-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HLrqNGMneBkwbzEr0e6lwfIBXqEhg035KPmm2Pwg3wPgHbhQvtyB9bvuSX3XzjY2 nJEdhVmus6RAsj/vr2MCCA== 0000950109-97-004817.txt : 19970702 0000950109-97-004817.hdr.sgml : 19970702 ACCESSION NUMBER: 0000950109-97-004817 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19970630 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ENERGY GROUP PLC / CENTRAL INDEX KEY: 0001031719 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220] IRS NUMBER: 000000000 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-51187 FILM NUMBER: 97633628 BUSINESS ADDRESS: STREET 1: 117 PICCADILLY CITY: LONDON W1V 9FJ ENGLA STATE: X0 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICORP /OR/ CENTRAL INDEX KEY: 0000075594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 930246090 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 700 NE MULTNOMAH STE 1600 CITY: PORTLAND STATE: OR ZIP: 97232 BUSINESS PHONE: 5037312000 FORMER COMPANY: FORMER CONFORMED NAME: PACIFICORP /ME/ DATE OF NAME CHANGE: 19890628 FORMER COMPANY: FORMER CONFORMED NAME: PC/UP&L MERGING CORP DATE OF NAME CHANGE: 19890628 SC 14D1 1 TENDER OFFER STATEMENT ------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------ SCHEDULE 14D-1 Tender Offer Statement Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934 THE ENERGY GROUP PLC (Name of Subject Company) PACIFICORP ACQUISITIONS PACIFICORP (Bidders) ORDINARY SHARES OF 10P EACH AND AMERICAN DEPOSITARY SHARES, EACH REPRESENTING 4 ORDINARY SHARES AND EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS (Title of Class of Securities) 292691 10 2 (CUSIP Number of Class of Securities) RICHARD T. O'BRIEN PACIFICORP PORT OF PORTLAND BUILDING, SUITE 1600 700 NE MULTNOMAH PORTLAND, OREGON 97232 (503) 731-2000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) Copy to: STUART W. CHESTLER STOEL RIVES LLP 900 SW FIFTH AVENUE, SUITE 2300 PORTLAND, OREGON 97204-1268 (503) 294-9500 CALCULATION OF FILING FEE Transaction Valuation* Amount of Filing Fee* $1,772,980,363 $354,596 * For the purposes of calculating the filing fee only. The transaction valuation is based upon the purchase of 38,456,633 American Depositary Shares of The Energy Group PLC (each representing four Ordinary Shares) and 500,000 Ordinary Shares of 10p each of The Energy Group PLC held by U.S. residents at (Pounds)6.90 per Ordinary Share in cash and the multiplication of such aggregate purchase price by the currency exchange rate of (Pounds)1 = U.S.$1.665 (such currency exchange rate being derived from The Wall Street Journal dated June 27, 1997). Such number of American Depositary Shares represents all American Depositary Shares outstanding as of June 27, 1997, and such number of Ordinary Shares exceeds the estimate by The Energy Group PLC of the aggregate number of outstanding Ordinary Shares held by United States residents. [_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: .................. Form or Registration No.: ................ Filing Party: ............................ Date Filed: .............................. 14D-1 - -------------------------------------------------------------------------------- 1. Name of Reporting Person PacifiCorp Acquisitions - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Sources of Funds AF, BK - -------------------------------------------------------------------------------- 5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_] Items 2(e) or 2(f) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization England and Wales - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person None (0) - -------------------------------------------------------------------------------- 8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) None (0) - -------------------------------------------------------------------------------- 10. Type of Reporting Person CO - -------------------------------------------------------------------------------- 2 14D-1 - -------------------------------------------------------------------------------- 1. Name of Reporting Person PacifiCorp - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Sources of Funds BK - -------------------------------------------------------------------------------- 5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_] Items 2(e) or 2(f) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Oregon - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person None (0) - -------------------------------------------------------------------------------- 8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) None (0) - -------------------------------------------------------------------------------- 10. Type of Reporting Person CO - -------------------------------------------------------------------------------- 3 ITEM 1. SECURITY AND SUBJECT COMPANY (a) The name of the subject company is The Energy Group PLC ("The Energy Group") and the address of its principal executive offices is 117 Piccadilly, London W1V 9FJ, England. (b) This Statement relates to the offer (the "Offer") by PacifiCorp Acquisitions, an unlimited company organized and registered in England and Wales and an indirect wholly owned subsidiary of PacifiCorp, an Oregon corporation, to purchase all of the outstanding (a) ordinary shares of 10p each ("Energy Group Shares") of The Energy Group and (b) American Depositary Shares ("Energy Group ADSs") of The Energy Group each representing four Energy Group Shares and evidenced by American Depositary Receipts. The Energy Group Shares and the Energy Group ADSs are collectively referred to herein as the "Energy Group Securities". The Offer is subject to the terms and conditions set forth in the offer to purchase dated June 30, 1997 (the "Offer to Purchase") (a copy of which is filed as Exhibit (a)(1) hereto) and the related Letter of Transmittal for the Energy Group ADSs (a copy of which is filed as Exhibit (a)(2) hereto) and Form of Acceptance, Authority and Election for the Energy Group Shares (a copy of which is filed as Exhibit (a)(3) hereto). Information concerning the number of outstanding Energy Group Shares is set forth under the caption "Sources of Information and Bases of Calculation" in Appendix V to the Offer to Purchase and is incorporated herein by reference. Information concerning the consideration being offered therefor and the conversion thereof from pounds sterling to US dollars is set forth under the captions "The Offer" and "Settlement--Currency of Consideration" in the Letter from Goldman Sachs International contained in the Offer to Purchase. (c) The information set forth under the caption "Stock Exchange quotations, market price data and principal purchases" in Appendix V to the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND (a)-(d) and (g) This Statement is filed by PacifiCorp and PacifiCorp Acquisitions. Information concerning the principal business, the address of the principal office and place of organization of each of PacifiCorp and PacifiCorp Acquisitions is set forth under the captions "Information on the PacifiCorp Group" in the Letter from Goldman Sachs International contained in the Offer to Purchase and "Registered/Principal Offices" and "Nature of Business of PacifiCorp Acquisitions and PacifiCorp" in Appendix IV to the Offer to Purchase and is incorporated herein by reference. Information concerning the name, business address, present principal occupation or employment and citizenship of each director and executive officer of PacifiCorp and PacifiCorp Acquisitions as well as information concerning the material occupations, positions, offices or employments during the last five years of such persons is set forth under the caption "Directors and Executive Officers of PacifiCorp Acquisitions and PacifiCorp" in Appendix IV to the Offer to Purchase and is incorporated herein by reference. (e) and (f) During the last five years, neither PacifiCorp nor PacifiCorp Acquisitions, nor any person listed in Appendix IV to the Offer to Purchase, has been either (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such law. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY (a) To the best of PacifiCorp's and PacifiCorp Acquisitions' knowledge, there have been no transactions with The Energy Group required to be set forth in this Item. (b) The information set forth under the caption "Background of the Offer" in Appendix V to the Offer to Purchase is incorporated herein by reference. 4 ITEM 4.SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a)-(c) The information set forth under the caption "Financing Arrangements" in Appendix V to the Offer to Purchase is incorporated herein by reference. ITEM 5.PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER (a)-(g) The information set forth under the caption "Background to and reasons for the Offer" in the Letter from the Chairman of The Energy Group contained in the Offer to Purchase, "Terms and Conditions of the Offer" and "Directors, management and employees" in the Letter from Goldman Sachs International contained in the Offer to Purchase and "Background to the Offer", "Financing arrangements", "Compulsory acquisition", "Certain consequences of the Offer" and "Legal and regulatory matters" in Appendix V to the Offer to Purchase is incorporated herein by reference. ITEM 6.INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a) The information set forth under the caption "Shareholdings and dealings" in Appendix V to the Offer to Purchase is incorporated herein by reference. (b) Not applicable. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES The information set forth under the captions "Rule 10b-13 Exemption" on page 2 of the Offer to Purchase, "Recommendation of the Offer" in the Letter from the Chairman of The Energy Group contained in the Offer to Purchase as well as the information set forth under the captions "Irrevocable undertakings", "Background to the Offer", "Shareholdings and dealings" and "Stock Exchange quotations, market price data and principal purchases" in Appendix V to the Offer to Purchase is incorporated herein by reference. Except as set forth under those captions, neither PacifiCorp nor PacifiCorp Acquisitions, nor to the best knowledge of PacifiCorp or PacifiCorp Acquisitions, any of the persons listed under the caption "Directors and Executive Officers of PacifiCorp Acquisitions and PacifiCorp" in Appendix IV to the Offer to Purchase, has any contract, arrangement, understanding or relationship (whether or not legally enforceable) with any other person with respect to any Energy Group Securities (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss, or the giving or withholding of proxies). ITEM 8.PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED The information set forth under the caption "Fees and expenses" in Appendix V to the Offer to Purchase is incorporated herein by reference. ITEM 9.FINANCIAL STATEMENTS OF CERTAIN BIDDERS The information set forth under the caption "Financial statements" in Appendix IV to the Offer to Purchase is incorporated herein by reference. ITEM 10.ADDITIONAL INFORMATION (a) and (e) Not applicable. (b) and (c) The information set forth under the caption "Legal and regulatory matters" in Appendix V to the Offer to Purchase is incorporated herein by reference. (d) The information set forth under the caption "Certain consequences of the Offer--Margin Securities" in Appendix V to the Offer to Purchase is incorporated herein by reference. 5 (f) The information set forth in the Offer to Purchase, the Letter of Transmittal and the Form of Acceptance, Authority and Election, to the extent not otherwise incorporated herein by reference, is incorporated herein by reference. ITEM 11.MATERIAL TO BE FILED AS EXHIBITS (a)(1) Offer to Purchase dated June 30, 1997. (2) Form of Letter of Transmittal. (3) Form of Acceptance, Authority and Election Relating to the Offer. (4) Form of Notice of Guaranteed Delivery. (5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees from Goldman, Sachs & Co. (6) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (7) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (8) Text of press announcement issued by PacifiCorp and The Energy Group dated June 13, 1997. (9) Text of press release of PacifiCorp dated June 13, 1997. (10) Summary advertisement published in the U.S. dated June 30, 1997. (11) Newspaper advertisement published in the U.K. dated June 30, 1997. (b)(1) Credit Agreement, dated as of June 12, 1997, as amended and restated as of June 27, 1997, among PacifiCorp Holdings, Inc., the Lenders named therein, Citibank, N.A., as Paying Agent and Issuing Bank, Citicorp USA, Inc., as Collateral Agent, and Citicorp Securities, Inc., Goldman Sachs Credit Partners L.P. and J.P. Morgan Securities Inc., as Arrangers. (2) Bridge Loan Agreement, dated as of June 12, 1997, among PacifiCorp EnergyCo, as Borrower, PacifiCorp Group Holdings Company, as Guarantor, the Lenders named therein, Goldman Sachs Credit Partners L.P., Morgan Guaranty Trust Company of New York and Citibank, N.A., as Arrangers, and Citibank, N.A., as Paying Agent. (3) Credit Agreement, dated as of June 12, 1997, as amended and restated June 27, 1997, among PacifiCorp Powercoal, LLC, the Lenders named therein, Morgan Guaranty Trust Company of New York, as Paying Agent, Collateral Agent, Issuing Bank and Swingline Lender, and Citicorp Securities, Inc., Goldman Sachs Credit Partners L.P. and J.P. Morgan Securities, Inc., as Arrangers. (4) Facilities Agreement, dated as of June 13, 1997, among PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited and PacifiCorp Acquisitions, as Guarantors, PacifiCorp Acquisitions, as Borrower, Citibank, N.A., Goldman Sachs International and J.P. Morgan Securities Ltd., as Arrangers, Citibank, N.A., Goldman Sachs Credit Partners L.P. and Morgan Guaranty Trust Company of New York, as Original Banks, Citibank International PLC, as Facility Agent, and Citibank, N.A., as Security Agent. (5) Debenture, dated June 13, 1997, among PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited, and PacifiCorp Acquisitions, as Chargors, and Citibank, N.A., as Security Agent. (c) Form of Irrevocable Undertaking executed by certain directors of The Energy Group. (d) Not applicable. (e) Not applicable. (f) The Offer to Purchase, the Letter of Transmittal and the Form of Acceptance, Authority and Election Relating to the Offer are incorporated herein by reference. 6 SIGNATURES After due inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this Statement is true, complete and correct. Date: June 30, 1997 PacifiCorp Acquisitions By /s/ W. E. PERESSINI ------------------------------------ NAME W. E. PERESSINI TITLE Deputy Chief Financial Officer PacifiCorp By /s/ W. E. PERESSINI ------------------------------------ NAME W. E. PERESSINI TITLE Vice President and Treasurer 7 EXHIBIT INDEX
Exhibit Number Description of Document -------------- ----------------------- (a)(1) Offer to Purchase dated June 30, 1997 (a)(2) Form of Letter of Transmittal (a)(3) Form of Acceptance, Authority and Election Relating to the Offer (a)(4) Form of Notice of Guaranteed Delivery (a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees from Goldman, Sachs & Co. (a)(6) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(7) Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9 (a)(8) Text of press announcement issued by PacifiCorp and The Energy Group dated June 13, 1997 (a)(9) Text of press release of PacifiCorp dated June 13, 1997 (a)(10) Summary advertisement published in the U.S. dated June 30, 1997 (a)(11) Newspaper advertisement published in the U.K. dated June 30, 1997 (b)(1) Credit Agreement, dated as of June 12, 1997, as amended and restated as of June 27, 1997, among PacifiCorp Holdings, Inc., the Lenders named therein, Citibank, N.A., as Paying Agent and Issuing Bank, Citicorp USA, Inc., as Collateral Agent, and Citicorp Securities, Inc., Goldman Sachs Credit Partners L.P. and J.P. Morgan Securities Inc., as Arrangers (b)(2) Bridge Loan Agreement, dated as of June 12, 1997, among PacifiCorp EnergyCo, as Borrower, PacifiCorp Group Holdings Company, as Guarantor, the Lenders named therein, Goldman Sachs Credit Partners L.P., Morgan Guaranty Trust Company of New York and Citibank, N.A., as Arrangers, and Citibank, N.A., as Paying Agent (b)(3) Credit Agreement, dated as of June 12, 1997, as amended and restated June 27, 1997, among PacifiCorp Powercoal, LLC, the Lenders named therein, Morgan Guaranty Trust Company of New York, as Paying Agent, Collateral Agent, Issuing Bank and Swingline Lender, and Citicorp Securities, Inc., Goldman Sachs Credit Partners L.P. and J.P. Morgan Securities, Inc., as Arrangers (b)(4) Facilities Agreement, dated as of June 13, 1997, among PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited and PacifiCorp Acquisitions, as Guarantors, PacifiCorp Acquisitions, as Borrower, Citibank, N.A., Goldman Sachs International and J.P. Morgan Securities Ltd., as Arrangers, Citibank, N.A., Goldman Sachs Credit Partners L.P. and Morgan Guaranty Trust Company of New York, as Original Banks, Citibank International PLC, as Facility Agent, and Citibank, N.A., as Security Agent (b)(5) Debenture, dated June 13, 1997, among PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited, and PacifiCorp Acquisitions, as Chargors, and Citibank, N.A., as Security Agent (c) Form of Irrevocable Undertaking executed by certain directors of The Energy Group (d) Not applicable (e) Not applicable (f) The Offer to Purchase, the Letter of Transmittal and the Form of Acceptance, Authority and Election Relating to the Offer are incorporated herein by reference
8 EX-99.A.1 2 OFFER TO PURCHASE [LOGO OF PACIFICORP APPEARS HERE] RECOMMENDED CASH OFFER FOR THE ENERGY GROUP PLC PACIFICORP RECOMMENDED CASH OFFER for THE ENERGY GROUP PLC 690 PENCE PER ENERGY GROUP SHARE (Pounds)27.60 PER ENERGY GROUP ADS . plus retention of right to receive a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July 1997 . including the dividend referred to above, represents: . a premium of approximately 24 per cent. to the price of an Energy Group Share on 9 June 1997 (the day immediately prior to the talks announcement made by The Energy Group) and . a premium of approximately 31 per cent. to the price of an Energy Group Share on 13 May 1997 (the date one month before the Offer was announced) . includes a Loan Note Alternative IF YOU HAVE ANY QUESTIONS ON THE OFFER, PLEASE CALL THE SHAREHOLDER HELPLINES ON 0345 573 838 (UK) OR 1-800-733-8481 EXT. 475 (US). IF YOU HAVE ANY QUESTIONS REGARDING THE ACCEPTANCE FORM, PLEASE CALL THE UK RECEIVING AGENT ON 0181 639 2166 OR THE US DEPOSITARY ON 1-800-733-8481 EXT. 475. OFFER TO PURCHASE DATED 30 JUNE 1997 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. WHEN CONSIDERING WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED IMMEDIATELY TO SEEK YOUR OWN FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986. If you have sold or otherwise transferred all your Energy Group Securities, please send this document, together with the accompanying documents (but NOT the Form of Acceptance if it is personalised), as soon as possible, to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. HOWEVER, SUCH DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN OR INTO CANADA, AUSTRALIA OR JAPAN. Goldman Sachs International, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for PacifiCorp Acquisitions and PacifiCorp and for no one else in connection with the Offer and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to its customers or for giving advice in relation to the Offer. Goldman Sachs International is acting through Goldman, Sachs & Co. for the purposes of making the Offer in and into the United States. Lazard and Morgan Stanley & Co. Limited, which are regulated in the United Kingdom by The Securities and Futures Authority Limited, are acting for The Energy Group and for no one else in connection with the Offer and will not be responsible to anyone other than The Energy Group for providing the protections afforded to their customers or for giving advice in relation to the Offer. - ------------------------------------------------------------------------------- [LOGO OF PACIFICORP APPEARS HERE] RECOMMENDED CASH OFFER by GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS A WHOLLY-OWNED SUBSIDIARY OF PACIFICORP for THE ENERGY GROUP PLC - ------------------------------------------------------------------------------- A letter of recommendation from the Chairman of The Energy Group is set out on pages 5 to 7 of this document. The Initial Offer Period will expire at 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997, unless extended. At the conclusion of the Initial Offer Period, including any extension thereof, if all the Conditions of the Offer have been satisfied, fulfilled or, where permitted, waived, the Offer will be extended for a Subsequent Offer Period of at least 14 calendar days. Holders of Energy Group Securities will have withdrawal rights during the Initial Offer Period, including any extension thereof, but not during the Subsequent Offer Period. COMPLETED ACCEPTANCE FORMS SHOULD BE RETURNED AS SOON AS POSSIBLE, BUT, IN ANY EVENT, SO AS TO BE RECEIVED BY NO LATER THAN 3.00 P.M. (LONDON TIME), 10.00 A.M. (NEW YORK CITY TIME) ON 29 JULY 1997. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT ON PAGES 14 TO 17 OF THIS DOCUMENT AND IN THE ACCOMPANYING ACCEPTANCE FORM. The Offer is not being made, directly or indirectly, in or into Canada, Australia or Japan. Accordingly, neither this document nor Acceptance Forms are to be mailed or otherwise distributed or sent in or into Canada, Australia or Japan. The Loan Notes to be issued pursuant to the Offer have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or under any relevant securities laws of any state or district of the United States, will not be the subject of a prospectus under the securities laws of any province of Canada and will not be registered under any relevant securities laws of any other country. The Loan Notes are not being offered, sold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan. APPLICABLE DISCLOSURE REQUIREMENTS The Offer is made for securities of a UK company and, while the Offer is subject to UK and US disclosure requirements, US investors should be aware that this document has been prepared in accordance with UK format and style, which differs from US format and style. In particular, the Appendices to this document contain information concerning the Offer responsive to US disclosure requirements that may be material and has not been summarised elsewhere. In addition, the summary financial statements of The Energy Group herein have been prepared in accordance with UK GAAP, and thus may not be comparable to financial statements of US companies. REDUCTION OF THE ACCEPTANCE CONDITION The Offer is conditional, amongst other things, on valid acceptances being received (and not, where permitted, withdrawn) by the Initial Closing Date in respect of not less than 90 per cent. in nominal value of Energy Group Securities to which the Offer relates, or such lesser percentage as PacifiCorp Acquisitions may decide, provided that such Condition (the "Acceptance Condition") shall not be satisfied unless PacifiCorp Acquisitions and its wholly-owned subsidiaries shall have acquired or agreed to acquire, whether pursuant to the Offer or otherwise, Energy Group Securities carrying in the aggregate more than 50 per cent. of the voting rights then exercisable at general meetings of The Energy Group. PacifiCorp Acquisitions expects that it will reduce the percentage of Energy Group Securities required to satisfy the Acceptance Condition at some time prior to all the Conditions being satisfied, fulfilled or, where permitted, waived. At least five Business Days prior to any such reduction, PacifiCorp Acquisitions will announce that it has reserved the right so to reduce the Acceptance Condition. PacifiCorp Acquisitions will not make such an announcement unless PacifiCorp Acquisitions believes there is a significant possibility that sufficient Energy Group Securities will be tendered to permit the Acceptance Condition to be satisfied at such reduced level. Holders of Energy Group Securities who are not willing to accept the Offer if the Acceptance Condition is reduced to the minimum permitted level should either not accept the Offer until the Subsequent Offer Period or be prepared to withdraw their acceptances promptly following an announcement by PacifiCorp Acquisitions of its reservation of the right to reduce the Acceptance Condition. RULE 10B-13 EXEMPTION In accordance with normal UK practice, PacifiCorp Acquisitions or its nominees or brokers (acting as agents for PacifiCorp Acquisitions) or another subsidiary of PacifiCorp may make certain purchases of Energy Group Securities outside the United States during the period in which the Offer remains open for acceptance and affiliates of Goldman Sachs International and Morgan Stanley will continue to act as market makers for Energy Group Shares on the London Stock Exchange pursuant to relief granted by the SEC staff from Rule 10b-13 under the Exchange Act. For further details on this relief, see paragraph 3 of Appendix V ("Stock Exchange quotations, market price data and principal purchases") below. OFFER IN THE UNITED STATES The Offer is being made in the United States by Goldman Sachs International acting through Goldman, Sachs & Co. References in this document to the Offer being made by Goldman Sachs International should be read accordingly. CONVERSION INTO US DOLLARS Holders of Energy Group Shares may receive US dollars instead of pounds sterling on the basis described in paragraph 15(f) of the letter from Goldman Sachs International included in this document. Holders of Energy Group ADSs evidenced by Energy Group ADRs, unless they elect to receive pounds sterling, will receive US dollars on the basis described in the same paragraph. The attention of all holders of Energy Group Securities is drawn to the description in that paragraph of the mechanism for converting pounds sterling into US dollars and of the exchange rate risks attached thereto. 2 FINANCIAL INFORMATION The extracts from the consolidated financial statements of, and other information relating to PacifiCorp appearing in this document are presented in US dollars and have been prepared in accordance with US GAAP. US GAAP differs in certain respects from UK GAAP. RULE 8 NOTICES Any person who, alone or acting together with any other person(s) pursuant to any agreement or any understanding (whether formal or informal) to acquire or control securities of The Energy Group, owns or controls, or becomes the owner or controller, directly or indirectly, of one per cent. or more of any class of securities of The Energy Group is generally required under the provisions of Rule 8 of the City Code to notify the London Stock Exchange and the Panel of every dealing in such securities during the Initial Offer Period. Dealings by The Energy Group or their respective "associates" (within the meaning of the City Code) in any class of securities of The Energy Group during the Initial Offer Period must also be so disclosed. Please consult your financial adviser immediately if you believe this Rule may be applicable to you. 3 TABLE OF CONTENTS
PAGE ----- Letter from the Chairman of The Energy Group............................ 5 Letter from Goldman Sachs International................................. 9 Appendix I: Conditions and Further Terms of the Offer................... I-1 Part A: Conditions of the Offer....................................... I-1 Part B: Further Terms of the Offer.................................... I-6 1. Acceptance Period................................................. I-6 2. Announcements..................................................... I-7 3. Rights of withdrawal.............................................. I-8 4. The Loan Note Alternative......................................... I-10 5. Effects of elections.............................................. I-10 6. Revisions of the Offer and/or the Loan Note Alternative........... I-10 7. General........................................................... I-11 8. Overseas shareholders............................................. I-12 9. Procedures for tendering Energy Group ADSs........................ I-14 10. Procedures for tendering Energy Group Shares...................... I-17 11. Forms of Acceptance............................................... I-20 12. Certain provisions concerning acceptances......................... I-24 13. Substitute Acceptance Forms....................................... I-25 14. Settlement........................................................ I-25 15. Currency of consideration......................................... I-25 Appendix II: Summary of the Terms of the Loan Notes..................... II-1 Appendix III: Financial and Other Information on the TEG Group.......... III-1 Appendix IV: Financial and Other Information on PacifiCorp Acquisitions and PacifiCorp......................................................... IV-1 Appendix V: Additional Information...................................... V-1 1. Responsibility.................................................... V-1 2. Directors......................................................... V-1 3. Stock Exchange quotations, market price data and principal pur- chases............................................................... V-1 4. Shareholdings and dealings........................................ V-2 5. Irrevocable undertakings.......................................... V-8 6. Service agreements of the directors of The Energy Group and re- lated matters........................................................ V-8 7. Other information................................................. V-10 8. Material contracts................................................ V-11 9. Background to the Offer........................................... V-13 10. Financing arrangements............................................ V-15 11. Compulsory acquisition............................................ V-20 12. Certain consequences of the Offer................................. V-20 13. Legal and regulatory matters...................................... V-21 14. United Kingdom taxation........................................... V-24 15. United States federal income taxation............................. V-26 16. Fees and expenses................................................. V-27 17. Sources of information and bases of calculation................... V-28 18. Documents available for inspection................................ V-29 Appendix VI: Definitions................................................ VI-1
4 LETTER FROM THE CHAIRMAN OF THE ENERGY GROUP [LOGO OF THE ENERGY GROUP PLC APPEARS HERE] 117 Piccadilly London W1V 9FJ 30 June 1997 To holders of Energy Group Securities and, for information only, to the members of the Energy Group Share Schemes Dear shareholder or ADS holder, RECOMMENDED CASH OFFER ON BEHALF OF PACIFICORP ACQUISITIONS FOR THE ENERGY GROUP On 13 June 1997, your board and the board of PacifiCorp announced the terms of a recommended cash offer for The Energy Group to be made on behalf of PacifiCorp Acquisitions, a wholly-owned subsidiary of PacifiCorp. I wrote to you with details of that announcement on 16 June 1997. This letter sets out the background to the Offer and the reasons why your board is recommending all holders of Energy Group Securities to accept the Offer. The formal Offer, which is subject to the conditions set out in Part A of Appendix I to this document, is contained in the letter from Goldman Sachs International on pages 9 to 20 of this document. 1. TERMS OF THE OFFER The Offer (excluding the dividend referred to below) values the equity of The Energy Group at approximately (Pounds)3,659 million (assuming the exercise in full of all outstanding options and the vesting of all outstanding awards under the Energy Group Share Schemes). Including the dividend referred to below, the Offer represents a premium of approximately 31 per cent. to the Closing Price of 529.5 pence per Energy Group Share on 13 May 1997, the Business Day one month before the announcement of the Offer on 13 June 1997 and a premium of approximately 24 per cent. to the Closing Price of 561.5 pence per Energy Group Share on 9 June 1997, the last Business Day before the announcement by The Energy Group that it was involved in talks with PacifiCorp in relation to the Offer. The Offer is being made on the following basis: FOR EACH ENERGY GROUP SHARE 690 PENCE; AND FOR EACH ENERGY GROUP ADS (Pounds)27.60 In addition, holders of Energy Group Shares on the register of members at the close of business on 27 June 1997 will retain the right to receive the dividend of 5.5 pence (net) per Energy Group Share which was announced on 13 June 1997 and is to be paid on 4 July 1997. This dividend will be paid in US dollars to holders of Energy Group ADSs in accordance with the terms of the Deposit Agreement. 5 As an alternative to some or all of the cash consideration receivable under the Offer, holders of Energy Group Shares who accept the Offer (apart from US citizens or residents and certain other overseas persons) may elect to receive Loan Notes instead of cash on the following basis: FOR EVERY (Pounds)1 OF CASH CONSIDERATION (Pounds)1 NOMINAL OF LOAN NOTES A summary of the tax effects for holders of Energy Group Shares resident for tax purposes in the UK who accept the Offer is set out in paragraph 14 of Appendix V ("United Kingdom taxation") below. A summary of the tax effects for holders of Energy Group Securities who are citizens or residents of the US, US domestic corporations or otherwise taxed as United States residents is set out in paragraph 15 of Appendix V ("United States federal income taxation") below. 2. BACKGROUND TO AND REASONS FOR THE OFFER On our demerger from Hanson in February 1997, we stated that it was our intention to establish The Energy Group as a leading international energy business, building on our operations across the value chain in the UK, North America and Australia. The Energy Group has pursued this strategy and investigated a number of acquisition and investment opportunities. On 16 April 1997, we announced an agreement with the Hindusthan Development Corporation to develop a (Pounds)580 million 500 megawatt power station and lignite mine in the state of Rajasthan, India. On 20 May 1997, we announced the completion of the acquisition of Citizens Power LLC, one of the leading power marketers in the US and a pioneer of this activity. On 13 June 1997, we announced our results for the six months ended 31 March 1997, which demonstrate the steady progress that The Energy Group has made. These results are set out in Appendix III below. The combination of The Energy Group and PacifiCorp will create a group with the scale and scope of operations to compete more effectively in international energy markets. The combined entity will also benefit from the skills we have acquired from operating in the deregulated energy environment in the UK. The Offer price recognises The Energy Group's potential contribution to the combined entity, which reflects the progress that has been made since the Demerger. Your board believes that the combination will allow The Energy Group's stated strategy to be pursued within a larger group and that it is in the best interests of both customers and employees of The Energy Group. In considering the Offer, your board compared the benefits to shareholders of realising an immediate premium on their investment with the benefits to them of remaining as shareholders in The Energy Group as an independent company. Following such consideration and taking into account the advice of its financial advisers as described below, your board unanimously agreed to recommend the Offer. 3. DIRECTORS, MANAGEMENT AND EMPLOYEES PacifiCorp Acquisitions has given assurances to the board of The Energy Group that the existing employment rights, including pension rights, of all directors, management and employees of the TEG Group, will be fully safeguarded. Your attention is also drawn to paragraph 9 of the accompanying letter from Goldman Sachs International. 4. ACTION TO BE TAKEN TO ACCEPT THE OFFER The procedure for acceptance of the Offer is set out on pages 15 to 18 of this document and in the Acceptance Form. The Initial Closing Date will be 3.00 p.m. (London time), 10.00 a.m. (New York City time), on 29 July 1997, unless extended. 5. HELPLINES FOR THE OFFER IF YOU HAVE ANY QUESTIONS ON THE OFFER, PLEASE CALL THE SHAREHOLDER HELPLINES ON 0345 573838 (UK) OR 1-800-733-8481 EXT. 475 (US). IF YOU HAVE ANY QUESTIONS REGARDING THE ACCEPTANCE FORM, PLEASE CALL THE UK RECEIVING AGENT ON 0181 639 2166 OR THE US DEPOSITARY ON 1-800-733-8481 EXT. 475. 6 6. RECOMMENDATION OF THE OFFER The board of The Energy Group, which has been so advised by Lazard and Morgan Stanley, its financial advisers, considers the terms of the Offer to be fair and reasonable. In providing advice to the board of The Energy Group, Lazard and Morgan Stanley have taken account of the board's commercial assessment of the Offer. Accordingly, the directors of The Energy Group unanimously recommend all holders of Energy Group Shares and Energy Group ADSs to accept the Offer, as they have irrevocably undertaken to do in respect of their personal holdings of 116,385 Energy Group Shares and 1,550 Energy Group ADSs. Yours faithfully, DEREK C. BONHAM Chairman Registered in England and Wales No. 3257256. Registered Office: 117 Piccadilly, London WIV 9FJ 7 [This page intentionally left blank] 8 - ------------------------------------------------------------------------------- Goldman Sachs International, Peterborough Court, 133 Fleet Street, London EC4A 2BB, England Tel: 0171-774 1000, Telex: 94015777, Cable: goldsachs london [LOGO OF GOLDMAN SACHS APPEARS HERE] - ------------------------------------------------------------------------------- 30 June 1997 To holders of Energy Group Securities and, for information only, to participants in the Energy Group Share Schemes Dear Sir/Madam RECOMMENDED CASH OFFER BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS FOR THE ENERGY GROUP 1.INTRODUCTION On 13 June 1997, the boards of PacifiCorp and The Energy Group announced the terms of a recommended cash offer to be made by Goldman Sachs International on behalf of PacifiCorp Acquisitions for all issued and to be issued Energy Group Securities. This letter contains the formal Offer. Your attention is drawn to the letter from the Chairman of The Energy Group, which contains the recommendation of the directors of The Energy Group, set out on pages 5 to 7 of this document. The Offer and this document are subject to the applicable requirements of both the UK City Code and US federal securities laws. 2.THE OFFER On behalf of PacifiCorp Acquisitions, we hereby offer to purchase, upon the terms and subject to the Conditions set out in this document and in the relevant Acceptance Form, all outstanding Energy Group Securities, for 690 pence in cash per Energy Group Share and (Pounds)27.60 in cash per Energy Group ADS, together with the benefit of the Loan Note Alternative referred to in paragraph 4 below. Holders of Energy Group Shares will also retain the right to receive a dividend of 5.5 pence (net) per Energy Group Share which was announced on 13 June 1997 and is to be paid on 4 July 1997 to holders of Energy Group Shares on the register of members at the close of business on 27 June 1997. This dividend will be paid in US dollars to holders of Energy Group ADSs in accordance with the terms of the Deposit Agreement. The Offer values the equity of The Energy Group at approximately (Pounds)3,659 million (assuming the exercise in full of all outstanding options and the vesting of all outstanding awards under the Energy 9 Group Share Schemes), excluding the value of the dividend referred to above. Including the dividend referred to above, the Offer represents a premium of approximately 31 per cent. to the Closing Price of 529.5 pence per Energy Group Share on 13 May 1997, the Business Day one month before the announcement of the Offer on 13 June 1997 and a premium of approximately 24 per cent. to the Closing Price of 561.5 pence per Energy Group Share on 9 June 1997, the last Business Day before the announcement by The Energy Group that it was involved in talks with PacifiCorp in relation to the Offer. Energy Group Securities will be acquired under the Offer fully paid and free from all liens, charges, equities, encumbrances and other interests and together with all rights now and hereafter attaching thereto, including, without limitation, the right to receive and retain all dividends (other than the right to receive and retain the dividend referred to above), interest and other distributions (if any) declared, made or paid on or after 13 June 1997, the date on which the Offer was announced. TO ACCEPT THE OFFER YOU SHOULD RETURN THE RELEVANT ACCEPTANCE FORM AS SOON AS POSSIBLE AND, IN ANY EVENT, SO AS TO BE RECEIVED BY THE UK RECEIVING AGENT OR THE US DEPOSITARY NO LATER THAN 3.00 P.M. (LONDON TIME), 10.00 A.M. (NEW YORK CITY TIME) ON 29 JULY 1997. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT IN PARAGRAPH 13 ("PROCEDURE FOR ACCEPTANCE OF THE OFFER") BELOW, IN PARAGRAPHS 9, 10 AND 11 OF PART B OF APPENDIX I BELOW AND IN THE ACCOMPANYING ACCEPTANCE FORM. 3. TERMS AND CONDITIONS OF THE OFFER The Offer is subject to the further terms and Conditions set out in Appendix I below. The following summary of certain of the terms and Conditions of the Offer is subject to and qualified in its entirety by reference to Appendix I below. The Offer is conditional on, amongst other things, valid acceptances being received (and not, where permitted, withdrawn) by the Initial Closing Date in respect of not less than 90 per cent. in nominal value of Energy Group Securities to which the Offer relates (the "90 per cent. threshold"), or such lesser percentage as PacifiCorp Acquisitions may decide, provided that the Acceptance Condition shall not be satisfied unless PacifiCorp Acquisitions and its wholly-owned subsidiaries shall have acquired or agreed to acquire (in accordance with the requirements of Notes 4 to 6 of Rule 10 of the City Code, to which reference is made in paragraph 12(b) of Part B of Appendix I below), whether pursuant to the Offer or otherwise, Energy Group Securities carrying in the aggregate more than 50 per cent. of the voting rights then exercisable at general meetings of The Energy Group. If the 90 per cent. threshold is satisfied before the Initial Closing Date, the Acceptance Condition (subject to any permitted reduction in the acceptance threshold) must continue to be satisfied on the Initial Closing Date, by reference to the facts then subsisting. PacifiCorp Acquisitions expects that it will reduce the percentage of Energy Group Securities required to satisfy the Acceptance Condition at some time prior to all the Conditions being satisfied, fulfilled or, where permitted, waived. At least five Business Days prior to any reduction in the percentage of Energy Group Securities required to satisfy the Acceptance Condition, PacifiCorp Acquisitions will announce that it has reserved the right so to reduce the Acceptance Condition. PacifiCorp Acquisitions will not make such an announcement unless PacifiCorp Acquisitions believes there is a significant possibility that sufficient Energy Group Securities will be tendered to permit the Acceptance Condition to be satisfied at such reduced level. Holders of Energy Group Securities who are not willing to accept the Offer if the Acceptance Condition is reduced to the minimum permitted level should either not accept the Offer until the Subsequent Offer Period or be prepared to withdraw their acceptances promptly following an announcement by PacifiCorp Acquisitions of its reservation of the right to reduce the Acceptance Condition. The Initial Offer Period will expire at 3.00 p.m. (London time), 10.00 a.m. (New York City time), on 29 July 1997, unless extended. At the conclusion of the Initial Offer Period, including any extension thereof, if all Conditions have been satisfied, fulfilled or, where permitted, waived, the Offer will be extended for a Subsequent Offer Period of at least 14 calendar days. Holders of Energy Group 10 Securities will have the right to withdraw their acceptances of the Offer during the Initial Offer Period, but not during the Subsequent Offer Period, except in certain limited circumstances. PacifiCorp Acquisitions reserves the right (but will not be obliged) at any time to extend the Initial Offer Period, provided that PacifiCorp Acquisitions may not extend the Initial Offer Period beyond 29 August 1997 without the consent of the Panel. PacifiCorp Acquisitions reserves the right, if appropriate, to seek the Panel's approval to extend the final date for expiry of the Initial Offer Period to 19 September 1997, or such later date as the Panel may agree. PacifiCorp Acquisitions may terminate any extension of the Initial Offer Period (other than an extension required by the City Code or the Exchange Act) prior to its scheduled expiry if all Conditions have been satisfied, fulfilled or, where permitted, waived. In that case, the Initial Offer Period and, consequently, withdrawal rights, except in certain limited circumstances, will terminate immediately. If all of the Conditions are satisfied, fulfilled or, where permitted, waived within the time permitted, payment for tendered Energy Group Securities will be made as provided in paragraph 15 ("Settlement") below. If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer or otherwise, at least 90 per cent. in value of Energy Group Securities to which the Offer relates, it will be entitled to and intends to acquire the remaining Energy Group Securities on the same terms as the Offer pursuant to and subject to sections 428 to 430F (inclusive) of the Companies Act. See paragraph 11 of Appendix V ("Compulsory acquisition") below. If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp acquires or contracts to acquire, pursuant to the Offer or otherwise, Energy Group Securities giving it more than 75 per cent. of voting rights at general meetings of The Energy Group, but PacifiCorp Acquisitions is not in a position to effect the compulsory acquisition of all outstanding Energy Group Securities in accordance with the sections of the Companies Act referred to above, PacifiCorp Acquisitions intends to seek to procure the making of an application by The Energy Group to the London Stock Exchange for Energy Group Shares to be delisted and the making of an application by The Energy Group to the New York Stock Exchange for Energy Group ADSs to be delisted. PacifiCorp Acquisitions further intends that, subject to the London Stock Exchange delisting taking place, it will seek to procure the transfer of Peabody's US coal operations (except Lee Ranch Coal Company) to PacifiCorp Acquisitions' fellow subsidiary, Powercoal, and to procure the giving of financial assistance by members of the TEG Group to PacifiCorp Acquisitions and other members of the PacifiCorp Group, subject to compliance, where necessary, with the "whitewash" procedures set out in sections 155 to 158 of the Companies Act. For further details, see paragraph 10 of Appendix V ("Financing arrangements") below. 