyer and the pertinent Buyer Subsidiaries as of the Closing Date.
ARTICLE 11
TERMINATION
Section 11.1 Termination. Any transactions contemplated hereby that have not been consummated may be terminated:
(a) At any time, by mutual written consent of the Sellers and Buyer; or
(b) By either Buyer or the Sellers, as the case may be, upon 30 days' written notice given any time after (i) the issuance of an order by a
Governmental Body in a manner
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that fails to meet the conditions of the terminating party set forth in Sections 8.4 or 9.4, as the case may be, (ii) 180 days have elapsed from the filing after the date hereof of all applications for approval of this Agreement and the transactions
contemplated hereby by Governmental Bodies and a final order has not been obtained with respect to each such Application, it being understood that such 180-day period shall not include any period after such order during which applications for rehearing or
modification or judicial appeals or remedies are pending; or
(c) By one Party upon written notice to the other if there has been a material default or breach under this Agreement by another party which is not
cured by the earlier of the Closing Date or the date 30 days after receipt by the other party of written notice from the terminating party specifying with particularity such breach or default; or
(d) By either Buyer or the Sellers upon written notice to the other Party, if (i) the Closing shall not have occurred by the Termination Date;
or (ii) (A) in the case of termination by the Sellers, the conditions set forth in Article 9 for the Closing cannot reasonably be met by the Termination Date and (B) in the case of termination by Buyer, the conditions set forth in
Article 8 for the Closing cannot reasonably be met by the Termination Date, unless in either of the cases described in clauses (A) or (B), the failure of the condition is the result of the material breach of this Agreement by the party seeking to
terminate. The Termination Date for the Closing shall be the date that is twelve months from the date hereof. Such date, or such later date as may be specifically provided for in this Agreement (including any date arising under operation of Sections 8.6
and 8.7(a) hereof) or agreed upon by the parties, is herein referred to as the "Termination Date." Each Party's right of termination hereunder is in addition to any other rights it may have hereunder or otherwise.
Section 11.2 Effect of Termination. If there has been a termination pursuant to Section 11.1, then this Agreement shall be deemed terminated, and all further obligations of the parties hereunder
shall terminate, except that the obligations set forth in Sections 5.3, 11.1(b) and in Article 12 shall survive. In the event of such termination of this Agreement, there shall be no liability for damages on the part of a party to another under and
by reason of this Agreement or the transactions contemplated hereby except as set forth in Article 12 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by the provisions of this Agreement. The
foregoing provisions shall not, however, limit or restrict the availability of specific performance or other injunctive or equitable relief to the extent that specific performance or such other relief would otherwise be available to a party hereunder.
Section 11.3 Modification of Terms. In the event any Governmental Body entertains, as an alternative to approval of this Agreement and any other agreement contemplated hereby, any proposal of one or
more third parties to acquire the Assets from Sellers on terms and conditions that include a higher purchase price than the Purchase Price set forth herein, and such terms and conditions are acceptable to Sellers, then and in that event, subject to such
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restrictions and requirements as such Governmental Body may impose upon Sellers, Sellers shall exercise its best efforts to afford to Buyer the right to enter into appropriate amendments and modifications of this Agreement to match such proposed
alternative terms and conditions. Buyer shall be entitled to exercise such right by delivery of written notice thereof to Sellers within three Business Days after its receipt of written notice from Sellers that, in Sellers' good faith belief, the
proposals of such third party or parties makes it unlikely that such Governmental Body will approve this Agreement and the transactions contemplated hereby in a timely fashion and that the alternative terms and conditions are acceptable to Sellers. If
such right is not exercised and such Governmental Body proceeds to decline to grant its approval, the termination provisions of Section 11.1 shall apply.
ARTICLE 12
SURVIVAL AND REMEDIES; INDEMNIFICATION
Section 12.1 Survival. Except as may be otherwise expressly set forth in this Agreement, the representations, warranties, covenants and agreements of Buyer and Sellers set forth in this Agreement, or
in any writing required to be delivered in connection with this Agreement, shall survive the Closing Date.
Section 12.2 Exclusive Remedy. Absent intentional fraud or unless otherwise specifically provided herein, the sole exclusive remedy for damages of a party hereto for any breach of the representations,
warranties, covenants and agreements of the other party contained in this Agreement shall be the remedies contained in this Article 12.
Section 12.3 Indemnity by Sellers.
(a) Sellers shall jointly and severally indemnify and hold harmless LLC (from and after the Closing), Buyer, each Buyer Subsidiary, and each
Affiliate of Buyer or any Buyer Subsidiary from and against any and all claims, demands, suits, losses, liabilities, damages and expenses, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment, and including
any costs and expenses incurred by any such Indemnitee as a result or arising out of any obligation or election (whether arising out of or in connection with any Law, any contract, any Charter Document, or otherwise) of any such Indemnitee to indemnify
its directors, officers, attorneys, employees, subcontractors, agents and assigns (collectively "Losses"), which they or any of them may sustain or suffer or to which they or any of them may become subject as a result of:
(i) The inaccuracy of any representation or the breach of any
warranty made by Sellers in this Agreement;
(ii) The nonperformance or breach of any covenant or agreement
made or undertaken by Sellers in this Agreement; and
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(iii) If the Closing occurs, the failure of Sellers to pay, discharge or
perform, as and when due, any of the Excluded Liabilities (including, without
limitation, the Excluded Liabilities enumerated in Sections 2.4 (b), (c), (d), and (f); and
(iv) If the Closing occurs, the ongoing operations of Sellers (including
in respect of the Excluded Assets and Excluded Liabilities) after the Closing Date.
(b) The indemnification obligations of Sellers provided above shall, in addition to the qualifications and conditions set forth in Sections 12.5 and
12.6, be subject to the following qualifications with respect to claims for Losses:
(i) Written notice to Sellers of such claim specifying the basis
thereof must be made, or an action at law or in equity with respect to such claim
must be served, before the second anniversary of the earlier to occur of the
Closing Date or the date on which this Agreement is terminated, as the case may
be, except that such time limitation shall not apply to breaches of the covenants
contained in Section 6.4, 6.6, or 6.9;
(ii) If the Closing occurs, the LLC, Buyer, the Buyer Subsidiaries
and their respective Affiliates shall be entitled only to recover the amount by
which the aggregate Losses sustained or suffered by them exceed one percent of
the Purchase Price (the "Deductible Amount"), provided, however, that
individual claims of $5,000 or less shall not be aggregated for purposes of
calculating either the Deductible Amount or the excess of Losses over the
Deductible Amount and Buyer shall be entitled to recover on a dollar for dollar
basis all claims for Losses covered under insurance maintained by Sellers;
provided further that recovery of losses sustained or suffered as a result of
Sellers' failure to perform under Sections 6.6 or 6.9 shall not be limited by the
foregoing provision.
(iii) If the Closing occurs, in no event shall Sellers and their Affiliates
be liable to the LLC, Buyer, the Buyer Subsidiaries and their respective
Affiliates for Losses in the nature of consequential damages, incidental
damages, indirect damages, special damages, punitive damages, lost profits,
damage to reputation or the like, but such damages shall be limited to
out-of-pocket Losses and diminution in value and damages for all Losses shall
be subject to an aggregate limit under this Agreement and the Other Agreements
of $556,000,000.
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Section 12.4 Indemnity by Buyer.
(a) Buyer shall indemnify and hold harmless Sellers, and each Affiliate of Sellers, from and against any and all Losses which they or any of them
may sustain or suffer or to which they may become subject as a result of:
(i) The inaccuracy of any representation or the breach of any
warranty made by Buyer in this Agreement;
(ii) The nonperformance or breach of any covenant or agreement
made or undertaken by Buyer in this Agreement;
(iii) If the Closing occurs, the failure of the LLC or Buyer to pay,
discharge or perform as and when due, any of the Assumed Liabilities; and
(iv) If the Closing occurs, the ongoing operations of the LLC, Buyer,
the Buyer Subsidiaries and the Assets after the Closing Date, including, without
limitation, the continuation or performance by the LLC, Buyer or the Buyer
Subsidiaries after the Closing Date of any agreement or practice of Sellers.
(b) The indemnification obligations of the LLC and the Buyer provided above shall, in addition to the qualifications and conditions set forth in
Sections 12.5 and 12.6, be subject to the following qualifications:
(i) Sellers and its Affiliates shall not be entitled to indemnity unless
written notice to Buyer of such claim specifying the basis thereof is made, or an action
at law or in equity with respect to such claim is served, before the second anniversary
of the earlier to occur of the Closing Date or the date on which this Agreement is
terminated, as the case may be;
(ii) If the Closing occurs, Sellers and its Affiliates shall be entitled
only to recover the amount by which the aggregate Losses sustained exceed the
Deductible Amount, provided, however, that individual claims of $5,000 or less shall
not be aggregated for purposes of calculating either the Deductible Amount or the
excess of Losses over the Deductible Amount; and
(iii) If the Closing occurs, in no event shall the LLC, Buyer and its
Affiliates be liable to Sellers and their respective Affiliates for Losses in the nature of
consequential damages, incidental damages, indirect damages, punitive damages,
special damages, lost profits, damage to reputation or the like, but such damages shall
be limited to out-of-pocket Losses and diminution in value and damages for all Losses
shall be limited to an aggregate limit under this Agreement and the Other Agreements
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of $556,000,000.
Section 12.5 Further Qualifications Respecting Indemnification. The right of a party (an "Indemnitee") to indemnity hereunder shall be subject to the following additional qualifications:
(a) The Indemnitee shall promptly upon its discovery of facts or circumstances giving rise to a claim for indemnification, including receipt by it
of notice of any demand, assertion, claim, action or proceeding, judicial, governmental or otherwise, by any third party (such third party actions being collectively referred to herein as "Third Party Claims"), give notice thereof to the indemnifying
party (the "Indemnitor"), such notice in any event to be given within 60 days from the date the Indemnitee obtains actual knowledge of the basis or alleged basis for the right of indemnity or such shorter period as may be necessary to avoid material
prejudice to the Indemnitor provided, however, the failure to provide or timely provide the Indemnitor with notice of any Third Party Claim shall only affect the Indemnitee's rights to indemnification to the extent that the Indemnitor is materially
prejudiced as a result of the Indemnitee's failure to give timely notice of such Third Party Claim; and
(b) In computing Losses, such amounts shall be computed net of any related recoveries to which the Indemnitee is entitled under insurance policies,
or other related payments received or receivable from third parties, and net of any tax benefits actually received by the Indemnitee or for which it is eligible, taking into account the income tax treatment of the receipt of indemnification.
Section 12.6 Procedures Respecting Third Party Claims. In providing notice to the Indemnitor of any Third Party Claim (the "Claim Notice"), the Indemnitee shall provide the Indemnitor with a copy of
such Third Party Claim or other documents received and shall otherwise make available to the Indemnitor all relevant information material to the defense of such claim and within the Indemnitee's possession. The Indemnitor shall have the right, by notice
given to the Indemnitee within 15 days after the date of the Claim Notice, to assume and control the defense of the Third Party Claim that is the subject of such Claim Notice, including the employment of counsel selected by the Indemnitor after
consultation with the Indemnitee, and the Indemnitor shall pay all expenses of, and the Indemnitee shall cooperate fully with the Indemnitor in connection with, the conduct of such defense. The Indemnitee shall have the right to employ separate counsel in
any such proceeding and to participate in (but not control) the defense of such Third Party Claim, but the fees and expenses of such counsel shall be borne by the Indemnitee unless the Indemnitor shall agree otherwise; provided, however, if the named parties to any such proceeding (including any impleaded parties) include both the Indemnitee and the Indemnitor, the Indemnitor requires that the same counsel represent both the Indemnitee and the Indemnitor, and
representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Indemnitee shall have the right to retain its own counsel at the cost and expense of the
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Indemnitor. If the Indemnitor shall have failed to assume the defense of any Third Party Claim in accordance with the provisions of this Section, then the Indemnitee shall have the absolute right to control the defense of such Third Party Claim, and, if
and when it is finally determined that the Indemnitee is entitled to indemnification from the Indemnitor hereunder, the fees and expenses of Indemnitee's counsel shall be borne by the Indemnitor, provided that the Indemnitor shall be entitled, at its expense, to participate in (but not control) such defense. The Indemnitor shall have the right to settle or compromise any such Third Party Claim for which it is providing indemnity so long as
such settlement does not impose any obligations on the Indemnitee (except with respect to providing releases of the third party). The Indemnitor shall not be liable for any settlement effected by the Indemnitee without the Indemnitor's consent except
where the Indemnitee has assumed the defense because Indemnitor has failed or refused to do so. The Indemnitor may assume and control, or bear the costs, of any such defense subject to its reservation of a right to contest the Indemnitee's right to
indemnification hereunder, provided that it gives the Indemnitee notice of such reservation within 15 days of the date of the Claim Notice.
ARTICLE 13
GENERAL PROVISIONS
Section 13.1 Notices. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by telegraphic, facsimile or other
electronic means, by overnight air courier or by mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by telegraphic, facsimile or other electronic means, (b) one (1) Business
Day after having been delivered to an air courier for overnight delivery or (c) three (3) Business Days after having been deposited in the U.S. mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties
or their permitted assignees at the following addresses (or at such other address as shall be given in writing by a party hereto):
If to Sellers or the Sellers, addressed to:
Vice President
Power Supply
PacifiCorp
One Utah Center, 23rd Floor
Salt Lake City, Utah 84140
Facsimile: (801) 220-4900
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with a copy to:
George M. Galloway
Stoel Rives LLP
900 SW Fifth Avenue
Portland, Oregon 97204
Facsimile: (503) 220-2480
If to Buyer or any Buyer Subsidiary, addressed to:
TECWA Fuel, Inc.
110 - 12th Avenue SW
Calgary, Alberta T2P 2M1
CANADA
Attn: General Counsel
Facsimile: (403) 267-3734
with a copy to:
Joel H. Mack
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Facsimile: (619) 696-7419
Section 13.2 Attorney's Fees. Subject to the provisions of Section 13.9, in any litigation or other proceeding relating to this Agreement, the prevailing party shall be entitled to recover its costs
and reasonable attorneys' fees.
Section 13.3 Successors and Assigns. Except as provided in Section 2.6, the rights under this Agreement shall not be assignable or transferable nor the duties delegable by any party without the prior
written consent of the other; and nothing contained in this Agreement, express or implied, is intended to confer upon any Person, other than the parties hereto, their permitted successors-in-interest and permitted assignees and any Person who or which is
an intended beneficiary of the indemnities provided herein, any rights or remedies under or by reason of this Agreement unless so stated to the contrary. Notwithstanding the foregoing, Buyer may grant to its lenders a security interest in its rights
under this Agreement; provided that neither the grant of any such interest, nor the foreclosure of any such interest, shall in any way release, reduce or diminish the obligations of Buyer to Sellers hereunder, and Sellers shall enter into a consent to
assignment with such lenders reasonably acceptable to Sellers.
Section 13.4 Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Section 13.5 Captions and Paragraph Headings. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it.
Section 13.6 Entirety of Agreement; Amendments. This Agreement (including the Schedules and Exhibits hereto) and the other documents and instruments specifically provided for in this Agreement and any
other agreements contemplated hereby and thereby contain the entire understanding between the parties concerning the subject matter of this Agreement and such other agreements, documents and instruments and, except as expressly provided for herein,
supersede all prior understandings and agreements, whether oral or written, between them with respect to the subject matter hereof and thereof. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between
the parties hereto relating to the subject matter of this Agreement and such other agreements, documents and instruments which are not fully expressed herein or therein. This Agreement may be amended or modified only by an agreement in writing signed by
each of the parties hereto. All Exhibits and Schedules attached to or delivered in connection with this Agreement are integral parts of this Agreement as if fully set forth herein.
Section 13.7 Construction. This Agreement and any documents or instruments delivered pursuant hereto shall be construed without regard to the identify of the Person who drafted the various provisions
of the same. Each and every provision of this Agreement and such other documents and instruments shall be construed as though the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of
construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or such other documents and instruments. Whenever in this Agreement the context so suggests, references to the masculine shall be
deemed to include the feminine, references to the singular shall be deemed to include the plural, and references to "or" shall be deemed to be disjunctive but not necessarily exclusive.
Section 13.8 Waiver. The failure of a party to insist, in any one or more instances, on performance of any of the terms, covenants and conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of the parties with respect thereto shall continue in full force and effect. No waiver of any provision or condition
of this Agreement by a party shall be valid unless in writing signed by such party or operational by the terms of this Agreement. A waiver by any party of the performance of any covenant, condition, representation or warranty of any other party shall not
invalidate this Agreement, nor shall such waiver be construed as a waiver of any other covenant, condition,
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representation or warranty. A waiver by any party of the time for performing any act shall not constitute a waiver of the time for performing any other act or the time for performing an identical act required to be performed at a later time.
Section 13.9 Arbitration.
(a) Agreement to Arbitrate. Any controversy or claim arising out of or relating to this Agreement, or the breach or alleged breach hereof,
shall, upon demand of either the Sellers or Buyer, be submitted to arbitration in the manner hereinafter provided. Sellers and Buyer will make every reasonable effort to resolve any such controversy or claim without resort to arbitration. But in the event
the Parties are unable to effect a satisfactory resolution between themselves, such controversy shall be submitted to arbitration in accordance with the terms and provisions of this Section 13.9 and in accordance with the then current Commercial
Arbitration Rules (hereinafter the "Rules") of the American Arbitration Association (or any successor organization) (hereinafter the "AAA"). Any such arbitration shall take place in Seattle, Washington and shall be administered by the AAA. In the event of
any conflict between the terms and provisions of this Section 13.9 and the Rules, the terms and provisions of this Section 13.9 shall prevail.
(b) Submission to Arbitration. A Party desiring to submit to arbitration any such controversy shall send a written arbitration demand to the
AAA and to the opposing Party. The demand shall set forth a clear and complete statement of the nature of the claim, its basis, and the remedy sought, including the amount of damages, if any. The opposing Party may, within 30 days of receiving the
arbitration demand, assert a counterclaim or set-off. The counterclaim or set-off, which shall be sent to the AAA and the opposing party, shall include a clear and complete statement of the nature of the counterclaim or set-off, its basis, and the remedy
sought, including the amount of damages, if any.
(c) Selection of Arbitration Panel. The dispute shall be decided by a panel of three neutral arbitrators selected as follows. The AAA shall
submit to the Parties, within ten days after receipt of an arbitration demand, a list of eleven potential arbitrators consisting of retired federal or state court judges; provided that none of the potential arbitrators shall have (or have ever had) any
material affiliation of any kind with any Party or with legal counsel for any Party. Each Party shall, within five days, strike four, three, two, one or none of the arbitrators, rank the remaining arbitrators in order of preference (with "1" designating
the most preferred, "2" the next most preferred and so forth) and so advise the AAA in writing. The AAA shall appoint the arbitrators with the best combined preference ranking on both lists and designate the most preferred arbitrator as presiding officer
(in each case, selecting by lot, if necessary, in the event of a tie).
(d) Prehearing Discovery. There shall be no prehearing discovery except as follows. Subject to the authority of the presiding officer of the
arbitration panel to modify the provisions of this paragraph before the arbitration hearing upon a showing of exceptional
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circumstances, each Party (i) shall propound to the other no more than 20 requests for production of documents, including subparts, and (ii) shall take no more than two (2) discovery depositions. Such discovery shall be conducted in accordance
with the provisions and procedures of the Federal Rules of Civil Procedure. No interrogatories or requests for admission shall be permitted. Disputes concerning discovery obligations or protection of discovery materials shall be determined by the
presiding officer of the arbitration panel. The foregoing limitations shall not be deemed to limit a Party's right to subpoena witnesses or the production of documents at the arbitration hearing, nor to limit a Party's right to depose witnesses that are
not subject to subpoena to testify in person at the arbitration hearing; provided, however, that the presiding officer of the arbitration panel may, upon motion, place reasonable limits upon the number and length of such testimonial depositions.
(e) Arbitration Hearing. The presiding officer of the arbitration panel shall designate the place and time of the hearing. The hearing shall
be scheduled to begin within ninety (90) days after the filing of the arbitration demand (unless extended by the arbitration panel on a showing of exceptional circumstances) and shall be conducted as expeditiously as possible. In all events, the issues
being arbitrated, which shall be limited to those issues identified in the initial claim and counter-claim submitted to the arbitration panel pursuant to Subsection (b) above, shall be submitted for decision within 30 days after the beginning of the
arbitration hearing. At least 30 days before the beginning of the arbitration hearing, each party shall provide the other party and the arbitration panel with written notice of the identity of each witness (other than rebuttal witnesses) it intends to
call to testify at the hearing, together with a detailed written outline of the substance of the anticipated testimony of each such witness. The arbitration panel shall not permit any witness to testify that was not so identified before the hearing and
shall limit the testimony of each such witness to the matters disclosed in such outline. Subject to the foregoing, the Parties shall have the right to attend the hearing, to be represented by counsel, to present documentary evidence and witnesses, to
cross-examine opposing witnesses and to subpoena witnesses. The Federal Rules of Evidence shall apply and the panel shall determine the competency, relevance, and materiality of evidence as appropriate. The panel shall recognize privileges available under
applicable law. A stenographic record shall be made of the arbitration proceedings.
(f) Award. The panel's award shall be made by majority vote of the panel. An award in writing signed by at least two of the panel's
arbitrators shall set forth the panel's findings of fact and conclusions of law. The award shall be filed with the AAA and mailed to the parties no later than 30 days after the last day of testimony at the arbitration hearing. The panel shall have
authority to issue any lawful relief that is just and equitable, except consequential damages, incidental damages, indirect damages, special damages, punitive damages, lost profits, diminution in value, damage to reputation or the like. The award shall
state that it dissolves and supersedes any provisional remedies entered pursuant to Subsection (g) below.
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(g) Provisional Remedies. Pending the selection of the arbitration panel, upon request of a party, the AAA may appoint a retired judge to
serve as a provisional arbitrator to rule on any motion for preliminary relief. Any preliminary relief ordered by the provisional arbitrator may be immediately entered in any federal or state court having jurisdiction thereof even though the decision on
the underlying dispute may still be pending. Once constituted, the arbitration panel may, upon request of a Party, issue a superseding order to modify or reverse such preliminary relief or may itself order preliminary relief pending a full hearing on the
merits of the underlying dispute. Any such initial or superseding order of preliminary relief may be immediately entered in any federal or state court having jurisdiction thereof even though the decision on the underlying dispute may still be pending.
Such relief may be granted by the appointed arbitrator or the arbitration panel only after notice to and opportunity to be heard by the opposing party. Such awards of preliminary relief shall be in writing and, if ordered by a panel of three arbitrators,
must be signed by at least two of the panel members.
(h) Entry of Award by Court. The arbitration panel's arbitration award shall be final. The Parties agree and consent that judgment upon the
arbitration award may be entered in any federal or state court having jurisdiction thereof.
(i) Costs and Attorney's Fees. The prevailing Party shall be entitled to recover its costs and reasonable attorneys' fees, and the party
losing the arbitration shall pay all expenses and fees of the AAA, all costs of the stenographic record, all expenses of witnesses or proofs that may have been produced at the direction of the arbitrators, and the fees, costs, and expenses of the
arbitrators. The arbitration panel shall designate the prevailing party for these purposes.
Section 13.10 Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the Laws of the State of Washington applicable to contracts made and to be
performed wholly within the State of Washington, provided that federal law, including the Federal Arbitration Act, shall govern all issues concerning the validity, enforceability and interpretation of the arbitration provision set forth in Section 13.9
hereof. Any action or proceeding arising under this Agreement shall be adjudicated in Seattle, Washington.
Section 13.11 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be valid, binding and enforceable under applicable law, but if any provision of this
Agreement is held to be invalid, void (or voidable) or unenforceable under applicable law, such provision shall be ineffective only to the extent held to be invalid, void (or voidable) or unenforceable, without affecting the remainder of such provision or
the remaining provisions of this Agreement.
Section 13.12 Consents Not Unreasonably Withheld. Wherever the consent or
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approval of any Party is required under this Agreement, such consent or approval shall not be unreasonably withheld, unless such consent or approval is to be given by such Party at the sole or absolute discretion of such Party or is otherwise similarly
qualified.
Section 13.13 Time Is of the Essence. Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement. The parties acknowledge that each will be relying upon
the timely performance by the other of its obligations hereunder as a material inducement to each party's execution of this Agreement.
Section 13.14 Execution. This Agreement may be executed in counterpart and executed signature pages delivered by facsimile.
Section 13.15 Third Party Beneficiaries. The Sellers of the Centralia Steam Electric Generating Plant, as the term "Sellers" is defined in the Centralia Plant Purchase and Sale Agreement and each of them are
third party beneficiaries of Sections 2.3(b) and 2.3(e) of this Agreement with respect to assumption by Mine Buyer of the Assumed Liabilities, and of Section 12.4 of this Agreement with respect to the assumption by Mine Buyer of Assumed Liabilities set
forth in Sections 2.3(b) and 2.3(e).
Section 13.16 Other Form of Agreement. The Parties have previously executed another form of Centralia Mine Purchase and Sale Agreement dated May 6, 1999 (the "Other Form of Agreement"). Upon the execution of
this Agreement by all of the parties hereto, the Other Form of Agreement shall have no further force or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.
TECWA FUEL, INC.: |
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Sellers: |
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Exhibit 2(f)
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Exhibits:
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Schedules:
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), dated this 15th day of July, 1999, is between Nor-Cal Electric Authority ("Buyer"), a California Joint Powers Authority, and PacifiCorp, an Oregon corporation, ("PacifiCorp").
PacifiCorp and Buyer are sometimes referred to collectively as "Parties" and individually as "Party."
1. Definitions. For purposes of this Agreement, the following terms used herein but not otherwise defined herein shall have the following meaning when used with initial capitalization, whether singular or
plural:
1.01 "Assets" means all assets and properties (whether real or personal, tangible or intangible), owned or leased by PacifiCorp on the Closing Date which are located in or, in the case of
intangible assets, primarily dedicated to PacifiCorp's California service territory (the "Service Territory") including, but not limited to, assets used to supply service, materials and supplies, easements (including the rights to any easements not
currently being utilized), rights of way, permits, contracts, authorizations, leases, vehicles and construction equipment, construction work in progress, demand side and weatherization loans and assets, customer accounts receivable, and miscellaneous
deferred debits, as set forth on Exhibit A attached hereto and made a part hereof.
1.02 "Closing Date" means the date of the Closing of this Agreement as provided for in Section 10.
1.03 "Excluded Assets" means the following: (a) those assets useful to PacifiCorp in placing those of its employees not hired by Buyer pursuant to Subsection 6.03 that the Parties
mutually agree to exclude from this Agreement as of the Closing Date; (b) cash; (c) service marks, trade names or trademarks owned, used or held by PacifiCorp or Pacific Power; (d) all generation assets and power purchase contracts of
PacifiCorp; (e) all PacifiCorp assets located outside the State of California with the exception of approximately 5.7 miles of Line 33 which is located in Oregon; (f) certain mobile radio licenses and communications equipment; and (g) certain transmission
assets located in the State of California and other items listed on Schedule 1.03.
1.04 "Indemnity Cap" means (a) the Final Purchase Price minus $7,000,000 multiplied by (b) .05.
1.05 "Necessary Regulatory Approvals" means:
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(a) Approval by the Federal Energy Regulatory Commission (the "FERC") pursuant to Section 203 of the Federal Power Act of the sale of all
transmission facilities included in the Assets under this Agreement (the "FERC Approval"); and
(b) Filings and the expiration of the waiting period, if applicable, under the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended; and
(c) Approval of PacifiCorp's Section 851 filing under the California Utilities Code with the California Public Utility Commission
("CPUC") (the "California Approval"); and
(d) Consents to the transfer of PacifiCorp's franchise agreements for the Service Territory to Buyer, to the extent required under such
franchise agreements.
1.06 "PacifiCorp Mortgage" means the Mortgage and Deed of Trust from PacifiCorp to The Chase Manhattan Bank (as successor Trustee to Morgan Guaranty Trust Company of New York), dated
January 9, 1989, as amended and supplemented.
1.07 "Permitted Liens" shall mean (a) those items set forth in Part 1 of Schedule 1.07; (b) the contracts and agreements listed on Exhibit A, and similar contracts and
agreements entered into between the date hereof and the Closing in the ordinary course of business in compliance with the terms of this Agreement, and the obligations thereunder; (c) imperfections of title and/or encumbrances which, individually and in
the aggregate, do not materially detract from the value or marketability of the Assets or interfere with their present use.
2. Sale and Purchase of Assets.
2.01 Assets to Be Sold. Subject to all terms and conditions of this Agreement, PacifiCorp agrees to sell and Buyer agrees to buy all of PacifiCorp's right, title and interest in the
Assets.
2.02 Instruments of Conveyance and Transfer. At Closing, PacifiCorp shall deliver to Buyer such deeds, bills of sale, certificates of title, endorsements, assignments, consents and
other good and sufficient instruments of conveyance and assignment as shall be effective to vest in Buyer good and marketable title in and to the Assets, subject to no security interests, liens or encumbrances, except Permitted Liens, and shall assign to
Buyer, PacifiCorp's
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interest in all contracts, permits, authorizations, leases, land rights, easements and rights-of-way, if any, useful to Buyer's ownership or operation of the Assets. The conveyance documents will be substantially in the form attached as Exhibit L.