4.THE LOAN NOTE ALTERNATIVE A Loan Note Alternative is available to holders of Energy Group Shares (other than persons who are citizens or residents of the United States and certain other overseas shareholders) who validly accept the Offer, on the basis of (Pounds)1 nominal of Loan Notes for every (Pounds)1 of cash under the Offer, subject to aggregate valid elections being received on or before the date on which all the Conditions are waived, fulfilled or satisfied, as applicable, for in excess of (Pounds)1 million nominal value of Loan Notes. If insufficient elections are received, holders of Energy Group Shares who elect for the Loan Note Alternative will instead receive cash in accordance with the terms of the Offer. Where an Energy Group shareholder elects or is deemed to have elected for the Loan Note Alternative in respect of all the Energy Group Shares for which he has accepted the Offer, fractional entitlements to Loan Notes will be disregarded and not paid. Goldman Sachs International has advised that, based on market conditions on 26 June 1997 (the latest practicable date prior to the publication of this document), in its opinion, if the Loan Notes had then been in issue, the value of each (Pounds)1 nominal of Loan Notes would have been approximately 98 pence. In considering the Loan Note Alternative, holders of Energy Group Shares should note that the obligations of PacifiCorp Acquisitions are not guaranteed or secured. A summary of the terms of the Loan Notes is set out in Appendix II below. 11 5.REGULATION The Offer is subject to certain regulatory consents and confirmations being obtained. Among other approaches to relevant regulatory authorities, PacifiCorp Acquisitions has made a submission to the Office of Fair Trading concerning the Offer and, together with The Energy Group, is in discussions with the DGES. The Offer is also subject to the expiry or early termination of the waiting period under the US HSR Act. Further details of regulatory issues applicable to the Offer are set out in paragraph 13 of Appendix V ("Legal and regulatory matters") below. 6.INFORMATION ON THE PACIFICORP GROUP PacifiCorp is a diversified energy group based in Portland, Oregon. The company serves 1.4 million retail customers in Oregon, Washington, California, Montana, Idaho, Utah and Wyoming. It is one of the lowest cost electricity suppliers in the United States, with an average net retail price in 1996 of 4.8 cents per kilowatt-hour, compared with a national average for investor- owned utilities of 7.15 cents. PacifiCorp is the leading private wholesaler of electricity in the western United States and is also engaged in the power marketing business in the eastern United States. In addition, PacifiCorp recently acquired TPC Corporation, a natural gas storage, processing and marketing company based in Houston, Texas. PacifiCorp operates one of the largest open-access transmission systems in the United States with over 150 access points across 15,000 circuit miles and, together with its affiliates, has generating capacity of over 10,000 megawatts. It is the 12th largest coal producer in the United States, producing 20.5 million tonnes in 1996. In 1996, the average electricity production costs at its coal-fired plants were 25 per cent. lower than the US national average. PacifiCorp also has substantial operations in Australia through Powercor, the largest electricity distribution business in Victoria and its partnership interest in the Hazelwood power generating station and associated mine. PacifiCorp is listed on the New York and Pacific Stock Exchanges under the symbol "PPW". In the year ended 31 December 1996, PacifiCorp recorded net income attributable to holders of ordinary stock of $475 million based on revenues of $4,294 million. As at the close of trading on the New York Stock Exchange on 24 June 1997, PacifiCorp had a market capitalisation of approximately $6.5 billion. PacifiCorp Acquisitions, a wholly-owned subsidiary of PacifiCorp, is a newly incorporated unlimited company registered in England and Wales on 9 June 1997 for the purpose of making the Offer. Further information on the PacifiCorp Group is set out in Appendix IV below. 7.INFORMATION ON THE ENERGY GROUP The Energy Group is a diversified international energy group which includes Peabody, the world's largest private producer of coal, and Eastern, one of the leading integrated electricity and gas groups in the United Kingdom. Peabody, the largest producer of coal in the United States, operates 26 underground and surface mines in the United States and three surface mines in Australia: . As at 30 September 1996, Peabody owned or controlled 8.5 billion tonnes of proven and probable coal reserves; . In the year ended 30 September 1996, Peabody sold 148 million tonnes of coal; and . Peabody Australia, one of the ten largest coal producers in Australia, has interests in four surface mines in New South Wales, three of which are currently in operation. Peabody's equity share of the coal sales of these mines amounted to 6.1 million tonnes in the year ended 30 September 1996 and its equity share of the proven and probable reserves associated with these mines as at 30 September 1996 amounted to 263 million tonnes. 12 Through Eastern, The Energy Group is one of the leading integrated electricity and gas groups in the United Kingdom and is involved in a wide range of operations: . Eastern Generation, the fourth largest generator of electricity in Great Britain, currently owns, operates or has an interest in eight power stations, representing approximately 10 per cent. of the United Kingdom's total registered generating capacity as at 30 September 1996; . Eastern Power & Energy Trading manages the price and volume risks associated with the generation, wholesaling and sale to end users of electricity. These exposures are managed by trading its contract portfolio and by bidding Eastern's generation output into the Electricity Pool; . Eastern Natural Gas, a major wholesaler and retail supplier of natural gas in the United Kingdom with upstream shipping, purchasing, trading and sales operations, is one of the largest suppliers of natural gas in the United Kingdom after Centrica plc. Its principal activities are the buying and selling of natural gas. It also has small equity interests in three gas- producing fields in the North Sea; and . Eastern Electricity is one of the largest suppliers of electricity in the United Kingdom, with over three million customers and its authorised area covers approximately 20,300 sq. km. in the east of England and parts of north London. The TEG Group also includes Citizens Power, one of the leading US power marketing firms, which was acquired by The Energy Group in May 1997. Its headquarters are in Boston and it has field offices in Milwaukee, Denver, and Toronto. Certain proposals relating to Citizens Power, to take effect upon completion of the Offer, are described in paragraph 13(e) of Appendix V below. The Energy Group's results for the six months ended 31 March 1997 were announced on 13 June 1997 and are set out in Appendix III to this document, together with further financial information on The Energy Group. On a pro forma basis for the year ended 31 March 1997, The Energy Group reported consolidated turnover of (Pounds)4,460 million and consolidated net income of (Pounds)286 million. 8.FUNDING PacifiCorp Acquisitions has arranged appropriate financing in connection with the Offer. Other wholly-owned subsidiaries of PacifiCorp have arranged their own funding to assist in PacifiCorp Acquisitions' financing of the Offer. Details of the financing arrangements for the Offer are set out in paragraph 10 of Appendix V ("Financing arrangements") below. 9.DIRECTORS, MANAGEMENT AND EMPLOYEES The Offer will extend to any fully paid Energy Group Shares which are unconditionally allotted or issued while the Offer is open for acceptance, including those unconditionally allotted or issued pursuant to the exercise of options under the Energy Group Share Schemes. PacifiCorp Acquisitions has given assurances to the board of The Energy Group that the existing employment rights, including pension rights, of all directors, management and employees of the TEG Group, will be fully safeguarded. PacifiCorp looks forward to working with employees of the TEG Group. PacifiCorp has stated that, subject to all Conditions being satisfied, fulfilled or, where permitted, waived, it intends to invite Mr Derek Bonham and Mr John Devaney to join the board of directors of PacifiCorp. In addition, PacifiCorp intends, following the Acquisition, to form a management committee which will co-ordinate the activities of the combined group and which it will invite Mr Derek Bonham, Mr John Devaney, Mr Eric Anstee and Mr Irl Engelhardt of The Energy Group to join. Mr Frederick Buckman will remain as President and Chief Executive of PacifiCorp, Mr Richard O'Brien as Chief Financial Officer and Mr Verl Topham as Senior Vice President and General Counsel. Appropriate proposals will be made to participants in the Energy Group Share Schemes in due course. In relation to the Energy Group Sharesave Scheme, it is anticipated that, as an additional 13 alternative to the rights provided under the rules of that scheme, participants will be offered an opportunity to surrender their existing options in consideration for a cash sum, calculated by reference to the difference between 695.5 pence and the exercise price of their options multiplied by the number of Energy Group Shares that they could have acquired with 12 months' savings contributions. 10.UK TAXATION PacifiCorp Acquisitions has been advised that, under UK legislation and Inland Revenue practice current at the date of this document, the taxation treatment of acceptance of the Offer and the Loan Note Alternative for holders of Energy Group Shares who are the beneficial owners of their Energy Group Shares, hold their Energy Group Shares as an investment, and are resident in the UK for tax purposes will, in summary, be as follows: (A)TAXATION OF CHARGEABLE GAINS Liability to UK taxation on chargeable gains ("CGT") will depend on the particular circumstances of holders of Energy Group Shares and on the form of consideration received. Cash To the extent that a holder of Energy Group Shares receives cash under the Offer, this will constitute a disposal, or part disposal, of his Energy Group Shares for CGT purposes. Such a disposal, or part disposal, may, depending on that shareholder's individual circumstances, give rise to a liability to CGT. Loan Notes A holder of Energy Group Shares who, together with persons connected with him, holds not more than five per cent. of the issued share capital of The Energy Group, will not be treated as making a disposal to the extent that he elects for and receives Loan Notes by way of consideration. In the case of a holder of Energy Group Shares who, together with persons connected with him, holds more than five per cent. of the issued share capital of The Energy Group, this treatment is subject to the Inland Revenue granting clearance under section 138 of the Taxation of Chargeable Gains Act 1992. Such clearance has been applied for. In the case of shareholders within the charge to UK corporation tax, indexation relief will not accrue on the Loan Notes. A subsequent disposal of Loan Notes (including their redemption or repayment) may give rise to a chargeable event for CGT purposes. (B)TAXATION OF INTEREST Payments of interest on the Loan Notes will be made subject to the deduction of UK income tax at the lower rate (currently 20 per cent.). Payments of interest may also be subject to US federal income tax in certain circumstances. FURTHER INFORMATION ON UK TAX LAW AND PRACTICE CURRENT AT THE DATE OF THIS DOCUMENT IS CONTAINED IN PARAGRAPH 14 OF APPENDIX V ("UNITED KINGDOM TAXATION") BELOW. FURTHER INFORMATION ON US FEDERAL INCOME TAX CURRENT AT THE DATE OF THIS DOCUMENT IS CONTAINED IN PARAGRAPH 15 OF APPENDIX V ("UNITED STATES FEDERAL INCOME TAXATION") BELOW. ANY HOLDER OF ENERGY GROUP SECURITIES WHO IS IN ANY DOUBT ABOUT HIS OWN TAX POSITION OR WHO IS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UK OR THE US IS STRONGLY RECOMMENDED TO CONSULT HIS INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY. 11.US TAXATION The paragraph below addresses certain current US federal income tax consequences applicable to holders of Energy Group Securities who are citizens or residents of the US, US domestic corporations or otherwise taxed as United States residents. It does not apply to tax issues arising from 14 a holder's particular circumstances, such as participation in the Energy Group Share Schemes or being a dealer in securities. Non-US residents who are eligible to elect the Loan Note Alternative should refer to paragraph 15 of Appendix V ("United States federal income taxation") below. The receipt of cash pursuant to the Offer will be a taxable transaction for US income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, a holder of Energy Group Securities who sells such securities pursuant to the Offer will, for US federal income tax purposes, recognise a gain or loss equal to the difference between such holder's adjusted tax basis in the Energy Group Securities sold and the amount of cash received in exchange therefor. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if, on the date of sale, the Energy Group Securities were considered for US federal income tax purposes to have been held for more than one year. An accrual basis holder of Energy Group Securities who sells such securities pursuant to the Offer may have a foreign currency exchange gain or loss for US federal income tax purposes in addition to the gain or loss recognised by the holder on the disposition of Energy Group Securities pursuant to the Offer. FURTHER INFORMATION ON THE APPLICATION OF CURRENT US TAX LAWS IS CONTAINED IN PARAGRAPH 15 OF APPENDIX V ("UNITED STATES FEDERAL INCOME TAXATION") BELOW. ANY HOLDER OF ENERGY GROUP SECURITIES WHO IS IN ANY DOUBT ABOUT HIS OWN TAX POSITION OR WHO IS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UK OR THE US IS STRONGLY RECOMMENDED TO CONSULT HIS INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY. 12.OVERSEAS SHAREHOLDERS The attention of holders of Energy Group Securities who are citizens or residents of jurisdictions outside the UK or the US is drawn to paragraph 8 of Part B of Appendix I ("Overseas shareholders") below and to the relevant provisions of the Acceptance Form. The Offer is not being made, directly or indirectly, in or into Canada, Australia or Japan. Persons who are citizens or residents of such jurisdictions may not accept the Offer. Any purported acceptance of the Offer by acceptors who are unable to give the warranty set out in paragraph 11(l) of Part B of Appendix I to this document will be disregarded. The Loan Notes to be issued pursuant to the Loan Note Alternative have not been, and will not be, registered under the Securities Act or under any relevant securities laws of any state or district of the United States and will not be the subject of a prospectus under the securities laws of any province of Canada. In addition, no steps have been taken, or will be taken, to enable the Loan Notes to be offered in Japan in compliance with applicable securities laws of Japan and no prospectus in relation to the Loan Notes has been, or will be, lodged with or registered by the Australian Securities Commission, nor will the Loan Notes be registered under any relevant securities laws of any other country. The Loan Notes are not being offered, sold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan. 13.PROCEDURE FOR ACCEPTANCE OF THE OFFER (A)HOLDERS OF ENERGY GROUP SHARES The attention of holders of Energy Group Shares is drawn to paragraph 10 of Part B of Appendix I ("Procedures for tendering Energy Group Shares") below and to the relevant provisions of the Form of Acceptance. You should note that, if you hold Energy Group Shares in both certificated and uncertificated form (that is, in CREST), you should complete a separate Form of Acceptance for each holding. If you hold Energy Group Shares in uncertificated form, but under different member account IDs, you should complete a separate Form of Acceptance in respect of each member account ID. Similarly, if you hold 15 Energy Group Shares in certificated form, but under different designations, you should complete a separate Form of Acceptance in respect of each designation. (I) TO ACCEPT THE OFFER To accept the Offer, you should complete Box 1 and (if your Energy Group Shares are in CREST) Box 5, and sign Box 6 of the Form of Acceptance in accordance with the instructions printed on it. All holders of Energy Group Shares who are individuals should sign the Form of Acceptance in the presence of a witness, who should also sign Box 6 in accordance with the instructions printed on it. (II) TO ELECT FOR THE LOAN NOTE ALTERNATIVE To elect for the Loan Note Alternative in respect of some or all of the Energy Group Shares for which you are accepting the Offer, you should complete Box 2 in addition to taking the actions described in paragraph (i) above. The attention of those holders of Energy Group Shares considering accepting the Loan Note Alternative is drawn to paragraph 4 ("The Loan Note Alternative") and paragraph 12 ("Overseas shareholders") of this letter and to paragraphs 4 and 5 of Part B of Appendix I below. (III) RETURN OF FORM OF ACCEPTANCE TO ACCEPT THE OFFER, THE FORM OF ACCEPTANCE MUST BE COMPLETED AND RETURNED, WHETHER OR NOT YOUR ENERGY GROUP SHARES ARE IN CREST. THE COMPLETED, SIGNED AND (IF YOU ARE AN INDIVIDUAL) WITNESSED FORM OF ACCEPTANCE, TOGETHER WITH, IF YOUR ENERGY GROUP SHARES ARE NOT IN CREST, THE SHARE CERTIFICATE(S) AND/OR OTHER DOCUMENT(S) OF TITLE FOR YOUR ENERGY GROUP SHARES, SHOULD BE RETURNED BY POST TO NEW ISSUES DEPARTMENT, INDEPENDENT REGISTRARS GROUP LIMITED, PO BOX 166, BOURNE HOUSE, 34 BECKENHAM ROAD, BECKENHAM, KENT BR3 4TH, BY HAND, DURING NORMAL BUSINESS HOURS ONLY, TO INDEPENDENT REGISTRARS GROUP LIMITED, 23 IRONMONGER LANE, LONDON EC2 OR BY POST OR BY HAND TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, C/O SHAREHOLDER COMMUNICATIONS CORPORATION, 17 STATE STREET, 24TH FLOOR, NEW YORK, NY 10004, MARKED FOR THE ATTENTION OF "TENDERS AND EXCHANGES", AS SOON AS POSSIBLE BUT, IN ANY EVENT, SO AS TO BE RECEIVED NO LATER THAN 3.00 P.M. (LONDON TIME), 10.00 A.M. (NEW YORK CITY TIME) ON 29 JULY, 1997. A reply-paid envelope is enclosed for your convenience and may be used by holders of Energy Group Shares for returning Forms of Acceptance within the UK and US only. The instructions printed on the Form of Acceptance shall be deemed to form part of the terms of the Offer. Any Form of Acceptance received in an envelope postmarked in Canada, Australia or Japan or otherwise appearing to PacifiCorp Acquisitions or its agents to have been sent from Canada, Australia or Japan may be rejected as an invalid acceptance of the Offer. For further information for overseas shareholders, see paragraph 12 ("Overseas shareholders") above and paragraph 8 of Part B of Appendix I ("Overseas shareholders") below. (IV) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST) If your Energy Group Shares are in uncertificated form (that is, if you do not have a paper share certificate because your shares are held in CREST), you should read carefully paragraphs 10(d)-(l) of Part B of Appendix I, which set out the acceptance procedures for holders of Energy Group Shares in uncertificated form. IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD REFER TO YOUR CREST SPONSOR BEFORE TAKING ANY ACTION. 16 (V) SHARE CERTIFICATES NOT READILY AVAILABLE OR LOST If your Energy Group Shares are in certificated form but your share certificate(s) and/or other document(s) of title is/are not readily available or is/are lost, the Form of Acceptance should nevertheless be completed, signed and returned as stated in paragraph (iii) above so as to arrive no later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997, together with any share certificate(s) and/or other document(s) of title that you have available, accompanied by a letter stating that the balance will follow. You should then arrange for the relevant share certificate(s) and/or other document(s) of title to be forwarded as soon as possible thereafter. No acknowledgment of receipt of documents will be given. In the case of loss, you should write as soon as possible to Lloyds Bank Registrars, The Causeway, Goring-by-Sea, Worthing, West Sussex BN99 6DA for a letter of indemnity for lost share certificate(s) and/or other document(s) of title which, when completed in accordance with the instructions given, should be returned to New Issues Department, Independent Registrars Group Limited, PO Box 166, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TH. (VI) DEPOSITS OF ENERGY GROUP SHARES INTO, AND WITHDRAWALS OF ENERGY GROUP SHARES FROM, CREST Normal CREST procedures (including timings) apply in relation to any Energy Group Shares that are, or are to be, converted from uncertificated to certificated form, or from certificated to uncertificated form, during the course of the Offer (whether any such conversion arises as a result of a transfer of Energy Group Shares or otherwise). Holders of Energy Group Shares who are proposing so to convert any such shares are recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the shares as a result of the conversion to take all necessary steps in connection with an acceptance of the Offer (in particular, as regards delivery of share certificate(s) and/or other document(s) of title or transfers to an escrow balance as described above) prior to 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. (B) HOLDERS OF ENERGY GROUP ADSS The attention of holders of Energy Group ADSs is drawn to paragraph 9 of Part B of Appendix I ("Procedures for tendering Energy Group ADSs") below and to the relevant provisions of the Letter of Transmittal. To accept the Offer, holders of Energy Group ADSs must complete the Letter of Transmittal in accordance with the instructions printed on it. The completed Letter of Transmittal should be sent in the accompanying reply-paid envelope or delivered by hand together with the required signature guarantees and any other required documents to the US Depositary at one of its addresses set forth on the back cover of this document and the Energy Group ADRs must be either received by the US Depositary at one of such addresses or delivered in accordance with paragraph 9 of Part B of Appendix I referred to above. (C) VALIDITY OF ACCEPTANCES Subject to the City Code, PacifiCorp Acquisitions reserves the right to treat as valid in whole or in part any acceptance of the Offer which is not entirely in order or which is not accompanied (as applicable) by the relevant transfer to escrow or the relevant share certificate(s) and/or other document(s) of title or which is received by it at a place or places other than set out in this document or the Acceptance Form. In that event, no payment of cash or issue of Loan Notes under the Offer will be made until after (as applicable) the relevant transfer to escrow has settled or the relevant share certificate(s) and/or other document(s) of title or indemnities satisfactory to PacifiCorp Acquisitions have been received. (D) GENERAL No acknowledgment of receipt of Acceptance Forms, share certificates, Energy Group ADRs or other documents of title will be given. 17 IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURES FOR ACCEPTANCE, PLEASE CONTACT THE UK RECEIVING AGENT, NEW ISSUES DEPARTMENT, INDEPENDENT REGISTRARS GROUP LIMITED BY TELEPHONE ON 0181 639 2166 OR AT PO BOX 166, BOURNE HOUSE, 34 BECKENHAM ROAD, BECKENHAM, KENT BR3 4TH OR THE US DEPOSITARY, CONTINENTAL STOCK TRANSFER & TRUST COMPANY, ON 1-800 733 8481 EXT. 475 OR C/O SHAREHOLDER COMMUNICATIONS CORPORATION, 17 STATE STREET, 24TH FLOOR, NEW YORK, NY 10004, ATTN. TENDERS & EXCHANGES. YOU ARE REMINDED THAT, IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD CONTACT YOUR CREST SPONSOR BEFORE TAKING ANY ACTION. 14.RIGHTS OF WITHDRAWAL With certain exceptions pursuant to an SEC exemptive order, the Offer is subject to the US tender offer rules applicable to securities registered under the Exchange Act, as well as to the City Code. This has necessitated a number of changes from the procedures which normally apply to offers for UK companies, including those applicable to the rights of holders of Energy Group Securities to withdraw their acceptance of an offer. Under the Offer, holders of Energy Group Securities will be able to withdraw their acceptances at any time prior to the Initial Closing Date and in certain other circumstances. The Offer will not be deemed to have been validly accepted in respect of any Energy Group Securities which have been withdrawn. However, the Offer may be accepted again in respect of the withdrawn Energy Group Securities by following one of the procedures described in paragraph 13 of this letter ("Procedure for acceptance of the Offer") above at any time prior to the expiry or lapse of the Offer. Further details of these rights of withdrawal and the procedure for effecting withdrawals are set out in paragraph 3 of Part B of Appendix I ("Rights of withdrawal") below. 15.SETTLEMENT (A)DATE OF PAYMENT The settlement procedure with respect to the Offer will be consistent with UK practice, which differs from the US tender offer rules in certain material respects, particularly with regard to the date of payment. Subject to the satisfaction, fulfilment or, where permitted, waiver of all of the Conditions, settlement to which accepting holders of Energy Group Shares and accepting holders of Energy Group ADSs or other designated agents will be effected: (i) in the case of acceptances received complete in all respects by the Initial Closing Date, within 14 calendar days of such date; or (ii) in the case of acceptances received complete in all respects after such date, but while the Offer remains open for acceptance, within 14 calendar days of such receipt. (B)ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST) Where an acceptance relates to Energy Group Shares in uncertificated form, (i) the cash consideration to which accepting holders of Energy Group Shares are entitled will be paid by means of CREST by PacifiCorp Acquisitions procuring the creation of an assured payment obligation in favour of the accepting shareholders' payment bank in respect of the cash consideration due, in accordance with the CREST assured payment arrangement; and (ii) definitive certificates for any Loan Notes to which the accepting holder of Energy Group Shares is entitled will be despatched by post (or by such other method as may be approved by the Panel). PacifiCorp Acquisitions reserves the right to settle all or any part of the cash consideration referred to above, for all or any accepting shareholder(s), in the manner referred to in paragraph (c) below, if, for any reason, it wishes to do so. 18 (C)ENERGY GROUP SHARES IN CERTIFICATED FORM AND ENERGY GROUP ADSS Where an acceptance relates to Energy Group Shares in certificated form or Energy Group ADSs evidenced by Energy Group ADRs, cheques for cash due and, where applicable, definitive certificates for any Loan Notes will be despatched by post (or by such other method as may be approved by the Panel). (D)LAPSING OF THE OFFER If the Conditions are not satisfied, fulfilled or, where permitted, waived, (i) in respect of Energy Group Shares in certificated form and Energy Group ADSs, the relevant share certificate(s) and/or other documents of title will be returned by post (or by such other method as may be approved by the Panel) within 14 days of the Offer lapsing and (ii) in respect of Energy Group Shares in uncertificated form (that is, in CREST) Independent Registrars Group Limited will, immediately after the lapsing of the Offer (or within such longer period as the Panel may permit, not exceeding 14 days of the lapsing of the Offer), give TFE instructions to CRESTCo to transfer all relevant Energy Group Shares held in escrow balances and in relation to which it is the escrow agent for the purposes of the Offer to the original available balances of the holders of Energy Group Shares concerned. (E)GENERAL All documents and remittances sent by, to, or from holders of Energy Group Securities or their appointed agents will be sent at their own risk. All mandates and other instructions in force relating to holdings of Energy Group Securities will, unless and until revoked, continue in force in relation to payments of principal and interest under the Loan Notes. (F)CURRENCY OF CONSIDERATION Instead of pounds sterling, holders of Energy Group Shares who so wish may receive US dollars on the following basis: the cash amount payable in pounds sterling to which such holder would otherwise be entitled pursuant to the terms of the Offer will be converted, without charge, from pounds sterling to US dollars at the exchange rate obtainable by the relevant payment agent (either the UK Receiving Agent or the US Depositary) on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery in respect of the relevant Energy Group Shares. A holder of Energy Group Shares may receive such amount on the basis set out above only in respect of the whole of his holding of Energy Group Shares in respect of which he accepts the Offer. Holders of Energy Group Securities may not elect to receive pounds sterling and US dollars. Unless they elect to receive pounds sterling, holders of Energy Group ADSs will receive consideration converted into US dollars as described above, as if such holders of Energy Group ADSs had elected to receive US dollars. Consideration in US dollars may be inappropriate for holders of Energy Group Shares other than persons in the US and holders of Energy Group ADSs. THE ACTUAL AMOUNT OF US DOLLARS RECEIVED WILL DEPEND UPON THE EXCHANGE RATE PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT PAYMENT AGENT BY PACIFICORP ACQUISITIONS. HOLDERS OF ENERGY GROUP SECURITIES SHOULD BE AWARE THAT THE US DOLLAR/POUNDS STERLING EXCHANGE RATE WHICH IS PREVAILING AT THE DATE ON WHICH AN ELECTION IS MADE TO RECEIVE DOLLARS AND ON THE DATE OF DESPATCH OF PAYMENT MAY BE DIFFERENT FROM THAT PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT PAYMENT AGENT BY PACIFICORP ACQUISITIONS. IN ALL CASES, FLUCTUATIONS IN THE US DOLLAR/POUNDS STERLING EXCHANGE RATE ARE AT THE RISK OF ACCEPTING HOLDERS OF ENERGY GROUP SECURITIES WHO ELECT OR ARE TREATED AS HAVING ELECTED TO RECEIVE THEIR CONSIDERATION IN US DOLLARS. PACIFICORP ACQUISITIONS SHALL HAVE NO RESPONSIBILITY WITH RESPECT TO THE CASH CONSIDERATION PAYABLE OTHER THAN TO MAKE PAYMENT IN POUNDS STERLING. 19 16.FURTHER INFORMATION Your attention is drawn to Appendix I to this document, which contains the Conditions and further terms and information and forms part of this document and to the other Appendices to this document which contain important information in connection with the Offer and to the accompanying Acceptance Form. 17.ACTION TO BE TAKEN YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED FORM OF ACCEPTANCE OR LETTER OF TRANSMITTAL (AS APPROPRIATE) AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO ARRIVE BY NO LATER THAN 3.00 P.M. (LONDON TIME), 10.00 A.M. (NEW YORK CITY TIME) ON 29 JULY 1997. Yours faithfully for Goldman Sachs International Richard A. Sapp Managing Director 20 APPENDIX I CONDITIONS AND FURTHER TERMS OF THE OFFER PART A CONDITIONS OF THE OFFER The Offer, which is being made by Goldman Sachs International on behalf of PacifiCorp Acquisitions, will comply with the rules and regulations of the City Code and with US federal securities laws (except to the extent that exemptive relief has been granted by the SEC) and the rules and regulations made thereunder, is governed by English law and is subject to the jurisdiction of the courts of England and the following Conditions: (a) (i) valid acceptances being received (and not, where permitted, withdrawn) by not later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997 (or such later time(s) and/or date(s) as PacifiCorp Acquisitions may, subject to the rules and regulations of the City Code, decide) in respect of not less than 90 per cent. (the "90 per cent. threshold") (or such lesser percentage as PacifiCorp Acquisitions may decide) in nominal value of Energy Group Securities to which the Offer relates, provided that this Condition shall not be satisfied unless PacifiCorp Acquisitions and its wholly-owned subsidiaries shall have acquired or agreed to acquire, whether pursuant to the Offer or otherwise, Energy Group Securities carrying in aggregate more than 50 per cent. of the voting rights then exercisable at general meetings of The Energy Group. For the purposes of this Condition: (i) any Energy Group Securities which have been unconditionally allotted shall be deemed to carry the voting rights they will carry upon being entered in the register of members of The Energy Group; (ii) the expression "Energy Group Securities to which the Offer relates" shall be construed in accordance with sections 428 to 430F of the Companies Act; and (iii) valid acceptances shall be treated as having been received in respect of any Energy Group Shares which PacifiCorp Acquisitions shall, pursuant to section 429(8) of the Companies Act, be treated as having acquired or contracted to acquire by virtue of acceptances of the Offer; and (ii) if the 90 per cent. threshold shall have been satisfied before the Offer becomes or is declared unconditional in all respects, Condition (a)(i) remaining satisfied as at the time when the Offer becomes or is declared unconditional in all other respects, by reference to the facts then subsisting; (b) an announcement being made in terms reasonably satisfactory to PacifiCorp Acquisitions that it is not the intention of the Secretary of State for Trade and Industry to refer the Acquisition, or any matters arising from it, to the Monopolies and Mergers Commission; (c) the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that it is not his intention to seek modifications to any of Eastern's licences under the Electricity Act 1989 (except on terms reasonably satisfactory to PacifiCorp Acquisitions); (d) the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that he will not seek undertakings or assurances from any member of the PacifiCorp Acquisitions Group or the TEG Group (except on terms reasonably satisfactory to PacifiCorp Acquisitions) and that in connection with the Acquisition he will seek or agree to such modifications (if any) and such other consents and/or directions (if any) as are in the reasonable opinion of PacifiCorp Acquisitions necessary or appropriate with respect to the licences referred to in Condition (c); (e) the expiry or early termination of all applicable waiting periods under the US HSR Act; (f) PacifiCorp Acquisitions being reasonably satisfied that the acquisition of Energy Group Securities pursuant to the Offer will not subject PacifiCorp Acquisitions to regulation, or PacifiCorp Acquisitions will be exempt from regulation, under the US Public Utility Holding Company Act of 1935; (g) no final FERC order being in effect requiring FERC approval of the acquisition of Energy Group Securities pursuant to the Offer; I-1 (h) the Foreign Investment Review Board of Australia indicating on terms reasonably satisfactory to PacifiCorp Acquisitions that it has no objection to the Acquisition; (i) no relevant authority having intervened in a way which would be likely, or having failed to institute or implement any action the failure of which would be likely (to an extent which is, in the case of (i) to (iv) below, material in the context of the PacifiCorp Acquisitions Group or of the TEG Group or of the financing of the Offer): (i) to require, prevent or delay the divestiture or materially alter the terms of any proposed divestiture by PacifiCorp Acquisitions or The Energy Group or any member of the PacifiCorp Acquisitions Group or the wider TEG Group of all or any portion of their respective businesses, assets or properties or impose any limitation on the ability of any of them to conduct any of their respective businesses or to own any of their respective assets or property or any part thereof; (ii) to impose any limitation on the ability of any member of the PacifiCorp Acquisitions Group or the wider TEG Group to acquire, or to hold or to exercise effectively, directly or indirectly, any rights of ownership in respect of shares in, or management control over, any member of the wider TEG Group; (iii) otherwise adversely to affect the financial or trading position of any member of the PacifiCorp Acquisitions Group or the wider TEG Group; (iv) to make the Offer or its implementation or the acquisition or the proposed acquisition of any Energy Group Shares or Energy Group ADSs or control of The Energy Group by any member of the PacifiCorp Acquisitions Group void, illegal, and/or unenforceable, or otherwise, directly or indirectly, restrain, restrict, prohibit, delay or otherwise interfere with the implementation thereof, or impose additional conditions or obligations with respect thereto, or otherwise challenge or hinder any thereof; (v) to result in a delay in the ability of any member of the PacifiCorp Acquisitions Group, or render any such person unable, to acquire some or all of the Energy Group Shares or Energy Group ADSs or require or prevent or materially delay divestiture by any such person of any such securities; or (vi) to require any member of the PacifiCorp Acquisitions Group or the wider TEG Group to offer to acquire any shares or other securities (or the equivalent) in any member of the wider TEG Group owned by any third party; and all applicable waiting and other time periods during which any relevant authority could, in respect of the Offer or the acquisition or proposed acquisition of any Energy Group Shares or Energy Group ADSs or control of The Energy Group by PacifiCorp Acquisitions, intervene having expired, lapsed or terminated; (j) all necessary filings having been made, all regulatory and statutory obligations having been complied with, all appropriate waiting periods under any applicable legislation or regulations of any jurisdiction having expired, lapsed or terminated in each case in respect of the Offer or the acquisition of any shares or other securities in, or control of, The Energy Group by any member of the PacifiCorp Acquisitions Group and all authorisations and determinations necessary or appropriate in any jurisdiction for or in respect of the Offer (including, without limitation, its implementation and financing) or proposed acquisition of any shares or other securities in, or control of, The Energy Group by any member of the PacifiCorp Acquisitions Group or in relation to the affairs of any member of the PacifiCorp Acquisitions Group or the wider TEG Group having been obtained in terms and in a form reasonably satisfactory to PacifiCorp Acquisitions from all relevant authorities or (without prejudice to the generality of the foregoing) from any persons or bodies with whom any member of the PacifiCorp Acquisitions Group or the wider TEG Group, as the case may be, has entered into contractual arrangements and such authorisations and determinations together with all material authorisations and determinations necessary or appropriate for any member of the PacifiCorp I-2 Acquisitions Group or the wider TEG Group to carry on a business which is material in the context of the PacifiCorp Acquisitions Group or the TEG Group as a whole or of the financing of the Offer remaining in full force and effect and all filings necessary for such purpose having been made and there being no notice or intimation of any intention to revoke or not to renew any of the same and all necessary statutory or regulatory obligations in all relevant jurisdictions having been complied with; (k) PacifiCorp Acquisitions not having discovered any provision of any agreement, arrangement, licence or other instrument to which any member of the wider TEG Group is a party or by or to which any member of the wider TEG Group or any part of its assets may be bound, entitled or subject which would be likely, as a result of the Offer, the proposed acquisition by PacifiCorp Acquisitions of any shares in, or change in the control or management of, The Energy Group or otherwise, to result in (to an extent which is material in the context of the PacifiCorp Acquisitions Group or the wider TEG Group as a whole or of the financing of the Offer): (i) any moneys borrowed by or any other indebtedness, actual or contingent, of any member of the wider TEG Group being or becoming repayable or capable of being declared repayable immediately or prior to its stated maturity, or the ability of any such member to borrow moneys or incur any indebtedness being withdrawn or inhibited; (ii) any such agreement, arrangement, licence or instrument being terminated or adversely modified or any obligation or liability arising or any action being taken or arising thereunder; (iii) the rights, liabilities, obligations or interests of any member of the wider TEG Group under any such arrangement, agreement, licence or instrument or the interests or business of any such member in or with any other person, firm, company or body (or any arrangements relating to any such interests or business) being terminated or adversely modified or affected; (iv) any assets or interests of any such member being or becoming liable to be disposed of or charged, or any right arising under which any such asset or interest is required or is likely to be required to be disposed of or charged, in each case other than in the ordinary course of business; (v) the creation of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any member of the wider TEG Group or any such security interest, whenever arising or having arisen, becoming enforceable; (vi) the creation of liabilities for any member of the wider TEG Group other than in the ordinary course of business; or (vii) the financial or trading position of any member of the wider TEG Group being prejudiced or adversely affected; (l) PacifiCorp Acquisitions not having discovered, save as publicly announced in accordance with the Listing Rules prior to 13 June 1997, that any member of the wider TEG Group has, since 30 September 1996 to an extent which is material in the context of the TEG Group as a whole or of the financing of the Offer: (i) save to any member of the TEG Group and, save for the issue of Energy Group Securities on the exercise of options granted under any of the Energy Group Share Schemes prior to 13 June 1997, issued or agreed to issue or authorised or proposed the issue of additional shares of any class, or of securities convertible into, or rights, warrants or options to subscribe for or acquire, any such shares or convertible securities or redeemed, purchased or reduced any part of its share capital; (ii) recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus, dividend or other distribution in respect of the share capital of The Energy Group (except a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July 1997); I-3 (iii) merged with any body corporate or acquired or disposed of or transferred, mortgaged or charged or created any security interest over any assets or any right, title or interest in any assets (including shares and trade investments) or authorised or proposed or announced any intention to propose a merger, demerger, acquisition, disposal, transfer, mortgage, charge or security interest (in each case, other than in the ordinary course of business); (iv) made or authorised or proposed or announced an intention to propose any change in its share or loan capital save for options granted under any of the Energy Group Share Schemes prior to 13 June 1997 and for any Energy Group Securities allotted upon exercise of such options; (v) issued, authorised or proposed or announced an intention to propose the issue of any debentures or (save in the ordinary course of business) incurred or increased any indebtedness or contingent liability; (vi) otherwise than in the ordinary course of business, entered into any contract, reconstruction, amalgamation, commitment or other transaction or arrangement or (save for changes in remuneration notified to PacifiCorp Acquisitions prior to 13 June 1997) changed the terms of any contract with any director of The Energy Group; (vii) save in the ordinary course of business, entered into or varied any contract, transaction or commitment (whether in respect of capital expenditure or otherwise) which is of a long-term, onerous or unusual nature or magnitude or which involves or could involve an obligation of such a nature or magnitude; (viii) waived or compromised any claim otherwise than in the ordinary course of business; (ix) taken any corporate action or had any order made for its winding- up, dissolution or reorganisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of all or any of its assets or revenues; or (x) entered into any contract, commitment, agreement or arrangement or passed any resolution with respect to, or announced an intention to, or to propose to effect, any of the transactions, matters or events referred to in this Condition; (m) since 30 September 1996, save as publicly announced in accordance with the Listing Rules prior to 13 June 1997, none of the following having occurred to an extent which is material in the context of the wider TEG Group as a whole or of the financing of the Offer: (i) adverse change or deterioration in the business, assets, financial or trading position of any member of the wider TEG Group; (ii) litigation or arbitration proceedings, prosecution or other legal proceedings having been instituted or threatened in writing by or against or remaining outstanding against any member of the wider TEG Group or to which any member of the wider TEG Group is a party (whether as plaintiff, defendant or otherwise) and any investigation by any relevant authority against, or in respect of any member of the wider TEG Group having been threatened in writing, announced or instituted or remaining outstanding by, against or in respect of any member of the wider TEG Group; and (iii) a contingent or other liability of any member of the wider TEG Group having arisen which would be likely adversely to affect any member of the wider TEG Group; (n) PacifiCorp Acquisitions not having discovered: (i) that any financial, business or other information which has been publicly disclosed at any time by or on behalf of any member of the wider TEG Group is materially misleading, contains a material misrepresentation of fact or omits to state a fact necessary to make the information contained therein not misleading and which in any such case is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; or I-4 (ii) that any member of the wider TEG Group was, at the date of the Energy Group Listing Particulars, or has, outside the ordinary course of business since that date, become subject to any liability (contingent or otherwise) which is not disclosed or referred to in the Energy Group Listing Particulars and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; and (o) save as disclosed or provided for in the Energy Group Listing Particulars or as otherwise publicly announced in accordance with the Listing Rules prior to 13 June 1997, PacifiCorp Acquisitions not having discovered: (i) that any past or present member of the wider TEG Group has not complied with all applicable legislation or regulations of any jurisdiction with regard to the disposal, discharge, spillage, leak or emission of any waste or hazardous substance or any substance likely to impair the environment or harm human health, which non-compliance or any other disposal, discharge, spillage, leak or emission which has occurred would be likely to give rise to any liability (whether actual or contingent) on the part of any member of the wider TEG Group and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; or (ii) that there is, or is likely to be, any liability (whether actual or contingent) to make good, repair, reclaim, remediate, reinstate or clean up property now or previously owned, occupied or made use of by any past or present member of the wider TEG Group under any legislation, regulation, notice, circular or order of any relevant authority relating to the protection of or enhancement of the environment and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer. For the purposes of these Conditions: (a) "relevant authority" means any government, government department or governmental, quasi-governmental, supranational, statutory or regulatory body, court, trade agency, professional association or institution or environmental body in any jurisdiction; (b) a relevant authority shall be regarded as having "intervened" if it has instituted, implemented or threatened to take any action, proceedings, suit, investigation or enquiry or reference, or made, enacted or proposed any statute, regulation, decision or order and "intervene" shall be construed accordingly; (c) "authorisations" mean authorisations, orders, grants, recognitions, certifications, confirmations, consents, licences, clearances, permissions and approvals; (d) the "wider TEG Group" means The Energy Group and its subsidiary undertakings, associated undertakings and any other undertakings in which The Energy Group and such undertakings (aggregating their interests) have a substantial interest; and (e) the "PacifiCorp Acquisitions Group" means PacifiCorp Holdings, Inc. and its subsidiary undertakings, associated undertakings and any other undertaking in which PacifiCorp Holdings, Inc. and such undertakings (aggregating their interests) have a substantial interest and, for these purposes, "subsidiary undertaking", "associated undertaking", "holding company" and "undertaking" have the meanings given by the Companies Act (but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the Companies Act) and "substantial interest" means a direct or indirect interest in 20 per cent. or more of the equity capital of an undertaking. PacifiCorp Acquisitions will not invoke either of Conditions (i) or (j) in respect of actions taken by FERC or for the failure to obtain any approval from FERC. PacifiCorp Acquisitions reserves the right to waive all or any of the above Conditions, in whole or in part, except Condition (a). Conditions (b) to (o) inclusive, if not, where applicable, waived, must be fulfilled or satisfied by the Initial Closing Date. Subject thereto, if Condition (a)(i) is satisfied prior to the Initial Closing Date, Conditions (b) to (o) inclusive if not, where applicable, waived, must be fulfilled or satisfied, (i) if Condition (a)(i) is satisfied at a level below the 90 per cent. threshold described in Condition (a)(i), by the date on which Condition (a)(i) is so satisfied, or (ii) if Condition (a)(i) is satisfied at a level at or above such 90 per cent. threshold, by the end of the twenty-first day (or such later day as the Panel may agree) after whichever is the later of the time of satisfaction of Condition (a)(i) and 29 July 1997, but, subject thereto, PacifiCorp Acquisitions shall be under no obligation to waive or treat as satisfied I-5 any Condition by a date earlier than the latest date for the satisfaction thereof, notwithstanding that the other Conditions may at such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such Conditions may not be capable of fulfilment. If PacifiCorp Acquisitions is required by the Panel to make an offer for Energy Group Securities under the provisions of Rule 9 of the City Code, PacifiCorp Acquisitions may make such alterations to the above Conditions, including Condition (a), as are necessary to comply with the provisions of Rule 9. The Offer will lapse if the Acquisition is referred to the Monopolies and Mergers Commission before the Initial Closing Date. PART B FURTHER TERMS OF THE OFFER The following further terms apply, where the context permits, to the Offer. 1ACCEPTANCE PERIOD (A) The Offer will initially be open until 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. PacifiCorp Acquisitions expressly reserves the right (but will not be obliged) at any time or from time to time to extend the Offer after the Initial Closing Date and, in such event, will make a public announcement of such extension in the manner described in paragraph 2 below and give oral or written notice of such extension to the UK Receiving Agent and the US Depositary. PacifiCorp Acquisitions may terminate any such extension (other than an extension required by the City Code or US federal securities laws and the rules and regulations thereunder) prior to its scheduled expiry if all Conditions have been satisfied or, where permitted, waived. If all Conditions have not been satisfied or, where permitted, waived by PacifiCorp Acquisitions by 3.00 p.m. (London time), 10.00 a.m. (New York City time) on the Initial Closing Date, PacifiCorp Acquisitions currently intends to extend the Offer until such time as all Conditions have been satisfied or, where permitted, waived. There can be no assurance, however, that PacifiCorp Acquisitions will, in such circumstances, extend the Offer and, if no such extension is made, the Offer will lapse on the Initial Closing Date and no Energy Group Securities will be purchased pursuant to the Offer. (B) Although no revision is envisaged, if the Offer is revised, the Initial Offer Period will be extended, if necessary, for a period of at least 14 calendar days from the date of posting of the revised Offer to holders of Energy Group Securities. Except with the consent of the Panel, no revision of the Offer may be made after 15 August 1997. (C) The Initial Offer Period cannot (except with the consent of the Panel) be extended beyond midnight (London time), 7.00 p.m. (New York City time) on 29 August 1997 (or any earlier time and/or date beyond which PacifiCorp Acquisitions has stated that the Offer will not be extended and in respect of which it has not withdrawn that statement). If all Conditions are not satisfied or, where permitted, waived at such time (taking account of any prescribed extension of the Initial Offer Period), the Offer will lapse in the absence of a competing bid and/or unless the Panel agrees otherwise. If the Offer lapses for any reason, the Offer shall cease to be capable of further acceptance and PacifiCorp Acquisitions and holders of Energy Group Securities shall cease to be bound by prior acceptances. PacifiCorp Acquisitions reserves the right, if appropriate, to seek the Panel's approval to extend the final date for expiry of the Initial Offer Period to 19 September 1997, or such later date as the Panel may agree. Except with the consent of the Panel, PacifiCorp Acquisitions may not, for the purposes of determining whether the Acceptance Condition has been satisfied, take into account acceptances or purchases of Energy Group Securities made after 1.00 p.m. (London time), 8.00 a.m. (New York City time) on 29 August 1997 (or any other time or date beyond which PacifiCorp Acquisitions has stated that I-6 the Offer will not be extended and in respect of which it has not withdrawn that statement) or such later time and/or date as PacifiCorp Acquisitions, with the permission of the Panel, may determine. (D) If all Conditions are satisfied, fulfilled or, where applicable, waived and the Initial Offer Period expires, the Offer will remain open for acceptance for the Subsequent Offer Period of not less than 14 calendar days from the expiry of the Initial Offer Period. If it is stated that the Offer will remain open until further notice, then not less than 14 calendar days' notice will be given prior to the closing of the Subsequent Offer Period. (E) If a competitive situation arises after a no extension and/or a no increase statement has been made by or on behalf of PacifiCorp Acquisitions in relation to the Offer, PacifiCorp Acquisitions may, if it has specifically reserved the right to do so at the same time as such statement is made (or otherwise with the consent of the Panel), withdraw such statement and be free to extend the Offer if it announces such withdrawal within four Business Days after the announcement of the competing offer and gives notice to the holders of Energy Group Securities to that effect in writing or (in the case of holders of Energy Group Securities with registered addresses outside the United Kingdom or the United States or whom PacifiCorp Acquisitions knows to be nominees, trustees or custodians holding Energy Group Securities for such persons) by announcement in the United Kingdom and in the United States at the earliest opportunity. PacifiCorp Acquisitions may choose not to be bound by the terms of a no extension and/or a no increase statement if it would otherwise prevent the posting of an increased or improved Offer, (i) if it has reserved the right to do so, and the increased or improved Offer is recommended for acceptance by the board of directors of Energy Group or (ii) with the consent of the Panel. (F) For the purposes of determining whether the Acceptance Condition has been satisfied, PacifiCorp Acquisitions will not be bound (unless otherwise required by the Panel) to take into account any Energy Group Securities which have been issued or unconditionally allotted, or which arise as the result of the exercise of conversion rights, before that determination takes place, unless written notice containing relevant details of the allotment, issue or conversion has been received from The Energy Group or its agents before that time by PacifiCorp Acquisitions or Independent Registrars Group Limited or Continental Stock Transfer & Trust Company on behalf of PacifiCorp Acquisitions at one of the addresses specified at the end of this document. Notification by telex or facsimile or other electronic transmissions will not be sufficient. (G) In accordance with an SEC exemptive order received by PacifiCorp Acquisitions, at least five Business Days prior to any reduction in the percentage of Energy Group Securities required to satisfy the Acceptance Condition, PacifiCorp Acquisitions will announce that it has reserved the right so to reduce the Acceptance Condition. PacifiCorp Acquisitions will not make such an announcement unless PacifiCorp Acquisitions believes there is a significant possibility that sufficient Energy Group Securities will be tendered to permit the Acceptance Condition to be satisfied at such reduced level. Holders of Energy Group Securities who are not willing to accept the Offer if the Acceptance Condition is reduced to the minimum permitted level should either not accept the Offer until the Subsequent Offer Period or be prepared to withdraw their acceptance promptly following an announcement by PacifiCorp Acquisitions of its reservation of the right to reduce the Acceptance Condition. 2 ANNOUNCEMENTS (A) Without prejudice to paragraph 3 ("Rights of withdrawal") below, by 8.30 a.m. (London time) in the United Kingdom and 8.30 a.m. (New York City time) in the United States on the Business Day (the "relevant day") next following the day on which the Offer is due to expire or on which all Conditions become or are declared to have been satisfied, fulfilled or, where applicable, waived or on which the Offer is revised or extended (or such later time and/or date as the Panel may agree), PacifiCorp Acquisitions will make an appropriate announcement and inform the I-7 London Stock Exchange and the Dow Jones News Service, respectively of the Offer. Such announcements will (unless otherwise permitted by the Panel) also state the total number of Energy Group Securities and rights over Energy Group Securities (as nearly as practicable): (i) for which acceptances of the Offer have been received (showing the extent, if any, to which such acceptances have been received from persons acting or deemed to be in concert with PacifiCorp Acquisitions); (ii) acquired or agreed to be acquired by or on behalf of PacifiCorp Acquisitions and any person acting or deemed to be in concert with PacifiCorp Acquisitions; (iii) held prior to the Initial Offer Period by or on behalf of PacifiCorp Acquisitions and any persons acting or deemed to be in concert with it; and (iv) for which acceptances of the Offer have been received from persons acting in concert with PacifiCorp Acquisitions; and will specify the percentages of Energy Group Securities represented by each of these figures. In computing the numbers of Energy Group Securities represented by acceptances and/or purchases for the above purposes, only those acceptances and/or purchases permitted to be counted towards fulfilling the Acceptance Condition in accordance with paragraph 12 ("Certain provisions concerning acceptances") below shall be included in the totals. (B) Any decision to extend the Initial Offer Period may be made at any time up to, and will be announced not later than, 8.30 a.m. (London time) in the United Kingdom and 8.30 a.m. (New York City time) in the United States on the relevant day (or such later time and/or date as the Panel may agree) and the announcement will state the next expiry date of the Initial Offer Period. (C) References to the making of an announcement by or on behalf of PacifiCorp Acquisitions include the release of an announcement by PacifiCorp Acquisitions, by public relations consultants retained by PacifiCorp Acquisitions, or by Goldman Sachs International, to the press and the delivery by hand or telephone, facsimile or telex transmission or other electronic transmission of an announcement to the London Stock Exchange and the Dow Jones News Service. An announcement made otherwise than to the London Stock Exchange will be notified simultaneously to the London Stock Exchange. (D) Without limiting the manner in which PacifiCorp Acquisitions may choose to make any public announcement and, subject to PacifiCorp Acquisitions' obligations under applicable law (including Rules 14(d)-4(c) and 14d-6(d) under the Exchange Act relating to PacifiCorp Acquisitions' obligation to disseminate promptly public announcements concerning material changes to the Offer), PacifiCorp Acquisitions will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the London Stock Exchange and the Dow Jones News Service. 3 RIGHTS OF WITHDRAWAL (A) Except as otherwise provided in this paragraph, tenders of Energy Group Securities and elections are irrevocable. Energy Group Securities tendered pursuant to the Offer may be withdrawn pursuant to the procedures set out below at any time during the Initial Offer Period and in certain other circumstances described below. Energy Group Securities tendered during the Initial Offer Period and not validly withdrawn prior to the Initial Closing Date, and Energy Group Securities tendered during the Subsequent Offer Period, may not be withdrawn. Holders of Energy Group Securities will not have withdrawal rights during the Subsequent Offer Period, except in certain limited circumstances described below. I-8 (B) If PacifiCorp Acquisitions, having announced that the Acceptance Condition has been satisfied, fails by 3.30 p.m. (London time), 10.30 a.m. (New York City time) on the relevant day (or such later time or date as the Panel may agree) to comply with any of the relevant requirements relating to the Offer specified in paragraph 2(a) of this Part B of Appendix I above, an accepting holder of Energy Group Securities may immediately after that time withdraw his acceptance of the Offer by written notice given by post or by hand to New Issues Department, Independent Registrars Group Limited, PO Box 166, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TH receiving such notice on behalf of PacifiCorp Acquisitions. This right of withdrawal may be terminated not less than eight days after the relevant day by PacifiCorp Acquisitions confirming, if that be the case, that the Offer is still unconditional and complying with the other relevant requirements relating to the Offer specified in paragraph 2(a) of this Part B of Appendix I above. If any such confirmation is given, the first period of 14 days referred to in paragraph 1(b) of this Part B of Appendix I above will run from the date of that confirmation and compliance. (C) If a no extension and/or a no increase statement is withdrawn in accordance with paragraph 1(e) of this Part B of Appendix I above, any acceptance of the Offer made after the date of that statement may be withdrawn thereafter in the manner referred to in paragraph 3(b) of this Part B of Appendix I above, for a period of eight days following the date on which the notice of the withdrawal of such statement is posted to holders of Energy Group Securities. (D) To be effective, a written notice of withdrawal must be received on a timely basis by the party (either the UK Receiving Agent or the US Depositary) to whom the Acceptance Form was originally sent and must specify the name of the person who has tendered the Energy Group Securities, the number of Energy Group Securities to be withdrawn and (if certificates have been tendered) the name of the registered holder of the relevant Energy Group Securities, if different from the name of the person who tendered such Energy Group Securities. (E) In respect of Energy Group ADSs, if Energy Group ADRs have been delivered or otherwise identified to the US Depositary, then, prior to the physical release of such Energy Group ADRs, the serial numbers shown on such Energy Group ADRs must be submitted and, unless the Energy Group ADSs evidenced by such Energy Group ADRs have been tendered by an Eligible Institution or by means of a Letter of Transmittal, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If interests in Energy Group ADSs evidenced by Energy Group ADRs, have been delivered pursuant to the procedures for book-entry transfer set out in paragraph 9 of this Part B of Appendix I below, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Energy Group ADSs and must otherwise comply with such Book-Entry Transfer Facility's procedures. (E) Withdrawals of tendered Energy Group Securities may not be rescinded (without PacifiCorp Acquisitions' consent) and any Energy Group Securities properly withdrawn and not properly retendered will thereafter be deemed not validly tendered for the purposes of the Offer. Withdrawn Energy Group Securities may be subsequently re-tendered, however, by following one of the procedures described in either paragraph 9 or paragraph 10 of this Part B of Appendix I below, as the case may be, at any time whilst the Offer remains open. (F) All questions as to the validity (including time of receipt) of any notice of withdrawal will be determined by PacifiCorp Acquisitions, whose determination (except as required by the Panel) will be final and binding. None of PacifiCorp Acquisitions, The Energy Group, Goldman Sachs International, the US Depositary, the UK Receiving Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. I-9 4 THE LOAN NOTE ALTERNATIVE (A) The Loan Note Alternative is conditional upon all Conditions becoming or being declared satisfied, fulfilled or, where permitted, waived. (B) No election for the Loan Note Alternative will be valid unless both a valid acceptance of the Offer and a valid election for the Loan Note Alternative, duly completed in all respects and accompanied by, if appropriate, all relevant share certificates and/or other document(s) of title, are duly received by the time and date on which the Loan Note Alternative closes. (C) If any acceptance of the Offer which includes an election for the Loan Note Alternative is not, and is not deemed to be, valid or complete in all respects at such time, such election shall for all purposes be void and the holder(s) of Energy Group Shares purporting to make such election shall not, for any purpose, be entitled to receive the Loan Note Alternative, but any such acceptance which is otherwise valid shall be deemed to be an acceptance of the Offer (without the Loan Note Alternative) for the number of Energy Group Shares which are the subject of the acceptance and the holder(s) of Energy Group Shares will, on the Offer becoming unconditional in all respects, be entitled to receive the cash consideration due under the Offer. (D) The Loan Note Alternative will remain open for acceptance for as long as the Offer remains open for acceptance. (E) The Loan Note Alternative is not available to any holder of Energy Group Securities who is a citizen or resident of the United States. 5 EFFECT OF ELECTIONS (A) The insertion of a number in Box 2 on the Form of Acceptance shall, subject to the other terms of the Offer, be treated in respect of the relevant number of Energy Group Shares as an election for the Loan Note Alternative described in paragraph 4 of this Part B of Appendix I above. (B) An election will not be valid unless the Form of Acceptance is completed correctly in all respects and is received in accordance with paragraph 10 ("Procedures for tendering Energy Group Shares") below. (C) To allow PacifiCorp Acquisitions to pay interest on the Loan Notes without withholding US income tax, beneficial owners of Loan Notes must certify that they are not US persons for purposes of US federal income tax laws (see paragraph 15(b) of Appendix V below). 6 REVISIONS OF THE OFFER AND/OR THE LOAN NOTE ALTERNATIVE (A) Although no revision of the Offer is envisaged, if the Offer (in its original or any previously revised form(s)) is revised (either in its terms or Conditions or in the value or form of the consideration offered or otherwise) and any such revision represents, on the date on which such revision is announced (on such basis as Goldman Sachs International may consider appropriate) an improvement (or no diminution) in the value of the consideration under the Offer as so revised compared with the value of the consideration previously offered, the benefit of the revised Offer will, subject as provided in this paragraph 6 below, be made available to holders of Energy Group Securities who have accepted the Offer in its original or any previously revised form(s) and not validly withdrawn such acceptance (hereinafter called a "Previous Acceptor"). The acceptance by or on behalf of a Previous Acceptor of the Offer in its original or any previously revised form(s) shall, subject as provided in this paragraph 6 and in paragraph 9 or paragraph 10 of Part B of this Appendix I below, be deemed to be an acceptance of the Offer as so revised and shall constitute the appointment of any director of PacifiCorp Acquisitions or of Goldman Sachs International as his attorney and/or agent with authority to accept any such revised Offer on behalf of such Previous Acceptor and to make such elections as those made by the Previous Acceptor in relation to the Offer in the Acceptance Form previously executed by him or on his behalf and to execute on behalf of and in the name of such Previous Acceptor all such further documents and take such further actions (if any) as may be required to give effect to such acceptances and/or elections. In making any such acceptance or making any such election, the attorney and/or agent will take into account the nature of any previous acceptances and/or I-10 elections made by or on behalf of the Previous Acceptor and such other facts or matters as he may reasonably consider relevant. (B) The authorities conferred by paragraph 6(a) of Part B of this Appendix I above shall not be exercised by any director of PacifiCorp Acquisitions or of Goldman Sachs International, as the case may be, if, as a result thereof, the Previous Acceptor would thereby receive less in cash than he would have received as a result of his acceptance of the Offer (in its original or any previously revised form(s)) in the form in which it was originally accepted by him and the exercise of the powers of attorney so conferred by paragraph 6(a) of Part B of this Appendix I above of any such Previous Acceptor shall be ineffective to the extent that such Previous Acceptor shall lodge, within 14 calendar days of the posting of the document pursuant to which the improved consideration referred to in paragraph 6(a) of Part B of this Appendix I above is made available to holders of Energy Group Securities, an Acceptance Form validly accepting the Offer in which he validly elects to receive the consideration receivable by him in some other manner than that set out in his original acceptance. (C) PacifiCorp Acquisitions reserves the right (subject to paragraph 6(a) of this Part B of this Appendix I above) to treat an executed Acceptance Form relating to the Offer (in its original or any previously revised form(s)) which is received (or dated) after the announcement or issue of the Offer in any revised form as a valid acceptance and/or election of the revised Offer and such acceptance shall constitute an authority in the terms of paragraph 6(a) of Part B of this Appendix I above, mutatis mutandis, on behalf of the relevant holder of Energy Group Securities. 7GENERAL (A) If the Offer lapses, pursuant to the City Code, neither PacifiCorp Acquisitions nor any person acting or deemed to be acting in concert with PacifiCorp Acquisitions for the purpose of the Offer nor any of their respective affiliates may make an offer (whether inside or outside the United Kingdom) for Energy Group Securities for a period of one year following the date of such lapse, except with the permission of the Panel. (B) Except with the consent of the Panel, settlement of the consideration to which any holder of Energy Group Securities is entitled under the Offer will be implemented in full in accordance with the terms of the Offer without regard to any lien, right of set-off, counterclaim or other analogous right to which PacifiCorp Acquisitions may otherwise be, or claim to be, entitled as against such holder of Energy Group Securities. Consideration due to a holder of Energy Group Securities who validly accepts the Offer will (except with the consent of the Panel) be despatched not later than 14 calendar days after the later of the Initial Closing Date and the date of receipt of a valid and complete acceptance from such holder of Energy Group Securities. Cash consideration will be settled as described in paragraph 14 ("Settlement") below. (C) Any omission or failure to despatch this document, the Acceptance Form, any other document relating to the Offer and/or any notice required to be despatched under the terms of the Offer to, or any failure to receive the same by, any person to whom the Offer is made or should be made shall not invalidate the Offer in any way. Subject to the provisions of paragraph 8 ("Overseas shareholders") below, the Offer extends to any such persons to whom this document, the Acceptance Form, and/or any related offering document may not have been despatched or who may not receive such documents and such persons may collect copies of those documents from Goldman Sachs International. (D) All powers of attorney, appointment of agents and authorities on the terms conferred by or referred to in this Appendix I or in the Acceptance Form are given by way of security for the performance of the obligations of the holder of Energy Group Securities concerned and are irrevocable in accordance with section 4 of the Powers of Attorney Act 1971, except in the circumstances where the donor of such power of attorney or authority is entitled to withdraw his acceptance in accordance with paragraph 3 "Rights of withdrawal" above and duly does so. I-11 (E) If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer or otherwise, at least 90 per cent. in value of the Energy Group Securities to which the Offer relates before the end of the period of four months beginning with the date of the Offer, it will be entitled to and intends to acquire the remaining Energy Group Shares on the same terms as the Offer pursuant to and subject to sections 428 to 430F (inclusive) of the Companies Act. If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer or otherwise, Energy Group Securities giving it more than 75 per cent. of voting rights at general meetings of The Energy Group, but PacifiCorp Acquisitions is not in a position to effect the compulsory acquisition of all outstanding Energy Group Securities in accordance with the relevant procedures and time limits of the Companies Act referred to above, PacifiCorp Acquisitions intends to seek to procure the making of an application by The Energy Group to the London Stock Exchange for Energy Group Shares to be delisted and the making of an application by The Energy Group to the New York Stock Exchange for Energy Group ADSs to be delisted. PacifiCorp Acquisitions further intends that, subject to the London Stock Exchange delisting taking place, it will seek to procure the transfer of Peabody's US coal operations (except Lee Ranch Coal Company) to PacifiCorp Acquisitions' fellow subsidiary, Powercoal, and to procure the giving of financial assistance by members of the TEG Group to PacifiCorp Acquisitions and other members of the PacifiCorp Group, subject to compliance, where necessary, with the "whitewash" procedures set out in sections 155 to 158 of the Companies Act. For further details, see paragraph 10 of Appendix V ("Financing arrangements") below. (F) PacifiCorp Acquisitions and Goldman Sachs International reserve the right to notify any matter, including the making of the Offer, to all or any holders of Energy Group Securities with a registered address outside the United Kingdom and the United States, or whom PacifiCorp Acquisitions knows to be a custodian, trustee or nominee holding Energy Group Securities for persons in Canada, Australia or Japan, by announcement in the United Kingdom to the London Stock Exchange and in the United States to the Dow Jones News Service or in any other appropriate manner, or by paid advertisement in a newspaper published and circulated in the United Kingdom and the United States, in which event such notice will be deemed to have been sufficiently given, notwithstanding any failure by any such holders of Energy Group Securities to receive or see such notice. All references in this document to notice in writing by or on behalf of PacifiCorp Acquisitions will be construed accordingly. No such document will be sent to an address in Canada, Australia or Japan. (G) The Offer is being extended by means of an advertisement to be inserted in the Financial Times (United Kingdom version only) on 30 June 1997 to all persons to whom this document or an Acceptance Form may not be despatched (or by whom such documents may not be received) who hold or are entitled to have allotted or issued to them Energy Group Securities. (H) The terms, provisions, instructions and authorities contained in the Form of Acceptance constitute part of the terms of the Offer. Words and expressions defined in this document have the same meanings when used in the Form of Acceptance, unless the context otherwise requires. (I) References to a holder of Energy Group Securities include references to the person or persons executing any Acceptance Form and in the event of more than one person executing an Acceptance Form, such references will apply to them jointly and severally. 8OVERSEAS SHAREHOLDERS (A) The making of the Offer in, or to certain persons who are citizens, residents or nationals of, jurisdictions outside the United Kingdom or United States (and the availability of Loan Notes to I-12 such persons and citizens or residents of the United States) may be prohibited or affected by the laws of the relevant overseas jurisdiction. Holders of Energy Group Securities who are citizens, residents or nationals of jurisdictions outside the United Kingdom and the United States (and, in the case of Loan Notes, the United Kingdom only) should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such holder of Energy Group Securities wishing to accept the Offer or the Loan Note Alternative to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required, compliance with other necessary formalities and the payment of any issue, transfer or other taxes or duties in such jurisdiction. Any such holder of Energy Group Securities will also be responsible for payment of any issue, transfer or other taxes or duties or other requisite payments due in such jurisdiction by whomsoever payable and PacifiCorp Acquisitions and Goldman Sachs International and any person acting on their behalf shall be entitled to be fully indemnified and held harmless by such holder of Energy Group Securities for any issue, transfer or other taxes or duties as PacifiCorp Acquisitions and Goldman Sachs International or such person may be required to pay. (B) In particular, the Offer is not being made, directly or indirectly, in or into Canada, Australia or Japan, or by use of the mails or any means or instrumentality (including, without limitation, facsimile transmission, telex or telephone) of interstate or foreign commerce of, or any facilities of a national securities exchange of, any of these jurisdictions. Accordingly, copies of this document, the Acceptance Form and any related offer documents are not being mailed or otherwise distributed or sent in or into Canada, Australia or Japan. Persons receiving such documents (including, without limitation, custodians, nominees and trustees) must not distribute, send or mail them in, into or from Canada, Australia or Japan or use any such means, instrumentality or facilities in connection with the Offer, and doing so may render invalid any related purported acceptance of the Offer. Persons wishing to accept the Offer must not use the Canadian, Australian or Japanese mails or any such means, instrumentality or facilities for any purpose directly or indirectly related to acceptance of the Offer. Envelopes containing the Acceptance Form must not be postmarked in Canada, Australia or Japan or otherwise despatched from these jurisdictions and all acceptors must provide addresses outside Canada, Australia and Japan for the receipt of the consideration to which they are entitled under the Offer and which is despatched by post or for the return of the Acceptance Form and (in relation to Energy Group Shares in certificated form) any Energy Group Share certificate(s) and/or other document(s) of title. (C) The provisions of this paragraph 8 and/or other terms of the Offer relating to overseas holders of Energy Group Securities may be waived, varied or modified as regards specific holders of Energy Group Securities or on a general basis by PacifiCorp Acquisitions in its absolute discretion. References in this paragraph 8 to holders of Energy Group Securities shall include references to the person or persons executing an Acceptance Form and, in the event of more than one person executing an Acceptance Form, the provisions of this paragraph 8 shall apply to them jointly and severally. (D) The Loan Notes to be issued pursuant to the Loan Note Alternative have not been, and will not be, registered under the Securities Act or under any relevant securities law of any state or district of the United States and will not be the subject of a prospectus under the securities laws of any province of Canada. In addition, no steps have been taken, or will be taken, to enable the Loan Notes to be offered in Japan in compliance with applicable securities laws of Japan and no prospectus in relation to the Loan Notes has been, or will be, lodged with or registered by the Australian Securities Commission, nor will the Loan Notes be registered under any relevant securities laws of any other country. PacifiCorp Acquisitions will not authorise the delivery of any document(s) of title in respect of any Loan Notes falling to be allotted pursuant to the Offer to any address in the United States, Canada, Australia or Japan or to any person who is, or whom PacifiCorp Acquisitions has reason to believe is, a citizen or resident of the United States or a I-13 person in Canada, Australia or Japan or who, by completing Box 8 of the Form of Acceptance or otherwise, does not give the warranty set out in paragraph 11(l) of this Part B of Appendix I. Any holder of Energy Group Securities accepting the Offer who is a citizen or resident of the United States or a person in Canada, Australia or Japan or who does not give such warranty shall be deemed not to have accepted the Loan Note Alternative. 