2.03 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be (i) $176,591,795 (which covers net plant in service as of December 31, 1998), plus (ii)
cash equal to the book value of those Assets comprising plant placed in service, less depreciation, retirements and dispositions, from January 1, 1999 to the Closing Date, plus (iii) cash equal to the book value, as of the Closing Date, of all
other Assets (including, but not limited to, demand side and weatherization loans, and construction work in progress), plus (iv) cash equal to the book value of the materials and supplies on site, plus (v) cash equal to the deferred debits and
receivables, plus (vi) $7,500,000, which is an agreed amount attributable to PacifiCorp's regulatory assets pertaining to the Service Territory, less (vii) the book value, as of the Closing Date, of the liabilities of PacifiCorp for accounts payable,
customer deposits, taxes accrued, customer advances, employee liabilities and miscellaneous current and accrued liabilities consistent with those set forth in Schedule 2.03, as shown on the books and records of PacifiCorp (but without reduction for
obligations assumed under the USBR Contract). Schedule 2.03 is a calculation of the Purchase Price computed utilizing information as of the dates indicated on Schedule 2.03.
2.04 Payment at Closing. At least five days prior to the Closing Date, PacifiCorp will prepare and deliver to Buyer a closing statement (the "Closing Statement") that sets forth, in
the format of Schedule 2.03, the calculation of the Purchase Price based on the books and records of PacifiCorp as of the most recent month end for which information is available plus an estimate of the additions, retirements and dispositions for the
period between the end of the most recent month for which information was available and the Closing Date (the "Closing Purchase Price"). The Closing Statement shall include the categories of Assets and Assumed Liabilities listed on Schedule 2.03,
reflecting their respective amounts as of such date, and shall be prepared and calculated in a manner consistent with and using the same components, accounting practices and methodology as were utilized in Schedule 2.03. The Closing Purchase Price shall
be paid in cash by wire transfer at Closing pursuant to written wire instructions provided by PacifiCorp to Buyer.
2.05 Final Purchase Price. As soon as practicable after the Closing Date, but not earlier than sixty (60) days after the Closing Date and not later than two hundred ten (210) days
after the Closing Date (the "Final Statement Date"), PacifiCorp will prepare and deliver to Buyer a final closing statement (the "Final
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Statement") that sets forth the calculation of the Purchase Price based on the books and records of PacifiCorp as of the Closing Date (the "Final Purchase Price"). The Final Statement shall include the categories of Assets and Assumed Liabilities listed
on Schedule 2.03, updated to reflect their respective amounts as of the Closing Date, and shall be prepared and calculated in a manner consistent with and using the same components, accounting practices and methodology as were utilized in Schedule 2.03
.
2.06 Final Adjustment and Payment. The "Purchase Price Adjustment" shall equal the Final Purchase Price minus the Closing Purchase Price. Any disputes regarding the Purchase Price
Adjustment shall be resolved in accordance with Subsection 2.11. If the Purchase Price Adjustment is positive, then the Purchase Price Adjustment will be paid by Buyer to PacifiCorp within ten business days of the delivery of the Final Statement by
wire transfer in accordance with the instructions delivered pursuant to Subsection 2.04. If the Purchase Price Adjustment is negative, then the Purchase Price Adjustment will be paid by PacifiCorp to Buyer within ten business days of the delivery of
the Final Statement by wire transfer pursuant to written instructions provided by Buyer to PacifiCorp. Interest at the rate of 6% per annum shall accrue commencing on the Closing Date on any Purchase Price Adjustment due to either Buyer or PacifiCorp.
2.07 Assumption of Certain Liabilities. In addition to the Purchase Price, Buyer agrees to assume all debts, liabilities and obligations of every kind and nature whatsoever (whether
arising from contract, or otherwise) existing as of or arising after the Closing Date which primarily relate to the Service Territory or the Assets (but excluding income taxes and tort liability (other than tort liability for environmental issues to the
extent not covered by Section 12.04(a))), including, but not limited to, (i) liabilities listed on Schedule 2.07, (ii) liabilities disclosed to and agreed to in writing by Buyer prior to the Closing Date, (iii) liabilities and
obligations under the Working Agreement with Local Union No. 659, with respect to employees employed in the Service Territory as of the Closing Date, (iv) liabilities listed on the Final Statement, (v) the obligations described in Section 2.10 below,
(vi) other miscellaneous obligations under any contract, permit, authorization, lease, easement, and right-of-way assigned to Buyer pursuant to Subsection 2.02 hereof, and (vii) liabilities with respect to workers' compensation claims made on or
after the Closing Date (the "Assumed Liabilities"). Buyer's assumption of the Assumed Liabilities is (a) subject to PacifiCorp's indemnification pursuant to Subsection 12.04(a), and (b) shall not include, for a period of three years following the
Closing Date (the "Limited Liability Period"), the assumption of any debt, liability or obligation not specifically described in clauses (i) through (vi) of the foregoing sentence, in
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excess of $10,000 individually and $100,000 collectively. Following the Limited Liability Period, there shall be no limitations on Buyer's assumption of liability relating to the Service Territory, other than PacifiCorp's indemnification obligation under
Section 12.04(a).
2.08 Allocation of Property Taxes. Real property taxes and personal property taxes shall be prorated between PacifiCorp and Buyer as of the Closing Date based upon best available
estimates. When final real and personal property tax amounts are determined, an adjustment shall be made in the proration, based upon such actual tax amounts. If real and personal property taxes are prepaid, and any refund is available for the period
after Closing, the refund shall belong to Buyer.
2.09 Sales, Transfer, and Other Taxes and Consent Payments. Any sales, transfer, purchase, use, or similar tax which may be payable by reason of the sale of all or a portion of the
Assets shall be borne equally by Buyer and PacifiCorp. If as a condition to obtaining the required consent of any third party to the assignability of any franchise, license, permit, right-of-way, easement or similar right to Buyer, a third party requires
payment of a transfer or administration fee, Buyer and PacifiCorp shall share equally any such transfer or administration fee. Any such fee that is assessed in lieu of periodic rentals or periodic fees shall be paid by Buyer.
2.10 Assumption of Certain USBR Obligations. Buyer agrees to assume and perform the obligations under PacifiCorp's January 31, 1956 contract with the Bureau of Reclamation (the "USBR
Contract") accruing after the Closing Date to provide power in the Service Territory as required by Exhibit B of the USBR Contract, and to make line extensions as required under the USBR Contract, through the term of the USBR Contract, to the customers in
the Service Territory who qualify under Exhibit B to the USBR Contract. In consideration of this assumption, PacifiCorp shall, at Closing, pay to Buyer the sum of $7,000,000. Buyer is not assuming any other obligations of PacifiCorp under the USBR
Contract.
2.11 Resolution of Purchase Price and Adjustment Disputes. All disputes between the Parties in connection with the Closing Purchase Price, the Final Statement, the Final Purchase
Price or the Purchase Price Adjustment shall be resolved by the appointment of a third party certified public accounting firm with experience in the utility industry ("Accounting Firm") mutually acceptable to the Parties. If the Parties are unable to
agree on such Accounting Firm, PacifiCorp, on the one hand, and Buyer, on the other hand, shall each select an Accounting Firm, and the two Accounting Firms so selected shall select a third
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Accounting Firm which shall be a nationally recognized certified public accounting firm and the dispute shall be resolved as determined by a majority of the three Accounting Firms. The determination by the Accounting Firm(s) shall be final and binding on
the Parties and shall be delivered to the Parties within 90 days from the day of Buyer's notice of objection. If one Accounting Firm is used, the costs of that Accounting Firm shall be borne equally by the Parties. If three Accounting Firms are used, each
Party shall pay the cost of the Accounting Firm selected by it, and the cost of the third Accounting Firm shall be borne equally by the Parties. The Accounting Firm(s) shall have the right to conduct an independent audit of the books and records of
PacifiCorp relevant to the computation of the Purchase Price to resolve the dispute set forth in Buyer's notice of objection.
2.12 Post-Closing Price Adjustment. Buyer acknowledges that PacifiCorp would not sell the Assets at the Purchase Price provided herein if there was a likelihood that the Buyer would
use the acquisition of the Assets as a basis for future condemnation of other PacifiCorp assets. Accordingly, if, at any time prior to the tenth anniversary of the Closing, Buyer, or any member of Buyer with greater than a 10% voting interest in Buyer,
directly or indirectly, initiates or facilitates, or provides assistance to any other entity in, any action to acquire by eminent domain, any assets of PacifiCorp, the Final Purchase Price for the Assets shall, effective upon the filing of such eminent
domain proceedings, be increased by $17,000,000 and such additional payment shall be immediately due and payable by Buyer to PacifiCorp.
3. Representations and Warranties of PacifiCorp. PacifiCorp represents and warrants as follows:
3.01 Organization and Powers of PacifiCorp. PacifiCorp is an Oregon corporation, duly organized and validly existing under the laws of the State of Oregon, and is duly qualified
to do business in the State of California. PacifiCorp has all requisite power and authority to own the Assets and to own, operate and lease its properties, and to carry on its business as now being conducted.
3.02 Authority Relative to Agreement; Governmental Authorization. PacifiCorp has the power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized and constitutes the valid and binding obligation of PacifiCorp enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except
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that the availability of the equitable remedies of specific performance and injunctive relief are subject to the discretion of the court before which any proceeding may be brought. Except for the Necessary Regulatory Approvals, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by PacifiCorp or the consummation by PacifiCorp of the transactions
contemplated by this Agreement.
3.03 Non-Contravention; Approvals. Except for the consents and approvals set forth in Schedule 3.03, and consents and approvals required under the terms of easements, rights of
way and permits, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate, conflict with or result in a breach of any provision of, or constitute a default under, or result in the
termination of any note, bond, mortgage, indenture, deed of trust, contract, lease or other instrument, obligation or agreement of any kind to which PacifiCorp is now a party or by which any of its assets may be bound or affected.
3.04 Title to the Assets. Except as set forth in Schedule 3.04, the Permitted Liens and the matters described on Part II of Schedule 1.07, PacifiCorp has good and marketable
title to the Assets free and clear of all liens, mortgages, pledges, claims, charges, security interests or other encumbrances, including, without limitation, any leases, subleases, rights of way, licenses, easements, options to purchase, encumbrances,
covenants, building or use restrictions, exceptions, variances, reservations or limitations.
3.05 Undisclosed Liabilities. Except as disclosed in Schedule 3.12, PacifiCorp has no material liabilities, debts or obligations, fixed, accrued, contingent or otherwise,
relating to the Assets or the Service Territory other than (a) liabilities fully shown or adequately reserved against on PacifiCorp's books, (b) current liabilities, not unusual in nature or amount, incurred in the ordinary course of the Service
Territory's business since December 31, 1998, (c) accounts payable identified on Schedule 2.07 or incurred after the date thereof in the ordinary course of the Service Territory's business or operations, (d) obligations to be performed
under the leases, contracts, agreements and obligations identified on Exhibit A or similar leases, contracts, agreements and obligations entered into after the date thereof in the ordinary course of the Service Territory's business or operations and
(e) liabilities described on Schedule 2.07 or incurred after the date thereof in the ordinary course of the Service Territory's business or operations.
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3.06 Property Used. All the property that is primarily dedicated to the conduct of the Service Territory's business, not including any generation, certain transmission assets of
PacifiCorp, or power purchase agreements, is included in the Assets, except as specifically provided herein, or in Schedule 1.03. None of the Assets is owned by a subsidiary or other affiliate of PacifiCorp.
3.07 Leases. Except as set forth on Schedule 3.07, (a) all Leases identified on Exhibit A (the "Leases") are valid and in effect, (b) PacifiCorp has in all
material respects performed its obligations under each of the Leases, (c) PacifiCorp has received no written notice of default with respect to any of the Leases and (d) the other party to each of the Leases has, to the best of PacifiCorp's
knowledge, performed its obligations thereunder in all material respects.
3.08 Contracts and Commitments. Except for the contracts, agreements and obligations identified on Schedule 3.08 or those not primarily related to the Service Territory, PacifiCorp is
not a party to or bound by any oral or written (a) express contract for personal services or employment that is not terminable, without liability or expense, by PacifiCorp on sixty days or less notice, (b) contract or commitment for capital
expenditures in excess of $50,000 for any one project or in excess of $500,000 for all projects; (c) contract not made in the ordinary course of the Service Territory's business or (d) contract, agreement or obligation that is material to the
business of the Service Territory.
3.09 Permits, Licenses, Tariffs, Franchises and Certificates. Except for matters that would not have a material adverse effect on the operation of the electric distribution system in
the Service Territory, PacifiCorp has all the permits, licenses, tariffs, franchises, certificates and other governmental authorizations required to own the Assets and to carry on the business of the Service Territory as presently conducted, and, assuming
ongoing proper action by the other party thereto or the issuer thereof, all such permits, licenses, tariffs, franchises, certificates and governmental authorizations are valid and in effect.
3.10 Tax Matters. PacifiCorp has duly filed with the appropriate governmental agencies all material tax returns and tax reports due and required to be filed by PacifiCorp with respect
to the Assets and the Service Territory, including all federal, foreign, state and local profits, income, sales, use, occupation, license, franchise, excise, real and personal property, employment, social security, withholding, employment insurance, and
other taxes and will have paid or provided for the payment of all such taxes through the Closing Date.
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3.11 Workers Compensation. PacifiCorp is not in default of any material requirements under any workers compensation laws applicable to PacifiCorp's employees in the Service Territory.
Except as set forth on Schedule 3.11, there are no pending or, to the best of PacifiCorp's knowledge, threatened workers compensation claims against PacifiCorp, and PacifiCorp shall remain responsible for and pay workers' compensation claims made
prior to the Closing Date.
3.12 Compliance with Laws. Except as set forth in Schedule 3.12, PacifiCorp's ownership of the Assets has been and is in material compliance with all applicable laws, rules,
orders, regulations, or restrictions, except (a) any past noncompliance that has been cured and (b) noncompliance that does not materially interfere with the ownership and use of the Assets. Except as set forth in Schedule 3.12, PacifiCorp
has received no notice of violation or notice of noncompliance and knows of no violation or noncompliance with respect to any law, regulation, or governmental restriction applicable to the Assets, including but not limited to any federal, state or local
law, rule, order, regulation, ordinance or restriction relating to protection of the environment and pollution control, or to the control, handling, treatment and disposal of hazardous substances, toxic chemicals, herbicides and pesticides such as the
Clean Air Act (as amended), the Federal Water Pollution Control Act (as amended), the Comprehensive Environmental Response, Compensation and Liability Act (as amended), the Resource Conservation and Recovery Act (as amended), the Toxic Substances Control
Act (as amended) and any regulations thereunder (collectively, "Environmental Law") and also including, but not limited to, any other federal, state or local statutes, regulations, or ordinances related to land use and zoning, energy and industrial
facilities siting, or occupational health and safety that would materially interfere with the ownership and use of the Assets.
3.13 Legal Proceedings. Except as set forth in Schedule 3.13, there are no claims, actions, suits, inquiries, investigations, proceedings or formal labor grievances, pending, or,
to the best of PacifiCorp's knowledge, threatened, relating to the Assets, or the operation of the electric distribution system in the Service Territory, before any federal, state or local court or other governmental or regulatory body, or any arbitrator,
United States or foreign.
3.14 Books and Records. The books and records of PacifiCorp used to calculate the Purchase Price, the Closing Purchase Price and the Final Purchase Price were prepared in accordance
with Generally Accepted Accounting Principles consistently applied throughout the relevant periods.
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3.15 No Brokers. PacifiCorp has not employed any broker or finder in connection with the transactions contemplated by this Agreement, and it has taken no action which would give rise
to a valid claim against any party for a brokerage commission, finder's fee, or other like payment by Buyer.
3.16 Easements. PacifiCorp has sufficient permits, easements and rights-of-way (either of record or by prescription) for its transmission and distribution facilities included in the
Assets substantially as presently operated, excepting permits, rights-of-way and easements, the lack of which would not have a material adverse effect on the Assets taken as a whole.
3.17 Condition of Assets. The Assets will be sold to Buyer "AS IS, WHERE IS" and with no representations or warranties of any kind or character, including any warranty of quality,
merchantability, fitness for a particular purpose or condition, except as specifically set forth herein or in the conveyance document to be delivered to Buyer at Closing. BUYER ACKNOWLEDGES THAT EXCEPT AS EXPRESSLY STATED HEREIN, PACIFICORP HAS NOT MADE,
AND PACIFICORP EXPRESSLY DISCLAIMS AND NEGATES, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OF IMPLIED, RELATING TO THE ASSETS.
3.18 Revenues and Expenses. Schedule 3.18 accurately sets forth the revenue received by PacifiCorp from customers in the Service Territory and the operating, maintenance and capital
expenses incurred by PacifiCorp in connection with its distribution system in the Service Territory for the year ending December 31, 1998, as determined and allocated in a manner consistent with PacifiCorp's procedures for determining and allocating
revenues and operation, maintenance and capital expenses, provided, however, that PacifiCorp makes no representation that capital expenses reflected in such Schedule are properly allocated between calendar years.
3.19 Book Value of Assets. Schedule 3.19 accurately sets forth the book value of the Assets constituting net plant in service as of December 31, 1998 computed in accordance with
generally accepted accounting principles.
4. Representations and Warranties of Buyer. Buyer represents and warrants as follows:
4.01 Organization and Powers of Buyer. Buyer is a joint powers authority, duly organized and validly existing under the laws of the State of California, and has all requisite power
and authority to own, operate and lease the
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Assets, to carry on its business as now being conducted, and to operate the Assets after Closing.
4.02 Authority Relative to Agreement; Governmental Authorization. Buyer has the power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized and constitutes the valid and binding obligation of Buyer enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedies of specific performance and injunctive relief are subject to the discretion of the court before
which any proceeding may be brought. Except for the Necessary Regulatory Approvals, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated by this Agreement.
4.03 Non-Contravention; Approvals. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate, conflict with or result
in a breach of any provision of, or constitute a default under, or result in the termination of any note, bond, mortgage, indenture, deed of trust, contract, lease or other instrument, obligation or agreement of any kind to which Buyer is now a party or
by which any of its assets may be bound or affected.
4.04 No Brokers. Buyer has not employed any broker or finder in connection with the transactions contemplated by this Agreement, and it has taken no action which would give rise to a
valid claim against any party for a brokerage commission, finder's fee, or other like payment by PacifiCorp.
5. Covenants of PacifiCorp. PacifiCorp covenants and agrees as follows:
5.01 Conduct of Business. PacifiCorp shall own and operate the Assets until the Closing in accordance with its past practices and shall engage in no material transactions relating to
the Assets out of the ordinary course of business, including, without limitation: (i) entering into any contract or financing arrangement that in any way limits PacifiCorp's ability to sell the Assets to Buyer, (ii) encouraging, initiating or
soliciting any inquiries or the making of any proposal with respect to, or engaging in negotiations concerning, or providing any confidential information or data to, or having any discussions with, any
11
person relating to any acquisition of the Assets, provided, however, PacifiCorp may take such actions if a failure to do so would subject PacifiCorp's directors to liability for breach of their fiduciary duties, (iii) awarding any unusual salary or
benefits increases to employees in the Service Territory, without Buyer's consent, (iv) terminating, or amending in any material fashion, any contract or agreement included in the Assets, which is material to the ownership or operation of the electric
distribution system in the Service Territory, without Buyer's consent.
5.02 Insurance. Until the Closing, PacifiCorp shall continue to self-insure or carry insurance currently in effect related to the Assets, insuring the Assets against loss or damage by
fire and other risks, and public liability consistent with and in accordance with its past practices. PacifiCorp is not presently aware of any claim or circumstance related to the Assets which might result in a claim which would be insured against.
5.03 Access to Assets, Employees and Information.
(a) Generally. Subject to Subsection 6.02, until the Closing, PacifiCorp shall allow Buyer and its authorized agents and representatives
to have reasonable access (if applicable) to the Assets and to the books, files and records of PacifiCorp relating to the Assets and the Service Territory and to the employees stationed in the Service Territory and employees outside the Service Territory
who have knowledge of the Assets and the operation of the electric distribution business in the Service Territory, at any reasonable time and in any reasonable manner and will furnish Buyer at such times such financial and operating data and other
information with respect to the Assets and the Service Territory as Buyer may reasonably request in connection with its evaluation of the transactions contemplated by this Agreement, subject to the provisions of the Access and Indemnity Agreement between
Buyer and PacifiCorp dated May 5, 1999. Promptly after the signing of this Agreement, PacifiCorp will appoint a representative in the Service Territory to assist in the coordination of Buyer's due diligence efforts (the "Coordinator"). All requests for
access to the Assets or to PacifiCorp's employees in the Service Territory shall be made orally or in writing to the Coordinator. All requests for access to books, files and records not located in the Service Territory shall be made in writing to, and
coordinated with, PacifiCorp's Business Development department at telecopy number (801) 220-3116. PacifiCorp shall provide material, nonpublic information to Buyer only if it is expressly requested in writing to do so by Buyer. Any investigation or
inquiry made by Buyer pursuant to this Agreement shall not in any way affect or lessen the representations and warranties made by PacifiCorp in this Agreement, or the survival of its representations and warranties, provided that if Buyer
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discovers or ascertains any information which it believes does affect, lessen, contradict, or violate any of the representations and warranties made by PacifiCorp, it shall promptly, in writing, communicate such fact and/or circumstances to PacifiCorp.
Upon receipt of any such notice, PacifiCorp shall, within thirty days, use its reasonable best efforts to the extent practicable, in its sole discretion, at its own expense, to remedy any breach or violation of its representations or warranties contained
in this Agreement, provided, however, that neither the taking of such efforts nor the success or failure thereof shall in any way alter PacifiCorp's obligations under this Agreement. All information obtained by Buyer, its employees, agents,
representatives and advisors under this Section 5.03 shall be subject to the confidentiality and use restrictions contained in that certain Confidentiality Agreement dated December 30, 1998 between Buyer and PacifiCorp (the "Confidentiality Agreement")
.
(b) Environmental Evaluations. Subject to the provisions of Section 5.03(a), Buyer shall be entitled, for a period expiring September 13,
1999, to undertake drilling, core sampling, and other subsurface testing and evaluation of the Assets, and other activities typically associated with phase II environmental assessments (the "Environmental Evaluations"). Buyer shall provide PacifiCorp with
the results of all tests and data developed in connection with the Environmental Evaluations, and copies of all reports and studies prepared by or for Buyer related to the environmental condition of the Assets. Buyer shall not, unless required by law,
regulation or order of any court or administrative tribunal, disclose the results of Environmental Evaluations to governmental authorities, either before or after Closing.
5.04 Franchise Agreements. PacifiCorp will use its reasonable best efforts to assist and support Buyer in obtaining any required assignments or transfers of its franchise agreements
in the Service Territory to Buyer.
5.05 Conditions and Best Efforts. Subject to the terms of this Agreement and fiduciary obligations under applicable law, PacifiCorp shall use its reasonable best efforts to effectuate
the transactions contemplated by this Agreement and to fulfill all of the conditions of the Parties' obligations under this Agreement and shall do all such acts and things as reasonably may be required to carry out PacifiCorp's obligations hereunder and
to consummate and complete this Agreement, including, without limitation of the foregoing, promptly making application for Necessary Regulatory Approvals. PacifiCorp shall make reasonable efforts to make its filing under Section 851 of the California
Public Utilities Code by August 6, 1999. Prior to filing applications, prefiled testimony or responses to data requests in the course of obtaining Necessary Regulatory Approvals, PacifiCorp shall provide such materials to Buyer for its information
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and solicit Buyer's comments to such materials. Notwithstanding the foregoing, PacifiCorp shall not be required in connection with any regulatory approval to agree to any payment or agree to any conditions of approval that are unacceptable to PacifiCorp
in its sole discretion.
5.06 Marketable Title to Assets. At Closing, PacifiCorp shall deliver to Buyer good and marketable title to all the Assets, whether real, personal, mixed, tangible or intangible, free
and clear of all liens, mortgages, pledges, security interests or other encumbrances, including without limitation, leases, subleases, rights of way, licenses, easements, options to purchase, encumbrances, covenants, or exceptions, except for Permitted
Liens.
5.07 Preserve Relationships. PacifiCorp will use its reasonable efforts to maintain business relationships with its suppliers and customers, except for changes in the ordinary course
of business.
5.08 Maintain Properties. PacifiCorp will maintain the Assets, consistent with past practices, in good repair, working order and condition, except for obsolescence, ordinary wear and
tear and damage due to casualty.
5.09 Notification. PacifiCorp will give Buyer prompt written notice of any event or condition of any kind learned by PacifiCorp between the date hereof and Closing pertaining to and
adversely affecting the financial position, prospects, operations or business of the electric distribution system in the Service Territory, excepting events or conditions affecting the electric utility business generally.
5.10 Customer Data. PacifiCorp will, as soon as practicable after the Closing, deliver to Buyer 13 months of customer history, including site data, meter data, invoice data,
collection information, and rate data, to the extent such data exists and is available in PacifiCorp's data bases, but excluding (i) any data which is proprietary to PacifiCorp and does not relate specifically to the Service Territory, and (ii) any data
which PacifiCorp reasonably believes it is prohibited, under applicable law, from disclosing to Buyer. The foregoing data shall be delivered in the format, and in the storage media, in which it is maintained by PacifiCorp. PacifiCorp will at Buyer's
expense, pursuant to the Transition Services Agreement attached hereto as Exhibit E, reformat such data, or transfer the data to another storage media, as reasonably requested by Buyer.
5.11 Post-Closing Consents. To the extent PacifiCorp does not obtain, by Closing, consents required under contracts and agreements included in the Assets, PacifiCorp shall, after
Closing, use diligent efforts to obtain such
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consents. Nothing in this Agreement shall be construed as a transfer of any of the Assets or any claims or rights arising thereunder or resulting therefrom which, as a matter of law or by their terms, cannot be so transferred without the approval or
consent of the issuer thereof or the other party or parties thereto unless such approval or consent shall have been obtained (collectively, "Non-Assignable Rights"). In connection with such Non-Assignable Rights, PacifiCorp shall:
(a) apply for and use all reasonable efforts to obtain all consents or approvals of the issuer or other parties thereto for the assignment of such
Assets;
(b) cooperate with Buyer in any reasonable and lawful arrangements designed to effectively make available to Buyer the benefits of such
Non-Assignable Rights with the intent that Buyer shall be in the same economic position as if such Non-Assignable Rights were transferred to it, including acting as agent for Buyer;
(c) enforce, at Buyer's expense, such Non-Assignable Rights against the issuer thereof or the other party or parties thereto;
(d) take all such actions in its name or otherwise and do, or cause to be done, all such things at the request of Buyer as shall reasonably be
necessary and proper in order that the value of any Non-Assignable Rights shall be preserved and shall inure to the benefit of Buyer; and
(e) pay over to Buyer, all monies collected by or paid to PacifiCorp after Closing in respect of such Non-Assignable Rights, net of reasonable
out-of-pocket expenses.
5.12 AB 1890. PacifiCorp has not implemented and will not implement the imposition of a competition transition charge or fixed transition amount, both as defined in AB 1890, with
respect to any portion of the Service Territory.
5.13 Delivery of Physical Records. Upon request by Buyer, PacifiCorp will deliver to Buyer all real property records and contracts files pertaining to the Assets. Such records and
files shall be delivered at the locations where such records and files are stored by PacifiCorp. PacifiCorp will retain such real property records and contract files not so requested by Buyer for a period of five years after Closing, provided, that
PacifiCorp may, at any time after the first anniversary of the Closing, notify Buyer of its intent to destroy or
15
dispose of real property records and contract files which PacifiCorp has retained (a "Destruction Notice"). If Buyer has not requested delivery of, and taken delivery of, records and files specified in the Destruction Notice within 60 days after the
effective date of such Destruction Notice, PacifiCorp shall thereafter have no obligation to retain such records and files and may destroy the same.
6. Covenants of Buyer. Buyer covenants and agrees as follows:
6.01 Conditions and Best Efforts. Subject to the terms of this Agreement and fiduciary obligations under applicable law, Buyer shall use its reasonable best efforts to effectuate the
transactions contemplated by this Agreement and to fulfill all of the conditions of the Parties' obligations under this Agreement and shall do all such acts and things as reasonably may be required to carry out Buyer's obligations hereunder and to
consummate and complete this Agreement, including without limitation of the foregoing, promptly making application for Necessary Regulatory Approvals and assisting PacifiCorp in seeking approval of its filings under Section 851 of the California Public
Utilities Code. Prior to filing applications, prefiled testimony or responses to data requests in the course of obtaining Necessary Regulatory Approvals, Buyer shall provide such materials to PacifiCorp for its information and solicit PacifiCorp's
comments to such materials. Notwithstanding the foregoing, Buyer shall not be required in connection with any regulatory approval to agree to any conditions of approval that are unacceptable to Buyer in its sole discretion.
6.02 Confidentiality. All material nonpublic information requested and obtained by Buyer from PacifiCorp shall be used by Buyer solely for the purposes of evaluation of the
transactions contemplated by this Agreement. Buyer shall use its best efforts to assure that such information will be kept confidential and will not be made available to any person, other than those of its employees, agents, and advisors involved in
evaluating the transactions, without PacifiCorp's prior consent. If this Agreement should terminate without being performed, then Buyer shall either promptly destroy or return to PacifiCorp all of such nonpublic information. Except as required by law,
Buyer shall maintain confidential, and not disclose to any third party all information pertaining to the environmental condition of the Assets that may be obtained, or learned, by Buyer as a result of Buyer's due diligence evaluations of the Assets;
including without limitation, the results of all subsurface testing, core drilling or phase II environmental assessments.