9PROCEDURES FOR TENDERING ENERGY GROUP ADSS (A) If you are a holder of Energy Group ADSs evidenced by Energy Group ADRs, you will have also received a Letter of Transmittal and Notice of Guaranteed Delivery for use in connection with the Offer. This section should be read together with the instructions on the Letter of Transmittal. The provisions of this section shall be deemed to be incorporated in, and form a part of, the relevant Letter of Transmittal. The instructions printed on the relevant Letter of Transmittal shall be deemed to form part of the terms of the Offer. (B) For a holder of Energy Group ADSs evidenced by Energy Group ADRs to tender such Energy Group ADSs validly pursuant to the Offer, either: (i) a properly completed and duly executed Letter of Transmittal, together with any required signature guarantees and any other required documents, must be received by the US Depositary at one of its addresses set forth on the back cover of this document and the Energy Group ADRs evidencing such Energy Group ADSs must be either received by the US Depositary at one of such addresses or delivered pursuant to the procedures for book-entry transfers set out below (and a confirmation of receipt of such transfer received by the US Depositary); or (ii) such holder must comply with the "Guaranteed Delivery Procedures" (as set forth in paragraph 9(h) below). The Offer in respect of Energy Group ADSs evidenced by Energy Group ADRs shall be validly accepted by delivery of a Letter of Transmittal, the relevant Energy Group ADRs evidencing Energy Group ADSs and other required documents to the US Depositary by holders of Energy Group ADSs (without any further action by the US Depositary), subject to the terms and Conditions set out in the Letter of Transmittal. The acceptance of the Offer by a tendering holder of Energy Group ADSs evidenced by Energy Group ADRs pursuant to the procedures described above, subject to the withdrawal rights described below, will be deemed to constitute a binding agreement between such tendering holder of Energy Group ADSs and PacifiCorp Acquisitions upon the terms and subject to the Conditions of the Offer. IF AN ENERGY GROUP ADR EVIDENCING AN ENERGY GROUP ADS HAS BEEN TENDERED BY A HOLDER OF ENERGY GROUP ADSS, THE ENERGY GROUP SHARES REPRESENTED BY SUCH ENERGY GROUP ADSS MAY NOT BE TENDERED INDEPENDENTLY. A LETTER OF TRANSMITTAL AND OTHER REQUIRED DOCUMENTS CONTAINED IN AN ENVELOPE POSTMARKED IN CANADA, JAPAN OR AUSTRALIA OR OTHERWISE APPEARING TO PACIFICORP ACQUISITIONS OR ITS AGENTS TO HAVE BEEN SENT FROM CANADA, JAPAN OR AUSTRALIA WILL NOT CONSTITUTE A VALID ACCEPTANCE OF THE OFFER. (C) BOOK-ENTRY TRANSFER The US Depositary will establish an account at the Book-Entry Transfer Facilities with respect to interests in Energy Group ADSs evidenced by Energy Group ADRs held in book-entry form for the purposes of the Offer within two Business Days from the date of this document. Any financial institution that is a participant in any of the Book-Entry Transfer Facility's systems may make book-entry delivery of interests in Energy Group ADSs by causing a Book-Entry Transfer Facility to transfer such interests in Energy Group ADSs into the US Depositary's account at such Book-Entry Transfer Facility in accordance with that Book-Entry Transfer Facility's procedure for such transfer. Although delivery of interests in Energy Group ADSs evidenced by Energy Group ADRs I-14 may be effected through book-entry transfer into the US Depositary's account at a Book-Entry Transfer Facility, either: (i) the Letter of Transmittal, properly completed and duly executed, together with any required signature guarantees; or (ii) an Agent's Message (as defined below), and, in either case, any other required documents must in any case be transmitted to, and received by, the US Depositary at one of its addresses set forth on the back cover of this document before Energy Group ADSs evidenced by Energy Group ADRs will be either counted as a valid acceptance, or purchased, or such holder must comply with the Guarantee Delivery Procedures described below. The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to, and received by, the US Depositary and forming a part of a Book-Entry Confirmation that states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the interests in Energy Group ADSs that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that PacifiCorp Acquisitions may enforce such agreement against the participant. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the US Depositary. (D) METHOD OF DELIVERY The method of delivery of Energy Group ADRs, the Letters of Transmittal and all other required documents is at the option and risk of the tendering holder of Energy Group ADSs. Energy Group ADSs will be deemed delivered only when the Energy Group ADRs representing such Energy Group ADSs are actually received by the US Depositary (including in the case of a book-entry transfer, by Book-Entry Confirmation). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No acknowledgment of receipt of any Letter of Transmittal or other required documents will be given by, or on behalf of, PacifiCorp Acquisitions. (E) SIGNATURE GUARANTEES No signature guarantee is required on the Letter of Transmittal if: (i) the Letter of Transmittal is signed by the registered holder of the Energy Group ADSs tendered therewith and such registered holder has not completed either the Box entitled "Special Payment Instructions" or the Box entitled "Special Delivery Instructions" in the Letter of Transmittal; or (ii) such Energy Group ADSs are tendered for the account of an Eligible Institution. In all other cases all signatures on Letters of Transmittal must be guaranteed by an Eligible Institution. See Instruction 1 on the Letter of Transmittal. (F) ENERGY GROUP ADSS AND ADRS If the Energy Group ADSs are registered in the name of a person other than the person who signs the Letter of Transmittal, then the tendered Energy Group ADRs must be endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered owner or owners appear on the Energy Group ADRs, with the signatures on the Energy Group ADRs or stock powers guaranteed as aforesaid. See Instructions 1 and 5 on the Letter of Transmittal. (G) PARTIAL ACCEPTANCES If fewer than all of the Energy Group ADSs evidenced by any Energy Group ADRs delivered to the US Depositary are to be tendered, the holder thereof should so indicate in the Letter of Transmittal by filling in the number of Energy Group ADSs which are to be tendered in the box I-15 entitled "Number of Energy Group ADSs Tendered." In such case, a new Energy Group ADR for the remainder of the Energy Group ADSs represented by the former Energy Group ADR will be sent to the person(s) signing such Letter of Transmittal (or delivered as such person properly indicates thereon) as promptly as practicable following the date the tendered Energy Group ADSs are purchased. All Energy Group ADSs delivered to the US Depositary will be deemed to have been tendered unless otherwise indicated. See Instruction 4 to the Letter of Transmittal. In the case of partial tenders, Energy Group ADSs not tendered will not be reissued to a person other than the registered holder. (H) GUARANTEED DELIVERY (i) If a holder of Energy Group ADSs evidenced by Energy Group ADRs desires to tender Energy Group ADSs pursuant to the Offer and the Energy Group ADRs evidencing such Energy Group ADSs are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis, or if time will not permit all required documents to reach the US Depositary prior to the expiry of the Subsequent Offer Period, such holder's tender of Energy Group ADSs may be effected if all the following conditions are met (the "Guaranteed Delivery Procedures"): (aa) such tender is made by or through an Eligible Institution; (bb) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by PacifiCorp Acquisitions is received by the US Depositary, as provided below, prior to the expiry of the Subsequent Offer Period; and (cc) the Energy Group ADRs evidencing all tendered Energy Group ADSs (or, in the case of interests in Energy Group ADSs held in book- entry form, timely confirmation of the book-entry transfer of such interests in Energy Group ADSs into the US Depositary's account at a Book-Entry Transfer Facility as described above), together with a properly completed and duly executed Letter of Transmittal with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the US Depositary within three Business Days after the date of execution of such Notice of Guaranteed Delivery. (ii) The Notice of Guaranteed Delivery may be delivered by hand or mailed to the US Depositary and must include a signature guarantee by an Eligible Institution in the form set out in such Notice of Guaranteed Delivery. (iii) Receipt of a Notice of Guaranteed Delivery will not be treated as a valid acceptance for the purpose of satisfying the Acceptance Condition. To be counted towards satisfaction of this requirement, Energy Group ADRs evidencing Energy Group ADSs referred to in the Notice of Guaranteed Delivery must, prior to the Initial Closing Date, be received by the US Depositary (or, in the case of interests in Energy Group ADSs evidenced by Energy Group ADRs held in book-entry form, timely confirmation of a book-entry transfer of such interests in Energy Group ADSs into the US Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set out above), together with a duly executed Letter of Transmittal with any required signature guarantees (or, in the case of a book- entry transfer, an Agent's Message) and any other required documents. (I)OTHER REQUIREMENTS By executing the Letter of Transmittal as set out above, the tendering holder of Energy Group ADSs evidenced by Energy Group ADRs will agree that effective from and after the date all Conditions are satisfied or, where permitted, waived: (i) PacifiCorp Acquisitions shall be entitled to direct the exercise of any votes attaching to any Energy Group Shares represented by Energy Group ADSs, in respect of which the Offer has been accepted or is deemed to have been accepted and any other rights and privileges I-16 attaching to such Energy Group Shares, including any right to requisition a general meeting of Energy Group or of any class of its shareholders; and (ii) the execution of the Letter of Transmittal and its delivery to the US Depositary will constitute: (a) an authority to Energy Group or its agents from the tendering holder of Energy Group ADSs to send any notice, circular, warrant, document or other communication, which may be sent to him as a holder of Energy Group ADSs, to PacifiCorp Acquisitions at its registered office; (b) an authority to PacifiCorp Acquisitions or its agent to sign any consent to short notice of a general meeting or separate class meeting on behalf of the tendering holder of Energy Group ADSs and/or to execute a form of proxy in respect of such Energy Group ADSs appointing any person nominated by PacifiCorp Acquisitions to attend general meetings or separate class meetings of Energy Group or its members (or any of them) (or any adjournments thereof) and to exercise the votes attaching to such Energy Group ADSs on the holders' behalf; and (c) the agreement of the tendering holder of Energy Group ADSs not to exercise any of such rights without the consent of PacifiCorp Acquisitions and the irrevocable undertaking of the tendering holder of Energy Group ADSs not to appoint a proxy for or to attend general meetings or separate class meetings. (J) If the Offer lapses, all documents tendered will be returned within 14 calendar days thereafter at the risk of the holder of Energy Group Securities concerned. (K) IF YOU ARE IN ANY DOUBT ABOUT THE PROCEDURE FOR ACCEPTANCE, PLEASE TELEPHONE THE INFORMATION AGENT TOLL FREE ON 1-800-733-8481, EXT. 475. 10PROCEDURES FOR TENDERING ENERGY GROUP SHARES (A) Holders of Energy Group Shares will have received with this document a Form of Acceptance. This section should be read together with the Form of Acceptance. The provisions of this section shall be deemed to be incorporated in, and to form a part of, the Form of Acceptance. The instructions printed on the Form of Acceptance shall be deemed to form part of the terms of the Offer. If a holder of Energy Group Shares holds Energy Group Shares in both certificated and uncertificated form, he should complete a separate Form of Acceptance for each holding. Similarly, such holder should complete a separate Form of Acceptance for Energy Group Shares held in uncertificated form, but under different member account IDs, and for Energy Group Shares held in certificated form, but under different designations. (B) To accept the Offer, any holder of Energy Group Shares, including any person in the US who holds Energy Group Shares, wishing to accept the Offer in respect of all or any portion of such holder's Energy Group Shares, should complete Box 1 and, if such holder's Energy Group Shares are in CREST, Box 5, and sign Box 6 on the Form of Acceptance in accordance with the instructions printed on it. All holders of Energy Group Shares who are individuals should sign the Form of Acceptance in the presence of a witness who should also sign Box 6 in accordance with the instructions printed on it. Unless witnessed, an acceptance will not be valid. (C) An accepting holder of Energy Group Shares should return the completed, signed and witnessed Form of Acceptance, whether or not such Energy Group Shares are in CREST, to the UK Receiving Agent or US Depositary. The completed Form of Acceptance, together, if such holder's Energy Group Shares are in certificated form, with his share certificate(s) and/or other document(s) of title, must be lodged with the UK Receiving Agent or the US Depositary, as soon I-17 as possible, but in any event so as to arrive not later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. If you have any questions as to how to complete the Form of Acceptance, please contact the UK Receiving Agent on 0181 639 2166 or the US Depositary on 1- 800 733 8481 ext. 475. A person in the US who holds Energy Group Shares may submit the Form of Acceptance, together with his share certificate(s) and/or other document(s) of title, to the US Depositary, who will receive such Form(s) of Acceptance and certificate(s) and/or other document(s) of title on behalf of the UK Receiving Agent. A Form of Acceptance contained in an envelope postmarked Canada, Japan or Australia or otherwise appearing to PacifiCorp Acquisitions or its agents to have been sent from Canada, Japan or Australia will not constitute a valid acceptance of the Offer. (D) If Energy Group Shares are in uncertificated form, the holder should insert in Box 5 of the Form of Acceptance the participant ID and member account ID under which such Energy Group Shares are held by him in CREST and otherwise complete and return the Form of Acceptance as described above. In addition, such holder should take (or procure to be taken) the action set out below to transfer the Energy Group Shares in respect of which he wishes to accept the Offer to an escrow balance, specifying Independent Registrars Group Limited (in its capacity as a CREST participant under the participant ID referred to below) as the escrow agent, as soon as possible and in any event so that the transfer to escrow settles not later than 3.00 p.m. (London time), 10:00 a.m. (New York City time) on 29 July 1997. (E) If the holder of such Energy Group Shares is a CREST sponsored member, he should refer to his CREST sponsor before taking any action. Such holder's sponsor will be able to confirm details of his participant ID and the member account ID under which his Energy Group Shares are held. In addition, only his CREST sponsor will be able to send the TTE instruction to CRESTCo in relation to his Energy Group Shares. (F) The holder of such Energy Group Shares should send (or, if he is a CREST sponsored member, procure that his CREST sponsor sends) a TTE instruction to CRESTCo which must be properly authenticated in accordance with CRESTCo's specifications and which must contain, in addition to the other information that is required for a TTE instruction to settle in CREST, the following details: (i) the number of Energy Group Shares to be transferred to an escrow balance; (ii) the member account ID of such holder of Energy Group Shares. This must be the same member account ID as the member account ID that is inserted in Box 5 of the Form of Acceptance; (iii) the participant ID of such holder of Energy Group Shares. This must be in the same participant ID as the participant ID that is inserted in Box 5 of the Form of Acceptance; (iv) the participant ID of the escrow agent (the UK Receiving Agent in its capacity as a CREST Receiving Agent). This is RA10; (v) the member account ID of the escrow agent. This is ENERGY; (vi) the Form of Acceptance Reference Number. This is the Form of Acceptance Reference Number that appears next to Box 5 on page 3 of the Form of Acceptance. This Reference Number should be inserted in the first eight characters of the shared note field on the TTE instruction. Such insertion will enable the UK Receiving Agent to match the transfer to escrow to your Form of Acceptance. The holder of such shares should keep a separate record of this Form of Acceptance Reference Number for future reference; (vii) the Intended Settlement Date. This should be as soon as possible and in any event not later than 29 July 1997; (viii)the Corporate Action Number for the Offer. This is 1; and (ix) input with standard delivery instruction of 80. I-18 (G) After settlement of the TTE instruction, such holder of Energy Group Shares will not be able to access the Energy Group Shares concerned in CREST for any transaction or charging purposes. If the Conditions are satisfied, fulfilled or, where permitted, waived, the escrow agent will transfer the Energy Group Shares concerned to itself in accordance with paragraph 11(d) of this Part B of Appendix I below. (H) Such holder of Energy Group Shares is recommended to refer to the CREST Manual published by CRESTCo for further information on the CREST procedures outlined above. For ease of processing, such holder is requested, wherever possible, to ensure that a Form of Acceptance relates to only one transfer to escrow. (I) If no Form of Acceptance Reference Number, or an incorrect Form of Acceptance Reference Number, is included on the TTE instruction, PacifiCorp Acquisitions may treat any amount of Energy Group Shares transferred to an escrow balance in favour of the escrow agent specified above from the participant ID and member account ID identified in the TTE instruction as relating to any Form(s) of Acceptance which relate(s) to the same member account ID and participant ID (up to the amount of Energy Group Shares inserted or deemed to be inserted on the Form(s) of Acceptance concerned). (J) Such holder of Energy Group Shares should note that CRESTCo does not make available special procedures, in CREST, for any particular corporate action. Normal system timings and limitations will therefore apply in connection with a TTE instruction and its settlement. Such holder should therefore ensure that all necessary action is taken by him (or by his CREST sponsor) to enable a TTE instruction relating to his Energy Group Shares to settle prior to 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. In this connection such holder is referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. (K) PacifiCorp Acquisitions will make an appropriate announcement if any of the details contained in this paragraph 10 alter for any reason. (L) Normal CREST procedures (including timings) apply in relation to any Energy Group Shares that are, or are to be, converted from uncertificated to certificated form, or from certificated to uncertificated form, during the course of the Offer (whether any such conversion arises as a result of a transfer of Energy Group Shares or otherwise). Holders of Energy Group Shares who are proposing so to convert any Energy Group Shares are recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Energy Group Shares as a result of the conversion to take all necessary steps in connection with an acceptance of the Offer (in particular, as regards delivery of share certificate(s) or other documents of title or transfers to an escrow balance as described above) prior to 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. (M) If the share certificate(s) and/or other document(s) of title is/are not readily available or is/are lost, the Form of Acceptance should nevertheless be completed, signed and returned as stated above to the UK Receiving Agent or the US Depositary so as to be received as soon as possible, but in any event no later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997 together with any share certificate(s) and/or other document(s) of title that is/are available, accompanied by a letter stating that the balance will follow or that one or more share certificate(s) and/or other document(s) of title have been lost and the certificate(s) and/or other document(s) of title should be forwarded as soon as possible thereafter. If the share certificate(s) and/or other document(s) of title are lost, the accepting holder should request the registrar of The Energy Group (Lloyds Bank Registrars, The Causeway, Goring-by-Sea, Worthing, West Sussex BN99 6DA) to send him a letter of indemnity for completion in accordance with the instructions given. When completed, the letter of indemnity must be lodged I-19 with the UK Receiving Agent or the US Depositary, in accordance with instructions given, in support of the Form of Acceptance. (N) Subject to the City Code, PacifiCorp Acquisitions reserves the right to treat as valid in whole or in part any acceptance of the Offer which is not entirely in order or which is not accompanied by (as applicable) the relevant transfer to escrow or the relevant share certificate(s) and/or other document(s) of title or which is received by it at a place or places other than as set out in this document or the Acceptance Forms. In that event, the consideration under the Offer will be despatched only when the acceptance is entirely in order and (as applicable) the relevant transfer to escrow or the relevant share certificate(s) and/or other document(s) of title or indemnity satisfactory to PacifiCorp Acquisitions has/have been received. (O) If the Offer lapses, all documents lodged for acceptance will be returned within 14 calendar days thereafter at the risk of the holder of Energy Group Shares concerned. (P) No acknowledgment of receipt of any Form of Acceptance, share certificate(s) and/or other document(s) of title will be given by, or on behalf of, PacifiCorp Acquisitions. The method of delivery of share certificate(s) and/or other document(s) of title for Energy Group Shares and all other required documents is at the option and risk of the accepting holder of Energy Group Shares. In all cases, sufficient time should be allowed to ensure timely delivery and in any event to ensure delivery by 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. (Q) Any holder of Energy Group Shares who is in any doubt as to the procedure for acceptance should contact the UK Receiving Agent by telephone on 0181 639 2166. Such holder is also reminded that, if he is a CREST sponsored member, he should contact his CREST Sponsor before taking any action. 11 FORMS OF ACCEPTANCE Each holder of Energy Group Shares by whom, or on whose behalf, a Form of Acceptance is executed and lodged with the UK Receiving Agent or US Depositary (subject to the rights of withdrawal set forth in this document) undertakes, represents, warrants to and agrees with PacifiCorp Acquisitions, Goldman Sachs International, Independent Registrars Group Limited and Continental Stock Transfer & Trust Company (so as to bind such holder and his personal or legal representatives, heirs, successors and assigns) to the following effect: (A) that execution of the Form of Acceptance and its delivery to the UK Receiving Agent or US Depositary constitutes (i) an acceptance of the Offer in respect of the number of Energy Group Shares inserted or deemed to have been inserted in Box 1 of the Form of Acceptance; (ii) an election under the Loan Note Alternative in respect of the number of Energy Group Shares inserted, or deemed to be inserted, in Box 2 of the Form of Acceptance; and (iii) an undertaking to execute any further documents and give any further assurances which may be required to enable PacifiCorp Acquisitions to obtain the full benefit of paragraph 10 of this Part B of Appendix I above and this paragraph 11 and/or to perfect any of the authorities expressed to be given hereunder on and subject to the terms and Conditions set out or referred to in this document and the Form of Acceptance; (B) that such holder has full power and authority to tender, sell, assign or transfer the Energy Group Shares in respect of which the Offer is accepted or deemed to be accepted (together with all rights attaching to them) and when the same are transferred to PacifiCorp Acquisitions pursuant to the terms of the Offer, PacifiCorp Acquisitions will acquire such Energy Group Shares fully paid and free from all liens, charges, equities, encumbrances and other interests and, except in respect of the dividend referred to below, together with all rights now or hereafter attaching thereto, including, without limitation, the right to receive and retain all dividends (other than the right to receive a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July I-20 1997), interest and other distributions, if any, declared, made or paid after 13 June, 1997 (the date on which the Offer was announced); (C) that the execution of the Form of Acceptance and its delivery to the UK Receiving Agent or US Depositary constitutes, subject to the Conditions being satisfied, fulfilled or, where permitted, waived and to the holder of Energy Group Shares not having validly withdrawn his acceptance, the irrevocable appointment of any director of, or other person nominated by, PacifiCorp Acquisitions as such holder's attorney and agent ("attorney"), and an irrevocable instruction to the attorney, to complete and execute all or any forms of transfer and/or such other documents at the attorney's discretion in relation to the Energy Group Shares referred to in paragraph 11(a) above in favour of PacifiCorp Acquisitions or such other person or persons as PacifiCorp Acquisitions may direct and to deliver such forms of transfer and/or other documents at the attorney's discretion together with the share certificate(s) and/or other document(s) of title relating to such Energy Group Shares for registration within six months of their purchase and to do all such other acts and things as may in the opinion of such attorney be necessary or expedient for the purpose of, or in connection with, the acceptance of the Offer and to vest in PacifiCorp Acquisitions or its nominees the Energy Group Shares to which such Form of Acceptance relates as aforesaid; (D) that the execution of the Form of Acceptance and its delivery to the UK Receiving Agent or US Depositary constitutes, subject to the Conditions being satisfied, fulfilled or, where permitted, waived, an irrevocable authority and request: (i) to transfer to PacifiCorp Acquisitions (or to such other person or persons as PacifiCorp Acquisitions or its agents may direct) by means of CREST all or any of the Relevant Energy Group Shares (as defined below) (but not exceeding the number of Energy Group Shares in respect of which the Offer is accepted or deemed to be accepted); (ii) if the Conditions are not satisfied, fulfilled or, where permitted, waived, to give instructions to CRESTCo, immediately after the lapsing of the Offer (or within such longer period as the Panel may permit, not exceeding 14 days of the lapsing of the Offer), to transfer all Relevant Energy Group Shares to the original available balance of the accepting holder of Energy Group Shares. "Relevant Energy Group Shares" means Energy Group Shares in uncertificated form and in respect of which a transfer or transfers to escrow has or have been effected pursuant to the procedures described in paragraphs 10(d) to (l) of this Part B of Appendix I above and where the transfer(s) to escrow was or were made in respect of Energy Group Shares held under the same member account ID and participant ID as the member account ID and participant ID relating to the Form of Acceptance concerned (but irrespective of whether or not any Form of Acceptance Reference Number, or a Form of Acceptance Reference Number corresponding to that appearing on the Form of Acceptance concerned, was included in the TTE instruction concerned); (iii) to The Energy Group or its agents to procure the registration of the transfer of the Energy Group Shares in certificated form pursuant to the Offer and the delivery of the share certificate(s) and/or other document(s) of title in respect of them to PacifiCorp Acquisitions or as it may direct; (iv) if the Energy Group Shares concerned are in certificated form, or if either of the provisos to sub-paragraph (v) of this paragraph 11(d) apply, to PacifiCorp Acquisitions or its agents to procure the despatch by post (or by such other methods as may be approved by the Panel) of a cheque drawn on a branch of a UK clearing bank for any cash to which an accepting Energy Group shareholder is entitled, at the risk of such shareholder, to the person or agent whose name and address outside Canada, Australia and Japan is set out in Box 7 of the Form of Acceptance, or if no name and address is set out in Box 7, to the first-named holder at his registered address outside Canada, Australia or Japan as set out in Box 3 (or, if applicable, Box 4) on the Form of Acceptance together with a cheque for any cash payable to such holder of Energy Group Shares in respect of fractional entitlements; I-21 (v) if the Energy Group Shares concerned are in uncertificated form, to PacifiCorp Acquisitions or its agents to procure the creation of an assured payment obligation in favour of the holder of Energy Group Shares' payment bank in accordance with the CREST assured payment arrangements in respect of the cash consideration to which such shareholder is entitled, provided that (aa) PacifiCorp Acquisitions may (if, for any reason, it wishes to do so) determine that all or any part of any such cash consideration shall be paid by cheque despatched by post and/or that all or any of such Energy Group Shares shall be issued in certificated form and (bb) if the Energy Group shareholder concerned is a CREST member whose registered address is in Canada, Australia or Japan, any cash consideration to which such shareholder is entitled shall be paid by cheque despatched by post, and in either of such cases, sub-paragraph (iii) of this paragraph 11(d) shall apply; and (vi) to PacifiCorp Acquisitions or its agent(s) to record and act upon any instructions with regard to payment or notices which have been recorded in the records of The Energy Group in respect of such holder of Energy Group Shares; (E) that subject to the Offer becoming or being declared wholly unconditional (or if the Offer will become unconditional in all respects or lapses immediately upon the outcome of the resolution in question) or if the Panel otherwise gives its consent and pending registration: (i) PacifiCorp Acquisitions or its agents shall be entitled to direct the exercise of any votes attaching to any Energy Group Securities in respect of which the Offer has been accepted or is deemed to have been accepted and any of the rights and privileges attaching to such Energy Group Securities including the right to requisition a general meeting of The Energy Group or of any class of its securities; and (ii) the execution of the Form of Acceptance and its delivery to the UK Receiving Agent or US Depositary shall constitute: (aa) an authority to The Energy Group or its agents from such holder to send any notice, circular, warrant, document or other communication, which may be required to be sent to him or her as a shareholder of The Energy Group, to PacifiCorp Acquisitions at its registered office; (bb) an authority to PacifiCorp Acquisitions or its agents to sign any consent to short notice of a general meeting or separate class meeting on his behalf and/or to execute a form of proxy in respect of such Energy Group Shares appointing any person nominated by PacifiCorp Acquisitions to attend general meetings and separate class meetings of The Energy Group or its members (or any of them) (or any adjournment of them) and to exercise the votes attaching to such Energy Group Shares on his behalf; and (cc) the agreement of such holder not to exercise any of such rights without the consent of PacifiCorp Acquisitions and the irrevocable undertaking of such holder not to appoint a proxy for or to attend general meetings or separate class meetings; (F) that such holder will deliver, or procure the delivery to the UK Receiving Agent or US Depositary of, his share certificates and/or other documents of title in respect of the Energy Group Shares in certificated form referred to in paragraph 11(a) above, or an indemnity acceptable to PacifiCorp Acquisitions in lieu thereof, as soon as possible and in any event within six months of the purchase of such Energy Group Shares; (G) that such holder will take (or procure to be taken) the action necessary to transfer all Energy Group Shares in respect of which the Offer has been accepted or is deemed to have been accepted held by him in uncertificated form to an escrow balance as soon as possible and in any event so that the transfer to escrow settles within two months of the Offer becoming unconditional in all respects; (H) that if, for any reason, any Energy Group Shares in respect of which a transfer to an escrow balance has been effected are converted to certificated form, he will immediately deliver or procure the immediate delivery of, the share certificate(s) and/or other document(s) of title in I-22 respect of all such Energy Group Shares as so converted to Independent Registrars Group Limited at one of its addresses set out at the back of this document; (I) that the creation of an assured payment obligation in favour of his payment bank in accordance with the CREST assured payments arrangements as referred to in paragraph 11(d)(v) of this Part B of Appendix I above shall, to the extent of the obligation so created, discharge in full any obligation of PacifiCorp Acquisitions and/or Goldman Sachs International to pay to him the cash consideration to which he is entitled pursuant to the Offer; (J) that the terms and Conditions contained in this document shall be deemed to be incorporated in, and form part of, the Form of Acceptance, which shall be read and construed accordingly; (K) that such holder agrees to do all such acts and things as shall be necessary, and execute any additional documents deemed by PacifiCorp Acquisitions to be desirable, to complete the purchase and transfer of the Energy Group Shares and to vest in PacifiCorp Acquisitions or its nominees the Energy Group Shares aforesaid and all such acts and things as may be necessary or expedient to enable the UK Receiving Agent to perform its functions as escrow agent for the purposes of the Offer; (L) that unless "Yes" is put in Box 8 on the Form of Acceptance, such holder: (i) has not received or sent copies of this document or any Acceptance Forms or any related documents in, into or from Canada, Japan or Australia and has not otherwise utilised in connection with the Offer, directly or indirectly, the Canadian, Australian or Japanese mails or any means or instrumentality (including, without limitation, facsimile transmission, telex and telephone) of interstate or foreign commerce, or any facilities of a national securities exchange, of Canada, Australia or Japan; (ii) is accepting the Offer from outside Canada, Japan or Australia; and (iii) is not an agent or fiduciary acting on a non-discretionary basis for a principal, unless such agent or fiduciary is an authorised employee of such principal or such principal has given any instructions with respect to the Offer from outside Canada, Japan or Australia; (M) that the execution of the Form of Acceptance constitutes an authority to PacifiCorp Acquisitions and its agent in the terms of paragraph 6(a) of this Part B of Appendix I above; (N) that such holder agrees and acknowledges that he is not a customer (as defined in the rules of The Securities and Futures Authority Limited) of Goldman Sachs International, Lazard or Morgan Stanley in connection with the Offer; (O) that such holder agrees to ratify each and every act or thing which may be done or effected by any director of, or other person nominated by, PacifiCorp Acquisitions or their respective agents, as the case may be, in the exercise of any of his powers and/or authorities hereunder; (P) that if any provision of this paragraph 11 shall be unenforceable or invalid or shall not operate so as to afford PacifiCorp Acquisitions or the UK Receiving Agent or the US Depositary or their respective agents the benefit of the authority expressed to be given herein, he shall with all practicable speed do all such acts and things and execute all such documents that may be required to enable those persons to secure the full benefits of this section; (Q) that the execution of the Form of Acceptance constitutes the submission of such holder, in relation to all matters arising out of the Offer and the Form of Acceptance, to the jurisdiction of the Courts of England; (R) that on execution of a Form of Acceptance, it shall take effect as a Deed; and (S) that, if such holder elects for the Loan Note Alternative (in whole or in part), he is not a citizen or resident of the United States, nor acting on behalf of such person. I-23 DELIVERY OF THE FORM OF ACCEPTANCE AND CERTIFICATES REPRESENTING ENERGY GROUP SHARES AND/OR OTHER DOCUMENTS OF TITLE TO THE US DEPOSITARY WILL CONSTITUTE DELIVERY OF THEM TO THE UK RECEIVING AGENT FOR THE PURPOSES OF PARAGRAPH 10 OF THIS PART B OF APPENDIX I ABOVE AND THIS PARAGRAPH. 12 CERTAIN PROVISIONS CONCERNING ACCEPTANCES (A) Without prejudice to the right reserved by PacifiCorp Acquisitions to treat Acceptance Forms as valid even though not entirely in order or not accompanied by, where Energy Group Shares are in certificated form, the relevant share certificates and/or other documents of title, or not accompanied by the relevant transfer to escrow, except as otherwise agreed by the Panel: (i) an acceptance of the Offer will only be counted towards fulfilling the Acceptance Condition if the requirements of Note 4 and, if applicable, Note 6 to Rule 10 of the City Code are satisfied in respect of such acceptance. For additional information on Note 4 and Note 6 to Rule 10 of the City Code, see paragraph 12(b) below; (ii) a purchase of Energy Group Securities by PacifiCorp Acquisitions or its nominee(s) (or a person acting in concert with PacifiCorp Acquisitions or its nominee(s)) will only be counted towards fulfilling the Acceptance Condition if the requirements of Note 5 and, if applicable, Note 6 to Rule 10 of the City Code are satisfied in respect of such purchase. For additional information on Note 5 and Note 6 to Rule 10 of the City Code, see paragraph 12(b) below; and (iii) the Acceptance Condition will not be declared satisfied until the UK Receiving Agent has issued a certificate to PacifiCorp Acquisitions (or its agent) which states the number of Energy Group Securities in respect of which acceptances have been received which comply with paragraph (i) above and the number of Energy Group Securities otherwise acquired, whether before or during the Initial Offer Period, which comply with paragraph (ii) above. (B) Notes 4 to 6 to Rule 10 of the City Code contain detailed provisions for verifying which acceptances and purchases may be counted towards fulfilling the Acceptance Condition or in determining whether the Acceptance Condition has been fulfilled and are principally concerned to ensure that the acceptor is the registered owner of the securities which he is tendering. The principal requirements of Notes 4 to 6 to Rule 10 are that any Acceptance Form must be completed to a suitable standard (i.e. it must constitute a transfer or a valid and irrevocable appointment of PacifiCorp Acquisitions or its agent for the purpose of executing a transfer) and it must be accompanied by, where Energy Group Shares are in certificated form, the appropriate share certificate or other documents of title and, in all cases, any relevant supporting documentation (such as powers of attorney). Immediately prior to the satisfaction of the Acceptance Condition, the UK Receiving Agent will issue a certificate to PacifiCorp Acquisitions stating the number of Energy Group Securities tendered and not validly withdrawn pursuant to the Offer and the number of Energy Group Securities otherwise acquired, on or before the Initial Closing Date as the case may be, in compliance with the provisions referred to in paragraph 12(a) above. Copies of such certificates will be sent to the Panel as soon as possible after they are issued. (C) Subject to the City Code, PacifiCorp Acquisitions reserves the right to treat as valid in whole or in part any acceptance of the Offer which is not entirely in order or which is not accompanied by the (as applicable) relevant transfer to escrow or the relevant share certificate(s) and/or other document(s) of title or which is received by it at a place or places other than set out in this document or the Acceptance Form. In that event, no payment of cash or issue of Loan Notes under the Offer will be made until after the relevant transfer to escrow has settled or (as applicable) the relevant share certificate(s) and/or other document(s) of title or indemnities satisfactory to PacifiCorp Acquisitions have been received. I-24 13 SUBSTITUTE ACCEPTANCE FORMS The holders of Energy Group Securities have been sent with this document either a Letter of Transmittal (accompanied by a Notice of Guaranteed Delivery) and/or a Form of Acceptance. All holders of Energy Group ADSs have been sent a Letter of Transmittal and a Notice of Guaranteed Delivery, which they must use to tender their Energy Group ADSs and accept the Offer. All holders of Energy Group Shares, including persons in the US who hold Energy Group Shares, have been sent a Form of Acceptance, which they must use to tender their Energy Group Shares and accept the Offer. Should any holder of Energy Group Securities receive an incorrect form with which to accept the Offer or require any additional forms, that person should contact the UK Receiving Agent or the US Depositary at the addresses set out at the end of this document, who will provide the appropriate forms. 14 SETTLEMENT Subject to the satisfaction, fulfilment or, where permitted, waiver of all Conditions (except as provided in paragraph 8 of this Part B of Appendix I in the case of certain overseas holders of Energy Group Securities), settlement of the consideration to which any holder of Energy Group Securities is entitled under the Offer will be effected (i) in the case of acceptances received, complete in all respects, by the Initial Closing Date, within 14 days of such date, or (ii) in the case of acceptances of the Offer received, complete in all respects, after such date, but while the Offer remains open for acceptance, within 14 days of such receipt, in the following manner: (A) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST) Where an acceptance relates to Energy Group Shares in uncertificated form, the cash consideration to which the accepting holder of Energy Group Shares is entitled will be paid by means of CREST by PacifiCorp Acquisitions procuring the creation of an assured payment obligation in favour of such accepting holder's payment bank in respect of the cash consideration due, in accordance with the CREST assured payment arrangements. Loan Notes will be despatched by first class post (or by such other method as may be approved by the Panel). PacifiCorp Acquisitions reserves the right to settle all or any part of the consideration referred to in this paragraph, for all or any accepting holders of Energy Group Securities, in the manner referred to in paragraph 14(b) below, if, for any reason, it wishes to do so. (B) ENERGY GROUP SECURITIES IN CERTIFICATED FORM Where an acceptance relates to Energy Group Securities in certificated form, cheques for cash due or Loan Notes will be despatched by first class post (or by such other method as may be approved by the Panel). 15. CURRENCY OF CONSIDERATION Instead of pounds sterling, holders of Energy Group Shares who so wish may receive US dollars on the following basis: the cash amount payable in pounds sterling to which such holder would otherwise be entitled pursuant to the terms of the Offer will be converted, without charge, from pounds sterling to US dollars at the exchange rate obtainable by the relevant payment agent (either the UK Receiving Agent or the US Depositary) on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery in respect of the relevant Energy Group Shares. A holder of Energy Group Shares may receive such amount on the basis set out above only in respect of the whole of his holding of Energy Group Shares in respect of which he accepts the Offer. Holders of Energy Group Securities may not elect to receive pounds sterling and US dollars. Unless they elect to receive pounds sterling, holders of Energy Group I-25 ADSs will receive consideration converted into US dollars as described above, as if such holders of Energy Group ADSs had elected to receive dollars. Consideration in US dollars may be inappropriate for holders of Energy Group Shares other than persons in the US and holders of Energy Group ADSs. THE ACTUAL AMOUNT OF US DOLLARS RECEIVED WILL DEPEND UPON THE EXCHANGE RATE PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT PAYMENT AGENT BY PACIFICORP ACQUISITIONS. HOLDERS OF ENERGY GROUP SECURITIES SHOULD BE AWARE THAT THE US DOLLAR/POUNDS STERLING EXCHANGE RATE WHICH IS PREVAILING AT THE DATE ON WHICH AN ELECTION IS MADE TO RECEIVE DOLLARS AND ON THE DATE OF DESPATCH OF PAYMENT MAY BE DIFFERENT FROM THAT PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT PAYMENT AGENT BY PACIFICORP ACQUISITIONS. IN ALL CASES, FLUCTUATIONS IN THE US DOLLAR/POUNDS STERLING EXCHANGE RATE ARE AT THE RISK OF ACCEPTING HOLDERS OF ENERGY GROUP SECURITIES WHO ELECT OR ARE TREATED AS HAVING ELECTED TO RECEIVE THEIR CONSIDERATION IN US DOLLARS. PACIFICORP ACQUISITIONS SHALL HAVE NO RESPONSIBILITY WITH RESPECT TO THE CONSIDERATION PAYABLE OTHER THAN TO MAKE PAYMENT IN POUNDS STERLING. I-26 APPENDIX II SUMMARY OF THE TERMS OF THE LOAN NOTES The Floating Rate Unsecured Loan Notes 2004 of PacifiCorp Acquisitions will be created by a resolution of the Board or a duly authorised committee thereof and will be constituted by a Loan Note Instrument (the "Loan Note Instrument") executed as a deed by PacifiCorp Acquisitions. The Loan Notes will not be guaranteed. The issue of the Loan Notes is conditional on all Conditions being, where applicable, waived, fulfilled or satisfied. Loan Notes will be issued only if the aggregate valid elections for the Loan Note Alternative received on or before the date on which all Conditions are so waived, fulfilled or satisfied, as applicable, will result in PacifiCorp Acquisitions issuing in excess of (Pounds)1 million nominal value of Loan Notes. The Loan Note Alternative is not available to any person who is a citizen or resident of the United States. The Loan Note Instrument will contain provisions, inter alia, substantially to the effect set out below. 