6.03 Employees. Immediately following the Closing, Buyer shall offer positions to all PacifiCorp employees in the Service Territory. The employees hired by Buyer shall be offered
wages at the same level as were
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provided to such employees by PacifiCorp and shall be covered by a benefit package comparable in scope and value and in the aggregate to the benefit package provided to such employees by PacifiCorp. Buyer shall recognize the IBEW Local Union No. 659 as
the collective bargaining representative of the employees and assume, with respect to the hired union employees, the obligations of the employer under the Working Agreement dated April 26, 1997 between PacifiCorp and IBEW Local Union No. 659 (the "Working
Agreement"), subject to its need to negotiate any changes, including, but not limited to, those relating to the form of benefits made necessary by its status as a governmental entity. Buyer shall give credit for service with PacifiCorp prior to Closing to
any of PacifiCorp's employees who are hired by Buyer for the following purposes:
(i) eligibility to participate in any of Buyer's employee benefit
plans or fringe benefits that have an eligibility waiting period;
(ii) vesting of benefits provided under any of Buyer's employee
retirement or retiree welfare plans;
(iii) accrual of benefits under any pension plan maintained or
contributed to by Buyer;
(iv) length of service for accrual of vacation, sick leave or other
paid time off.
Such employees shall be credited by Buyer with the personal leave, vacation time and sick leave accrued in accordance with the terms of the Working Agreement (or, in the case of non-union employees, the same accruals such employees had at PacifiCorp).
PacifiCorp shall not make any cash payment to former PacifiCorp employees hired by Buyer on account of unused personal time, vacation time, and sick leave and the Purchase Price shall be offset by an amount equal to each such employee's hours of unused
personal time, vacation time, and sick leave as of the Closing Date, multiplied by the employee's hourly rate of pay in effect on the Closing Date. Buyer shall provide such employees with coverage under its group health plans, with no preexisting
condition restrictions and no waiting period for eligibility, In the event the Closing occurs during a partial plan year, Buyer shall give credit under its health plans for amounts incurred as of the Closing Date toward deductibles and out-of-pocket
limits under the PacifiCorp plans. Former PacifiCorp employees hired by Buyer as of the Closing Date shall continue to be covered by PacifiCorp's group health plan through the end of the month in which the Closing Date occurs. In the event Buyer has not
implemented its group health plan as of the beginning of the next month, PacifiCorp shall permit such employees to elect COBRA coverage under the PacifiCorp group
17
health plan and Buyer shall pay PacifiCorp the amount of the COBRA premium due for each month of coverage until Buyer's group health plan becomes effective. PacifiCorp shall be responsible under its welfare benefit plans for claims incurred but not
reported as of the Closing Date or, in the event that Buyer's group health plan does not become effective as of the Closing Date, those claims incurred but not reported under PacifiCorp's group health plans through the last day of the month for which
Buyer pays the COBRA premium. Employees in the Service Territory who retire or are determined to be qualified for workers compensation or disability benefits before the Closing shall continue to receive benefits through PacifiCorp and not through Buyer.
Employees hired by Buyer who are age 50 or over with 15 or more years of service, or are age 55 or over with 5 or more years of service, as of the Closing shall be eligible to receive retiree health benefits and, if eligible, retiree life benefits from
PacifiCorp in accordance with PacifiCorp's plans upon termination of their employment with Buyer in addition to any retiree health benefits earned by such employees during their employment with Buyer. PacifiCorp shall cause the employees whose employment
is terminated as a result of the contemplated sale to become fully vested in their accrued benefits as of the Closing under the tax qualified retirement plans maintained by PacifiCorp. PacifiCorp shall cause assets and liabilities under PacifiCorp's
defined benefit pension plan with respect to such employees to be transferred in cash to a defined benefit pension plan maintained by Buyer in accordance with section 414(l) of the Internal Revenue Code. The amount of assets to be transferred from plan to
plan would be the minimum amount necessary to comply with section 414(l) calculated based on the plan termination assumptions in section 4044 of ERISA and related regulations for a Pension Benefit Guaranty Corporation trusteed plan termination. The amount
of assets shall be calculated by the enrolled actuary for the PacifiCorp plan and the calculation shall be provided for review by the enrolled actuary for Buyer's defined benefit pension plan. If such amount is not approved by the enrolled actuary for
Buyer's plan, the final amount shall be determined by a third enrolled actuary selected by agreement between PacifiCorp's actuary and Buyer's actuary. Buyer shall adopt a tax qualified defined contribution plan to cover its employees in the Service
Territory and shall cause such plan to accept direct rollover of assets distributed from PacifiCorp's tax qualified defined contribution plans, including, without limitation, outstanding participant loans to such employees. PacifiCorp shall permit its
employees who are hired by Buyer as of the Closing to make payments on any participant loans from its tax qualified defined contribution plans by check for a period of 60 days after the Closing Date. If Buyer's tax qualified defined contribution plan is
not adopted by the end of such 60 days, the period for PacifiCorp's acceptance of payments by check shall be extended for an additional period during which such plan is not adopted, not to exceed a total of six months after the Closing Date. Buyer shall pay
18
PacifiCorp the reasonable administrative costs of handling such payments by check. PacifiCorp shall cause its defined contribution plans to permit such employees to direct that shares of employer stock held by such a plan be converted to cash prior to
distribution. Buyer shall, after execution of the Asset Purchase Agreement, initiate negotiations with IBEW Local Union No. 659 for extension of the Working Agreement beyond its expiration on April 26, 2000, but Buyer's obligation to assume the contract
with IBEW Local Union No. 659 with respect to employees employed in the Service Territory as of the Closing Date, or to close the transaction, shall not be conditioned upon such an extension agreement being reached. No change of conditions of
employment relating to the employees hired by Buyer pursuant to this section will be implemented by Buyer without first complying with the requirements of the Working Agreement and applicable law, including, without limitation, laws relating to collective
bargaining.
6.04 Successor to Working Agreement. As referenced in Section 6.03 of this Agreement, PacifiCorp (d.b.a. "Pacific Power & Light Company") is a party to the Working
Agreement with Local Union No. 659. Buyer expressly agrees to become the successor to PacifiCorp under the Working Agreement with respect to employees employed in the Service Territory as of the Closing Date and in accordance with Section 2.07
of this Agreement. Buyer expressly agrees to assume PacifiCorp's liabilities and obligations under the Working Agreement to the extent provided in Section 2.07 and subject to restraints due to Buyer's status as a governmental entity.
6.05 Service Plan. Buyer shall, following Closing, provide customer service in accordance with the rate and service plan attached hereto as Exhibit G.
6.06 Response to Requests. Buyer shall not unreasonably withhold its consent to actions by PacifiCorp which, under Section 5.01, require Buyer's consent, and shall in any event
respond to PacifiCorp's requests for consents within 5 days of receipt of such requests.
6.07 Non-Assignable Rights. In connection with Non-Assignable Rights, Buyer shall:
(a) Cooperate with PacifiCorp's efforts to obtain all consents or approvals of the issuer or other parties thereto for the assignment of such Assets.
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(b) Pay to PacifiCorp all sums due under or pursuant to the Non-Assignable Rights, as and when due under the Non-Assignable Rights.
(c) Comply with all of the terms and conditions of, and perform all obligations imposed on PacifiCorp under, the Non-Assignable Rights.
7. Conditions Precedent to PacifiCorp's Obligations
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(f) Buyer has the power and authority to own and operate the Assets.
7.03 Necessary Regulatory Approvals. Necessary Regulatory Approvals shall have been obtained and be in effect at the Closing Date, all on terms acceptable to PacifiCorp, in its sole
discretion, and PacifiCorp shall have advised Buyer to that effect.
7.04 QF Sales Agreements. PacifiCorp and Buyer shall have executed QF Power Sales Agreements, each substantially in the form of Exhibit B, pursuant to which the Buyer agrees to
purchase power that PacifiCorp purchases from certain generation projects.
7.05 Use of Facilities Agreements. PacifiCorp and Buyer shall have executed such Use of Facilities Agreements as may be reasonably required to address small cross border loads.
7.06 Transmission Network Service Agreement. PacifiCorp and Buyer shall have executed a Transmission Network Service Agreement, substantially in the form of Exhibit D.
7.07 Transition Services Agreement. PacifiCorp and Buyer shall have executed a Transition Services Agreement, substantially in the form of Exhibit E, under which PacifiCorp will, for
a transition period, provide certain management and administrative services to Buyer.
7.08 Emergency Assistance Arrangements Agreement. PacifiCorp and Buyer shall have executed an Emergency Assistance Arrangements Agreement, substantially in the form of Exhibit F.
7.09 Transmission Facilities Maintenance Agreement. PacifiCorp and Buyer shall have executed a Transmission Facilities Maintenance Agreement, substantially in the form of Exhibit H.
7.10 Stateline Distribution Agreement. PacifiCorp and Buyer shall have executed a Stateline Distribution Agreement, substantially in the form of Exhibit I.
7.11 Interim Power Supply Agreement. PacifiCorp and Buyer shall have executed an Interim Power Supply Agreement substantially in the form of Exhibit J.
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7.12 Netting Agreement. PacifiCorp and Buyer shall have executed a Netting Agreement substantially in the form of Exhibit K.
7.13 State Line Agreement. PacifiCorp and Buyer shall have executed a State Line Agreement providing for physical separation and metering between PacifiCorp's Oregon transmission and
distribution system and the Buyers transmission and distribution system.
7.14 Litigation. At the Closing Date, there shall not be in effect any order, decree, or injunction of a court of competent jurisdiction restraining, enjoining, or prohibiting the
consummation of the transactions contemplated by this Agreement (each Party agreeing to use its best efforts, including appeals to higher courts, to have any such order, decree or injunction set aside or lifted), and no action shall have been taken, and
no statute, rule, or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of such transactions.
7.15 Buyer shall have executed a copy of PacifiCorp's FERC Electric Tariff, Volume No. 12 ("Volume No. 12 Tariff").
8. Conditions Precedent to Buyer's ObligationsError! Bookmark not defined.. All of the obligations of Buyer to be discharged prior to or at the Closing are subject to the fulfillment, prior to or at
the Closing, of each of the following conditions:
8.01 Representations, Warranties, and Covenants of PacifiCorp. All representations and warranties made in this Agreement by PacifiCorp shall be true and correct in all material
respects as of the Closing Date as fully as though such representations and warranties had been made on and as of the Closing Date, except for representations and warranties specifically referring to another date, and as of the Closing Date, PacifiCorp
shall have complied in all material respects with all covenants made by it in this Agreement.
8.02 Third Party Consents. PacifiCorp shall have obtained (a) the release of the Assets from the PacifiCorp Mortgage and any other existing mortgages or deeds of trust, and
(b) the written consent of third parties, including government agencies, in form and substance satisfactory to Buyer and its counsel, necessary for consummation of the transactions contemplated by this Agreement, other than (i) those which, if not
obtained, would not, in the aggregate, have an adverse effect on the value of the Assets, and (ii) consents
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from railroads, and government agencies with respect to easements, rights of way and similar rights that are normally processed in the ordinary course.
8.03 Necessary Regulatory Approvals. Necessary Regulatory Approvals shall have been obtained and be in effect at the Closing Date, all on terms acceptable to Buyer, in its sole
discretion, and Buyer shall have advised PacifiCorp to that effect.
8.04 Title. Buyer shall have received commitment for title insurance reports issued by First American Title Insurance Company disclosing that title to each parcel of real property
included in the Assets is held in fee simple, subject only to Permitted Liens and such other matters as shall have been approved by Buyer. PacifiCorp shall not be required to provide title insurance to Buyer with respect to this transaction, and the costs
of the title insurance commitments, and any title insurance issued to Buyer, shall be borne by Buyer. Conveyances of fee title to real property shall be by grant deed, subject to (i) Permitted Liens and (ii) such other matters shown on the title
commitment which shall have been approved by Buyer.
8.05 Opinion of Counsel for PacifiCorp. PacifiCorp shall have furnished Buyer with an opinion of Stoel Rives LLP, counsel for PacifiCorp, dated the Closing Date, in form and substance
satisfactory to Buyer, to the effect that:
(a) PacifiCorp is an Oregon corporation, duly organized and validly existing under the laws of the State of Oregon;
(b) PacifiCorp has all requisite power and authority to own, operate and lease its properties, and to carry on its business as now being conducted;
(c) PacifiCorp has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder;
(d) The execution, delivery and performance of this Agreement by PacifiCorp have been duly authorized by all necessary corporate action; and
(e) This Agreement has been duly and validly executed and delivered by PacifiCorp and constitutes a valid and legally binding agreement enforceable
against PacifiCorp in accordance with its terms (except as the foregoing may be limited by (i) general principles of equity; and (ii) bankruptcy,
23
insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally).
8.06 QF Power Sales Agreements. PacifiCorp and Buyer shall have executed a QF Power Sales Agreements, each substantially in the form of Exhibit B, pursuant to which the Buyer
agrees to purchase power that PacifiCorp purchases from certain generation projects.
8.07 Use of Facilities Agreements. PacifiCorp and Buyer shall have executed such Use of Facilities Agreements as may be reasonably required to address small cross border loads.
8.08 Transmission Network Service Agreement. PacifiCorp and Buyer shall have executed a Transmission Network Service Agreement substantially in the form of Exhibit D.
8.09 Transition Services Agreement. PacifiCorp and Buyer shall have executed a Transition Services Agreement, substantially in the form of Exhibit E.
8.10 Emergency Assistance Arrangements Agreement. PacifiCorp and Buyer shall have executed an Emergency Assistance Arrangements Agreement, substantially in the form of Exhibit F.
8.11 Transmission Facilities Maintenance Agreement. PacifiCorp and Buyer shall have executed a Transmission Facilities Maintenance Agreement, substantially in the form of Exhibit H.
8.12 Stateline Distribution Agreement. PacifiCorp and Buyer shall have executed a Distribution Facilities Maintenance Agreement, substantially in the form of Exhibit I.
8.13 Interim Power Supply Agreement. PacifiCorp and Buyer shall have executed an Interim Power Supply Agreement substantially in the form of Exhibit J.
8.14 Netting Agreement. PacifiCorp and Buyer shall have executed a Netting Agreement substantially in the form of Exhibit K.
8.15 State Line Agreement. PacifiCorp and Buyer shall have executed a State Line Agreement providing for physical separation and metering
24
between PacifiCorp's Oregon transmission and distribution system and the Buyers transmission and distribution system.
8.16 Litigation. At the Closing Date, there shall not be in effect any order, decree, or injunction of a court of competent jurisdiction restraining, enjoining, or prohibiting the
consummation of the transactions contemplated by this Agreement (each Party agreeing to use its best efforts, including appeals to higher courts, to have any such order, decree or injunction set aside or lifted), and no action shall have been taken, and
no statute, rule, or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of such transactions.
8.17 Casualty. There shall not, at Closing, be unrepaired casualty damage to the electric distribution system included in the Assets which renders a material portion of the electrical
distribution system inoperative.
9. Notices of Development.
9.01 PacifiCorp may elect to notify the Buyer in writing of any development causing any of the representations and warranties in Sections 3.03 through 3.18 not to be true. Unless Buyer has
the right to terminate this Agreement pursuant to Section 9.02 by reason of the development and exercises that right within ten (10) business days after notice of the development, the written notice pursuant to this Section 9.01 shall be deemed to have
qualified the representations and warranties in Sections 3.03 through 3.18, to have amended any schedule referenced in such Sections, and to have caused any representation or breach of warranty that otherwise might have existed hereunder by reason of the
development to be cured, but shall not relieve PacifiCorp from its obligations under Section 12.04(a).
9.02 If (a) PacifiCorp gives written notice to Buyer under Section 9.02 of a development, and (b) the development that is the subject of the notice, either individually or in the aggregate
with other developments for which PacifiCorp has given Buyer notice under Section 9.01, has had a Material Adverse Effect, then Buyer may, by notice to PacifiCorp within five (5) business days of PacifiCorp's notice of the development, elect to terminate
this Agreement. As used herein, a Material Adverse Effect means any change or effect that is reasonably expected to have an adverse effect to the business, operations, properties or assets of the electric distribution system in the Service Territory,
taken as a whole, which is not considered in the calculation of the Purchase Price under Section 2.03, and which is reasonably expected to have a present value in excess of $1,000,000.
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10. Closing.
10.01 Time and Place. The Closing of the transactions contemplated by this Agreement (the "Closing") shall take place 30 business days after final approvals of the California Public
Utility Commission and FERC are received, but not earlier than January 5, 2000 nor later than February 28, 2000 or on such other date as may be mutually agreed upon by the Parties. The transfer of the Assets shall be effective as of
11:59:59 p.m. Pacific Prevailing Time on the Closing Date. The Closing shall be held at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, Portland, Oregon, or at such other place as the Parties may mutually agree.
10.02 Further Assurances. From time to time after the Closing, each Party, upon the request of the other Party, shall without further consideration execute, deliver, and
acknowledge all such further instruments of transfer and conveyance and do and perform all such other acts and things as either Party may reasonably require to more effectively carry out the intent of this Agreement.
10.03 Meter Readings. On the Closing Date, PacifiCorp shall arrange for meter readings of its large commercial and industrial accounts in the Service Territory. PacifiCorp will
continue to read the meters for its residential and small commercial accounts in the Service Territory through the end of the billing cycles that includes the Closing Date, upon which time PacifiCorp shall prorate the revenue on a daily basis.
11. Additional Conditions.
11.01 Buyer's Additional Conditions. Buyer's obligation to close the transactions contemplated by this Agreement is subject to Buyer's satisfaction with the results of its evaluation
of the environmental condition of the Assets. Buyer shall notify PacifiCorp on or before September 13, 1999 whether this condition has been satisfied, or whether it elects to terminate this Agreement. If Buyer fails to notify PacifiCorp by September 13,
1999 of the satisfaction or non-satisfaction of such condition, such condition shall be deemed waived. Neither Buyer's notice of satisfaction or a deemed waiver shall in any way reduce or offset PacifiCorp's indemnity under Section 12.
11.02 PacifiCorp's Additional Conditions. PacifiCorp's obligation to close the transactions contemplated by this Agreement is subject to satisfaction of the following conditions on or
before the respective dates indicated below:
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(a) Buyer obtaining, and providing to PacifiCorp on or before September 13, 1999, either a preliminary commitment of an insurance company,
indicating the intention of the insurance company to insure bonds to be issued by Buyer or another public body (either directly or indirectly through the California Statewide Community Development Authority or another public body), or a preliminary loan
commitment indicating the intention of a lender to make a loan to Buyer, in either case, in an amount sufficient to enable Buyer to close the purchase of the Assets.
(b) Buyer obtaining and providing to PacifiCorp on or before November 12, 1999, either (i) a binding commitment of an insurance company, in a
form and from an insurer, and subject only to conditions, acceptable to PacifiCorp, committing to insure such bonds, or (ii) a binding commitment of a lender in a form and from a lender, and subject only to conditions, acceptable to PacifiCorp, committing
to make such loan. Such commitments must have an expiration no earlier than February 1, 2000.
PacifiCorp shall notify Buyer on or before the respective dates specified above whether the conditions in this Section 11.02 have been satisfied. If PacifiCorp fails to notify Buyer by the respective date of the satisfaction or nonsatisfaction of such
condition, such condition shall be deemed waived.
12. Survival of Warranties Etc., Indemnities.
12.01 Representations, Warranties, and Covenants of the Parties to Be Continuing. All representations, warranties, covenants and indemnification of the Parties, and all liability
therefor, shall survive the Closing for a period of three years except the environmental indemnity set forth in Subsections 12.04(a) and 12.05 which shall survive the Closing for a period of five years, and the environmental indemnity set forth in
Subsection 12.04(b) which shall be ongoing.
12.02 Indemnification by PacifiCorp. PacifiCorp shall, in conjunction with Subsections 12.04(a) and 12.05, to a cumulative maximum of the Indemnity Cap, indemnify, defend, and
hold harmless Buyer, its officers, directors, commissioners, employees, representatives and agents, and their respective successors and assigns from and against any claim, demand, obligation, liability, loss, cost, damage, or expense, including interest,
penalties, and reasonable attorneys' fees but specifically excluding consequential or indirect damages or lost profits caused by or arising out of:
(a) Any breach or default in the performance by PacifiCorp of any covenant or agreement of PacifiCorp contained in this Agreement;
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(b) Any breach of warranty or representation made by PacifiCorp herein or in any schedule or exhibit hereto, or in any certificate or other
instrument delivered by or on behalf of PacifiCorp pursuant hereto; or
(c) Any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses incident to any of
the foregoing.
Buyer and its successors and assigns shall promptly notify PacifiCorp in writing when it or they become aware of any matter arising under the foregoing indemnification provision. PacifiCorp may contest
and defend in good faith any claim of third parties covered by this Section, provided such contest is made without cost or prejudice to Buyer, and provided that within ten days of PacifiCorp's receipt of notice of such claim, PacifiCorp notifies Buyer of
its desire to defend and contest such claim. Buyer shall reasonably cooperate with PacifiCorp in its investigation and response to any third party claim.
If PacifiCorp does not notify Buyer of its desire to contest the claim, PacifiCorp shall reimburse Buyer on demand for any payment actually made by Buyer at any time after the Closing Date with respect
to any claim, demand, obligation, liability, loss, cost, damage or expense to which the foregoing indemnity relates.
12.03 Indemnification by Buyer. Buyer shall indemnify and hold harmless PacifiCorp, its officers, directors, employees, affiliated corporations, representatives and agents, and their
respective successors and assigns from and against any claim, demand, obligation, liability, loss, cost, damage, or expense, including interest, penalties, and reasonable attorneys' fees, but specifically excluding consequential or indirect damages or
lost profits, caused by or arising out of:
(a) The liabilities assumed by Buyer under Subsection 2.07 and liabilities arising after the Closing Date with respect to its ownership
and operation of the Assets or the Service Territory;
(b) Any breach or default in the performance by Buyer of any covenant or agreement of Buyer contained in this Agreement;
(c) Any breach of warranty or representation made by Buyer herein or in any schedule or exhibit hereto, or in any certificate or other
instrument delivered by or on behalf of Buyer pursuant hereto; or
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(d) Any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses incident to any of
the foregoing.
PacifiCorp and its successors and assigns shall promptly notify Buyer in writing when it or they become aware of any matter arising under the foregoing indemnification provision. Buyer may contest and
defend in good faith any claim of third parties covered by this Subsection, provided such contest is made without cost or prejudice to PacifiCorp, and provided that within ten days of Buyer's receipt of notice of such claim, Buyer notifies PacifiCorp of
its desire to defend and contest such claim. PacifiCorp shall reasonably cooperate with Buyer in its investigation and response to any third party claim.
If Buyer does not notify PacifiCorp of its desire to contest the claim, Buyer shall reimburse PacifiCorp on demand for any payment actually made by PacifiCorp at any time after the Closing Date with
respect to any claim, demand, obligation, liability, loss, cost, damage or expense to which the foregoing indemnity relates.
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12.04 Environmental Indemnification.
(a) PacifiCorp will, subject to the limitations in Section 12.05(c), for any event or condition discovered by Buyer or asserted against Buyer
for which Buyer has notified PacifiCorp during the period of five (5) years from the Closing Date, defend, indemnify and hold harmless the Buyer, including its former, present and future officers, directors, employees, agents, shareholders, contractors,
subcontractors, licensees, invitees, attorneys, and all heirs, representatives, successors and assigns from and against any and all losses, claims, liabilities, suits, obligations, fines, damages, judgments, injuries, costs of investigation, clean-up
costs and costs of remediation, administrative orders, consent agreements and orders, penalties, actions, causes of action, charges, costs and expenses (including reasonable attorneys' fees and consultants' fees), but specifically excluding consequential
or indirect damages and lost profits (collectively "Losses"), including but not limited to Losses arising out of loss of life, injury to persons, property or business, or damage to natural resources, whether based on strict liability, tort, contract,
implied or express warranty, statute, regulation, common law, or otherwise, to the extent caused, directly or indirectly, by PacifiCorp's actions or failure to act during its tenure of ownership of the Assets and relating to (i) the existence, use,
handling, storage, transportation, treatment, manufacture, release or disposal of any hazardous, toxic or dangerous waste, substance or material (defined, listed or regulated under (any Environmental Law (including polychlorinated biphenyls and petroleum
products), in, on or under the particular Asset, whether foreseeable or unforeseeable, regardless of the source, time of occurrence or discovery or (ii) any violation (or alleged violation) of Environmental Law in connection with the use or operation
of the Assets.
(b) Buyer will defend, indemnify and hold harmless PacifiCorp, including its former, present and future officers, directors, employees,
agents, shareholders, contractors, subcontractors, licensees, invitees, attorneys, and all heirs, representatives, successors and assigns from and against any and all Losses, including but not limited to Losses arising out of loss of life, injury to
persons, property or business, or damage to natural resources, whether based on strict liability, tort, contract, implied or express warranty, statute, regulation, common law, or otherwise, to the extent caused, directly or indirectly, by Buyer's actions
or failure to act during its tenure of ownership of the Assets and relating to (i) the existence, use, handling, storage, transportation, treatment, manufacture, release or disposal of any hazardous, toxic or dangerous waste, substance or material
(defined, listed or regulated under any Environmental Law, including polychlorinated biphenyls and
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petroleum products), in, on or under the particular Asset, whether foreseeable or unforeseeable, regardless of the source, time of occurrence or discovery, or (ii) any violation (or alleged violation) of Environmental Law in connection with the use
or operation of the Assets.
12.05 Environmental Response. In the event that Buyer shall be required by, or pursuant to any consent decree entered into with, any governmental agency having jurisdiction or the
lawful order of a court of competent jurisdiction, to perform any investigation, removal, response or remedial action covered by PacifiCorp's agreement to indemnify Buyer as set forth in Subsection 12.04(a) above:
(a) Buyer shall immediately give written notice of such order or decree to PacifiCorp and PacifiCorp shall have a period of sixty (60) days
within which to elect to perform such investigation, removal, response or remedial action itself or to reimburse Buyer for the cost thereof; provided, however, if the order or decree requires a response by Buyer in less than sixty (60) days, then
PacifiCorp shall make its election within such period as may allow Buyer to respond to the order or decree in timely fashion;
(b) If PacifiCorp elects to perform such investigation, removal, response or remedial action itself, it shall have the exclusive right to
negotiate all elements of the work with the governmental agency, and shall have such easements and rights of access to the Assets as may be necessary to complete the work; provided, however, that PacifiCorp and Buyer will consult in good faith to assure
that the work, to the extent practicable, will not unduly interfere with Buyer's operations and will be appropriate to the uses of the property involved; provided, however, that if PacifiCorp elects to perform such investigation, removal, response or
remedial action itself, it shall indemnify and save harmless Buyer and its successors and assigns from and against any and all claims, demands, obligations, liabilities, losses, costs, damages, or expenses, including interest, penalties, and reasonable
attorneys' fees, of whatsoever nature growing out of personal injury to or death of persons whomsoever, or loss or destruction of or damage to property whatsoever, where such personal injury, death, loss, destruction or damage arises in connection with or
incident to the entry upon, occupation of or activities with respect to the Assets by PacifiCorp, its agents or contractors, and, in addition, PacifiCorp covenants and agrees to pay in full for all materials affixed to such property and to pay in full all
persons who perform labor upon such property, and not to permit or suffer any mechanics or materialman's lien of any kind or nature to be enforced against the property for any work done or materials furnished thereon at the instance or request or on
behalf of PacifiCorp; and PacifiCorp agrees to indemnify and hold
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harmless Buyer against and from any and all liens, claims, demands, costs and expenses of whatsoever nature in any way connected with or growing out of such work done, labor performed or materials furnished; and
(c) At such time as PacifiCorp shall have expended a sum equal to the Indemnity Cap in connection with any removal, response or remedial
action under this Section 12.05 and in connection with all other matters for which PacifiCorp has been called upon to indemnify Buyer under Subsections 12.02 and 12.04(a) above, PacifiCorp's indemnity obligations under this Agreement shall terminate and
be of no further effect; and thereafter Buyer (i) shall assume all obligations pursuant to the orders or decrees under which PacifiCorp had been performing such removal, response or remedial actions, (ii) shall release PacifiCorp from all
further liability in connection with the Assets and the Service Territory, and (iii) shall indemnify and hold harmless PacifiCorp and its successors and assigns from and against any claim, demand, obligation, liability, loss, cost, damage and expense
arising from PacifiCorp's ownership and/or operation of the Assets and the Service Territory.
12.06 Exclusive Remedies. The obligation of PacifiCorp under this Section 12 shall be the exclusive obligation of PacifiCorp with respect to environmental matters pertaining to
the Assets, and Buyer waives all other rights and remedies to which Buyer might otherwise be entitled under any statute, regulation or ordinance or other theory of law or equity pertaining to environmental matters or breaches of Environmental Laws.