1. The Loan Notes will be issued by PacifiCorp Acquisitions in amounts and integral multiples of (Pounds)1 in nominal amount only and will constitute unsecured obligations of PacifiCorp Acquisitions. No payment will be made in respect of any amount payable of less than (Pounds)1. The Loan Note Instrument will not contain any restrictions on borrowing, disposals or charging of assets by PacifiCorp Acquisitions. 2. Interest on the Loan Notes will be payable (subject to any requirement to deduct income tax therefrom) semi-annually in arrear on 30 June and 31 December in each year or, if such a day is not a Business Day, on the immediately preceding Business Day ("interest payment dates") except that the first payment of interest on the Loan Notes will be made on 30 June 1998 in respect of the period from and including the date of issue of the relevant Loan Note up to but excluding 30 June 1998. The period from and including the date of issue of the relevant Loan Note up to but excluding 30 June 1998 and the period from and including that date or any subsequent interest payment date up to but excluding the next following interest payment date is herein called an "interest period". 3.(a) The rate of interest on the Loan Notes for each interest period will be the rate per annum which is 0.5 per cent. below LIBOR. "LIBOR" means the arithmetic mean (rounded down, if necessary, to four decimal places) of the respective rates which are quoted as of 11.00 a.m. (London time) on the first Business Day of the interest period on the "LIBP" page on the Reuter Monitor Money Rate Service (or such other page or service as may replace it for the purpose of displaying London inter-bank sterling offered rates of leading reference banks) as being the interest rates offered in the London inter-bank market for six month sterling deposits but: (i) if only two or three such offered quotations appear, the relevant arithmetic mean (rounded as mentioned above) shall be determined on the bases of those offered quotations; and (ii) if no, or only one, such offered quotation appears, the relevant arithmetic mean (rounded as mentioned above) shall be determined instead on the basis of the respective rates (as quoted to PacifiCorp Acquisitions at its request) at which each of Barclays Bank PLC and National Westminster Bank plc is offering six month sterling deposits to prime banks in the London inter-bank market at or about 11.00 a.m. (London time) on the first Business Day of the relevant interest period. (b) If LIBOR cannot be established in accordance with the provisions of sub- paragraph (a) above for any interest period, the rate of interest on the Loan Notes for such interest period shall be the same as that applicable to the Loan Notes during the previous interest period, unless in such case such other prime bank in the London inter-bank market as PacifiCorp Acquisitions shall reasonably select for the purpose shall have been prepared to offer a rate as aforesaid, in which case the rate of interest in respect of the relevant interest period shall be the rate so offered. (c) Each instalment of interest shall be calculated on the basis of a 365 day year and the number of days elapsed in the relevant interest period. II-1 4. A holder of Loan Notes (a "Noteholder") shall be entitled to require PacifiCorp Acquisitions to repay the whole (whatever the amount) or any part (being any integral amount of (Pounds)1) of the principal amount of his holding of Loan Notes at par, together with accrued interest (subject to any requirement to deduct income tax therefrom) up to but excluding the date of repayment, on any interest payment date, from and including 30 June 1998 and thereafter on any interest payment date falling prior to 30 June 2004 by giving not less than 30 days' prior notice in writing to PacifiCorp Acquisitions accompanied by the certificate(s) for all the Loan Notes to be repaid and notice of redemption (duly completed) in the prescribed form on the Loan Notes to be repaid. 5. If at any time the principal amount of all Loan Notes outstanding is 20 per cent. or less of the total nominal amount of Loan Notes issued in connection with the Offer, PacifiCorp Acquisitions shall have the right, on giving the remaining Noteholders not less than 30 days' notice in writing expiring on 30 June 1998 or any subsequent interest payment date, to redeem all (but not some only) of the outstanding Loan Notes at par together with accrued interest thereon (subject to any requirement to deduct income tax therefrom) up to but excluding the date of redemption. 6. Any Loan Notes not previously repaid, redeemed or purchased will be repaid in full at par on 30 June 2004, together with accrued interest thereon (subject to any requirement to deduct income tax therefrom) up to and excluding that date. 7. Any Loan Notes repaid, purchased or redeemed will be cancelled and shall not be available for re-issue. 8. The Noteholders will have power by extraordinary resolution of the Noteholders passed in accordance with the provisions of the Loan Note Instrument or by resolution in writing signed by holders of not less than 75 per cent. of the outstanding Loan Notes, inter alia, to sanction any modification, abrogation or compromise of or arrangement in respect of their rights against PacifiCorp Acquisitions and to assent to any amendment in respect of their rights against PacifiCorp Acquisitions and to assent to any amendment of the provisions of the Loan Note Instrument (but in each case subject to the consent of PacifiCorp Acquisitions). PacifiCorp Acquisitions may, with the consent of its financial advisers, amend the provisions of the Loan Note Instrument, without such sanction or consent, if such amendment is of a formal, minor or technical nature or to correct a manifest error. 9. Each Noteholder will have the right to acquire (by subscription at a nominal value of an amount up to or equal to such Noteholder's holding of Notes) additional loan notes to be issued by a subsidiary of PacifiCorp Acquisitions (the "Additional Notes") on terms and conditions substantially the same as those applicable to the Loan Notes, except as follows: (a) the Additional Notes will not be issued before 30 June 2003; (b) the rate of interest on the Additional Notes will be 1 per cent. below the rate per annum described in paragraph 3(a) above; and (c) the Additional Notes will not carry any right to acquire any additional securities. 10. Each Noteholder shall be entitled to require all or part (being (Pounds)1 nominal amount or any integral multiple thereof) of the Loan Notes held by him to be repaid at par together with accrued interest (subject to any requirement to deduct any income tax therefrom) if: (a) any principal or interest on any of the Loan Notes held by that Noteholder shall fail to be paid in full within 30 days after the due date for payment thereof; or (b) an order is made or an effective resolution is passed for the winding- up or dissolution of PacifiCorp Acquisitions (other than for the purposes of a solvent reconstruction or a solvent amalgamation or a members' voluntary winding-up on terms previously approved by extraordinary resolution of the Noteholders); or (c) an encumbrancer takes possession of, or a trustee, receiver, administrator or similar officer is appointed or an administration order is made in respect of, the whole or substantially the whole of the undertaking of PacifiCorp Acquisitions and such person has not been paid out or discharged within 30 days. II-2 11. PacifiCorp Acquisitions shall be entitled at any time to purchase any Loan Notes at any price by tender (available to all Noteholders alike), private treaty or otherwise by agreement with the relevant Noteholder(s). 12. The Loan Notes will contain provisions entitling PacifiCorp Acquisitions, without the consent of Noteholders, to substitute any of its subsidiaries or any holding company or subsidiaries of such holding company resident in the UK for tax purposes (other than Eastern or any of its subsidiaries) as the principal debtor under the Loan Note Instrument and the Loan Notes or to require all or any of the Noteholders to exchange their Loan Notes for loan notes issued on the same terms mutatis mutandis by any such company provided that (a) PacifiCorp Acquisitions guarantees such company's obligations thereunder; and (b) following such substitution or exchange, the Loan Notes or (as the case may be) such loan notes shall not contain a provision equivalent to this paragraph 12. References to PacifiCorp Acquisitions in this summary shall be construed accordingly. PacifiCorp Acquisitions' right to require substitution of such company as principal debtor (but not the right to require exchange of the Loan Notes) will be exercisable only if prior clearance has been obtained from the Inland Revenue to the effect that the substitution will not be treated as a disposal of the Loan Notes for the purposes of United Kingdom taxation of chargeable gains and PacifiCorp Acquisitions' right to require such an exchange will be exercisable only if the exchange will fall within section 135 of the Taxation of Chargeable Gains Act 1992, and to the extent relevant, clearance has been received from the Inland Revenue under section 138 of that Act in respect of the exchange. 13. The Loan Notes will be evidenced by certificates, will be registered and will be transferable in integral multiples of (Pounds)1 in excess of that amount, provided that transfers of Loan Notes will not be registered during the seven days immediately preceding an interest payment date or while the register of Noteholders is closed. 14. No application has been made or is intended to be made to any stock exchange or other dealing service for the Loan Notes to be listed or otherwise traded. 15. The Loan Notes and the Loan Note Instrument will be governed by and construed in accordance with English law. II-3 APPENDIX III FINANCIAL AND OTHER INFORMATION ON THE TEG GROUP 1. RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 1997. The text on pages III-1 to III-14 has been extracted from the announcement made by The Energy Group on 13 June 1997: "RESULTS AND DIVIDEND On a pro forma basis, group turnover for the period of six months to 31 March, 1997 rose by 38 per cent. from (Pounds)1,826 million to (Pounds)2,519 million, and underlying operating profit was 30 per cent. above the same period last year (on a pro forma basis) at (Pounds)317 million. Underlying pro forma earnings per share increased 33 per cent. It is proposed to pay a dividend of 5.5p net per share on 4 July, 1997. Derek Bonham, Executive Chairman of The Energy Group said: "Today we have announced the terms of a recommended offer by PacifiCorp for The Energy Group; together we are well placed to take advantage of and compete effectively in the fast changing international energy markets. Detailed terms of the offer will be mailed to our shareholders in due course." OPERATING REPORT COAL
PRO FORMA 1997 1996 ------------- ------------- Turnover for the six months to 31 March............ (Pounds)647mn (Pounds)656mn Operating profit for the six months to 31 March.... (Pounds)66mn (Pounds)66mn Tons sold.......................................... 81mn 77mn
Peabody continues to lead the industry in the USA with a 15 per cent. market share of coal production. In Australia, our operations were responsible for 5 per cent. of the country's coal production. Peabody's subsidiaries operate 26 coal mines in the USA and three mines in Australia. A fourth Australian mine, Bengalla, is under construction after receiving final development approval last year. In the calendar year 1996, our operating companies sold coal to more than 150 US utility power plants, generating more than 9 per cent. of all US electricity, approximately equal to the total amount of US electricity produced from natural gas. Peabody also exports steam and metallurgical coal to 15 countries from its US and Australian mines. Peabody increased its coal sales and its underlying operating profit levels in the six months ended 31 March, 1997. On a US dollar basis, underlying operating profits were 5 per cent. ahead of last year, although adverse currency movements reduced reported profits to (Pounds)66 million, the same as last year's reported level. Productivity has risen consistently, with our US operating companies averaging 92 tons per employee per workshift for the six month period - a 13 per cent. improvement on the previous year and a new company record. According to government statistics, the company's Powder River mines in Wyoming were the four most productive in the USA during 1996. At the three Australian mines, average productivity increased by more than 17 per cent. from the prior year, maintaining one of the highest productivity rates in the country. Sales volume from Peabody's US and Australian mines increased by 6 per cent. to 81.4 million tons, reflecting favourable customer demand for coal from the Powder River and Australian mines. Turnover of (Pounds)647 million fell slightly from the same period last year principally as a result of adverse currency movements, partially offset by increased volumes. III-1 Peabody is preparing for deregulation in the US by working with Citizens Power, our newly acquired power marketing business in the US, to create innovative solutions to electric utility fuel supplies. The safety record for Peabody's US mines was the second best in its history, capping six years of dramatic gains in safety. Our Freedom Mine was named as the safest underground coal mine in the USA. An ambitious new safety programme, One Future: Going For Perfect, has been launched with the goal of zero lost time accidents. POWER
PRO FORMA 1997 1996 --------------- --------------- Turnover for the six months to 31 March....... (Pounds)1,801mn (Pounds)1,092mn Operating profit for the six months to 31 March........................................ (Pounds)129mn (Pounds)44mn Generating capacity at 31 March............... 6,784MW 495MW
Substantial growth in our Power businesses enabled Eastern to make a significant contribution to The Energy Group's operating profit increase in the six months to 31 March, 1997. The power businesses' operating profit rose by 193 per cent. to (Pounds)129 million, reflecting our greatly expanded generation portfolio which now totals almost 7,000 MW, together with the contribution from related energy trading activities. The Group's power generation portfolio widened significantly in mid-1996 through the addition of five coal-fired plants leased from National Power and PowerGen to complement the three combined-cycle gas turbine (CCGT) plants: Peterborough, King's Lynn, and Barking. The five coal-fired stations were a major factor in the substantial profit increase in the six months under review. The performance of the portfolio stations over the key winter period was excellent, with average availability levels in excess of 92 per cent., and our 360MW CCGT plant at Peterborough continues to maintain its outstanding availability record. Our new 340MW CCGT plant at King's Lynn, Norfolk, is undergoing commissioning trials and is due for final handover in 1997 following further work by the turnkey contractor to meet guaranteed performance levels. In March 1997, we announced plans to build a 240MW combined heat and power plant in Deeside using combined-cycle gas technology to serve the needs of Shotton Paper--the UK's leading newsprint manufacturer. Eastern's power and energy trading business manages and monitors Eastern's energy portfolio, including the bidding of its power plants into the Electricity Pool, the procurement of coal, oil and gas, and the management of risk for our retail energy operations. The business also offers risk management services to other independent energy retailers, generators and trading parties. During the period under review we have further improved our ability to manage the risks associated with such energy trading activities through the creation and operation of a variety of options, both physical, eg: our leased coal-fired generating plant, and through third party contractual arrangements, such as the innovative major plant-related contracts which were announced with Enron in January 1997 and Rolls-Royce in April 1997. Eastern Electricity has maintained its position as a leader in competitive electricity supply with an estimated 13 per cent. of the contestable market. Major customers include Coats Viyella, McDonald's, Somerfield and Anglian Water. For franchise customers, new tariffs from 1 April, 1997 will provide average reductions of between 6 per cent. and 9 per cent., and further discounts have been introduced for customers with annual bills above (Pounds)225 or below (Pounds)100. Eastern Electricity is recognised as being committed to the environment, and plans are well advanced to introduce a "green tariff" in October of this year. Eastern Natural Gas is now the leading retailer in the deregulating gas market (after British Gas/Centrica) with an annualised turnover of around (Pounds)250 million and approximately 11 per cent. of III-2 the competitive gas market. It is also the leading competitor to British Gas/Centrica in those parts of the domestic market open to competition, with over 100,000 domestic customers. Eastern remains focused on delivering excellent service to its customers to ensure success in the next stages of deregulation in the UK electricity and gas markets. Its two customer service centres continue to operate at exceptionally high standards and answer customer enquiries 24 hours a day, 365 days a year. NETWORKS
PRO FORMA 1997 1996 ------------- ------------- Turnover for the six months to 31 March............ (Pounds)274mn (Pounds)278mn Operating profit for the six months to 31 March.... (Pounds)122mn (Pounds)133mn
Operating profit for our Networks business has reduced by 8 per cent. to (Pounds)122 million, reflecting a (Pounds)20 million reduction in regulatory income as a consequence of the last price review, partially offset by savings in operating costs. The re-opening of voluntary severance programmes and reshaping of the Networks business is already bringing through further cost savings. Eastern Electricity's UK network covers 20,300 square kilometres from Peterborough in the north to parts of London in the south, and from Aylesbury in the west to Lowestoft in the east. Recent statistics from the Office of Electricity Regulation show that the network remains one of the most reliable in the country. Targeted capital investment in the network continues to contribute to reliability and a new operations centre has helped to enhance network performance even further. Set up in November 1996, it centrally monitors and controls over 88,000km of cable and overhead lines. Eastern Group Telecoms has continued to develop its strong position as a network provider to telecoms operators, with operating profit of (Pounds)1.8 million (pro forma 1996 (Pounds)0.4 million). III-3 THE ENERGY GROUP PLC--CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31 MARCH 1997
1997 ---------- (Pounds)MN Turnover............................................................. 2,519 Costs and overheads less other income................................ (2,222) ------ Operating profit..................................................... 297 Net interest payable and similar charges............................. (37) ------ Profit on ordinary activities before taxation........................ 260 Taxation charge for period........................................... (81) ------ Profit on ordinary activities after taxation......................... 179 Dividend............................................................. (29) ------ Profit retained for the period....................................... 150 ====== Earnings per ordinary share: Pre-exceptional.................................................... 38.2p Basic.............................................................. 34.5p
The figures on pages III-4 to III-10 for the six months ended 31 March 1997 have been extracted from the audited financial statements, but do not themselves constitute full accounts within the meaning of the Companies Act 1985. Statutory accounts for the period will be delivered to the Registrar of Companies in England and Wales. The other information on pages III-11 to III- 14 is not subject to audit. III-4 THE ENERGY GROUP PLC--SEGMENT INFORMATION FOR THE SIX MONTHS ENDED 31 MARCH 1997
1997 -------------------------------- OPERATING CAPITAL PROFIT TURNOVER EMPLOYED ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN BY ACTIVITY: Coal......................................... 66 647 1,370 Power........................................ 129 1,801 1,117 Networks..................................... 122 274 1,063 Other........................................ -- 9 8 Intra-Group trading (Networks to Power)...... -- (212) -- --- ----- ----- 317 2,519 3,558 Exceptional restructuring and reorganisation costs....................................... (20) -- -- --- ----- ----- 297 2,519 3,558 --- ----- ----- 1997 -------------------------------- OPERATING CAPITAL PROFIT TURNOVER EMPLOYED ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN BY GEOGRAPHICAL LOCATION: United Kingdom............................... 228 1,853 2,166 USA.......................................... 52 574 1,148 Australia.................................... 14 74 226 Other........................................ 3 18 18 --- ----- ----- 297 2,519 3,558 --- ----- -----
III-5 THE ENERGY GROUP PLC--BALANCE SHEETS AS AT 31 MARCH 1997
GROUP COMPANY 1997 1997 ---------- ---------- (Pounds)MN (Pounds)MN FIXED ASSETS Tangible fixed assets..................................... 3,910 -- Investments............................................... 72 63 ------ --- 3,982 63 ------ --- CURRENT ASSETS Stocks.................................................... 256 -- Debtors................................................... 1,359 50 Investments............................................... 10 -- Short-term deposits....................................... 753 -- Cash...................................................... 385 40 ------ --- 2,763 90 ------ --- CREDITORS -- DUE WITHIN ONE YEAR Short-term borrowings..................................... (738) -- Overdrafts................................................ (61) -- Other creditors........................................... (948) (45) ------ --- (1,747) (45) ------ --- NET CURRENT ASSETS........................................ 1,016 45 ------ --- TOTAL ASSETS LESS CURRENT LIABILITIES..................... 4,998 108 CREDITORS -- DUE AFTER ONE YEAR........................... (1,655) -- PROVISIONS FOR LIABILITIES AND CHARGES.................... (1,498) -- ------ --- NET ASSETS................................................ 1,845 108 ====== === CAPITAL AND RESERVES Called up share capital................................... 52 52 Other reserves............................................ 639 -- Profit and loss account................................... 1,154 56 ------ --- EQUITY SHAREHOLDERS' FUNDS................................ 1,845 108 ====== ===
III-6 THE ENERGY GROUP PLC--CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MARCH 1997
NOTE (Pounds)MN (Pounds)MN CASH FLOW FROM OPERATING ACTIVITIES................ 1 346 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received.................................. 29 Interest paid...................................... (83) Dividends received from investments................ 1 ---- (53) TAXATION........................................... (23) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets.................. (133) Purchase of investments............................ (39) Sale of tangible fixed assets...................... 4 Sale of investments................................ 12 ---- (156) ACQUISITION Purchase of subsidiary undertaking................. (20) ---- CASH FLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING......................................... 94 MANAGEMENT OF LIQUID RESOURCES Net cash placed on short-term deposit.............. 3 (753) FINANCING Net new short-term borrowings...................... 3 149 Debt due beyond a year: New secured loan repayable within 5 years.......... 3 907 Repayment of amounts borrowed...................... 3 (118) ---- 938 ---- INCREASE IN CASH IN THE PERIOD..................... 3 279 ----
III-7 THE ENERGY GROUP PLC--NOTES TO CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MARCH 1997 1. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
1997 ---------- (Pounds)MN Operating profit before exceptional items............................ 317 Depreciation and depletion........................................... 100 Profit on sales of tangible fixed assets............................. (3) Share of profit of associated undertakings........................... (2) (Increase) in investments............................................ (2) (Increase) in stocks................................................. (8) (Increase) in debtors................................................ (83) Increase in creditors................................................ 50 Provisions........................................................... (23) --- Net cash inflow from operating activities............................ 346 ---
2. ANALYSIS OF CHANGES IN FINANCING
SHARE LOANS AND CURRENT CURRENT CAPITAL FINANCE LEASES DEBENTURE LOANS BANK LOANS ---------- -------------- --------------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN Balance as at 1 October 1996.................... -- 945 154 14 Pro forma additional net debt at 1 October 1996.. -- -- -- 381 --- ----- ---- --- Pro forma balance at 1 October 1996............ -- 945 154 395 Non-cash demerger share issue................... 52 -- -- -- Additional debt on demerger................ -- -- -- 42 Exchange movements....... -- (12) (9) -- Cash inflow (outflow) from financing.......... -- 789 (113) 262 Other movements.......... -- (54) -- (6) Current loan reallocations........... -- (13) 13 -- --- ----- ---- --- Balance as at 31 March 1997.................... 52 1,655 45 693 --- ----- ---- ---
The pro forma balance at 1 October 1996 reflects the figures included within the company's Listing Particulars issued in January 1997. III-8 THE ENERGY GROUP PLC--NOTES TO CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE SIX MONTHS ENDED 31 MARCH 1997 3. ANALYSIS OF CHANGES IN NET DEBT
AS AT PRO FORMA AS AT ADDITIONAL DEBT OTHER EXCHANGE 31 MAR 1 OCT 1996 ON DEMERGER CASH FLOW MOVEMENTS MOVEMENTS 1997 --------------- --------------- ---------- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN Cash.................... 173 -- 221 (1) (8) 385 Overdrafts.............. (119) -- 58 -- -- (61) ---- 279 ---- Debt due after 1 year... (945) -- (789) 67 12 (1,655) Debt due within 1 year.. (549) (42) (149) (7) 9 (738) ---- (938) ---- Short-term deposits..... -- -- 753 -- -- 753 ------ --- ---- --- --- ------ (1,440) (42) 94 59 13 (1,316) ------ --- ---- --- --- ------
The pro forma net debt at 1 October 1996 reflects the figures included within the company's Listing Particulars issued in January 1997. 4. RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT
1997 ---------- (Pounds)MN Net cash inflow in the period........................................ 279 Increase in liquid cash resources.................................... 753 Change in debt resulting from cash flows............................. (938) ------ 94 Additional debt on demerger.......................................... (42) Other movements...................................................... 59 Exchange movements................................................... 13 ------ Movement in net debt in the period................................... 124 Opening pro forma net debt........................................... (1,440) ------ Closing net debt..................................................... (1,316) ------
III-9 THE ENERGY GROUP PLC--RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED 31 MARCH 1997
1997 ---------- (Pounds)MN Actual invested capital as at 30 September 1996(*)................... 2,185 Pro forma adjustments as at 30 September 1996 (*): --additional debt on demerger...................................... (381) --other............................................................ (2) ----- Pro forma invested capital as at 30 September 1996 (*)............... 1,802 Increase in additional net debt on demerger: --contribution towards dividend paid by Hanson in January 1997..... (32) --other............................................................ (10) ----- Pro forma opening shareholders' funds................................ 1,760 Profit on ordinary activities after taxation......................... 179 Dividend............................................................. (29) Currency differences on foreign net investments...................... (52) Other movements...................................................... (13) ----- Closing shareholders' funds.......................................... 1,845 -----
- -------- (*) As disclosed in the Group's Listing Particulars issued in January 1997 During the final stages of the demerger process, the amount of additional net debt allocated to the Group on demerger was increased by (Pounds)42 million to a total of (Pounds)423 million. The increase principally reflected a notional contribution to Hanson's dividend of 1.0p per Hanson ordinary share paid on 10 January 1997 in respect of the quarter ended 31 December 1996. III-10 THE ENERGY GROUP PLC--PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
PRO FORMA PRO FORMA PRO FORMA SIX MONTHS SIX MONTHS PRO FORMA YEAR ENDED YEAR ENDED ENDED ENDED NOTE 31 MAR 1997 30 SEPT 1996 31 MAR 1997 31 MAR 1996 --------- ----------- ------------ ----------- ----------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN TURNOVER Coal.................... 1,452 1,461 647 656 Power................... 2,887 2,178 1,801 1,092 Networks................ 478 482 274 278 Other................... 24 24 9 9 Intra-group............. (381) (378) (212) (209) ----- ----- ----- ----- 4,460 3,767 2,519 1,826 ----- ----- ----- ----- OPERATING PROFIT Coal.................... 154 154 66 66 Power................... 168 83 129 44 Networks................ 200 211 122 133 Other................... (2) (2) -- -- ----- ----- ----- ----- PRE-EXCEPTIONAL OPERATING PROFIT....... 520 446 317 243 Restructuring and reorganisation costs... (2) (20) (20) National Grid Group flotation.............. (3) 44 44 ----- ----- ----- ----- TOTAL OPERATING PROFIT.. 500 490 297 287 Profit on disposal of First Hydro............ (4) 25 25 Net interest payable and similar charges........ (5) (88) (68) (37) (33) ----- ----- ----- ----- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 412 447 260 279 Taxation charge for the period................. (6) (126) (137) (81) (89) ----- ----- ----- ----- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION............... 286 310 179 190 ----- ----- ----- ----- EARNINGS PER SHARE Pre-exceptional......... (7) 58.8p 51.8p 38.2p 28.8p Basic................... (7) 55.1p 59.5p 34.5p 36.5p
Notes to the above pro forma consolidated profit and loss account are shown on page III-12. III-11 NOTES TO THE PRO FORMA PROFIT AND LOSS ACCOUNT (1) The pro forma information for the year ended 30 September 1996 has been extracted from the Listing Particulars issued during January 1997 in respect of the demerger. This assumed additional net debt of (Pounds)381 million arising as a result of the demerger, together with an average interest rate of 6.2 per cent. (2) Restructuring and reorganisation costs relate to the re-opening of Eastern's voluntary severance scheme. (3) National Grid Group flotation relates to an interim dividend of (Pounds)11 million and special dividends (net of associated costs) totalling (Pounds)165 million received in connection with the flotation of the National Grid Group. Amounts credited to electricity customers in the form of a discount on electricity bills connected with this flotation totalled (Pounds)132 million. (4) Profit on disposal of First Hydro arose on the disposal of the Group's interest in the pumped storage business of National Grid Group. (5) Pro forma net interest payable and similar charges for the year ended 31 March 1997 are based on the actual interest charges borne by the individual operating entities which now comprise the Group, increased for an additional pro forma interest charge calculated as 7.5 per cent. of the actual additional net debt allocated to the Group by Hanson on demerger. Pro forma net interest payable and similar charges for the six months ended 31 March 1996 are calculated on a similar basis, but incorporating an additional pro forma interest charge based on the additional net debt and average interest rate assumed in the Listing Particulars. (6) Pro forma tax charge for the year ended 31 March 1997 has been calculated at the same effective rate before exceptional items as that which existed for the six months ended 31 March 1997. Pro forma tax charge for the six months ended 31 March 1996 has been calculated at the same effective rate before exceptional items as that assumed in the pro forma tax charge for the year ended 30 September 1996. (7) The pro forma earnings per share for the six months ended 31 March 1996 have been calculated on the pro forma profit for the period and on 520,857,817 shares, being the number of ordinary shares assumed in the Listing Particulars. The actual earnings per share for the six months ended 31 March 1997 and the pro forma earnings per share for the year ended 31 March 1997 are based on the respective actual and pro forma profits for the relevant periods and on 518,607,817 shares which excludes the 2,250,000 shares held by The Energy Group Employee Benefit Trust, which has waived its right to dividends on the shares it holds. (8) No pro forma adjustments have been made for additional annual administration costs that are expected to arise following the demerger. The directors estimate that such costs will amount to approximately (Pounds)15 million per annum. III-12 THE ENERGY GROUP--TRANSLATION TO US DOLLARS INCOME STATEMENT AND CAPITAL EMPLOYED (UK GAAP) 31 MARCH 1997
1997 ----------------------- CAPITAL INCOME SALES EMPLOYED ------ ----- -------- $MN $MN $MN BY ACTIVITY: Coal................................................... 108 1,057 2,250 Power.................................................. 211 2,943 1,834 Networks............................................... 199 448 1,745 Other.................................................. -- 15 13 Intra-group (Networks to Power)........................ -- (347) -- ----- ----- ----- 518 4,116 5,842 Exceptional restructuring and reorganisation costs..... (33) ----- ----- ----- Operating income....................................... 485 Net interest expense................................... (60) ----- Income from ordinary activities before taxation........ 425 Taxes on income from ordinary activities............... (132) ----- Net income............................................. 293 ===== Net income perADS Pre-exceptional................................. $2.50 Basic........................................... $2.25 1997 ----------------------- CAPITAL INCOME SALES EMPLOYED ------ ----- -------- $MN $MN $MN BY GEOGRAPHICAL LOCATION: United Kingdom......................................... 372 3,028 3,556 USA.................................................... 85 938 1,885 Australia.............................................. 23 121 371 Other.................................................. 5 29 30 ----- ----- ----- 485 4,116 5,842 ----- ----- -----
The rates used to translate the above figures were the average rate for the six months period to 31 March 1997 of $1.6339 to the (Pounds) in respect of income and sales and the period end rate of $1.6420 to the (Pounds) for capital employed. III-13 THE ENERGY GROUP--TRANSLATION TO US DOLLARS PRO FORMA CONSOLIDATED INCOME STATEMENTS (UK GAAP)
PRO FORMA PRO FORMA PRO FORMA SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED ENDED ENDED 31 MAR 1997 30 SEPT 1996 31 MAR 1997 31 MAR 1996 ----------- ------------ ----------- ----------- $MN $MN $MN $MN SALES Coal......................... 2,372 2,387 1,057 1,072 Power........................ 4,717 3,559 2,943 1,784 Networks..................... 781 788 448 454 Other........................ 39 39 15 15 Intra-group (Networks to Power)...................... (622) (618) (347) (341) ----- ----- ----- ----- 7,287 6,155 4,116 2,984 ----- ----- ----- ----- OPERATING INCOME Coal......................... 252 252 108 108 Power........................ 274 135 211 72 Networks..................... 327 345 199 217 Other........................ (3) (3) -- -- ----- ----- ----- ----- OPERATING INCOME BEFORE EXCEPTIONAL ITEMS........... 850 729 518 397 Restructuring and reorganisation costs........ (33) (33) National Grid Group flotation................... 72 72 ----- ----- ----- ----- OPERATING INCOME............. 817 801 485 469 Profit on disposal of First Hydro....................... 41 41 Net interest expense......... (144) (111) (60) (54) ----- ----- ----- ----- INCOME FROM ORDINARY ACTIVITIES BEFORE TAXATION.. 673 731 425 456 Taxes on income from ordinary activities.................. (206) (224) (132) (146) ----- ----- ----- ----- NET INCOME................... 467 507 293 310 ===== ===== ===== ===== NET INCOME PER ADS Pre-exceptional.............. $3.84 $3.39 $2.50 $1.88 Basic........................ $3.60 $3.89 $2.25 $2.39
The rate used to translate the above figures was the average rate for the six months period to 31 March 1997 of $1.6339 to the (Pounds). The assumptions behind these figures are shown on page III-12." III-14 2. OTHER INFORMATION IN RESPECT OF THE REPORT AND ACCOUNTS OF THE ENERGY GROUP FOR THE SIX MONTHS ENDED 31 MARCH 1997. As at the date of this document, the Report and Accounts of The Energy Group for the six months ended 31 March 1997 have not been published or filed with the Registrar of Companies in England and Wales. However, the directors of The Energy Group consider that, in addition to the announcement made by The Energy Group on 13 June 1997, the following information, which is based on disclosures in the Report and Accounts, is of material interest: (i) Accounting policies The Energy Group has continued to apply the same accounting policies as used in its Listing Particulars issued in January 1997, as set out on pages III-20 to III-23. After a detailed consideration of the nature of the TEG Group's 33% interest in the Black Beauty Coal Company joint venture, the results and period end position of that operation are now accounted for on an equity basis rather than proportional consolidation which has historically been applied. This change in treatment better reflects the nature of the TEG Group's interest in the operation, its revenues and its assets. The principal effect of the change has been to reduce overall net debt at 31 March 1997 by (Pounds)62 million. No change in accounting treatment has been applied to any of the TEG Group's other joint venture operations. (ii) Contingent liabilities Certain properties in the USA in which the TEG Group has, or had, an interest are subject to actual or potential environmental claims. The directors have made a (Pounds)42 million provision, included in provisions for reclamation and environmental obligations, in relation to these claims, but significant uncertainty exists as to whether these claims will be pursued against the TEG Group in all cases and, where they are pursued, the amount of the eventual costs and liabilities. Following its election to government in the UK, the Labour Party has reaffirmed its intention to impose a one-off "windfall levy" on regulated industries in the UK. It is not possible to predict the amount of any such levy, but, if imposed, such levy could be substantial. In February 1997 final determinations were made against National Grid Group and its group trustees by the Pensions Ombudsman on complaints by two pensioners in National Grid Group's section of the Electricity Supply Pension Scheme ("ESPS") relating to the use of the surplus arising under the actuarial valuation of the National Grid Group's section as at 31 March 1992 to meet certain additional costs arising from the payment of pensions on early retirement pursuant to reorganisation or redundancy and certain additional contributions. These determinations were set aside by the High Court on 10 June 1997 and the arrangements made by National Grid Group and its trustees in dealing with its section's surplus were confirmed, although leave to appeal to the Court of Appeal has been granted to the two pensioners. If a similar complaint were to be made against Eastern in relation to its use of actuarial surplus in its section of the ESPS, it would resist it, ultimately through the courts. However, if a determination were finally to be made against it and upheld by the courts, Eastern could have a potential liability to repay to its section of the ESPS an amount estimated by the directors to be up to (Pounds)75 million (exclusive of any applicable interest charges). The TEG Group is subject to business risks which are actively managed against exposures. A fuller list of risk factors was set out in the Energy Group Listing Particulars. (iii) Subsequent events On 14 April 1997 Eastern Electricity plc issued (Pounds)200 million 8.75% bonds due 2012. On 24 April 1997 Eastern issued promissory notes of CZK 2,900 million (approximately (Pounds)59 million) to Ceska Sporitelna a.s. in the Czech Republic redeemable no later than 29 April 2004. The notes are secured by the TEG Group's investments in Severomoravska Energetika a.s. and Teplarny Brno a.s. III-15 On 20 May 1997 the TEG Group completed its acquisition of Citizens Lehman Power L.L.C. which has been renamed Citizens Power LLC. The acquisition involved an initial payment of (Pounds)12.5 million in cash, plus a payment deferred until 31 March 2000, equivalent to the net assets as of 30 June 1997. There will be additional purchase consideration linked to profit goals up to 2002, subject to a maximum consideration for the entire transaction of $120 million. At 12 June 1997 the TEG Group's shareholding in Teplarny Brno a.s. had increased to 70.3% at an additional cost of (Pounds)4 million. III-16 3.UNAUDITED PRO FORMA COMBINED PROFIT AND LOSS ACCOUNT AND STATEMENT OF NET ASSETS. The text on pages III-17 and III-18 has been extracted from pages 62 and 63 of the Energy Group Listing Particulars: "UNAUDITED PRO FORMA COMBINED PROFIT AND LOSS ACCOUNT The pro forma combined profit and loss account of the Group for the year ended 30 September 1996 is as follows:
NOTE HISTORICAL ADJUSTMENTS PRO FORMA ---- ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Turnover before special discount....... 3,767 -- 3,767 Costs and overheads less other income.. (3,321) -- (3,321) ------ --- ------ Operating profit before exceptional items................................. 446 -- 446 National Grid Group flotation.......... 44 -- 44 ------ --- ------ Operating profit....................... 490 -- 490 Profit on disposal of First Hydro ..... 25 -- 25 Net interest........................... (1) (43) (25) (68) ------ --- ------ Profit on ordinary activities before taxation.............................. 472 (25) 447 Taxation............................... (2) (115) (22) (137) ------ --- ------ Profit for the year.................... 357 (47) 310 ====== === ====== Earnings per share..................... (4) 68.5p 59.5p ====== ====== Adjusted earnings per share............ 60.8p 51.8p ====== ======
Notes (1) The adjustment to interest reflects the drawdown of (Pounds)381 million under the Group's principal banking facilities. Additional interest expense has been calculated thereon at an effective rate of 6.2 per cent. based on three month LIBOR at 30 September 1996 together with the margin payable under such facilities. A change of 1/8 per cent. in the effective rate would change the interest expense by less than (Pounds)1 million per annum. (2) The pro forma taxation adjustment has been calculated to reflect the impact of the adjusted interest charge resulting from the change in the capital structure of the Group following the Demerger ((Pounds)8 million) and after allowing for Group relief surrendered ((Pounds)30 million) for nil consideration by other Hanson Group companies. (3) No adjustment has been made for additional annual administration costs that are expected to arise following the Demerger. The Directors estimate that such costs will amount to approximately (Pounds)15 million per annum. (4) Pro forma earnings per share have been calculated on the basis of the pro forma profit for the year and on 521 million shares, being the expected minimum number of Energy ordinary shares in issue at Admission. Adjusted pro forma earnings per share are based on the same number of shares and the profit for the year after excluding the items relating to the National Grid Group flotation, the profit on disposal of the Group's interest in First Hydro and related taxation. III-17 UNAUDITED PRO FORMA COMBINED STATEMENT OF NET ASSETS The pro forma combined statement of net assets of the Group, based on its combined balance sheet as at 30 September 1996, is as follows:
NOTE HISTORICAL ADJUSTMENTS PRO FORMA ---- ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN FIXED ASSETS Tangible............................... 3,975 -- 3,975 Investments............................ 17 -- 17 ------ ---- ------ 3,992 -- 3,992 ------ ---- ------ CURRENT ASSETS Stocks................................. 254 -- 254 Amounts owed by Hanson Group........... (1) 2 (2) -- Debtors falling due after one year..... 536 -- 536 Debtors falling due within one year.... 763 -- 763 Investments............................ 8 -- 8 Cash at bank and in hand............... (2) 173 -- 173 ------ ---- ------ 1,736 (2) 1,734 ------ ---- ------ CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Bank and other borrowings............ (2) (287) (381) (668) Other creditors...................... (754) -- (754) ------ ---- ------ (1,041) (381) (1,422) ------ ---- ------ NET CURRENT ASSETS..................... 695 (383) 312 ------ ---- ------ TOTAL ASSETS LESS CURRENT LIABILITIES.. 4,687 (383) 4,304 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Long-term debt and finance leases.... (2) (945) -- (945) Provision for liabilities and charges............................. (1,557) -- (1,557) ------ ---- ------ NET ASSETS............................. 2,185 (383) 1,802 ====== ==== ====== Net cash/(debt) is analysed as follows: PRO HISTORICAL ADJUSTMENTS FORMA ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Cash at bank and in hand............... 173 -- 173 ------ ---- ------ Bank and other borrowings due within one year.............................. (287) (381) (668) Bank borrowings and loan notes due after one year........................ (945) -- (945) ------ ---- ------ GROSS DEBT............................. (1,232) (381) (1,613) ------ ---- ------ NET DEBT............................... (1,059) (381) (1,440) ====== ==== ======
Notes: (1) Immediately prior to the Demerger, net amounts owed by the Hanson Group (other than the Relevant Peabody Debt, which will be settled before completion of the Peabody Holding Transaction) will be settled. (2) Under the Demerger Agreement, the Group is to assume additional borrowings which on a pro forma basis as at 30 September 1996 would increase the Group's net bank and other borrowings to (Pounds)1,440 million. The adjustment shown above gives effect to the draw down of (Pounds)381 million under the New Credit Facility. (3) In addition to the adjustment for the draw down of (Pounds)381 million referred to above, further adjustments have been agreed between the Company and Hanson in respect of the period since 30 September 1996, reflecting principally the Group's contribution towards the dividend paid by Hanson on 10 January 1997. These adjustments amount to (Pounds)30 million, as a result of which the total amount expected to be drawn down under the New Credit Facility after completion of the Demerger Transactions is approximately (Pounds)411 million. (4) No adjustments have been made to reflect trading since 30 September 1996." III-18 4. COMBINED FINANCIAL INFORMATION. The combined financial information on pages III-19 to III-42 has been extracted from the Accountants' Reports--Section 1: The Group contained in Part 4 of the Energy Group Listing Particulars. "Basis of Preparation The combined financial information has been prepared to show the performance of the Group for the three years ended 30 September 1996 as if it had been in existence from 1 October 1993 as described below. It is based on the audited annual financial returns submitted to Hanson for consolidation purposes in respect of Eastern, Peabody and the infrastructure companies. Peabody and the infrastructure companies were wholly-owned by Hanson throughout the period. Eastern was acquired by Hanson on 18 September 1995. (i) The combined financial information has been prepared using merger accounting principles as if the companies and businesses comprising the Group had been part of the Group for all periods presented, or, in the case of those acquired or disposed of by Hanson during this period, from or up to the date control passed, as appropriate. In order for the Group accounts to show a true and fair view, this basis of accounting will be used following the Demerger. Some individual elements of the reorganisation under Rollalong and of the Demerger Transactions have been or will be for cash consideration. Such individual elements do not satisfy all of the conditions for merger accounting to be permitted in accordance with UK Financial Reporting Standard 6 and Schedule 4A to the Companies Act 1985 (the "Companies Act"), which would require such transfers to be accounted for using acquisition accounting principles. The Directors took account of the continuity of ownership under Hanson of all of its energy-related businesses that will form the Group following completion of the Demerger Transactions and considered that the Demerger Transactions, taken as a whole, required the adoption of merger accounting principles in order to show a true and fair view in accordance with section 226(5) of the Companies Act. The adoption of acquisition accounting principles for some individual elements of the reorganisation under Rollalong and of the Demerger Transactions would have required: the restatement at fair value of certain assets and liabilities transferred; the recognition of goodwill which, in some cases, would not be representative of that arising had the transfers been conducted at arm's length; and the inclusion of the results of certain businesses only from the various arbitrary dates chosen for the transfers. As a result of the foregoing, in the opinion of the directors, combined financial information using different bases of accounting would not give a true and fair view. No quantification has been given of the effects of this departure because to do so would be misleading. (ii) Although Eastern was acquired by Hanson on 18 September 1995, its results and cash flows have been included in the combined financial information based on an effective acquisition date of 30 September 1995. The results and cash flows for the period 19 to 30 September 1995 are not material. (iii) Transactions and balances owing between companies and businesses forming part of the Group have been eliminated. (iv) Interest income and expense are based on amounts recorded in the historical financial returns submitted to Hanson in respect of the companies and businesses forming part of the Group. No adjustments have been made to reflect the capital structure of the Group as it will be following the Demerger and, as such, the historical level of interest income and expense may not be representative of such amounts following the Demerger. III-19 (v) Taxation charges and liabilities are based on amounts recorded in the historical financial returns submitted to Hanson in respect of the companies and businesses forming part of the Group, except that adjustments have been made, where appropriate, to provide for deferred tax liabilities consequent upon the Group being on a stand-alone basis following Demerger. Prior to the Demerger and in previous accounting periods, there have been various tax-sharing arrangements between Hanson, those subsidiaries that will form part of the Group after the Demerger and other Hanson subsidiaries. These arrangements have had the effect that tax charges shown in the combined financial information may not be representative of tax charges that will be incurred following the Demerger. Principal Accounting Policies The combined financial information has been prepared in accordance with applicable UK Accounting Standards. The principal accounting policies, which have been applied consistently for all periods, are set out below. Accounting convention The combined financial information has been prepared in accordance with the historical cost convention. Accounting for acquisitions The results of acquired companies and businesses are dealt with in the combined financial information from the date of acquisition. On the acquisition of a company or business, fair values reflecting conditions at the date of acquisition are attributed to the identifiable tangible assets and liabilities acquired. Where the consideration paid exceeds the fair value of the net tangible assets acquired, the difference is treated as goodwill and is set off against invested capital in the acquisition period. Associated undertakings Investments that are not subsidiary undertakings but in which the Group has a long-term interest of between 20 per cent. and 50 per cent. of the equity and over which the Group exercises significant influence (other than those which are joint ventures) have been accounted for as associated companies using the equity method of accounting. Where the Group has an interest in an unincorporated joint venture or a partnership, such interest has been accounted for using proportional consolidation on a line-by-line basis. Turnover Coal sales revenue is recognised at the time of shipment. Electricity and gas sales represent consumption by the customer during the year including an estimated accrual for the value of electricity and gas consumed by customers between the date of their last meter reading and the year end. Turnover is stated exclusive of UK value added tax but inclusive of related US coal production duties and UK fossil fuel levy. Tangible fixed assets (a) Capitalisation Tangible fixed assets are stated at cost or valuation less accumulated depreciation. Interest costs relating to the construction or development of production facilities are capitalised during the pre-production period. Interest costs incurred after production has commenced are expensed. III-20 Costs incurred to increase the productive capacity of a coal mine or gas field are capitalised. Costs incurred to maintain the productive capacity of a coal mine or gas field are expensed. (b) Depreciation and depletion Buildings and improvements at coal mines are depreciated over the expected productive life of the mine from the date that full production commences. Depletion of coal and gas reserves is charged on a unit-of-production basis, based on an assessment of available and proven reserves respectively. Freehold land is not depreciated. Depreciation of assets other than freehold land, coal and gas reserves and buildings and improvements at coal mines is charged as follows: Electricity generating system assets 30 years Electricity distribution system assets 40 years at a rate of 3 per cent. per annum for first 20 years and 2 per cent. per annum for remaining 20 years Freehold buildings up to 60 years Leasehold buildings shorter of 60 years and remaining period of lease Telecommunications network 10 to 40 years Plant, equipment and motor vehicles 2 to 49 years
(c) Assets held under leases Assets held under finance leases are included within fixed assets at the capitalised value of future minimum lease payments and are depreciated over the shorter of their lease period and their useful life. The capital element of the future payments is treated as a liability and the interest element is charged to the profit and loss account so as to reflect a constant annual rate of interest on the remaining balance of the outstanding obligation. Rentals paid on operating leases are charged to the profit and loss account on a straight-line basis over the shorter of the lease period and the useful life of the leased asset. (d) Impairment At each financial year end, an assessment is made of the recoverability of the balance sheet carrying values of coal and gas assets. This assessment is made individually at the lowest operational level at which income and cash flows are monitored as a separate unit. A reduction in carrying value is triggered when the current book value of such a unit of assets exceeds the undiscounted future cash flows. Where shortfalls in cash flows compared with carrying values arise, the assets are written down to fair value, determined usually by discounted future cash flows from the assets. (e) Reclamation, restoration and abandonment costs Provision is made for surface reclamation and restoration costs in respect of coal mines and for abandonment costs in respect of gas fields in accordance with local conditions and requirements on the basis of costs estimated at the balance sheet date. The costs are charged to accounting periods on a unit-of- production basis for gas assets and over the life of the mine for coal. III-21 (f) Environmental costs and obligations Costs incurred in respect of environmental protection are capitalised if they provide future economic benefit from the related production facility. Liabilities for environmental clean-up costs are recognised when clean-ups are probable and the associated costs can be estimated reasonably. (g) Customers' contributions Customer contributions to electricity distribution system assets are credited to the profit and loss account over a 40-year period at a rate of 3 per cent. per annum for the first 20 years followed by 2 per cent. per annum for the following 20 years. The unamortised amount of these contributions is shown as a deduction from tangible fixed assets. (h) Disposal of fixed assets HM Government is entitled to a proportion of any gain realised by Eastern on certain property disposals made up to 31 March 2000. A provision for clawback in respect of such disposals is made to the extent that it is probable that a liability would crystallise. Such a liability would crystallise when an actual or deemed disposal occurs. Stocks Stocks are stated at the lower of cost and net realisable value. Cost includes labour, supplies, equipment and an appropriate proportion of operating and overhead costs. Investments Fixed asset investments are stated at cost or Directors' valuation less provisions for permanent diminutions in value. Current asset investments are stated at the lower of cost and net realisable value. Investment income is included in the accounts of the year in which it is receivable. Foreign currencies Transactions in foreign currencies are recorded at the exchange rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. All differences on translation are taken to the profit and loss account. Average rates of exchange ruling during the period are used to translate the profit and loss accounts of overseas subsidiary and associated undertakings. The balance sheets of overseas subsidiary undertakings are translated at rates ruling at the balance sheet date. Differences on translation arising from changes in the sterling value of overseas net assets, together with the differences between profit and loss accounts translated at average rates and at balance sheet rates, are shown as a movement in invested capital and in the statement of recognised gains and losses. Other exchange rate differences are dealt with in the profit and loss account for the period. Deferred taxation Deferred taxation is provided on the liability method in respect of timing differences except where the liability or asset is not expected to crystallise in the foreseeable future. No deferred tax asset is recognised corresponding to liabilities provided for in respect of post-retirement healthcare benefits. Provision is not made for additional taxation which might be payable if profits retained by overseas companies were distributed as dividends. Healthcare and other obligations to employees The TEG Group provides healthcare and other benefits, including workers' compensation benefits, to certain qualifying employees and former employees of the Peabody companies and their III-22 dependants under the provisions of various benefit plans or as required by US state or federal law. These benefits are accrued and charged to the profit and loss account over the expected service lives of the employees with the exception of pneumoconiosis (black lung) benefits in respect of employees ceasing employment prior to 1 July 1973, which are accounted for as payments are made. Pneumoconiosis benefits in respect of employees ceasing employment after 30 June 1973 are estimated actuarially; the last actuarial review was performed as at 1 October 1995. Other workers' compensation benefits are also assessed actuarially. Pension costs The Group operates retirement benefit schemes in the UK, the US and Australia, in accordance with local regulations and custom. The assets of the schemes are held in separate funds administered by trustees. The cost of providing pensions is charged to the combined profit and loss account over employees' service lives. The pension costs relating to those schemes which provide defined benefits are assessed in accordance with the advice of qualified actuaries. III-23 COMBINED PROFIT AND LOSS ACCOUNTS
YEAR ENDED 30 SEPTEMBER -------------------------------- NOTE 1994 1995 1996 ---- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Turnover................................ 1,247 1,446 3,635 Add: Special discount................... -- -- 132 ------ ------ ------ Turnover before special discount........ 1 1,247 1,446 3,767 Costs and overheads less other income... 2 (1,148) (1,311) (3,321) ------ ------ ------ Operating profit before National Grid Group flotation........................ 99 135 446 National Grid Group flotation........... dividends receivable.................. 4 -- -- 176 special discount...................... 4 -- -- (132) ------ ------ ------ Operating profit........................ 1 99 135 490 Profit on disposal of First Hydro....... 4 -- -- 25 Net interest............................ 5 (14) (11) (43) ------ ------ ------ Profit on ordinary activities before taxation............................... 85 124 472 Taxation................................ 6 (17) (56) (115) ------ ------ ------ Profit for the year..................... 68 68 357 ====== ====== ====== Earnings per share...................... 7 13.1p 13.1p 68.5p ====== ====== ====== Adjusted earnings per share............. 7 13.1p 13.1p 60.8p ====== ====== ======
The net interest expense and taxation shown above were affected significantly by the financing and taxation arrangements of Hanson Group. Accordingly, the amounts of those items included above may not be representative of those that may arise following the Demerger. The results of Eastern are included from 1 October 1995. The results of Peabody Holding are included for the three years ended 30 September 1996 as disclosed in Note 1. COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES:
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Profit for the year.......................... 68 68 357 Currency differences on foreign net investments................................. (29) -- 20 --- --- --- Total recognised gains relating to the year.. 39 68 377 === === ===
III-24 COMBINED BALANCE SHEETS
AS AT 30 SEPTEMBER -------------------------------- NOTE 1994 1995 1996 ---- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN FIXED ASSETS Tangible assets ........................ 8 2,190 3,774 3,975 Investments............................. 9 6 37 17 ------ ------ ------ 2,196 3,811 3,992 ------ ------ ------ CURRENT ASSETS Stocks.................................. 10 120 161 254 Amounts due from the Hanson Group....... 196 12 2 Debtors amounts falling due after one year..... 11 164 189 536 amounts falling due within one year.... 11 237 579 763 Investments............................. 12 -- 547 8 Short-term deposits..................... -- 264 -- Cash at bank and in hand................ 106 79 173 ------ ------ ------ 823 1,831 1,736 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............................... 13 (451) (862) (1,041) ------ ------ ------ NET CURRENT ASSETS...................... 372 969 695 ------ ------ ------ TOTAL ASSETS LESS CURRENT LIABILITIES... 2,568 4,780 4,687 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..................... 13 (224) (911) (945) PROVISIONS FOR LIABILITIES AND CHARGES.. 14 (1,372) (1,761) (1,557) ------ ------ ------ 972 2,108 2,185 ====== ====== ====== INVESTED CAPITAL........................ 15 972 2,108 2,185 ====== ====== ======
Amounts due from Hanson Group, investments, cash balances and borrowings may not be representative of the financial position of the Group following the Demerger. The net assets of Eastern are included as at 30 September 1995 and 1996. The net assets of Peabody Holding, further details of which are disclosed in Note 1, are included at each of the dates shown above. III-25 COMBINED CASH FLOW STATEMENTS
YEAR ENDED 30 SEPTEMBER -------------------------------- NOTE 1994 1995 1996 ---- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN NET CASH INFLOW FROM OPERATING ACTIVITIES............................. 20 143 402 12 ---- ---- ------ RETURNS ON INVESTMENTS AND SERVICING OF FINANCE National Grid Group flotation........... -- -- 44 Interest paid........................... (19) (11) (33) ---- ---- ------ (19) (11) 11 ---- ---- ------ TAXATION Tax paid................................ (5) (4) (128) ---- ---- ------ INVESTING ACTIVITIES Payments to acquire tangible fixed as- sets................................... 8 (133) (140) (374) Receipts from sales of tangible fixed assets................................. 76 31 29 Sale of investments..................... -- -- 235 Purchase of subsidiary undertakings..... 21 -- 36 (2,495) ---- ---- ------ NET CASH OUTFLOW FROM INVESTING ACTIVI- TIES................................... (57) (73) (2,605) ---- ---- ------ NET CASH INFLOW/(OUTFLOW) BEFORE FINANC- ING.................................... 62 314 (2,710) ---- ---- ------ FINANCING Increase/(decrease) in borrowings....... 21 27 (20) 128 Changes in invested capital from cash funding................................ 15 (61) (57) 2,290 ---- ---- ------ Net cash (outflow)/inflow from financing ....................................... (34) (77) 2,418 ---- ---- ------ Net cash inflow/(outflow) after financ- ing.................................... 22 28 237 (292) ==== ==== ======
The returns on investments and servicing of finance, taxation and financing cash flows shown above were affected significantly by the financing and taxation arrangements of the Hanson Group. Accordingly, the cash flows of those items included above may not be representative of those that may arise following the Demerger. The cash flows of Eastern are included from 1 October 1995. The cash flows for Peabody Holding are included for the three years ended 30 September 1996. III-26 NOTES TO THE COMBINED FINANCIAL INFORMATION 1 SEGMENTAL INFORMATION
YEAR ENDED 30 SEPTEMBER -------------------------------------------------------------------------- 1994 1995 1996 ------------------------ ------------------------ ------------------------ OPERATING OPERATING OPERATING TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) ---------- ------------- ---------- ------------- ---------- ------------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN By activity: Coal.................. 1,217 102 1,418 160 1,461 154 Power................. -- -- -- -- 2,178 83 Networks.............. -- -- -- -- 482 211 Other................. 30 (3) 28 (25) 24 (2) Intra-group trading... -- -- -- -- (378) -- ----- --- ----- --- ----- --- 1,247 99 1,446 135 3,767 446 Exceptional items National Grid Group flotation............ -- -- -- -- (132) 44 ----- --- ----- --- ----- --- 1,247 99 1,446 135 3,635 490 ===== === ===== === ===== === Power turnover includes gas sales of (Pounds)258 million in the year ended 30 September 1996. All intra-group trading represent charges, at market rates, for use of the distribution system from the Networks business to the Power business. YEAR ENDED 30 SEPTEMBER -------------------------------------------------------------------------- 1994 1995 1996 ------------------------ ------------------------ ------------------------ OPERATING OPERATING OPERATING TURNOVER PROFIT TURNOVER PROFIT/(LOSS) TURNOVER PROFIT ---------- ------------- ---------- ------------- ---------- ------------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN By geographical location: United Kingdom........ 22 6 22 (31) 2,303 293 US.................... 1,108 66 1,297 141 1,317 125 Australia............. 117 27 127 25 147 28 ----- --- ----- --- ----- --- 1,247 99 1,446 135 3,767 446 Exceptional items National Grid Group flotation............ -- -- -- -- (132) 44 ----- --- ----- --- ----- --- 1,247 99 1,446 135 3,635 490 ===== === ===== === ===== ===
The above analysis of turnover shows the geographical segments from which goods and services are supplied.
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Turnover by geographical destination: United Kingdom............................... 27 34 2,183 North and South America...................... 1,053 1,197 1,218 Rest of Europe............................... 35 57 62 Asia/Pacific................................. 132 158 172 ----- ----- ----- 1,247 1,446 3,635 ===== ===== =====
III-27 1 SEGMENTAL INFORMATION (CONTINUED)
AS AT 30 SEPTEMBER ----------------------------------------------------------------- 1994 1995 1996 --------------------- --------------------- --------------------- TOTAL CAPITAL TOTAL CAPITAL TOTAL CAPITAL ASSETS EMPLOYED ASSETS EMPLOYED ASSETS EMPLOYED ---------- ---------- ---------- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN By activity: Coal.................... 2,933 1,277 3,004 1,399 3,102 1,440 Power................... -- -- 608 273 1,317 889 Networks................ -- -- 1,149 1,008 1,192 1,089 Other................... 86 (7) 69 (23) 30 (4) ----- ----- ----- ----- ----- ----- 3,019 1,270 4,830 2,657 5,641 3,414 ===== ===== ===== ===== ===== ===== By geographical location: United Kingdom.......... 44 7 1,780 1,283 2,520 1,981 US...................... 2,685 1,048 2,723 1,154 2,727 1,226 Australia............... 290 215 327 220 394 207 ----- ----- ----- ----- ----- ----- 3,019 1,270 4,830 2,657 5,641 3,414 ===== ===== ===== ===== ===== =====
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Total assets are reconciled to the combined balance sheet as follows: Assets analysed by activity.................. 3,019 4,830 5,641 Unallocated cash, investments and other assets...................................... -- 812 87 ----- ----- ----- Total assets................................. 3,019 5,642 5,728 ===== ===== =====
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Capital employed is reconciled to invested capital as follows: Capital employed by activity................. 1,270 2,657 3,414 Current and deferred taxes................... (99) (303) (147) Borrowings less cash, investments and other unallocated assets and liabilities.......... (199) (246) (1,082) ----- ----- ------ Invested capital............................. 972 2,108 2,185 ===== ===== ======
YEAR ENDED 30 SEPTEMBER -------------------------------------------------------------------------- 1994 1995 1996 ------------------------ ------------------------ ------------------------ DEPRECIATION DEPRECIATION DEPRECIATION CAPITAL AND CAPITAL AND CAPITAL AND EXPENDITURE DEPLETION EXPENDITURE DEPLETION EXPENDITURE DEPLETION ----------- ------------ ----------- ------------ ----------- ------------ (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN By activity: Coal.................... 133 113 140 119 98 121 Power................... -- -- -- -- 134 15 Networks................ -- -- -- -- 142 61 --- --- --- --- --- --- 133 113 140 119 374 197 === === === === === ===
III-28 1 SEGMENTAL INFORMATION (CONTINUED) Included within Coal above are the following amounts in respect of Peabody Holding which is expected to be transferred to the Group on 7 March 1997:
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Turnover..................................... 1,051 1,234 1,255 Operating profit............................. 46 107 101 Capital expenditure.......................... 64 98 69 Depreciation and depletion................... 89 99 104 AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Total assets................................. 2,389 2,408 2,422 Capital employed............................. 648 668 949 2 COSTS AND OVERHEADS LESS OTHER INCOME YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Changes in stocks of finished goods and work in progress................................. (6) (18) (19) Raw materials and consumables................ 194 232 1,983 Employment costs (Note 3).................... 304 321 411 Depreciation................................. 60 58 128 Depletion.................................... 53 61 69 Restructuring and reorganisation............. -- 29 (29) Other acquisition related costs of Eastern... -- -- 31 Production taxes............................. 113 138 162 Other operating charges less other income.... 430 490 585 ----- ----- ----- 1,148 1,311 3,321 ===== ===== =====
The reorganisation provision created on the acquisition of Eastern in 1995 of (Pounds)29 million is no longer deemed necessary and has been reversed in 1996. A deferred tax asset of (Pounds)11 million, recognised in 1995 to reflect the taxation relief in respect of this provision, has also been reversed in 1996. Other operating charges less other income for the year ended 30 September 1996 includes operating lease rentals payable of (Pounds)77 million (1995 (Pounds)20 million, 1994 (Pounds)20 million) primarily in respect of plant and machinery and a credit of (Pounds)15 million, part of a (Pounds)42 million reduction in the Group's provision relating to an UMWA Combined Fund established under the Coal Mine Retiree Health Benefit Act of 1992, which is being released over three years commencing in 1996.
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Audit fees................................... 0.4 0.4 0.8 Non-audit fees payable to Ernst & Young in the UK...................................... -- -- 7.3
III-29 3 EMPLOYEES
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (A) EMPLOYMENT COSTS Wages and salaries........................... 270 288 411 Employers' social security costs............. 20 20 28 Pension costs (note 19) ..................... 14 13 17 ----- ----- ------ 304 321 456 Less: amounts capitalised.................... -- -- (45) ----- ----- ------ Charged to profit and loss account........... 304 321 411 ===== ===== ====== (B) NUMBERS EMPLOYED The average number of persons employed by the Group was: NUMBER NUMBER NUMBER United Kingdom............................... 193 201 6,195 US........................................... 7,442 7,336 6,824 Australia.................................... 1,054 1,069 1,098 ----- ----- ------ 8,689 8,606 14,117 ===== ===== ======
The average number of persons employed by the Group by activity was:
1994 1995 1996 ------ ------ ------ NUMBER NUMBER NUMBER Coal....................................................... 8,488 8,399 7,916 Power...................................................... -- -- 1,630 Networks................................................... -- -- 4,370 Other...................................................... 201 207 201 ----- ----- ------ 8,689 8,606 14,117 ===== ===== ======
4 EXCEPTIONAL ITEMS During 1996, the Group received an interim dividend of (Pounds)11 million and special dividends (net of associated costs) totalling (Pounds)165 million connected with the flotation of The National Grid Group plc ("National Grid Group"). Amounts credited to electricity customers in the form of a discount on electricity bills connected with this flotation totalled (Pounds)132 million. The profit on disposal of First Hydro of (Pounds)25 million in 1996 arose on the disposal of the Group's interest in the pumped storage business of National Grid Group. III-30 5 NET INTEREST A significant proportion of the Group's cash and bank balances and borrowing requirements were transferred to, or provided by, the Hanson Group. No interest was received or paid on the amounts so transferred or provided.
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Interest expense On loans wholly repayable within five years...................................... 7 5 68 On other loans.............................. 10 10 20 Interest capitalised.......................... -- -- (8) --- --- --- 17 15 80 Interest income............................... (3) (4) (37) --- --- --- Net interest expense.......................... 14 11 43 === === ===
Included in interest payable is (Pounds)7 million relating to finance leases for the year ended 30 September 1996. 6 TAXATION CHARGE/(CREDIT)
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN UNITED KINGDOM Corporation tax at 33 per cent................ -- -- 3 Adjustment in respect of previous years....... -- -- (15) Advance corporation tax written off........... 1 -- -- Deferred taxation............................. -- (11) 22 Tax credit on franked investment income....... -- -- 29 --- --- --- 1 (11) 39 OVERSEAS Current taxation.............................. 21 25 19 Deferred taxation............................. (5) 42 57 --- --- --- Charge for the period......................... 17 56 115 === === === This taxation charge for the period has been reduced by the following amounts arising from group relief surrendered for nil consideration by other Hanson Group companies.................................... -- -- 30 === === ===
If full provision had been made for deferred tax for the year ended 30 September 1996, the tax charge would have increased by (Pounds)31 million (1995 (Pounds)nil, 1994 reduced by (Pounds)6 million) being (Pounds)32 million in respect of capital allowances in excess of depreciation less (Pounds)1 million in respect of other timing differences. As a result of the stand-alone basis of providing for deferred tax, the charge for deferred tax shown above has been increased by (Pounds)57 million for the year ended 30 September 1996 (1995 (Pounds)42 million, 1994 reduced by (Pounds)5 million). As a result of the surrender of group relief for nil consideration, together with the taxation effects of the National Grid Group flotation, the tax charge shown is not representative of the charge that may arise following the Demerger Transactions. III-31 6 TAXATION CHARGE/(CREDIT) (CONTINUED) A reconciliation of the tax charge at the UK statutory rate of corporation tax to the actual tax charge is as follows:
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Profit before taxation.... 85 124 472 === === === Notional UK corporation tax at 33 per cent. ..... 28 41 156 Permanent differences..... (4) (20) (4) Timing differences........ (4) 3 (31) Free group relief......... -- -- (30) Effect of overseas tax rates.................... (3) 32 39 Adjustments in respect of prior years.............. -- -- (15) --- --- --- Actual tax charge......... 17 56 115 === === === 7 EARNINGS PER SHARE Earnings per share are based on the profit for the year in each year and on 521 million ordinary shares, being the expected minimum number of ordinary shares in the Company which will be issued in respect of the Demerger. Adjusted earnings per share are based on the same number of shares and the profit for the year after excluding the items relating to the National Grid Group flotation, the profit on disposal of First Hydro and the related taxation as follows: YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Profit for the year as reported................. 68 68 357 Adjusted for National Grid Group flotation.............. -- -- (44) Profit on disposal of First Hydro............ -- -- (25) Related taxation........ -- -- 29 --- --- --- Profit as adjusted........ 68 68 317 === === ===
III-32 8 TANGIBLE FIXED ASSETS
PLANT, COAL EQUIPMENT LAND AND AND GAS DISTRIBUTION GENERATING AND MOTOR BUILDINGS ASSETS SYSTEM STATIONS VEHICLES TOTAL ---------- ---------- ------------ ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN COST As at 1 October 1993.... -- 2,298 -- -- 832 3,130 Exchange adjustments.... -- (99) -- -- (26) (125) Additions............... -- 55 -- -- 77 132 Disposals............... -- (101) -- -- (52) (153) --- ----- --- --- ----- ----- As at 30 September 1994................... -- 2,153 -- -- 831 2,984 Exchange adjustments.... -- (5) -- -- -- (5) Additions............... -- 36 -- -- 104 140 Acquisitions............ 78 228 904 261 118 1,589 Disposals............... -- (30) -- -- (72) (102) --- ----- --- --- ----- ----- As at 30 September 1995................... 78 2,382 904 261 981 4,606 Exchange adjustments.... -- 35 -- -- 18 53 Additions............... 14 55 83 93 129 374 Disposals............... (17) (6) -- -- (32) (55) --- ----- --- --- ----- ----- As at 30 September 1996................... 75 2,466 987 354 1,096 4,978 === ===== === === ===== ===== ACCUMULATED DEPRECIATION AND DEPLETION As at 1 October 1993.... -- 289 -- -- 505 794 Exchange adjustments.... -- (14) -- -- (18) (32) Charge for the year..... -- 53 -- -- 60 113 Disposals............... -- (34) -- -- (47) (81) --- ----- --- --- ----- ----- As at 30 September 1994................... -- 294 -- -- 500 794 Exchange adjustments.... -- (2) -- -- -- (2) Charge for the year..... -- 61 -- -- 58 119 Disposals............... -- (23) -- -- (56) (79) --- ----- --- --- ----- ----- As at 30 September 1995................... -- 330 -- -- 502 832 Exchange adjustments.... -- 6 -- -- 10 16 Charge for the year..... 2 69 39 7 80 197 Disposals............... -- (16) -- -- (26) (42) --- ----- --- --- ----- ----- As at 30 September 1996................... 2 389 39 7 566 1,003 === ===== === === ===== ===== NET BOOK VALUE As at 1 October 1993.... -- 2,009 -- -- 327 2,336 === ===== === === ===== ===== As at 30 September 1994................... -- 1,859 -- -- 331 2,190 === ===== === === ===== ===== As at 30 September 1995................... 78 2,052 904 261 479 3,774 === ===== === === ===== ===== As at 30 September 1996................... 73 2,077 948 347 530 3,975 === ===== === === ===== =====
The net book value of land and buildings at 30 September 1996 comprises freeholds of (Pounds)72 million (1995 (Pounds)77 million, 1994 (Pounds)nil), long leaseholds of (Pounds)1 million (1995 (Pounds)1 million, 1994 (Pounds)nil) and short leaseholds of (Pounds)nil (1995 (Pounds)nil, 1994 (Pounds)nil). Coal and gas assets at 30 September 1996 include natural gas assets with a cost of (Pounds)35 million (1995 (Pounds)17 million, 1994 (Pounds)nil), accumulated depletion of (Pounds)2 million (1995 (Pounds)nil, 1994 (Pounds)nil) and net book value of (Pounds)33 million (1995 (Pounds)17 million, 1994 (Pounds)nil). III-33 8 TANGIBLE FIXED ASSETS (CONTINUED) Plant, equipment and motor vehicles at 30 September 1996 include assets relating to the coal business with a cost of (Pounds)931 million (1995 (Pounds)888 million, 1994 (Pounds)820 million), accumulated depreciation of (Pounds)540 million (1995 (Pounds)502 million, 1994 (Pounds)500 million) and net book value of (Pounds)391 million (1995 (Pounds)386 million, 1994 (Pounds)320 million). Capitalised interest at 30 September 1996 included within fixed assets amounts to (Pounds)8 million (1995 (Pounds)nil, 1994 (Pounds)nil). The cost of distribution system fixed assets at 30 September 1996 is shown net of customer contributions of (Pounds)343 million (1995 (Pounds)308 million, 1994 (Pounds)nil). The net book value of customer contributions at 30 September 1996 was (Pounds)256 million (1995 (Pounds)230 million, 1994 (Pounds)nil). Assets in the course of construction at 30 September 1996 amounted to (Pounds)310 million (1995 (Pounds)176 million, 1994 (Pounds)nil). Generating stations include assets held under finance leases as follows:
AS AT 30 SEPTEMBER --------------------------------- 1994 1995 1996 ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Cost.......................................... -- 120 128 Accumulated depreciation...................... -- -- (12) --- --- --- Net book value................................ -- 120 116 === === === 9 FIXED ASSET INVESTMENTS LOANS TO UNLISTED ASSOCIATES INVESTMENTS TOTAL ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN As at 1 October 1993.......................... -- 5 5 Share of retained profit/(loss)............... -- 1 1 --- --- --- As at 30 September 1994 -- 6 6 Acquisitions.................................. 16 15 31 --- --- --- As at 30 September 1995....................... 16 21 37 Disposals..................................... (16) (4) (20) --- --- --- As at 30 September 1996....................... -- 17 17 === === === 10 STOCKS AS AT 30 SEPTEMBER --------------------------------- 1994 1995 1996 ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Raw materials and consumables................. 52 65 152 Work in progress.............................. 20 48 52 Finished stock and items for resale........... 48 48 50 --- --- --- 120 161 254 === === ===
III-34 11 DEBTORS
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Amounts falling due after more than one year Advance corporation tax recoverable......... -- 12 84 Royalties receivable and other debtors...... 164 177 182 Operating lease prepayments................. -- -- 270 --- --- --- 164 189 536 === === === Amounts falling due within one year........... Trade debtors............................... 167 483 502 Other debtors and prepayments............... 70 96 261 --- --- --- 237 579 763 === === ===
12 CURRENT ASSET INVESTMENTS Current asset investments at 30 September 1995 include the Group's investment in National Grid Group of (Pounds)393 million, which was distributed to Hanson during 1996 as a dividend in specie. 13 CREDITORS
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Amounts falling due within one year............ Bank overdrafts.............................. -- -- 119 Short-term loans............................. 33 7 14 Commercial paper............................. 54 61 144 Finance leases............................... -- -- 10 Trade creditors.............................. 90 288 313 Corporation tax.............................. 12 115 39 Other taxation and social security........... 32 43 61 Other creditors.............................. 8 105 49 Accruals and deferred income................. 222 243 292 --- --- ----- 451 862 1,041 === === =====
Weighted average interest rates at 30 September 1996 on bank overdrafts were 7.4 per cent., short-term loans 7.5 per cent. and commercial paper 7.1 per cent.
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Amounts falling due after more than one year Loans not wholly repayable within 5 years $300 million 5% subordinated income note 2006 (1994 $320 million, 1995 $310 million)..... 203 196 192 (Pounds)350 million 8.375% bonds 2004...... -- 347 347 (Pounds)200 million 8.5% bonds 2025........ -- 197 197 --- --- --- 203 740 736 Other loans repayable within 5 years........ 21 27 56 Net obligations under finance leases........ -- 144 153 --- --- --- 224 911 945 === === ===
III-35 13 CREDITORS (CONTINUED) (Pounds)100 million of the (Pounds)350 million 8.375 per cent. bonds has been converted into floating rate debt by way of interest rate swaps expiring in 2004. At 30 September 1996, the weighted average interest rate payable was 5.7 per cent. (1995 6.6 per cent.). Amounts shown above for bonds are net of unamortised issue costs. Long-term debt and finance leases are repayable as at 30 September 1996 as follows:
(Pounds)MN 1998................................................................. 29 1999................................................................. 32 2000................................................................. 43 2001................................................................. 28 2002................................................................. 26 thereafter........................................................... 787 --- 945 ===
Long-term debt and finance leases are denominated in the following currencies:
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Sterling....................................... -- 688 689 US dollars..................................... 224 223 248 Australian dollars............................. -- -- 8 --- --- --- 224 911 945 === === ===
14 PROVISIONS FOR LIABILITIES AND CHARGES
HEALTH CARE AND RECLAMATION AND OBLIGATIONS TO ENVIRONMENTAL DEFERRED EMPLOYEES OBLIGATIONS TAXATION OTHERS TOTAL --------------- --------------- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN As at 1 October 1993.... 966 378 101 68 1,513 Exchange adjustments.... (49) (20) (5) (2) (76) Utilised in year........ (84) (38) (4) (8) (134) Provided/(released) in year................... 84 (8) (5) 2 73 Acquisitions............ -- (3) -- (1) (4) --- --- --- --- ----- As at 30 September 1994................... 917 309 87 59 1,372 Exchange adjustments.... (3) (1) (2) -- (6) Utilised in year........ (68) (43) -- (29) (140) Provided/(released) in year................... 65 23 42 36 166 Acquisitions............ 8 17 86 258 369 --- --- --- --- ----- As at 30 September 1995................... 919 305 213 324 1,761 Exchange adjustments.... 12 4 1 -- 17 Utilised in year........ (80) (43) 7 (62) (178) Provided/(released) in year................... 48 19 57 (4) 120 Acquisition adjustment (Note 16).............. -- -- (86) (77) (163) --- --- --- --- ----- As at 30 September 1996................... 899 285 192 181 1,557 === === === === =====
Deferred tax provided as at 30 September 1996 includes (Pounds)142 million (1995 (Pounds)119 million, 1994 liabilities reduced by (Pounds)7 million) in respect of liabilities recognised by the Group, consequent upon being on a stand-alone basis following Demerger. The provided and unprovided liabilities to deferred taxation were as follows: III-36 14 PROVISION FOR LIABILITIES AND CHARGES (CONTINUED)
AMOUNTS PROVIDED AMOUNTS UNPROVIDED AS AT 30 SEPTEMBER AS AT 30 SEPTEMBER -------------------------------- -------------------------------- 1994 1995 1996 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN Excess of capital allowances............. 27 82 100 543 543 803 Post retirement healthcare benefits.... -- -- -- (209) (220) (226) Other timing differences............ 60 45 92 (194) (183) (200) --- --- --- ---- ---- ---- 87 127 192 140 140 377 Acquisitions Excess of capital allowances............. -- -- -- -- 228 -- Other timing differences............ -- 86 -- -- (22) -- --- --- --- ---- ---- ---- 87 213 192 140 346 377 === === === ==== ==== ====
15 INVESTED CAPITAL Invested capital represents the total investment and long-term funding of the Group by the Hanson Group. A reconciliation of movements in invested capital is as follows:
YEAR ENDED 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Profit for the year........................... 68 68 357 Other net recognised gains/(losses) relating to the year.................................. (29) -- 20 Increases/(decreases) in funding by Hanson.... Cash........................................ (61) (57) 2,290 Non-cash.................................... 95 2,493 (2,418) Dividend in specie of investment in National Grid Group................................. -- -- (393) Goodwill (set off)/write back................. -- (1,368) 221 --- ------ ------ Net addition to invested capital.............. 73 1,136 77 Opening invested capital...................... 899 972 2,108 --- ------ ------ Closing invested capital...................... 972 2,108 2,185 === ====== ======
The total amount of goodwill set off against invested capital at 30 September 1996 is (Pounds)1,147 million (1995 (Pounds)1,368 million, 1994 (Pounds)nil). 16 ACQUISITIONS There were no significant acquisitions in the year ended 30 September 1994 and the year ended 30 September 1996. Eastern was acquired by Hanson on 18 September 1995. As explained above, Eastern has been included in the combined balance sheet of the Group as at 30 September 1995 and in its results from 1 October 1995. The Caballo and Rawhide mines were acquired by Peabody on 1 November 1994. III-37 16 ACQUISITIONS (CONTINUED) The operating assets and liabilities of Eastern and the Caballo and Rawhide mines together with the fair value adjustments were as follows:
CABALLO EASTERN AND RAWHIDE 1995 1996 1996 BOOK MINES TOTAL TOTAL TOTAL TOTAL TOTAL VALUE BOOK VALUE BOOK VALUE ADJUSTMENTS FAIR VALUE ADJUSTMENTS FAIR VALUE ---------- ----------- ---------- ----------- ---------- ----------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN Fixed assets............ 1,106 124 1,230 359 1,589 -- 1,589 Stock................... 12 10 22 -- 22 -- 22 Debtors................. 379 2 381 (13) 368 13 381 Cash.................... 264 -- 264 -- 264 -- 264 Unlisted investments.... 284 -- 284 295 579 44 623 Creditors............... (392) (10) (402) (17) (419) 17 (402) Loans and finance leases................. (688) -- (688) -- (688) -- (688) Provisions for liabilities and charges................ (129) (11) (140) (220) (360) 147 (213) ----- --- ----- ---- ------ --- ------ 836 115 951 404 1,355 221 1,576 ===== === ===== ==== ====== === ====== Consideration (Eastern (Pounds)2,496 million; Caballo and Rawhide (Pounds)227 million)................................................. 2,723 2,723 Goodwill (Eastern).................................................... (1,368) (1,147) ------ ------ 1,355 1,576 ====== ======
The following fair value adjustments relating to Eastern and the Caballo and Rawhide mines were made to the book values of the assets and liabilities acquired:
CABALLO AND RAWHIDE 1996 EASTERN MINES 1995 TOTAL EASTERN 1996 TOTAL ---------- ---------- ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN (Pounds)MN Tangible fixed assets... 242 117 359 -- 359 Unlisted investments.... 295 -- 295 44 339 Debtors................. (13) -- (13) 13 -- Liabilities in respect of purchase contracts.. (129) -- (129) 61 (68) Creditors............... (17) -- (17) 17 -- Deferred tax............ (86) -- (86) 86 -- Other liabilities....... -- (5) (5) -- (5) ---- --- ---- --- --- 292 112 404 221 625 ==== === ==== === ===
Goodwill arising at the time of acquisition of Eastern of (Pounds)1,368 million has been reduced in 1996 by (Pounds)221 million principally as a result of the release of provisions no longer considered necessary. 17 CONTINGENT LIABILITIES Certain properties in the US in which the Group has or has had an interest are subject to actual or potential environmental claims. The Directors have made a (Pounds)44 million provision, included in provisions for reclamation and environmental obligations (Note 14), in relation to these claims, but significant uncertainty exists as to whether these claims will be pursued against the Group in all cases and, where they are pursued, the amount of the eventual costs and liabilities. In the event that future costs and liabilities are in excess of amounts accrued, the Directors do not anticipate that they will have a material adverse effect on the combined results of operations, financial position or liquidity of the Group. III-38 17 CONTINGENT LIABILITIES (CONTINUED) The next general election in the UK must be held by no later than 22 May 1997. The Labour Party has announced that, if it is elected to office at that election, it will impose a one-off "windfall levy" on profits of the privatised utilities. It is not possible to predict the amount of any such levy, but, if imposed, such levy could be substantial. In December 1996, a provisional ruling was made against National Grid Group and its Group Trustees by the Pensions Ombudsman on a complaint by two pensioners in the National Grid Group's section of the Electricity Supply Scheme ("ESPS") relating to the use of the surplus arising under the actuarial valuation of the National Grid Group section as at 31 March 1992 to meet certain additional costs arising from the payment of pensions on early retirement pursuant to reorganisation or redundancy and certain additional contributions. This ruling is under appeal. If a similar complaint were to be made against Eastern in relation to its use of actuarial surplus in its section of the ESPS, it would resist it, ultimately through the courts. However, if an equivalent determination were finally to be made against it and upheld by the courts, Eastern could have a potential liability to repay to its part of that scheme an amount estimated by the directors to be up to (Pounds)75 million (exclusive of any applicable interest charges). 18 FINANCIAL COMMITMENTS (a) Capital commitments of the Group were as follows:
AS AT 30 SEPTEMBER -------------------------------- 1994 1995 1996 ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Contracted but not provided for................ 49 110 83 Authorised but not contracted for.............. -- 30 164 --- --- --- 49 140 247 === === ===
(b) Gas take or pay contracts There are various types of contracts for the purchase of gas. Almost all include "take or pay" obligations under which the buyer agrees to pay for a minimum quantity of gas in a year. In order to help meet the expected needs of its wholesale and retail customers, Eastern has entered into a range of purchase contracts. As at 30 September 1996 the commitments under long-term gas purchase contracts amounted to an estimated (Pounds)2.3 billion (1995 (Pounds)1.4 billion) covering periods up to 18 years forward. The directors do not consider it likely, on the basis of the Group's current expectations of demand from its customers as compared with its take or pay obligations under such purchase contracts, that any material payments will become due from the Group in the foreseeable future for gas not taken. (c) The future minimum rental commitments at 30 September 1996, under finance leases and non-cancellable operating leases, together with the present value of minimum lease payments under finance leases were as follows:
OPERATING FINANCE YEAR ENDED 30 SEPTEMBER LEASES LEASES - ----------------------- ---------- ---------- (Pounds)MN (Pounds)MN 1997...................................................... 40 16 1998...................................................... 51 16 1999...................................................... 50 16 2000...................................................... 87 16 2001...................................................... 86 16 thereafter................................................ 389 139 --- --- Total minimum lease payments.............................. 703 219 === Less amount representing interest......................... (56) --- Present value of minimum lease payments................... 163 ===
III-39 18 FINANCIAL COMMITMENTS (CONTINUED) The majority of the operating lease commitments relate to coal-fired power stations. Additional payments of approximately (Pounds)6 per megawatt hour (indexed) linked to output levels from these stations are payable for between the first five and seven years of their operation by the Group. (d) The annual commitments under non-cancellable operating leases at 30 September 1996 were:
LAND AND BUILDINGS OTHER ---------- ---------- (Pounds)MN (Pounds)MN Leases expiring Within one year........................................... -- -- Within two to five years.................................. -- 9 After five years.......................................... 2 29 --- --- 2 38 === ===
19 PENSION AND POST-RETIREMENT HEALTHCARE Pensions The Group participates in several defined benefit pension plans in the UK, the US and Australia which cover the majority of employees. The benefits for these plans are based primarily on years of credited service and final average pensionable pay as defined under the respective plan provisions. The total cost of all pensions of the Group in the years ended 30 September 1994, 1995 and 1996, was (Pounds)14 million, (Pounds)13 million and (Pounds)17 million, respectively. The latter amount includes (Pounds)4 million relating to UK employees and (Pounds)10 million in respect of additional one-off cash retirement costs for US employees. In the US, Peabody sponsors four main defined benefit pension plans. With the exception of one plan, assets are set aside in separate trustee- administered funds. Each of these plans is assessed annually by independent qualified actuaries, the latest valuations being as at 30 September 1996. In addition, Peabody participates in two multi-employer plans. In these plans, the assets contributed by the participating employers are aggregated and the contributions payable are determined by independent qualified actuaries in accordance with industry-wide agreements. Peabody also has a number of defined contribution plans. Costs relating to the multi-employer and the defined contribution plans are recognised as incurred. In the UK, the majority of Eastern employees are members of the ESPS which provides pensions of a defined benefit nature for employees throughout the Electricity Supply Industry. The ESPS operates on the basis that there is not cross-subsidy between employers and the financing of Eastern's pension liabilities is therefore independent of the experience of other participating employers. The assets of the ESPS are held in a separate trustee-administered fund. The pension cost relating to the Eastern part of the ESPS is assessed in accordance with the advice of independent qualified actuaries using the projected unit method. The latest actuarial valuation was carried out as at 31 March 1995. The total market value of the assets of the US plans, excluding the multi- employer and defined contribution plans, was (Pounds)255 million as at 30 September 1996. The market value of the assets of Eastern's section of the ESPS was (Pounds)681 million at 31 March 1995. The assumptions which had the most significant effect on the results of the valuations were that the rate of investment return would exceed salary increases (exclusive of merit awards) by 2 1/2 per cent. per annum for the UK plans and by an average 3 1/2 per cent. per annum in the US, and with investment returns in the UK being assumed to exceed future pension increases by 4 per cent. per annum. The actuarial value of the assets was sufficient to cover 104 per cent. of the benefits that had accrued to members in the UK and 91 per cent. in the US. III-40 19 PENSION AND POST-RETIREMENT HEALTHCARE (CONTINUED) Provisions for liabilities and charges (Note 14) include a prepayment of (Pounds)1 million (provision of (Pounds)1 million at 30 September 1994 and (Pounds)10 million at 30 September 1995) representing the excess of the contributions paid to the plans concerned over the accumulated amount charged against the Group's profits in respect of pension costs. Post-retirement healthcare The Group also provides post-retirement healthcare and life assurance benefits under plans mainly in the US to certain groups of its retired and active employees. 20 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
YEAR ENDED 30 SEPTEMBER ------------------------------------------ 1994 1995 1996 ----------------- ------------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Operating profit before National Grid Group flotation.............. 99 135 446 Depreciation and depletion......... 113 119 197 Profit on sale of fixed assets..... (4) (8) (16) Increase in stocks................. (11) (19) (93) (Increase)/decrease in debtors..... (62) 197 (94) Operating lease prepayments........ -- -- (342) Increase/(decrease) in creditors... 60 (6) 36 Decrease in provisions and other long-term creditors............... (52) (16) (122) --- ---- ------ Net cash inflow from operating activities........................ 143 402 12 === ==== ====== 21 ANALYSIS OF CHANGES IN FINANCING LONG-TERM LOANS CURRENT LOANS AND FINANCE LEASE AND NOTES OBLIGATIONS PAYABLE TOTAL ----------------- ------------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN As at 1 October 1993............... 245 51 296 Exchange adjustments............... (12) -- (12) Cash (outflow)/inflow from financing......................... (9) 36 27 --- ---- ------ As at 30 September 1994............ 224 87 311 Exchange adjustments............... (1) 1 -- Cash inflow/(outflow) from financing......................... -- (20) (20) Loans and finance lease obligations of Eastern........................ 688 -- 688 --- ---- ------ As at 30 September 1995............ 911 68 979 Exchange adjustments............... 3 3 6 Cash inflow from financing......... 31 97 128 --- ---- ------ As at 30 September 1996............ 945 168 1,113 === ==== ====== In 1996, the Group distributed its shareholding in National Grid Group to Hanson as a dividend in specie of (Pounds)393 million which is reflected in invested capital. Analysis of net inflow/(outflow) of cash and cash equivalents in respect of the acquisition of subsidiaries: YEAR ENDED 30 SEPTEMBER ------------------------------------------ 1994 1995 1996 ----------------- ------------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN Cash consideration for Eastern..... -- (1) (2,495) Cash consideration for the Caballo and Rawhide mines................. -- (227) -- Deposits acquired on acquisition of Eastern........................... -- 264 -- --- ---- ------ -- 36 (2,495) === ==== ======
III-41 22 ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS AND DEPOSITS
CASH AND SHORT-TERM DEPOSITS OVERDRAFTS TOTAL ---------- ---------- ---------- (Pounds)MN (Pounds)MN (Pounds)MN As at 1 October 1993........................... 79 -- 79 Exchange adjustments........................... (1) -- (1) Net cash inflow................................ 28 -- 28 ---- ---- ---- As at 30 September 1994........................ 106 -- 106 Net cash inflow................................ 237 -- 237 ---- ---- ---- As at 30 September 1995........................ 343 -- 343 Exchange adjustments........................... 3 -- 3 Net cash outflow............................... (173) (119) (292) ---- ---- ---- As at 30 September 1996........................ 173 (119) 54" ==== ==== ====
5. DEFINITIONS In this Appendix III, the following definitions apply in addition to the definitions set out in Appendix VI below:
"ADMISSION"........................... the admission of Energy Group Shares to the Official List of the London Stock Exchange, which became effective on 24 February 1997 "COMPANY"............................. The Energy Group PLC "GROUP"............................... The Energy Group PLC and its subsidiary undertakings as constituted immediately after the completion of all the Demerger Transactions "HANSON GROUP"........................ (a) in relation to any period prior to the Demerger, Hanson and its subsidiary undertakings from time to time (including the Group other than the Company); or (b) in relation to any period after the Demerger, Hanson and its subsidiary undertakings (excluding the Group) "INFRASTRUCTURE COMPANIES"............ Rollalong Limited, Consolidated Gold Fields Limited, Major Insurance Company Limited and various other subsidiaries and intermediate holding companies and non-trading companies that were wholly-owned by Hanson prior to the Demerger "NEW CREDIT FACILITY"................. the facility referred to in paragraph 8(b)(iv) of Appendix V ("Material Contracts") below "RELEVANT PEABODY DEBT"............... an amount of approximately $1,817 million plus interest from 16 January 1997 owed by members of the Hanson Group to members of the Group at the Demerger Date
III-42 APPENDIX IV FINANCIAL AND OTHER INFORMATION ON PACIFICORP ACQUISITIONS AND PACIFICORP 1. NATURE OF BUSINESS OF PACIFICORP ACQUISITIONS AND PACIFICORP PacifiCorp is a US electric utility that conducts a retail electric utility business through Pacific Power and Light Company and Utah Power and LIght Company and engages in power production and sales on a wholesale basis under the name PacifiCorp. PacifiCorp's US electric operations serve 1.4 million retail customers in service territories aggregating about 153,000 square miles in portions of seven Western States: Utah, Oregon, Wyoming, Washington, Idaho, California and Montana. The service area contains diversified industrial and agricultural economies. PacifiCorp formed PacifiCorp Holdings, Inc. in 1984 to hold the stock of PacifiCorp's principal subsidiaries and to facilitate the conduct of businesses not regulated as US electric utilities. Historically, PacifiCorp Holdings, Inc.'s principal subsidiaries were engaged in telecommunications, mining and resource development and financial services. In recent years, PacifiCorp Holdings, Inc. reduced the size and scope of its financial services operations and sold its mining and resource development subsidiary. At the present time, PacifiCorp Holdings, Inc.'s principal subsidiaries are engaged primarily in telecommunications, international and domestic power production, distribution and marketing, and natural gas gathering, processing, storage and marketing. PacifiCorp Holdings, Inc. owns 100 per cent. of Pacific Telecom Inc., a telecommunications company that provides local telephone service and access to the long distance network in Alaska, seven other western states and three midwestern states; provides cellular mobile telephone services in six states; and is engaged in sales of capacity in and operation and maintenance of a submarine fibre optic cable between the United States and Japan. In connection with the financing of the Offer, PacifiCorp Holdings, Inc. has entered into an agreement to sell the share capital of Pacific Telecom Inc. to Century Telephone Enterprises Inc. for $1.5 billion in cash plus assumption of debt, and has also engaged an investment banker to assist it in selling its interests in the independent power production and cogeneration businesses that it owns through the Pacific Generation Company. In connection with financing the Offer, a wholly-owned subsidiary of PacifiCorp will acquire the share capital of PacifiCorp Financial Services Inc., which holds a loan, leasing and real estate investment portfolio, from PacifiCorp Holdings, Inc. in exchange for $70 million in cash and the proceeds from future sales of assets by PacifiCorp Financial Services Inc., other than its leveraged lease portfolio. On 12 December 1995, PacifiCorp Holdings, Inc., through wholly owned subsidiaries, acquired 100 per cent. of Powercor Australia Limited, an electricity distributor and marketer in Australia. Powercor serves approximately 547,000 customers in suburban Melbourne and the western and central regions of the State of Victoria in southeast Australia. In September 1996, PacifiCorp Holdings, Inc. acquired a 19.9 per cent. interest in the 1,600 megawatt Hazelwood coal-fired generating station and adjacent mine located in Victoria, Australia. On 15 April 1997, PacifiCorp Holdings, Inc., through a wholly owned subsidiary, acquired all of the share capital of TPC Corporation, a natural gas gathering, processing, storage and marketing company based in Houston, Texas, for approximately $265 million in cash and assumed debt of approximately $140 million. Following completion of a tender offer, TPC Corporation became a wholly owned subsidiary of PacifiCorp Holdings, Inc. through a cash merger at the same price. This transaction was funded with a capital contribution from PacifiCorp. PacifiCorp Acquisitions, a UK unlimited company and wholly owned subsidiary of PacifiCorp Finance (UK) Limited, was recently organised for the purpose of making the Offer and has not conducted any unrelated activities since its incorporation. PacifiCorp Finance (UK) Limited is a UK private limited company and wholly owned subsidiary of PacifiCorp Services Limited. PacifiCorp Services Limited is a UK private limited company and wholly owned subsidiary of PacifiCorp IV-1 EnergyCo., which, in turn, is a UK unlimited company and wholly owned subsidiary of PacifiCorp Group Holdings Company. PacifiCorp Group Holdings Company is an Oregon corporation and wholly owned subsidiary of PacifiCorp Holdings, Inc. PacifiCorp Group Holdings Company also wholly owns PacifiCorp Powercoal LLC, an Oregon limited liability company. PacifiCorp Finance (UK) Limited, PacifiCorp Services Limited, PacifiCorp EnergyCo, PacifiCorp Group Holdings Company and PacifiCorp Powercoal LLC were all recently organised in connection with structuring the financing for the Offer. See paragraph 10 of Appendix V ("Financing arrangements") below. 2. DIRECTORS AND EXECUTIVE OFFICERS OF PACIFICORP ACQUISITIONS AND PACIFICORP Set forth in the table below are the names and present principal occupations or employments, and the material occupations, positions, offices, and employments during the past five years, for the directors and executive officers of PacifiCorp Acquisitions and PacifiCorp, and the name, principal business and address for any corporation or other reorganisation in which such employment is carried on. Each person listed below is of United States citizenship, and, unless otherwise indicated, positions have been held for the past five years. Directors are identified by an asterisk and the year in which such person became a director is indicated in parentheses. The address of the corporation or other organisation for which a listed individual's principal occupation is conducted is set forth at the first place at which the name of such corporation or other organisation appears in this paragraph 2. PACIFICORP ACQUISITIONS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT (AND PRINCIPAL BUSINESS); MATERIAL NAME AND RESIDENCE POSITIONS OR BUSINESS ADDRESS HELD DURING PAST FIVE YEARS ------------------- ------------------------------------------- Frederick W. Buckman* (1997) President and Chief Executive Officer of PacifiCorp PacifiCorp (since February 1994); Chairman 700 NE Multnomah, Suite 1600 of PacifiCorp Holdings, Inc. (since 1994); Portland, Oregon 97232 Director and Chairman of PacifiCorp Acquisitions (since June 1997); President and Chief Executive Officer (1992-1994) and President and Chief Operating Officer (1988-1991) of Consumers Power Company, Jackson, Michigan Richard T. O'Brien* (1997) Senior Vice President and Chief Financial PacifiCorp Officer (since 1995) and Vice President (1993-1995) of PacifiCorp; Senior Vice President (since 1993) and Chief Financial Officer (since 1996) of PacifiCorp Holdings, Inc.; Chief Financial Officer (1992-1993) and Vice President and Treasurer (1989-1992) of NERCO, Inc., a former mining and resource subsidiary of PacifiCorp; Director and Chief Financial Officer of PacifiCorp Acquisitions (since June 1997) Dennis P. Steinberg* (1997) Senior Vice President (since 1994) and Vice PacifiCorp President (1990-1994) of PacifiCorp; Director of PacifiCorp Acquisitions (since June 1997) Verl R. Topham* (1997) Senior Vice President and General Counsel PacifiCorp of PacifiCorp (since May 1994); Senior Vice One Utah Center, Suite 2300 President and General Counsel of PacifiCorp 201 South Main Holdings, Inc. (since 1995); President of Salt Lake City, Utah 84140 Utah Power & Light Company (1990-1994); Director of PacifiCorp Acquisitions (since June 1997) William E. Peressini* (1997) Vice President (since 1996) and Treasurer PacifiCorp (since 1994) of PacifiCorp; Treasurer of PacifiCorp Holdings, Inc. (since 1994); Executive Vice President of PacifiCorp Financial
IV-2 Services, Inc. (1992-1994); Senior Vice President and Chief Financial Officer of PacifiCorp Financial Services, Inc. (1989- 1992); Director and Deputy Chief Financial Officer of PacifiCorp Acquisitions (since June 1997)
Sally A. Nofziger Vice President and Corporate Secretary of PacifiCorp PacifiCorp; Secretary of PacifiCorp Holdings, Inc.; Secretary of PacifiCorp Acquisitions (since June 1997)
PACIFICORP
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT (AND PRINCIPAL BUSINESS); MATERIAL NAME AND RESIDENCE POSITIONS OR BUSINESS ADDRESS HELD DURING PAST FIVE YEARS ------------------- ------------------------------------------ W. Charles Armstrong* (1996) Independent Consultant (since 1997); 14019 SE 35th Loop Former Chief Executive Officer, Bank of Vancouver, Washington 98683 America Oregon (1992-1996) Kathryn A. Braun* (1994) Executive Vice President, Western Digital Western Digital Corporation Corporation 8105 Irvine Center Drive Irvine, CA 92718 Frederick W. Buckman* (1994) (See above) PacifiCorp C. Todd Conover* (1991) President and Chief Executive Officer, the The Vantage Company Vantage Company, a business consulting 101 First Street, Suite 670 firm, Los Altos, California; General Los Angeles, California 94022 Manager, Finance Industry Group, Tandem Computers Incorporated, a computer manufacturing company (January 1994-May 1995); President and Chief Executive Officer, Central Banks of Colorado (1991- 1992) Nolan E. Karras* (1993) Investment Advisor, Karras & Associates, Karras & Associates, Inc. Inc., an investment advisory firm 4695 South 1900 West #3 Roy, Utah 84067 Keith R. McKennon* (1990) Chairman of the Board of PacifiCorp (since PacifiCorp 1994); formerly Chairman (1992-1994) and Chief Executive Officer (1992-1993), Dow Corning Corporation, Midland, Michigan Robert G. Miller* (1994) Chairman of the Board and Chief Executive Fred Meyer, Inc. Officer of Fred Meyer, Inc., a retail 3800 SE 22nd merchandising chain Portland, Oregon 97202 Alan K. Simpson* (1997) Former Wyoming U.S. Senator c/o Laurie Rosen 3301 Turner Lane Chevy Chase, Maryland 20815 Verl R. Topham* (1994) (See above) PacifiCorp
IV-3
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT (AND PRINCIPAL BUSINESS): NAME AND RESIDENCE MATERIAL POSITIONS HELD DURING PAST FIVE OR BUSINESS ADDRESS YEARS ------------------- ------------------------------------------- Don M. Wheeler* (1989) Chairman and Chief Executive Officer, ICM ICM Equipment Company Equipment Company, a materials handling and 4901 West 2100 South equipment company (since 1996); formerly Salt Lake City, Utah 84120 Chairman, Chief Executive Officer, President and General Manager of Wheeler Machinery Company (1955-1996) Nancy Wilgenbusch* (1986) President, Marylhurst College Marylhurst College Marylhurst, Oregon 97036 Peter I. Wold* (1995) President, Wold Oil & Gas Company, an oil Wold Oil & Gas Company and gas exploration and production company 139 West Second Street, Suite 200 Casper, Wyoming 82602 John A. Bohling Senior Vice President of PacifiCorp (since PacifiCorp 1993); Executive Vice President of Pacific Power & Light Company (1991-1993) William C. Brauer Senior Vice President (since 1996) and Vice PacifiCorp President (1992-1996) of PacifiCorp Shelley R. Faigle Senior Vice President (since 1993) and Vice Pacific Power & Light Company President (1992-1993) of PacifiCorp; Vice 1500 Public Service Building President (1989-1992) of Pacific Power & Portland, Oregon 97204 Light Company Paul G. Lorenzini Senior Vice President of PacifiCorp (since Pacific Power & Light Company 1994); President (1992-1994) and Executive Vice President (1989-1992) of Pacific Power & Light Company Richard T. O'Brien (See above) PacifiCorp Michael J. Pittman Vice President (since 1993) and Assistant Pacific Power & Light Company Vice President (1990-1993) of PacifiCorp Charles E. Robinson Chairman, President and Chief Executive Pacific Telecom, Inc. Officer of Pacific Telecom, Inc., a 805 Broadway telecommunications subsidiary of PacifiCorp P.O. Box 9901 Holdings, Inc. Vancouver, Washington 98668 Daniel L. Spalding Chairman and Chief Executive Officer of Powercor Australia Limited Powercor Australia Limited (since 1995); Level 3, 77 Southbank Blvd. Senior Vice President (since 1992) and Vice Southbank, Victoria 3006 President (1987-1992) of PacifiCorp Australia Dennis P. Steinberg (See above) PacifiCorp
IV-4
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND RESIDENCE (AND PRINCIPAL BUSINESS): OR BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING PAST FIVE YEARS ------------------- --------------------------------------------------------- Michael C. Henderson Vice President of PacifiCorp (since 1995); Director, PacifiCorp President and Chief Executive Officer of PacifiCorp Holdings, Inc. and Chairman, President and Chief Executive Officer of PacifiCorp Financial Services, Inc. (since 1995); Executive Vice President (1992-1993) and Senior Vice President (1991-1992) of PacifiCorp Financial Services, Inc. Thomas J. Imeson Vice President of PacifiCorp PacifiCorp Sally A. Nofziger (See above) PacifiCorp William E. Peressini (See above) PacifiCorp
3. REGISTERED/PRINCIPAL OFFICES PACIFICORP ACQUISITIONS The registered office of PacifiCorp Acquisitions is Barrington House, 59-67 Gresham Street, London EC2V 7JA, United Kingdom. PACIFICORP The principal executive offices of PacifiCorp are located at 700 NE Multnomah Street, Portland, Oregon 97232, United States. 4. FINANCIAL STATEMENTS The financial information for the three years ended 31 December 1996 relating to PacifiCorp contained in this section of the document has been extracted from the published audited financial statements of PacifiCorp for each of these years. The financial information for the three months ended 31 March 1996 and 1997 has been extracted from the unaudited published financial statements of PacifiCorp for those periods. PacifiCorp's accounting policies conform to US GAAP. Additional financial and other information for PacifiCorp can be obtained from PacifiCorp's reports filed pursuant to the Exchange Act. The information contained herein is qualified in its entirety by reference to PacifiCorp's Annual Report on Form 10-K for the year ended 31 December 1996 and PacifiCorp's Quarterly Report on Form 10-Q for the quarter ended 31 March 1997. PacifiCorp's reports can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of the SEC: 7 World Trade Center, Suite 1300, New York, NY 10048; and 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such material can also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material may be inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Copies of such material can also be obtained by writing to PacifiCorp Investor Relations, at 700 NE Multnomah Street, Portland, Oregon 97232, United States. IV-5 PACIFICORP STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS (MILLIONS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ---------------------------- 1996 1995 1994 -------- -------- -------- REVENUES........................................ $4,293.8 $3,416.9 $3,498.0 -------- -------- -------- EXPENSES Operations.................................... 1,782.4 1,259.4 1,391.8 Maintenance................................... 308.5 281.0 292.3 Administrative and general.................... 308.5 254.9 244.6 Depreciation and amortisation................. 530.4 445.6 424.3 Taxes, other than income taxes................ 118.9 120.1 122.7 -------- -------- -------- Total....................................... 3,048.7 2,361.0 2,475.7 -------- -------- -------- INCOME FROM OPERATIONS.......................... 1,245.1 1,055.9 1,022.3 -------- -------- -------- Interest Expense and Other Interest expense.............................. 465.7 378.7 334.5 Interest capitalised.......................... (11.9) (15.1) (14.5) Minority interest and other................... 2.5 (51.5) (15.5) -------- -------- -------- Total....................................... 456.3 312.1 304.5 -------- -------- -------- Income before income taxes...................... 788.8 743.8 717.8 Income taxes.................................... 283.9 238.8 249.8 -------- -------- -------- NET INCOME...................................... 504.9 505.0 468.0 Retained Earnings, January 1.................... 632.4 474.3 351.3 CASH DIVIDENDS DECLARED Preferred stock............................... (29.1) (38.4) (39.6) Common stock per share of $1.08............... (317.9) (306.6) (305.4) Preferred stock retired....................... (7.5) (1.9) -- -------- -------- -------- Retained Earnings, December 31.................. $ 782.8 $ 632.4 $ 474.3 ======== ======== ======== Earnings on Common Stock (Net income less preferred dividend requirement)................ $ 475.1 $ 466.3 $ 428.3 Average number of common shares outstanding (Thousands).................................... 292,424 284,272 282,912 Earnings per Common Share....................... $ 1.62 $ 1.64 $ 1.51
See accompanying Notes to Consolidated Financial Statements IV-6 PACIFICORP STATEMENTS OF CONSOLIDATED CASH FLOWS (MILLIONS OF US DOLLARS)
FOR THE YEAR ---------------------------- 1996 1995 1994 -------- --------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income..................................... $ 504.9 $ 505.0 $ 468.0 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization................ 552.0 466.2 472.5 Deferred income taxes and investment tax credits -- net.............................. 48.4 62.5 (7.5) Minority interest and other.................. (33.3) (28.6) 23.6 Accounts receivable and prepayments.......... (171.2) (71.5) 5.4 Materials, supplies, fuel stock and inventory................................... 31.9 (8.6) 11.8 Accounts payable and accrued liabilities..... 144.6 (13.0) (11.7) -------- --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES........ 1,077.3 912.0 962.1 -------- --------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Construction................................... (650.8) (578.6) (788.7) Operating companies and assets acquired........ (199.4) (2,002.1) (5.9) Investments in and advances to affiliated companies -- net.............................. (153.5) (138.4) (9.5) Proceeds from sales of assets.................. 55.1 377.0 381.6 Proceeds from sales of finance assets and principal payments............................ 55.8 36.6 109.1 Other.......................................... (10.5) (27.4) (26.7) -------- --------- ------- NET CASH USED IN INVESTING ACTIVITIES............ (903.3) (2,332.9) (340.1) -------- --------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Changes in short-term debt..................... (319.6) 581.5 (98.7) Proceeds from long-term debt................... 669.4 1,530.8 246.6 Proceeds from issuance of common stock......... 221.3 .4 57.2 Proceeds from issuance of preferred securities of Trust holding solely PacifiCorp debentures.................................... 209.6 -- -- Dividends paid................................. (346.4) (346.5) (344.8) Repayments of long-term debt................... (341.1) (285.8) (448.5) Redemptions of capital stock................... (221.6) (2.6) -- Other.......................................... (50.0) (58.0) (41.7) -------- --------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...................................... (178.4) 1,419.8 (629.9) -------- --------- ------- Decrease in Cash and Cash Equivalents............ (4.4) (1.1) (7.9) Cash and Cash Equivalents at Beginning of Year... 22.2 23.3 31.2 -------- --------- ------- Cash and Cash Equivalents at End of Year......... $ 17.8 $ 22.2 $ 23.3 -------- --------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for Interest (net of amount capitalized)........................... $ 505.7 $ 407.7 $ 399.4 Income taxes................................... 207.9 185.5 225.6 Non-cash financing activities 8.55% Junior subordinated debentures exchanged for 2,233,037 shares of $1.98 No Par Serial Preferred Stock............................... -- 55.9 --
See accompanying Notes to Consolidated Financial Statements IV-7 PACIFICORP CONSOLIDATED BALANCE SHEETS (MILLIONS OF US DOLLARS) ASSETS
DECEMBER 31 -------------------- 1996 1995 --------- --------- Current Assets Cash and cash equivalents.............................. $ 17.8 $ 22.2 Accounts receivable less allowance for doubtful accounts: 1996/$8.6 and 1995/$7.4..................... 718.6 545.0 Materials, supplies and fuel stock at average cost..... 188.7 212.1 Inventory.............................................. 55.2 62.8 Other.................................................. 78.2 70.1 --------- --------- TOTAL CURRENT ASSETS..................................... 1,058.5 912.2 Property, Plant and Equipment Domestic Electric Operations Production........................................... 4,659.2 4,420.0 Transmission......................................... 2,069.2 2,042.5 Distribution......................................... 3,029.7 2,829.9 Other................................................ 1,687.9 1,655.7 Construction work in progress........................ 252.8 310.0 --------- --------- TOTAL DOMESTIC ELECTRIC OPERATIONS................... 11,698.8 11,258.1 Australian Electric Operations......................... 1,361.9 1,302.8 Telecommunications..................................... 1,670.0 1,606.9 Other Operations....................................... 68.8 65.0 Accumulated depreciation and amortization.............. (4,583.8) (4,280.5) --------- --------- TOTAL PROPERTY, PLANT AND EQUIPMENT -- NET............. 10,215.7 9,952.3 Other Assets Investments in and advances to affiliated companies.... 358.9 187.9 Intangible assets -- net............................... 870.5 743.2 Regulatory assets -- net............................... 1,017.4 1,060.3 Finance note receivable................................ 214.6 217.5 Finance assets -- net.................................. 425.6 453.7 Real estate investments................................ 217.0 179.8 Deferred charges and other............................. 256.3 308.3 --------- --------- TOTAL OTHER ASSETS..................................... 3,360.3 3,150.7 --------- --------- TOTAL ASSETS............................................. $14,634.5 $14,015.2 ========= =========
See accompanying Notes to Consolidated Financial Statements IV-8 PACIFICORP CONSOLIDATED BALANCE SHEETS (MILLIONS OF US DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31 ------------------- 1996 1995 --------- --------- Current Liabilities Long-term debt currently maturing....................... $ 235.6 $ 206.1 Notes payable and commercial paper...................... 701.5 1,021.1 Accounts payable........................................ 469.7 345.3 Taxes, interest and dividends payable................... 303.5 256.4 Customer deposits and other............................. 152.6 176.0 --------- --------- TOTAL CURRENT LIABILITIES................................. 1,862.9 2,004.9 Deferred Credits Income taxes............................................ 1,953.1 1,910.1 Investment tax credits.................................. 148.4 159.2 Other................................................... 758.9 786.2 --------- --------- TOTAL DEFERRED CREDITS.................................... 2,860.4 2,855.5 Minority Interest......................................... 31.9 23.0 Long-Term Debt............................................ 5,323.8 4,968.2 Guaranteed Preferred Beneficial Interests in Company's Junior Subordinated Debentures........................... 209.7 -- Preferred Stock Subject to Mandatory Redemption........... 178.0 219.0 Preferred Stock........................................... 135.5 311.5 Common Equity Common shareholders' capital shares authorised 750,000,000; shares outstanding: 1996/295,139,753 and 1995/284,276,709....................................... 3,236.8 3,012.9 Retained earnings....................................... 782.8 632.4 Cumulative currency translation adjustment.............. 12.7 -- Guarantees of Employee Stock Ownership Plan borrowings.. -- (12.2) --------- --------- TOTAL COMMON EQUITY....................................... 4,032.3 3,633.1 --------- --------- Commitments and Contingencies (See Notes 9 and 10) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $14,634.5 $14,015.2 ========= =========