13. Termination.
13.01 Termination. This Agreement may be terminated and abandoned at any time prior to the Closing if:
(a) The Parties agree in writing to terminate this Agreement by mutual consent; or
(b) Buyer delivers a written notice to PacifiCorp to the effect that (i) one or more of the conditions to the obligations of Buyer set
forth in Section 8 (which shall be specified in detail in such notice) cannot be met on or before February 28, 2000 (or such later date to which the term of this Agreement may be extended pursuant to Subsection 13.01(f)), (ii) PacifiCorp
has defaulted in a material respect under one or more of its covenants and agreements contained herein (which shall be specified in detail in such notice), and such condition or conditions have not been satisfied or such default or defaults have not been
remedied (or waived by Buyer) within thirty (30) days after the date such notice is
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delivered by Buyer to PacifiCorp, (iii) Buyer delivers a written notice to PacifiCorp on or before August 30, 1999 that the condition in Section 11.01 is not satisfied; or (iv) Buyer is terminating the Agreement under Section 9.02.
(c) PacifiCorp delivers a written notice to Buyer to the effect that (i) one or more of the conditions to the obligations of PacifiCorp
set forth in Section 7 (which shall be specified in detail in such notice) cannot be met on or before February 28, 2000 (or such later date to which the term of this Agreement may be extended pursuant to Subsection 13.01(f), or (ii) Buyer
has defaulted in a material respect under one or more of its covenants and agreements contained herein (which shall be specified in detail in such notice), and such condition or conditions have not been satisfied or such default or defaults have not been
remedied (or waived by PacifiCorp) within thirty (30) days after the date such notice is delivered by PacifiCorp to Buyer or (iii) PacifiCorp delivers a written notice to Buyer, on or before the dates specified in Section 11.02, that a condition in
Section 11.02 is not satisfied; or
(d) Any governmental or regulatory body the consent of which is a condition to the obligations of Buyer and PacifiCorp to consummate the
transactions contemplated by this Agreement shall have determined not to grant its consent and all appeals of such determination shall have been taken and have been unsuccessful; or
(e) Any court of competent jurisdiction in the United States or any State shall have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the purchase of the Assets from PacifiCorp by Buyer and such order, judgment or decree shall have become final and nonappealable; or
(f) The Closing shall not have occurred on or before February 28, 2000 (other than by virtue of a default by one of the Parties), or such
later date to which the term of this Agreement may be extended pursuant to mutual agreement of the Parties, provided that one of the Parties gives notice to the other so terminating this Agreement.
13.02 Effect of Termination. Any termination pursuant to this Section 13 shall relieve both the Parties hereto of all of their obligations set forth herein and constitutes a
failure of the conditions to the obligations of the Parties to implement this Agreement, except that nothing herein will relieve any Party from liability for any breach of this Agreement.
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14. Assignment.
14.01 Assignment. Neither party may assign its rights under this Agreement to any third party without the written consent of the other Party.
14.02 No Discharge. No assignment of this Agreement shall operate to discharge the assignor of any duty or obligation hereunder without the written consent of the other Party.
15. Separation Costs. Buyer and PacifiCorp shall each pay one-half of the cost incurred (either before or after Closing but prior to the first anniversary of Closing) for equipment necessary to separate the
Service Territory from the remainder of PacifiCorp's distribution and transmission system. Costs so incurred by PacifiCorp prior to Closing shall not be included in the purchase price computed under Section 2.03, and one-half of such costs shall be
separately paid by Buyer to PacifiCorp at Closing.
If a party incurs, after Closing and prior the first anniversary of the Closing, costs for equipment for separating the systems, the other party shall, promptly upon receiving a billing and reasonable
supporting documentation, pay to the party incurring such costs an amount equal to one-half of such costs.
16. Miscellaneous.
16.01 Allocation. The Final Purchase Price shall be allocated among the Assets in such manner as may be agreed upon by PacifiCorp and Buyer in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, ("Section 1060"), and the regulations promulgated thereunder; provided, however, that if PacifiCorp and Buyer cannot agree upon such allocation, such allocation shall be as reasonably established by
PacifiCorp. Neither PacifiCorp nor Buyer will take any action that would be inconsistent with the allocation as so established.
16.02 Post-Closing Access.
Buyer shall allow PacifiCorp reasonable access after Closing to the Assets and facilities transferred to Buyer to enable PacifiCorp to retrieve the
Excluded Assets (including, without limitation, communications equipment retained by PacifiCorp).
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16.03 Termination of Use of Name and Logo.
Immediately after the Closing, Buyer shall cease using PacifiCorp's name or logo or any of PacifiCorp's trade names or trademarks, on stationary,
literature or the like, and, as soon as practicable after the Closing, but in any event prior to the first anniversary of the Closing, shall remove PacifiCorp's logo and name from the assets purchased by Buyer.
16.04 Amendment. This Agreement may be amended only by an instrument in writing executed by the Parties which expressly refers to this Agreement and states that it is an amendment
hereto.
16.05 Section and Paragraph Headings. The Section and Subsection headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
16.06 Waiver. Any of the terms or conditions of this Agreement may be waived at any time and from time to time, in writing, by the Party entitled to the benefit of such terms or
conditions.
16.07 Choice of Law. This Agreement shall be subject to and be construed under the laws of the State of California.
16.08 Notices Prior to Closing. Prior to Closing, all notices, requests, demands, and other communications given by Buyer or PacifiCorp shall be in writing and shall be deemed to have
been duly given when telecopied, when delivered personally in writing or when deposited into the United States mail, to the following addresses:
If to Buyer to: |
Nor-Cal Electric Authority |
35
With a copy to: |
Robert N. Black |
If to PacifiCorp, to: |
PacifiCorp |
With a copy to: |
Stoel Rives LLP |
or to such other address as Buyer or PacifiCorp may designate in writing.
16.09 Notices Subsequent to Closing. All notices and other communications given by Buyer or PacifiCorp subsequent to Closing shall be deemed to have been duly given when telecopied,
when delivered personally in writing or when deposited into the United States mail, to the following addresses:
To Buyer: |
Nor-Cal Electric Authority |
To PacifiCorp: |
PacifiCorp |
16.10 Integrated Agreement. This Agreement, when executed, constitute the entire agreement between the Parties hereto, and supersedes all prior agreements and understandings, oral and
written, between the Parties hereto with respect to the subject matter hereof.
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16.11 Counterparts. This Agreement may be executed in two counterparts, each of which shall for all purposes be deemed to be an original and both of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the date first above written.
NOR-CAL ELECTRIC AUTHORITY |
|
|
37
Exhibit 3(b)
PacifiCorp
Bylaws
Effective November 29, 1999
BYLAWS
of
PACIFICORP
As Amended Effective November 29, 1999
ARTICLE I
OFFICES
The principal office of the Company in the State of Oregon shall be in the City of Portland, County of Multnomah. The Company may have such other offices, either within or without the State of Oregon, as the Board of
Directors may designate or as the business of the Company may, from time to time, require.
ARTICLE II
SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the shareholders shall be held on the second Wednesday in the month of May in each year, unless a different date is fixed by the Board of Directors, at such time
and place as are fixed by the Board of Directors and stated in the notice of the meeting. The failure to hold an annual meeting at the time stated herein shall not affect the validity of any corporate action.
2.2 Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, the President or the Board of
Directors and shall be called by the Chairman of the Board or the President upon the written demand, describing the purpose or purposes for which the meeting is to be held, signed, dated and delivered to the Company's Secretary, of the holders of not less
than one-tenth of all the outstanding votes of the Company entitled to be cast on any issue proposed to be considered at the meeting.
2.3 Place of Meetings. Meetings of the shareholders shall be held at such place, within or without the State of Oregon, as may be designated by the Board of Directors.
2.4 Notice of Meetings. Written or printed notice stating the date, time and place of the meeting and, in the case of a special meeting or where otherwise required by law, the purpose or purposes for
which the meeting is called shall be mailed by the Secretary to each shareholder entitled to vote at the meeting, and if required by law, to such additional shareholders as are entitled to receive notice, at the shareholder's address shown in the
Company's stock transfer books, with postage thereon prepaid, not less than 10 nor more than 60 days before the date of the meeting.
2.5 Fixing of Record Date. For the purpose of determining shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote or to take any other action, or shareholders
entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Company may fix a future date as the record date for any such determination of shareholders, such
date in any case to be not
1
more than 70 days nor, in the case of a meeting, less than 10 days before the meeting or action requiring a determination of shareholders. The record date for any meeting, vote or other action of the shareholders shall be the same for all voting groups.
2.6 Shareholders' List for Meeting. After a record date for a meeting has been fixed, the Company shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the
shareholders' meeting. The list shall be arranged by voting group and within each voting group by class or series of shares and show the address of and number of shares held by each shareholder. The shareholders' list shall be available for inspection by
any shareholder, upon proper demand as may be required by law, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the Company's principal office or at a place identified
in the meeting notice in the city where the meeting will be held. The Company shall make the shareholders' list available at the meeting and any shareholder or the shareholder's agent or attorney shall be entitled to inspect the list at any time during
the meeting or any adjournment. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.
2.7 Quorum; Adjournment.
(a) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the
votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action in that matter.
(b) A majority of votes represented at the meeting, whether or not a quorum, may adjourn the meeting from time to time to a different time and place without further notice to any
shareholder of any adjournment, except as may be required by law. At such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting originally held.
(c) Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting
unless a new record date is set for the adjourned meeting. A new record date shall be set if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
2.8 Voting Requirements; Action Without Meeting.
(a) If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast by the shares entitled to vote favoring the action exceed the votes cast
opposing the action, unless a greater number of affirmative votes is required by law or the Company's Restated Articles of Incorporation. If any share of capital stock of the Company is entitled to more or less than one vote on any matter, every reference
in these Bylaws to a majority or other proportion of shares shall refer to such a majority or other proportion of votes entitled to be cast.
(b) Action required or permitted by law to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the
action. The action must be evidenced by one or more written consents describing the action taken,
2
signed by all the shareholders entitled to vote on the action and delivered to the Secretary for inclusion in the minutes or filing with the Company's records. Such action shall not be effective unless, at least 10 days before the action is taken, any
non-voting shareholder entitled to notice of the proposed action is given written notice of the proposed action as required by law. Action taken under this section is effective when the last shareholder signs the consent, unless the consent specifies an
earlier or later effective date.
2.9 Proxies. A shareholder may vote shares in person or by proxy by signing an appointment. A shareholder may appoint a proxy by signing an appointment form either personally or by the shareholder's
attorney-in-fact. An appointment of a proxy shall be effective when received by the Secretary or other officer of the corporation authorized to tabulate votes.
2.10 Notice of Business. At any meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by
any shareholder of the Company who is a beneficial or record holder at the time of giving of the notice provided for in this Section 2.10, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section
2.10. For business to be properly brought before a shareholder meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company as follows: (a) for annual meetings, not less than 45 days nor more than 75 days prior to the date in the current year corresponding to the day and month of mailing of the Company's proxy statement for the
prior year's annual meeting, and (b) for other meetings, not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of such
other meeting is given or made, notice by the shareholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of such other meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before
the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address of the shareholder proposing such business, (c) the class and number of
shares of the Company which are beneficially owned by the shareholder and (d) any material interest of the shareholder in such business. If the shareholder is not a shareholder of record at the time of giving the notice, the notice shall be accompanied by
appropriate documentation of the shareholder's claim of beneficial ownership. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a shareholder meeting except in accordance with the procedures set forth in this
Section 2.10. The officer presiding at the meeting shall, if in the officer's opinion the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of these Bylaws, and
if such officer should so determine, such officer shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.10, a shareholder
shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.10.
2.11 Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors. Nominations of persons for election to the
Board of Directors of the Company may be made at a meeting of shareholders
3
(a) by or at the direction of the Board of Directors or (b) by any shareholder of the Company who is a beneficial or record holder at the time of giving of notice provided for in this Section 2.11, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth in this Section 2.11. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the meeting is given or made, notice by the shareholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or
reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving the notice (i) the name and address of such shareholder and (ii)
the class and number of shares of the Company which are beneficially owned by such shareholder. If the shareholder is not a shareholder of record at the time of giving the notice, the notice shall be accompanied by appropriate documentation of the
shareholder's claim of beneficial ownership. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Company unless nominated in accordance with the procedures set forth in this Section 2.11. The officer presiding at the meeting shall, if in the
officer's opinion the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if such officer should so determine, such officer shall so declare to the meeting and
the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.11, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Section 2.11.
2.12 Conduct of Meeting. The officer presiding at any meeting of the shareholders shall have authority to determine the agenda and order of business at the meeting and to adopt such rules and regulations as
may be necessary or desirable to promote the fair and efficient conduct of the business of the meeting.
ARTICLE III
BOARD OF DIRECTORS
3.1 Duties of Board of Directors; Election. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, its
Board of Directors, which shall be divided into three classes, as nearly equal in number as possible, with one class being elected each year. Members of a class shall be elected by the shareholders, by a plurality of the votes cast at the meeting.
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3.2 Number, Election and Qualification. The exact number of directors may, within the limits of not less than nine (9) nor more than twenty-one (21) set forth in Article VI of the Company's Restated
Articles of Incorporation, be fixed and increased or decreased from time to time by resolution of the Board of Directors. Directors shall hold office for a term of three years, and until their successors are elected and qualified or the number of
directors is decreased; provided, however, that the term of office of any director shall not extend beyond the regular quarterly meeting of the Board of Directors following the date the director reaches age 70; and, provided further, that the term of any
director who is also an employee of the Company shall expire at the date of the employee's retirement as an employee. No reduction in the number of directors shall shorten the term of any incumbent director.
3.3 Regular Meetings. The Board of Directors may provide the time and place, either within or without the State of Oregon, for the holding of regular meetings of the Board of Directors without other notice
.
3.4 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or any two directors. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the Board of Directors called by them.
3.5 Notice. Notice of the date, time and place of any special meeting of the Board of Directors shall be given at least 48 hours prior to the meeting by notice communicated in person, by telephone,
telegraph, teletype or other form of wire or wireless communication, or by mail or private carrier. If mailed, notice shall be deemed effective when deposited in the United States mail addressed to the director at the director's business address, with
postage thereon prepaid. Notice by all other means shall be deemed effective when received by or on behalf of the director. Except as otherwise provided by law or in the Company's Restated Articles of Incorporation, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
3.6 Quorum. One third of the total number of directors fixed in accordance with Section 3.2 of these Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of
Directors. If less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
3.7 Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a different number is provided by law,
the Restated Articles of Incorporation or these Bylaws.
3.8 Vacancies. Any vacancy, including a vacancy resulting from an increase in the number of directors, occurring on the Board of Directors may be filled by the shareholders, the Board of Directors or the
affirmative vote of a majority of the remaining directors if less than a quorum of the Board of Directors or by a sole remaining director. Any directorship not filled by the directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose; if the vacant office was held by a director elected by a voting group of shareholders, then only the holders of shares of that voting group are entitled to vote to fill the vacancy. A director elected to
fill a vacancy shall be elected to serve until the next meeting of
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shareholders at which directors are elected and shall continue to serve until a successor shall be elected and qualified or there is a decrease in the number of directors. A vacancy that will occur at a specific later date, by reason of a resignation or
otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.
3.9 Compensation. By resolution of the Board of Directors, the directors may be paid a reasonable compensation for their services as directors, and their expenses, if any, of attendance at each meeting
of the Board of Directors; provided, that no director who is also a full-time officer or employee of the Company shall receive additional compensation as a director. No such payment shall preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
3.10 Presumption of Assent. A director of the Company who is present at a meeting of the Board of Directors or a committee of the Board of Directors shall be deemed to have assented to the action taken
unless (a) the director's dissent or abstention from the action is entered in the minutes of the meeting, (b) the director delivers a written notice of dissent or abstention to the action to the presiding officer of the meeting before the adjournment
thereof or to the Company immediately after the adjournment of the meeting or (c) the director objects at the beginning of the meeting or promptly upon the director's arrival to the holding of the meeting or transacting business at the meeting. The right
to dissent or abstain shall not apply to a director who voted in favor of the action.
3.11 Executive Committee. The Board of Directors, as soon as may be after its election in each year, shall by resolution adopted by a majority of all the Directors in office when the action is taken,
designate from among its members an Executive Committee to consist of the officer designated as Chief Executive Officer and two or more other directors. Such Committee shall have and may exercise all of the powers of the Board during the intervals between
its meetings which may be lawfully delegated, subject to such limitations as may be provided by resolution of the Board. The Board shall have the power at any time to change the membership of such Committee and to fill vacancies in it. The Executive
Committee may make rules for the conduct of its business and may appoint such committees and assistants as it may deem necessary. A majority of the members of such Committee shall be a quorum. The Executive Committee shall elect one of its members as
chairman.
3.12 Other Committees. The Board of Directors, by resolution adopted by a majority of all the Directors in office when the action is taken, from time to time may establish, fix the membership, define the
duties and appoint the members of each of such other committees of the Board of Directors as it shall determine. One-third of the members of each such other committee, but in no case fewer than two directors, shall be a quorum of the committee.
ARTICLE III - A
SPECIAL NUCLEAR COMMITTEE
3A.1 Establishment of Committee; Membership. The Board of Directors shall establish a Special Nuclear Committee. The members of the Special Nuclear Committee shall be elected by the Board of Directors from
their number. The membership of the Special Nuclear Committee shall consist of three directors, or such larger number as the Board of Directors, from time to time,
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shall determine. No director may serve on the Special Nuclear Committee unless such director is a citizen of the United States of America. A majority of the members of the Special Nuclear Committee shall at all times be made up of directors ("Independent
Directors") who are not current or former employees of the Company or of any other affiliated entity (a) that owns, directly or indirectly through one or more subsidiaries, a majority of the outstanding capital stock of the Company, (b) a majority of the
outstanding equity securities of which is owned, directly or indirectly through one or more subsidiaries, by the Company, or (c) a majority of the outstanding equity securities of which is owned, directly or indirectly through one or more subsidiaries, by
any entity referred to in clause (a) of this paragraph 3A.1.
3A.2 Term; Removal. Each member of the Special Nuclear Committee shall serve for a term commencing on the date of election to the Special Nuclear Committee and ending when such member's term as a director
expires. During any director's term as a member of the Special Nuclear Committee, such member shall not be removed except for willful and continued failure by such member to substantially perform his or her duties to the Company in accordance with these
bylaws, or such member's conviction of fraud, embezzlement, theft or other criminal conduct involving a felony.
3A.3 Regular Meetings. Regular meetings of the Special Nuclear Committee may be held at such places and at such times as the members of the Special Nuclear Committee may by vote from time to time determine,
and if so determined, no notice thereof need be given.
3A.4 Special Meetings. Special meetings of the Special Nuclear Committee may be held at any time and at any place when called by two or more members of the Special Nuclear Committee, reasonable notice
thereof being given to each member of the Special Nuclear Committee, or at any time without call or formal notice, provided all the members of the Special Nuclear Committee are present or waive notice thereof by a writing which is filed with the records
of the meeting. In any case it shall be deemed sufficient notice to a member of the Special Nuclear Committee to send notice by mail or telegram at least forty-eight hours before the meeting addressed to such member at his or her usual or last known
business or residence address.
3A.5 Quorum. A majority of the members of the Special Nuclear Committee shall constitute a quorum for the transaction of business, but a lesser number may adjourn any meeting from time to time, and the
meeting may be held as adjourned without further notice. Except as otherwise provided, when a quorum is present at any meeting, a majority of the members in attendance there at shall decide any question brought before such meeting.
3A.6 Vacancies. If the office of any member of the Special Nuclear Committee, one or more, elected by the Board of Directors pursuant to 3A.1 of this Article III-A, becomes vacant by reason of death,
resignation, removal, disqualification or otherwise, the Board of Directors shall choose a successor or successors from among the members of the Board of Directors who are citizens of the United States of America, who shall hold office for the unexpired
term. Such successors shall be chosen in such a manner to ensure that, after giving effect to their selection, a majority of the members of the Special Nuclear Committee are Independent Directors, as such term is defined in 3A.1 of this Article III-A.
3A.7 Nuclear Authority Delegated to Special Nuclear Committee. Except as otherwise provided in 3A.8 of this Article III-A, the Special Nuclear Committee shall have sole discretion and
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the prior consent of the Nuclear Regulatory Commission, be amended or repealed unless and until (a) the provisions of the Atomic Energy Act of 1954, as amended, or the applicable regulations thereunder, are amended such as to remove the current provisions
thereof restricting foreign ownership of nuclear power facilities, or (b) the Company shall, with the consent of the Nuclear Regulatory Commission, have disposed of all of its interests in any nuclear power facilities. In the event that either such
condition shall have been met, the Company shall, prior to amending or repealing the provisions of this Article III-A, notify the Nuclear Regulatory Commission of its intent to effect such amendment or repeal.
ARTICLE IV
OFFICERS
4.1 Number. The officers of the Company shall be a Chairman of the Board (who shall be a Director of the Company), a President, one or more Vice Presidents (who may be distinguished from one another by
such designations as the Board of Directors may specify), a Secretary, a Treasurer, and if the Board of Directors shall deem such an officer desirable, a Controller. Each of the aforesaid officers shall be appointed by the Board of Directors. The Board of
Directors shall designate one of the officers of the Company (who shall also be a Director of the Company) as Chief Executive Officer. Other officers and assistant officers may be appointed as determined by the Board of Directors. Any two or more offices
may be held by the same person.
4.2 Appointment and Term of Office. With the exception of the initial appointment of any new officer or assistant officer, or the initial election of an officer to another or different office, which may
be at any meeting of the Board of Directors, the officers of the Company shall be appointed annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the appointment of officers shall not be held at
such meeting, such appointment shall be held as soon thereafter as conveniently may be. Each officer shall hold office until a successor shall have been duly appointed and shall have qualified or until such officer's death, resignation, or removal from
office in the manner hereinafter provided.
4.3 Removal. Any officer or agent appointed by the Board of Directors may be removed by the Board of Directors with or without cause, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. The appointment of an officer does not itself create contract rights.
4.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.
4.5 Chairman of the Board. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and shall perform other duties assigned by the Board of Directors.
4.6 Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Company and, subject to the control of the Board of Directors, shall in general supervise and control all
of the business and affairs of the Company.
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4.7 President. The President shall perform all duties incident to the office of President and such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors
.
4.8 Vice Presidents. Each of the Vice Presidents shall perform such duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors.
4.9 Treasurer. The Treasurer shall perform the duties usually pertaining to such office and such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of
Directors. The Treasurer shall give a bond for faithful discharge of the Treasurer's duties in such sum and with such surety or sureties as the Board of Directors shall determine.
4.10 Secretary. The Secretary shall have the responsibility for preparing minutes of all meetings of the directors and shareholders and for authenticating records of the Company. The Secretary shall in
addition perform other duties assigned by the Chief Executive Officer or the Board of Directors.
4.11 Other Officers. Other officers and assistant officers shall perform such duties as from time to time may be assigned to each of them by the Chief Executive Officer or the Board of Directors.
4.12 Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary because the officer is also a director
of the Company.
ARTICLE V
INDEMNIFICATION
The Company shall indemnify to the fullest extent not prohibited by law any person who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise (including an action,
suit or proceeding by or in the right of the Company) by reason of the fact that the person is or was a director, officer, employee or agent of the Company or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with
respect to any employee benefit plan of the Company, or serves or served at the request of the Company as a director, officer, employee or agent, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or
other enterprise. The Company shall pay for or reimburse the reasonable expenses incurred by any such person in any such proceeding in advance of the final disposition of the proceeding to the fullest extent not prohibited by law. This Article shall not
be deemed exclusive of any other provisions for indemnification or advancement of expenses of directors, officers, employees, agents and fiduciaries that may be included in any statute, bylaw, agreement, general or specific action of the Board of
Directors, vote of shareholders or otherwise.
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ARTICLE VI
ISSUANCE OF SHARES
6.1 Certificates for Shares.
(a) Certificates representing shares of the Company shall be in form determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, the President
or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal of the Company or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise
identified. The signatures of officers upon a certificate may be facsimiles.
(b) Every certificate for shares of stock that are subject to any restriction on transfer pursuant to the Restated Articles of Incorporation, the Bylaws, applicable securities laws,
agreements among or between shareholders or any agreement to which the Company is a party shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction and
that the Company retains a copy of the restriction. Every certificate issued when the Company is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the designations, relative rights,
preferences and limitations of the shares of each class and series authorized to be issued and the authority of the Board of Directors to determine variations for future series or a statement of the existence of such designations, relative rights,
preferences and limitations and a statement that the Company will furnish a copy thereof to the holder of such certificate upon written request and without charge.
(c) All certificates surrendered to the Company for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall
have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Company as the Board of Directors prescribes.
6.2 Transfer of Shares. Transfer of shares of the Company shall be made only on the stock transfer books of the Company by the holder of record thereof or by the holder's legal representative, who shall
furnish proper evidence of authority to transfer, or by the holder's attorney thereunto authorized by power of attorney duly executed.
6.3 Transfer Agent and Registrar. The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the Company, with such powers and duties as
the Board of Directors determines by resolution.
6.4 Officer Ceasing to Act. If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid.
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ARTICLE VII
CONTRACTS, LOANS, CHECKS AND OTHER INSTRUMENTS
7.1 Contracts. The Board of Directors may authorize any officer or officers, or agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Company,
and such authority may be general or confined to specific instances.
7.2 Loans. No loans shall be contracted on behalf of the Company and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
7.3 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the Company shall be signed by such officer or
officers, or agent or agents of the Company and in such manner as shall from time to time be determined by resolution of the Board of Directors.
7.4 Deposits. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositaries as the Board of
Directors or officers of the Company designated by the Board of Directors may select; or be invested as authorized by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Seal. The corporate seal of the Company shall be circular in form and shall bear an inscription containing the name of the Company, the year 1910 and the state of incorporation.
8.2 Severability. Any determination that any provision of these Bylaws is for any reason inapplicable, invalid, illegal or otherwise ineffective shall not affect or invalidate any other provision of these
Bylaws.
8.3 Waiver of Notice.
(a) A shareholder may at any time waive any notice required by these Bylaws, the Restated Articles of Incorporation or the provisions of any applicable law. Such waiver shall be in
writing, be signed by the shareholder entitled to the notice and be delivered to the Company for inclusion in the minutes for filing with the corporate records. A shareholder's attendance at a meeting waives objection to (i) lack of notice or defective
notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and (ii) consideration of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
(b) A director may at any time waive any notice required by these Bylaws, the Restated Articles of Incorporation or the provisions of any applicable law. Except as set forth
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below, such waiver must be in writing, be signed by the director entitled to the notice, must specify the meeting for which notice is waived and must be filed with the minutes or corporate records. A director's attendance at or participation in a meeting
waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
8.4 Engineering Decisions in Washington. Engineering decisions pertaining to any project or engineering activities in the State of Washington shall be made by the engineer designated by or in accordance with
resolutions of the Board of Directors.
ARTICLE IX
AMENDMENTS
The Company's Bylaws may be amended or repealed or new bylaws may be made: (a) by the affirmative vote of the holders of record of a majority of the outstanding capital stock of the Company entitled to vote thereon,
irrespective of class, given at any annual or special meeting of the shareholders; provided that notice of the proposed amendment, repeal or new bylaw or bylaws be included in the notice of such meeting or waiver thereof; or (b) by the affirmative vote of
a majority of the entire Board of Directors given at any regular meeting of the Board, or any special meeting thereof; provided that notice of the proposed amendment, repeal or new bylaw or bylaws be included in the notice of such meeting or waiver
thereof or all of the directors at the time in office be present at such meeting.
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EXHIBIT (21)
SUBSIDIARIES OF THE COMPANY
PacifiCorp Group Holdings Company, a wholly-owned subsidiary of the Company and a Delaware corporation, has the following subsidiaries:
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__________
*Remaining 20% owned by Eastern Investment Company.
S-3
Exhibit 23a
INDEPENDENT AUDITORS' CONSENT
PacifiCorp:
We consent to the incorporation by reference in Registration Statement Nos. 33-91411 and 333-09115 on Form S-3 of our report dated February 11, 2000, appearing in the Annual Report on Form 10-K of PacifiCorp and subsidiaries for the
year ended March 31, 2000.
DELOITTE & TOUCHE LLP
Portland, Oregon
June 15, 2000
Exhibit 23b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-91411 and 333-09115) of PacifiCorp of our report dated May 4, 2000, except for the fourth, fourteenth, and twentieth paragraphs of Note 5, as to which
the date is May 31, 2000, relating to the financial statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Portland, Oregon
June 15, 2000
Exhibit 23c
INDEPENDENT AUDITORS' CONSENT
PacifiCorp:
We consent to the incorporation by reference in Registration Statement Nos. 33-91411 and 333-09115 on Form S-3 of our report dated April 19, 2000, appearing in the Annual Report on Form 10-K of PacifiCorp and subsidiaries for the year ended
March 31, 2000.
DELOITTE & TOUCHE TOHMATSU
Melbourne, Australia
June 15, 2000
Exhibit 23d
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PacifiCorp Australia Limited Liability Company:
We have audited the accompanying consolidated balance sheet of PacifiCorp Australia Limited Liability Company and its subsidiaries as of December 31, 1999, and the related consolidated statement of income and cash flows for the year ended December 31,
1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PacifiCorp Australia Limited Liability Company and its subsidiaries at December 31, 1999, and the results of their
operations and their cash flows for the year ended December 31, 1999 in conformity with accounting principles generally accepted in the United States.
DELOITTE TOUCHE TOHMATSU
April 19, 2000
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 23, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 22, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 22, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 14, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 22, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and appoints each of Alan Richardson, Karen K. Clark, Terry F. Hudgens and Robert R. Dalley his or her true and lawful attorney and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report of PacifiCorp on Form 10-K for the fiscal year ended March 31, 2000 and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, full power and authority to do any and all acts and things necessary or advisable to
be done, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000.
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