See accompanying Notes to Consolidated Financial Statements IV-9 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 The following notes regarding significant accounting policies together with other information in the notes to the financial statements which is of major relevance to an appreciation of PacifiCorp's financial information have been extracted from the published financial statements of PacifiCorp for the three years ended December 31, 1996. NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements of PacifiCorp (the "Company") include its 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 Holdings, Inc. ("Holdings"), which holds all of the Company's nonintegrated electric utility investments, including Powercor Australia Limited ("Powercor"), an Australian electricity distributor purchased December 12, 1995; Pacific Telecom, Inc. ("PTI"), a telecommunications operation (formerly 87% owned, see Note 14); and PacifiCorp Financial Services, Inc., a financial services business. Together these businesses are referred to herein as the Companies. Significant intercompany transactions and balances have been eliminated. Investments in and advances to affiliated companies represent investments in unconsolidated affiliated companies carried on the equity basis, which approximates the Company's equity in their underlying net book value. 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 utility businesses 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 utility businesses operate. The Company prepares its financial statements as they relate to Domestic Electric Operations and Telecommunications in accordance with Statement of Financial Accounting Standards ("SFAS") 71, "Accounting for the Effects of Certain Types of Regulation." See Note 2. Asset Impairments Effective January 1, 1996, the Company adopted SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluated all its assets based upon SFAS 121 and within the context of SFAS 71 for its regulated operations and concluded that no material adjustments were required. See Note 2. IV-10 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED): Cash and Cash Equivalents For the purposes of these financial statements, the Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Foreign Currency Translation 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 exchange gains or losses are accumulated in the "cumulative currency translation adjustment" account, a component of common equity. All significant gains and losses resulting from foreign currency transactions are included in income. Property, Plant and Equipment Property, plant and equipment are stated at original cost of contracted services, direct labor and material, interest capitalized during construction and indirect charges for engineering, supervision and similar overhead items. The cost of depreciable utility properties retired, including the cost of removal, less salvage, is charged to accumulated depreciation. Depreciation and Amortization At December 31, 1996, the average depreciable life of property, plant and equipment by category was: Domestic Electric Operations -- Production, 41 years; Transmission, 42 years; Distribution, 30 years; Other, 18 years; Australian Electric Operations, 21 years; and Telecommunications, 16 years. Depreciation and amortization is generally computed by the straight-line method over the estimated economic useful lives of the related assets after giving effect to requirements as prescribed by the Company's various regulatory jurisdictions. Provisions for depreciation (excluding amortization of capital leases) in the domestic electric, Australian electric and telecommunications businesses were 3.6%, 3.5% and 3.4% of average depreciable assets in 1996, 1995 and 1994, respectively. Mine Reclamation and Closure Costs The Company expenses current mine reclamation costs and accrues for estimated final mine reclamation and closure costs using the units-of- production method. 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 ($460 million and $32 million, respectively, in 1996 and $312 million and $30 million, respectively, in 1995); franchises of local exchange and cellular companies ($397 million in 1996 and $398 million in 1995); and excess cost over net assets of businesses acquired ($43 million in 1996 and 1995). These costs are offset by accumulated amortization ($62 million in 1996 and $40 million in 1995). Intangible assets are generally being amortized over 40 years. 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 IV-11 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED): operations consist principally of leveraged aircraft leases. Investments in finance assets are net of allowances for credit losses and accumulated impairment charges of $63 million and $71 million at December 31, 1996 and 1995, respectively. 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 those carrying amounts. Gains and losses related to hedges of anticipated transactions and firm commitments are deferred on the balance sheet and recognized in income when the transaction occurs. Interest Capitalized Costs of debt applicable to domestic utility properties are capitalized during construction. Generally, the composite capitalization rates were 5.7% for 1996, 6.2% for 1995 and 4.7% for 1994. 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. Investment tax credits for regulated operations in the United States are deferred and amortized to income over the average estimated lives of the properties. All other investment tax credits are recognized when utilized. Provision is made for U.S. income taxes on the undistributed earnings of the Company's international businesses. Revenue Recognition The Company accrues estimated unbilled revenues for electric services provided after cycle billing to month-end. PTI participates with other telephone companies in access revenue pools for certain interstate and intrastate revenues, which are initially recorded based on estimates. Preferred Stock Retired Amounts paid in excess of the net carrying value of preferred stock retired are amortized in accordance with regulatory orders. Reclassification Certain amounts from prior years have been reclassified to conform with the 1996 method of presentation. These reclassifications had no effect on previously reported consolidated net income. NOTE 2 ACCOUNTING FOR THE EFFECTS OF REGULATION Regulated utilities have historically applied the provisions of SFAS 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 IV-12 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 2 ACCOUNTING FOR THE EFFECTS OF REGULATION -- (CONTINUED): capital. Accounting under SFAS 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 71, the Company must give consideration to changes in the level of demand or competition during the cost recovery period. In accordance with SFAS 71, the Company's domestic utility operations capitalize certain costs, regulatory assets, in accordance with regulatory authority whereby those costs will be expensed and recovered in future periods. Regulatory assets-net at December 31, 1996 and 1995 included the following:
DECEMBER 31 ----------------- 1996 1995 -------- -------- MILLIONS OF US DOLLARS Deferred taxes--net....................................... $ 670.6 $ 687.1 Deferred pension costs.................................... 102.9 116.8 Demand-side resource costs................................ 118.8 110.0 Unamortized net loss on reacquired debt................... 68.4 71.8 Unrecovered Trojan Plant and regulatory study costs....... 26.8 28.4 Various other costs....................................... 29.9 46.2 -------- -------- Total................................................... $1,017.4 $1,060.3 ======== ========
If the Company, at some point in the future, determines that all or a portion of the domestic utility operations no longer meet the criteria for continued application of SFAS 71, the Company would be required to adopt the provisions of SFAS 101, "Regulated Enterprises--Accounting for the Discontinuation of Application of FASB Statement No. 71." Adoption of SFAS 101 would require the Company to write off the regulatory assets and liabilities relating to those operations not meeting SFAS 71 requirements. The utility industry will also be impacted by the application of SFAS 121 as a result of deregulation. This accounting statement requires the recognition of impairment on long-lived assets when book values exceed expected future cash flows. Integral parts of future cash flow estimates include estimated future prices to be received, the expected future cash cost of operations, sales and load growth forecasts and the nature of any legislative cost recovery mechanisms. Restructuring bills are being considered in all states in which the Company provides retail service. The Company expects any legislation passed to provide an opportunity to recover costs which have been placed at risk. IV-13 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 3 SHORT-TERM DEBT AND BORROWING ARRANGEMENTS The Companies' short-term debt and borrowing arrangements were as follows:
DECEMBER 31 FOR THE YEAR ---------------- -------------------- AVERAGE AVERAGE INTEREST AVERAGE INTEREST BALANCE RATE(A) OUTSTANDING RATE(B) ------- -------- ----------- -------- MILLIONS OF US DOLLARS 1996 PacifiCorp........................... $549.3 5.6% $424.4 5.4% Subsidiaries......................... 152.2 5.6 287.2 5.6 1995 PacifiCorp........................... $479.9 5.9% $407.2 5.9% Subsidiaries......................... 541.2 6.1 180.0 6.2 1994 PacifiCorp........................... $433.0 6.0% $372.8 4.5% Subsidiaries......................... 21.7 7.5 95.0 4.6
- -------- (a) Computed by dividing the total interest on principal amounts outstanding at the end of the period by the weighted daily principal amounts outstanding. (b) Computed by dividing the total interest expense for the period by the average daily principal amount outstanding for the period. At December 31, 1996, PacifiCorp's commercial paper and bank line borrowings were supported by revolving credit agreements totaling $700 million. At December 31, 1996, subsidiaries had committed bank revolving credit agreements totaling $2.1 billion. The Companies have the intent and ability to support short-term borrowings through various revolving credit agreements on a long-term basis. At December 31, 1996, PacifiCorp had $123 million and subsidiaries had $1.1 billion of short-term debt classified as long-term. Consolidated commitment fees were approximately $2 million in 1996 and 1995 and $3 million in 1994. IV-14 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 4 LONG-TERM DEBT The Company's long-term debt was as follows:
DECEMBER 31 ------------------ 1996 1995 -------- -------- MILLIONS OF US DOLLARS PacifiCorp First mortgage and collateral trust bonds Maturing 1997 through 2001/5.9%-9.5% (a)................. $ 946.5 $1,112.1 Maturing 2002 through 2006/6.1%-9%....................... 601.0 519.8 Maturing 2007 through 2011/6.6%-9.2%..................... 235.8 237.5 Maturing 2012 through 2016/7.3%-8.8%..................... 172.9 175.6 Maturing 2017 through 2021/8.4%-8.5%..................... 38.1 38.4 Maturing 2022 through 2026/6.7%-8.6%..................... 441.5 341.5 Guaranty of pollution control revenue bonds 5.6%-5.7% due 2021 through 2023 (b)...................... 71.2 71.2 Variable rate due 2013 through 2024 (b)(c)............... 216.5 216.5 Variable rate due 2005 through 2030 (c).................. 450.7 456.6 Funds held by trustees................................... (12.1) (12.4) 8.4%-8.6% Junior subordinated debentures due 2025 through 2035..................................................... 175.8 175.8 Commercial paper (c)(e)................................... 123.4 200.0 Other..................................................... 28.1 31.3 -------- -------- Total..................................................... 3,489.4 3,563.9 Less current maturities................................... 203.8 176.8 -------- -------- Total..................................................... 3,285.6 3,387.1 -------- -------- Subsidiaries 2%-11.8% First mortgage notes and bonds maturing through 2028..................................................... 139.3 143.2 6.8%-10.2% Notes due through 2020......................... 291.2 59.8 Australian bank bill borrowings (d)(e).................... 922.3 896.2 Commercial paper and committed bank lines (c)(e).......... 185.0 75.0 Variable rate notes due through 2007 (c).................. 35.8 42.0 6.6%-9.4% Medium-term notes due through 2008.............. 323.5 223.5 4.5%-11% Nonrecourse debt due through 2031................ 170.8 155.9 Other..................................................... 2.1 14.8 -------- -------- Total..................................................... 2,070.0 1,610.4 Less current maturities................................... 31.8 29.3 -------- -------- Total..................................................... 2,038.2 1,581.1 -------- -------- Total...................................................... $5,323.8 $4,968.2 ======== ========
- -------- (a) Includes $50 million of 9.4% bonds issued to secure obligations under an equivalent 10-year yen loan. A currency swap converted the fixed rate yen liability to a floating rate U.S. dollar liability based on six-month LIBOR plus .02% (interest rate 5.9% at December 31, 1996). (b) Secured by pledged first mortgage and collateral trust bonds generally at the same interest rates, maturity dates and redemption provisions as the secured pollution control revenue bonds. (c) Interest rates fluctuate based on various rates, primarily on certificate of deposit rates, interbank borrowing rates, prime rates or other short- term market rates. IV-15 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 4 LONG-TERM DEBT -- (CONTINUED): (d) Interest rates fluctuate based on Australian Bank Bill Acceptance Rates. The loan agreement requires that at least 50% of the borrowings must be hedged against variations in interest rates. Approximately $630 million was hedged at December 31, 1996 at an average rate of 7.6% and for an average life of 4.4 years. (e) 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 $1.2 billion of short-term debt as long-term debt. Approximately $7 billion of the assets of the Companies secure long-term debt and capital lease obligations. First mortgage and collateral trust bonds of the Company may be issued in amounts limited by Domestic Electric Operations' property, earnings and other provisions of the mortgage indenture. 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, capital lease obligations and any future senior indebtedness. Nonrecourse long-term notes are secured by assignment of related finance receivables, asset security interests and cash flows from operating leases. The noteholders have no additional recourse to the Companies. The annual maturities of long-term debt and redeemable preferred stock outstanding are $236 million, $241 million, $353 million, $1.1 billion and $622 million in 1997 through 2001, respectively. NOTE 5 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES On June 11, 1996, PacifiCorp Capital I, a wholly owned subsidiary trust of the Company (the "Trust"), issued, in a public offering, 8,680,000 of its 8 1/4% Company Obligated Mandatorily Redeemable Preferred Securities (the "Preferred Securities"), representing preferred undivided beneficial interests in the assets of the Trust, with a liquidation preference of $25 per Preferred Security. The sole assets of the Trust are $224 million, in aggregate principal amount, of the Company's 8 1/4% Junior Subordinated Deferrable Interest Debentures, Series C, due June 30, 2036 and certain rights under a related guarantee by the Company. The Company's guarantee of the Preferred Securities, considered together with the other obligations of the Company with respect to Preferred Securities, constitutes a full and unconditional guarantee by the Company of the Trust's obligations with respect to the Preferred Securities. IV-16 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 6 COMMON AND PREFERRED STOCK
THOUSANDS OF SHARES ---------------------- COMMON SHARES SHARES SHARE- COMMON PREFERRED HOLDERS' STOCK STOCK CAPITAL ---------- ----------- ----------- MILLIONS OF US DOLLARS At January 1, 1994.......................... 281,021 10,532 $2,953.4 Sales through Dividend Reinvestment and Stock Purchase Plan...................... 2,194 -- 38.0 Sales through Employees' Stock Plans...... 1,036 -- 19.2 ---------- --------- -------- At December 31, 1994........................ 284,251 10,532 3,010.6 Sales through Employees' Stock Plans...... 26 -- .4 Junior subordinated debentures exchanged for preferred stock...................... -- (2,233) 1.9 ---------- --------- -------- At December 31, 1995........................ 284,277 8,299 3,012.9 Sales to public........................... 8,790 -- 177.8 Sales through Dividend Reinvestment and Stock Purchase Plan...................... 2,073 -- 43.2 Redemptions and repurchases............... -- (2,342) 2.9 ---------- --------- -------- At December 31, 1996........................ 295,140 5,957 $3,236.8 ========== ========= ========
At December 31, 1996, there were 28,905,056 authorized but unissued shares of common stock reserved for issuance under the Dividend Reinvestment and Stock Purchase Plan and the Employee Savings and Stock Ownership Plans and for sales to the public. Eligible employees under the employee plans may direct their pretax elective contributions into the purchase of the Company's common stock. The Company makes matching contributions, equal to a percentage of employee contributions, which are invested in the Company's common stock. Employee contributions eligible for matching contributions are limited to 6% of compensation. 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. IV-17 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 6 COMMON AND PREFERRED STOCK -- (CONTINUED): PREFERRED STOCK OUTSTANDING
DECEMBER 31 --------------------------------------- 1996 1996 1995 1995 SERIES SHARES AMOUNT SHARES AMOUNT - ------ -------- --------- -------- --------- THOUSANDS OF SHARES/MILLIONS OF US DOLLARS Subject to Mandatory Redemption No Par Serial Preferred, ($100 stated value) 16,000 Shares Authorized $7.12............................... 30 $ 3.0 440 $ 44.0 7.70............................... 1,000 100.0 1,000 100.0 7.48............................... 750 75.0 750 75.0 -------- --------- -------- --------- Total............................. $ 178.0 $ 219.0 ========= ========= Not Subject to Mandatory Redemption No Par Serial Preferred ($25 stated value) $1.16............................... 193 $ 4.8 193 $ 4.8 1.18............................... 420 10.5 420 10.5 1.28............................... 381 9.5 381 9.5 1.76............................... -- -- 394 9.8 1.98............................... -- -- 502 12.6 2.13............................... -- -- 666 16.7 1.98, Series 1992.................. 2,767 69.1 2,767 69.1 Auction Rate ($100,000 stated value)............................. -- -- 1 100.0 Serial Preferred $100 Stated Value Per Share, 3,500 Shares Authorized 4.52%.............................. 2 .2 2 .2 4.56............................... 85 8.5 85 8.5 4.72............................... 70 7.0 70 7.0 5.00............................... 42 4.2 42 4.2 5.40............................... 66 6.6 66 6.6 6.00............................... 6 .6 6 .6 7.00............................... 18 1.8 18 1.8 7.96............................... -- -- 135 13.5 8.92............................... -- -- 69 6.9 9.08............................... -- -- 165 16.5 5% Preferred, $100 Stated Value, 127 Shares Authorized and Outstanding.... 127 12.7 127 12.7 -------- --------- -------- --------- Total............................. $ 135.5 $ 311.5 ========= =========
Mandatory redemption requirements at stated value plus accrued dividends on No Par Serial Preferred Stock are as follows: beginning in 1997, 15,000 shares of the $7.12 series are redeemable annually; 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 $7.12 series or the $7.48 series, it may not pay cash dividends on common stock. NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company seeks to reduce net income and cash flow exposure to changing interest and currency exchange rates and commodity price risks through the use of derivative financial instruments. IV-18 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED): The Company's participation in derivative transactions involves instruments that have a close correlation with its portfolio of liabilities, thereby managing its risk. Derivatives have been designed for hedging purposes and are not held or issued for speculative purposes. 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 credit policy provides that counterparties satisfy minimum credit ratings. 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. Interest Rate Risk Management -- The Company enters into various types of interest rate contracts in managing its interest rate risk, as indicated in the following table:
NOTIONAL AMOUNT --------------- DECEMBER 31 --------------- 1996 1995 ------- ------- MILLIONS OF US DOLLARS Interest rate swaps......................................... $ 846.4 $ 219.9 Interest rate collars purchased............................. 52.0 -- Interest rate futures and forwards.......................... 60.0 --
The Company uses interest rate swaps, collars, futures and forwards to adjust the characteristics of its liability portfolio from variable to fixed interest rates, allowing the Company to establish a mix of fixed or variable interest rates on its outstanding debt. Additionally, under terms of the variable rate Australian bank bill borrowings, Australian Electric Operations is required to obtain a fixed interest rate, via financial derivatives, on at least 50% of the principal outstanding. Under the various swap agreements, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-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 December 31; these may change significantly, affecting future cash flows. Swap contracts are principally between one and fifteen years in duration.
DECEMBER 31 ------------- 1996 1995 ----- ----- Pay-fixed swaps Average pay rate............................................ 7.7% 7.7% Average receive rate........................................ 5.6 4.4
Interest rate futures and forward contracts are generally used by Australian Electric Operations to mitigate variable interest rate exposure on Australian bank bill borrowings and are usually settled in cash. The futures and forwards are accounted for as hedges of the Australian bank bill borrowings. Additionally, Australian Electric Operations purchases interest rate collar agreements. The collar IV-19 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED): agreements entitle the Company to receive from the counterparties the amounts, if any, by which the Australian bank bill borrowings interest payments exceed 8.75% and the Company would pay the counterparties if interest payments fall below 6.5%-6.8%. Foreign Exchange Risk Management -- At December 31, 1996, the Company held a foreign currency exchange agreement, which provides for the exchange of $50 million for 7.4 billion yen to meet a 1997 yen-denominated obligation of an equivalent amount. In addition, at December 31, 1996, Holdings held three combined interest rate and currency swaps that terminate in 2002, with an aggregate notional amount of $291 million to hedge a portion of the exposure to fluctuations in the Australian dollar relating to its investment in Powercor. The interest rate portions of the three swaps, which also were designated as a hedge of Holdings' investment in Powercor, were effectively offset in 1997 by the purchase of a swap transaction with approximately the same terms. The net amount of the swaps should not have a significant impact on future net income. Commodity Risk Management -- The Company has utilized electricity forward contracts (referred to as "contract 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 December 31, 1996, Australian Electric Operations had 23 forward contracts with electricity generation companies on notional quantities amounting to approximately 26.8 million MWh through December 31, 2000. The average fixed price to be paid by Australian Electric Operations was $28.75 per MWh compared to the average price of similar contracts at December 31, 1996 of $27.46. At December 31, 1996, Domestic Electric Operations had 67 NYMEX futures contracts to sell electricity with notional quantities amounting to approximately 49,300 MWh all expiring in 1997. The average fixed price to be received by Domestic Electric Operations was $19.33 per MWh compared to the NYMEX average spot market price of $15.78 per MWh. Trading Activities -- During 1996 a subsidiary of Holdings began to trade electricity related products. Such transactions involved the physical delivery of electricity and are accounted for as revenue or purchased power upon delivery and, at December 31, 1996, amounted to a net purchase position of 1,200 MWh. As additional markets for electricity-related products develop, including derivative products, the Company anticipates that this activity will expand. NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
DECEMBER 31, 1996 DECEMBER 31, 1995 (MILLIONS OF US (MILLIONS OF US DOLLARS) DOLLARS) ------------------ ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Long-term debt......................... $5,536.6 $5,621.5 $5,134.4 $5,370.5 Preferred securities of Trust holding solely PacifiCorp debentures.......... 209.7 210.9 -- -- Preferred stock subject to mandatory redemption............................ 178.0 195.8 219.0 240.3 Derivatives relating to Currency............................. (21.5) (21.5) -- (1.4) Interest............................. (10.8) (52.5) -- (35.4) Electricity futures.................. -- .2 -- --
IV-20 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED): 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 December 31, 1996. 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 and capital lease obligations were excluded. 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, currency swaps and electricity futures is the estimated amount the Company would have to pay to terminate the agreements, taking into account current interest and currency exchange rates, electricity market prices and the current creditworthiness of the agreement counterparties. 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 entered into for long-term forward contracts and the inactive trading in the electricity spot market. NOTE 9 LEASES The Companies lease 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 Companies are also committed to pay all taxes, expenses of operation (other than depreciation) and maintenance applicable to the leased property. Net rent expense for the years ended December 31, 1996, 1995 and 1994 was $29 million, $50 million and $59 million, respectively. Future minimum lease payments under noncancellable operating leases are $20 million, $14 million, $7 million, $5 million and $4 million for 1997 through 2001, respectively. NOTE 10 COMMITMENTS AND CONTINGENCIES Construction and Other Construction and acquisitions are estimated at $1 billion for 1997. As a part of these programs, substantial commitments have been made. 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 December 31, 1996, principally the Superfund sites where the Company has been or may be designated as a potentially responsible party and violations under the Clean Air Act, future costs associated with the disposition of these matters are not expected to be material to the Company's consolidated financial statements. 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 IV-21 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 10 COMMITMENTS AND CONTINGENCIES -- (CONTINUED): and regulatory requirements of the various jurisdictions in which it operates. 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. This is consistent with industry practices and, the Company believes its reclamation obligations are adequately provided for. 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. Jointly Owned Plants At December 31, 1996, Domestic Electric Operations' participation in jointly owned plants was as follows:
ELECTRIC PLANT CONSTRUCTION OPERATIONS' IN ACCUMULATED WORK IN SHARE SERVICE DEPRECIATION PROGRESS ----------- ------- ------------ ------------ MILLIONS OF US DOLLARS Centralia.................... 47.5% $178.1 $108.0 $4.2 Jim Bridger Units 1, 2, 3 and 4........................... 66.7 789.7 308.1 2.2 Trojan (a)................... 2.5 -- -- -- Colstrip Units 3 and 4....... 10.0 203.4 63.2 1.1 Hunter Unit 1................ 93.8 260.2 100.9 .8 Hunter Unit 2................ 60.3 187.6 66.4 1.3 Wyodak....................... 80.0 303.9 96.6 1.8 Craig Station Units 1 and 2.. 19.3 150.0(b) 56.9 1.1 Hayden Station Unit 1........ 24.5 17.1(b) 10.6 1.1 Hayden Station Unit 2........ 12.6 17.0(b) 9.9 .8 Hermiston (c)................ 50.0 164.9 3.4 --
- -------- (a) Plant, inventory, fuel and decommissioning costs totaling $27 million relating to the Trojan Plant, were included in regulatory assets--net at December 31, 1996. (b) Excludes unallocated acquisition adjustments of $119 million. (c) Additionally, the Company has contracted to purchase the remaining 50% of the output of the plant. 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. Purchased Power 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 and meet commitments for wholesale sales, including sales contracts with minimum payment requirements, and retail load growth. As part of its energy resource portfolio, Domestic Electric Operations acquires power through long-term purchases and/or exchange agreements which require minimum fixed payments of $298 million in 1997, $294 million in 1998 and 1999, $291 million in 2000 and $252 million in 2001. IV-22 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 10 COMMITMENTS AND CONTINGENCIES -- (CONTINUED): These 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 1996, such purchases approximated 3.5% of energy requirements. At December 31, 1996, Domestic Electric Operations' share of long-term arrangements with public utility districts was as follows:
GENERATING YEAR CONTRACT CAPACITY PERCENTAGE ANNUAL FACILITY EXPIRES (KW) OF OUTPUT COSTS(A) ---------- ------------- -------- ---------- -------- Wanapum........................... 2009 155,444 18.7% $ 5.0 Priest Rapids..................... 2005 109,602 13.9 3.7 Rocky Reach....................... 2011 64,297 5.3 2.4 Wells............................. 2018 59,617 7.7 1.9 ------- ----- Total........................... 388,960 $13.0 ======= =====
- -------- (a) Annual costs, in millions of US dollars, include debt service of $6 million. The Company has a 4% interest in the Intermountain Power Project ("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. NOTE 11 INCOME TAXES The Company's combined federal and state effective income tax rate was 36% in 1996, 32% in 1995 and 35% in 1994. The difference between taxes calculated as if the statutory federal tax rate of 35% was applied to income before income taxes and the recorded tax expense is reconciled as follows:
FOR THE YEAR ---------------------- 1996 1995 1994 ------ ------ ------ MILLIONS OF US DOLLARS Computed Federal Income Taxes.......................... $276.1 $260.3 $251.2 Increase (Reduction) in Tax Resulting from Depreciation differences............................. 12.8 9.7 8.4 Investment tax credits............................... (11.0) (12.3) (15.5) Excess of tax over book stock basis.................. (1.0) (24.4) (1.4) Audit settlement..................................... .5 (16.8) -- Affordable housing credits........................... (10.6) (8.4) (8.2) Other items capitalized and miscellaneous differences......................................... (5.3) 4.8 .7 ------ ------ ------ Total.............................................. (14.6) (47.4) (16.0) ------ ------ ------ Federal Income Tax..................................... 261.5 212.9 235.2 State Income Tax, Net of Federal Income Tax Benefit.... 22.4 25.9 14.6 ------ ------ ------ Total Income Tax Expense............................... $283.9 $238.8 $249.8 ====== ====== ======
IV-23 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 11 INCOME TAXES -- (CONTINUED): The provision for income taxes is summarized as follows:
FOR THE YEAR ---------------------- 1996 1995 1994 ------ ------ ------ MILLIONS OF US DOLLARS Current Federal............................................ $207.5 $152.2 $222.7 State.............................................. 28.0 23.1 34.6 Foreign............................................ -- 1.0 -- ------ ------ ------ Total............................................ 235.5 176.3 257.3 ------ ------ ------ Deferred Federal............................................ 43.7 56.5 17.8 State.............................................. 7.6 17.3 (9.8) Foreign............................................ 8.1 1.0 -- ------ ------ ------ Total............................................ 59.4 74.8 8.0 ------ ------ ------ Investment Tax Credits............................... (11.0) (12.3) (15.5) ------ ------ ------ Total Income Tax Expense............................. $283.9 $238.8 $249.8 ====== ====== ======
The tax effects of significant items comprising the Company's net deferred tax liability were as follows:
DECEMBER 31 ------------------ 1996 1995 -------- -------- MILLIONS OF US DOLLARS Deferred Tax Liabilities Property, plant and equipment.......................... $1,306.8 $1,213.1 Regulatory assets...................................... 733.6 756.8 Other deferred liabilities............................. 30.7 52.5 Deferred Tax Assets Regulatory liabilities................................. (63.0) (69.7) Book reserves not deductible for tax................... (55.0) (42.6) -------- -------- Net Deferred Tax Liability............................... $1,953.1 $1,910.1 ======== ========
During 1995, the Company and the Internal Revenue Service (the "IRS") agreed on a settlement of all issues related to the IRS examination of the Company's federal income tax returns for the years 1983 through 1988, including matters relating to the Company's abandonment of its 10% interest in Washington Public Power Supply System Unit No. 3. During 1996, the Company received an examination report for 1989 and 1990 proposing adjustments that would increase income tax by $11 million. The Company filed a protest of certain proposed adjustments on July 30, 1996. The Company's 1991, 1992 and 1993 federal income tax returns are currently under examination by the IRS. Financial Services acquires housing projects that qualify for the low-income housing credit established as part of the Tax Reform Act of 1986 to provide an incentive for the development and preservation of privately owned affordable rental housing. Annual tax benefits scheduled to be received from these projects are expected to be $13 million, $12 million, $11 million, $7 million and $6 million for 1997 through 2001, respectively. IV-24 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 12 RETIREMENT PLANS The Companies have pension plans covering substantially all of their employees. Benefits under plans in the United States are generally 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 December 31, 1996, plan assets were primarily invested in common stocks, bonds and U.S. government obligations. All permanent employees of Powercor engaged prior to October 4, 1994 are members of Divisions B or C of the Superannuation Fund ("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. Division B members contribute at 6% of superannuation salary, and Division C members can contribute at 0, 3, or 6%. During 1996, contributions were made to the Fund at the rate of 9.25% for the defined benefit. Net pension cost is summarized as follows:
FOR THE YEAR ----------------------- 1996 1995 1994 ------ ------- ------ MILLIONS OF US DOLLARS Service cost -- benefits earned..................... $ 35.5 $ 24.4 $ 26.4 Interest cost on projected benefit obligation....... 89.0 80.1 74.1 Actual (gain) loss on plan assets................... (79.9) (153.5) 4.9 Net amortization and deferral....................... 9.3 100.5 (59.7) Regulatory deferral (a)............................. 14.2 29.4 .7 ------ ------- ------ Net Pension Cost.................................... $ 68.1 $ 80.9 $ 46.4 ====== ======= ======
- -------- (a) Domestic Electric Operations has received accounting orders from its primary and certain other regulatory authorities to defer the difference between pension cost as determined in accordance with SFAS 87 and 88 and that determined for funding purposes. See Note 2. The funded status, net pension liability and significant assumptions are as follows:
DECEMBER 31 ------------------- 1996 1995 --------- -------- MILLIONS OF US DOLLARS Actuarial present value of benefit obligations Vested benefit obligation................................. $ 1,045.5 $1,033.9 Accumulated benefit obligation............................ 1,120.8 1,090.1 Projected benefit obligation.............................. 1,270.7 1,262.1 Plan assets at fair value................................. 1,042.5 895.6 --------- -------- Projected benefit obligation in excess of plan assets..... 228.2 366.5 Unrecognized prior service cost........................... (11.9) (9.8) Unrecognized net loss..................................... (65.5) (104.0) Unrecognized net obligation............................... (7.5) (89.5) Minimum liability adjustment.............................. 2.9 65.2 --------- -------- Net Pension Liability..................................... $ 146.2 $ 228.4 --------- -------- Discount rate............................................. 7.25%-7.5% 7.25% Expected long-term rate of return on assets............... 8.5%-9% 8.5%-9% Rate of increase in compensation levels................... 4.5%-6% 5%-6%
IV-25 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 12 RETIREMENT PLANS -- (CONTINUED): Domestic Electric Operations offered early retirement incentive programs in 1987 and 1990. Included in the table above is the present value of all future termination benefits provided of $58 million. Domestic Electric Operations received regulatory accounting orders to defer early retirement costs as a regulatory asset to be amortized through the year 2020. See Note 2. NOTE 13 OTHER POSTRETIREMENT BENEFITS Domestic Electric Operations and Telecommunications provide health care and life insurance benefits through various plans for their 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, 1993, the Company funds postretirement benefit expense on a pay-as-you-go basis. For those employees retiring after January 1, 1993, the Company funds postretirement benefit expense through a combination of funding vehicles. The Company funded $38 million and $40 million of postretirement benefit expense during 1996 and 1995, respectively. These funds are invested in common stocks, bonds and U.S. government obligations. The net periodic post retirement benefit cost is summarized as follows:
FOR THE YEAR --------------------- 1996 1995 1994 ------ ------ ----- MILLIONS OF US DOLLARS Service cost -- benefits earned........................ $ 9.6 $ 8.3 $ 9.5 Interest cost on accumulated postretirement benefit ob- ligation.............................................. 27.8 32.6 30.7 Amortization of transition obligation.................. 14.3 15.7 16.3 Regulatory deferral.................................... 3.4 (4.5) (5.2) Net asset gain (loss) during the period deferred for future recognition.................................... 3.7 3.7 (4.4) Actual return on plan assets........................... (14.5) (10.7) .3 ------ ------ ----- Net Periodic Postretirement Benefit Cost............... $ 44.3 $ 45.1 $47.2 ====== ====== =====
The accumulated postretirement benefit obligation ("APBO") was as follows:
DECEMBER 31 ----------------- 1996 1995 --------- ------ MILLIONS OF US DOLLARS Retirees and dependents...................................... $ 209.5 $267.7 Fully eligible active plan participants...................... 22.2 23.5 Other active plan participants............................... 160.8 174.5 --------- ------ APBO......................................................... 392.5 465.7 Plan assets at fair value.................................... 166.2 117.4 --------- ------ APBO in excess of plan assets................................ 226.3 348.3 Unrecognized prior service cost.............................. .5 .6 Unrecognized transition obligation........................... (251.0) (266.7) Unrecognized net gain (loss)................................. 48.2 (50.1) --------- ------ Accrued Postretirement Benefit Obligation.................... $ 24.0 $ 32.1 ========= ====== Discount rate................................................ 7.5% 7.25% Estimated long-term rate of return on assets................. 9% 8.8%-9% Initial health care cost trend rate -- under 65.............. 8.8%-11% 11% Initial health care cost trend rate -- over 65............... 8.4%-10.5% 10% Ultimate health care cost trend rate......................... 4.5% 4.5%
IV-26 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 13 OTHER POSTRETIREMENT BENEFITS -- (CONTINUED): The assumed health care cost trend rates gradually decrease over eight years. The health care cost trend rate assumptions have 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 December 31, 1996 by $29 million, and the annual net periodic postretirement benefit costs by $3 million. NOTE 14 ACQUISITIONS AND DISPOSITIONS In September 1996, a consortium, known as the Hazelwood Power Partnership, purchased a 1,600 megawatt, coal-fired generating station and associated coal mine in Victoria, Australia for approximately $1.9 billion. The consortium financed the acquisition of the Hazelwood plant and mine with approximately $858 million in equity contributions from the partners and $1 billion of nonrecourse borrowings at the partnership level. Holdings, which has a 19.9% interest in the partnership, financed its $145 million portion of the equity investment and the associated $12 million advance with long-term borrowings in the United States. The other partners in the partnership are subsidiaries of National Power PLC (51.9%), Destec Energy (20%) and Commonwealth Bank Group of Australia (8.2%). On December 12, 1995, Holdings purchased Powercor, an electricity distributor in Australia, for approximately $1.6 billion in cash. Powercor's service territory includes a portion of suburban Melbourne and the western and central regions of the State of Victoria. Powercor currently has approximately 547,000 customers. The acquisition was accounted for as a purchase and the results of operations of Powercor have been included in the consolidated financial statements since December 12, 1995. On September 27, 1995, holders of a majority of the 5.3 million shares of outstanding common stock held by minority shareholders of PTI voted in favor of the merger of a wholly owned subsidiary of Holdings into PTI. Shareholders tendering shares pursuant to the merger were paid a total of $131 million, or $30 per share, and an accrued liability of $28 million was established to cover estimated amounts payable to dissenters. During 1995, PTI purchased certain rural telephone exchange assets in Colorado, Washington and Oregon for approximately $376 million. On August 7, 1995, PTI closed the sale of the stock of Alascom, Inc. ("Alascom") to AT&T Corp. ("AT&T"), in a transaction providing $366 million in proceeds. Under terms of the agreement, AT&T paid $291 million in cash for the Alascom stock and for settlement of all past cost study issues. AT&T agreed to allow PTI to retain a $75 million transition payment made by AT&T to Alascom in July 1994. AT&T made a down payment of $30 million to PTI upon signing the stock purchase agreement in October 1994. The remaining $261 million was paid when the transaction closed. The Company recognized an after-tax gain of $37 million from the sale of Alascom. Summarized income statement data for Alascom are as follows:
7 MONTHS ENDED JULY 31, FOR THE YEAR 1995 1994 -------------- ------------ MILLIONS OF US DOLLARS (UNAUDITED) Revenues........................................ $193.1 $343.5 Income from operations.......................... 36.9 80.7
NOTE 15 SUBSEQUENT EVENTS On March 4, 1997, the Utah Legislature passed a bill which creates a legislative task force to study stranded cost issues and the timing of customer choice. The bill freezes rates at January 31, 1997 levels until 60 days following the conclusion of the 1998 legislative general session. The PSC is IV-27 PACIFICORP SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTE 15 SUBSEQUENT EVENTS -- (CONTINUED): precluded from holding any hearings on rate changes during the freeze period. The Company has committed to reduce prices to Utah customers by $12 million annually on approximately May 1, 1997. On March 11, 1997, Holdings entered into an agreement to acquire TPC Corporation, a natural gas gathering, processing, storage and marketing company. The acquisition is expected to cost approximately $288 million in cash plus assumed debt of approximately $149 million. NOTE 16 SELECTED FINANCIAL AND SEGMENT INFORMATION
FOR THE YEAR -------------------------- 1996 1995 1994 -------- -------- -------- MILLIONS OF US DOLLARS REVENUES Domestic Electric Operations...................... $2,960.8 $2,616.1 $2,647.8 Australian Electric Operations.................... 658.8 25.9 -- Telecommunications................................ 521.1 640.1 696.5 Other Operations (a).............................. 153.1 134.8 153.7 -------- -------- -------- Total......................................... $4,293.8 $3,416.9 $3,498.0 ======== ======== ======== INCOME FROM OPERATIONS Domestic Electric Operations...................... $ 869.8 $ 800.9 $ 819.3 Australian Electric Operations.................... 127.4 5.5 -- Telecommunications................................ 158.7 165.3 164.7 Other Operations (a).............................. 89.2 84.2 38.3 -------- -------- -------- Total......................................... $1,245.1 $1,055.9 $1,022.3 ======== ======== ======== Net Income (Loss)................................... $ 504.9 $ 505.0 $ 468.0 EARNINGS CONTRIBUTION (LOSS) ON COMMON STOCK Continuing operations Domestic Electric Operations.................... $ 341.5 $ 276.4 $ 339.8 Australian Electric Operations.................. 30.1 .7 -- Telecommunications.............................. 74.7 103.0 70.5 Other Operations (a)............................ 28.8 86.2 18.0 -------- -------- -------- Total......................................... $ 475.1 $ 466.3 $ 428.3 ======== ======== ======== IDENTIFIABLE ASSETS Domestic Electric Operations...................... $ 9,864 $ 9,599 $ 9,372 Australian Electric Operations.................... 2,065 1,751 -- Telecommunications................................ 1,592 1,599 1,378 Other Operations (a).............................. 1,114 1,066 1,096 CAPITAL SPENDING Domestic Electric Operations...................... $ 595 $ 455 $ 638 Australian Electric Operations.................... 226 1,591 -- Telecommunications................................ 127 498 153 Other Operations (a).............................. 56 175 13 DEPRECIATION AND AMORTIZATION Domestic Electric Operations...................... $ 343 $ 320 $ 302 Australian Electric Operations.................... 72 3 -- Telecommunications................................ 107 86 66 Other Operations (a).............................. 9 10 18
- -------- (a) Other Operations includes the operations of PacifiCorp Financial Services, Inc., Pacific Generation Company, and several start-up-phase ventures, as well as the activities of PacifiCorp Holdings, Inc., including financing costs. IV-28 UNAUDITED FINANCIAL INFORMATION FOR THE THREE MONTHS ENDED 31 MARCH 1996 AND 1997 PACIFICORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (MILLIONS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- (UNAUDITED) REVENUES................................................ $ 1,169.8 $ 1,005.7 EXPENSES Operations............................................ 538.5 386.7 Maintenance........................................... 74.7 71.8 Administrative and general............................ 85.6 74.1 Depreciation and amortization......................... 137.0 128.6 Taxes, other than income taxes........................ 32.4 32.2 --------- --------- Total............................................... 868.2 693.4 --------- --------- INCOME FROM OPERATIONS.................................. 301.6 312.3 --------- --------- INTEREST EXPENSE AND OTHER Interest expense...................................... 117.0 117.6 Interest capitalized.................................. (2.9) (3.2) Other income--net..................................... (2.5) (6.9) --------- --------- Total............................................... 111.6 107.5 --------- --------- Income before income taxes.............................. 190.0 204.8 Income taxes............................................ 69.0 74.9 --------- --------- NET INCOME.............................................. 121.0 129.9 RETAINED EARNINGS BEGINNING OF PERIOD................... 782.8 632.4 Cash dividends declared Preferred stock................. (5.6) (9.1) Common stock per share: 1997 and 1996/$.27.............. (79.8) (79.0) --------- --------- RETAINED EARNINGS END OF PERIOD......................... $ 818.4 $ 674.2 ========= ========= EARNINGS ON COMMON STOCK (net income less preferred dividend requirement).................................. $ 114.9 $ 120.9 Average number of common shares outstanding (Thousands)............................................ 295,393 286,490 EARNINGS PER COMMON SHARE............................... $ .39 $ .42
See accompanying Notes to Condensed Consolidated Financial Statements IV-29 PACIFICORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (MILLIONS OF US DOLLARS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................. $ 121.0 $ 129.9 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization........................ 142.2 133.6 Deferred income taxes and investment tax credits -- net................................................ 7.4 14.2 Other................................................ 7.9 26.0 Accounts receivable and prepayments.................. 101.4 5.2 Materials, supplies, fuel stock and inventory........ -- (3.2) Accounts payable and accrued liabilities............. (70.0) 60.6 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................ 309.9 366.3 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction........................................... (143.6) (136.0) Investments in and advances to affiliated companies -- net.................................................. (19.0) (4.2) Assets acquired........................................ (4.6) (7.5) Proceeds from sales of finance assets and principal payments.............................................. 26.7 38.4 Other.................................................. 18.2 7.5 --------- --------- NET CASH USED IN INVESTING ACTIVITIES.................... (122.3) (101.8) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Changes in short-term debt............................. 6.8 (506.0) Proceeds from long-term debt........................... 12.3 251.1 Proceeds from issuance of common stock................. 10.5 183.0 Dividends paid......................................... (85.2) (85.8) Repayments of long-term debt and capital lease obligations........................................... (92.5) (64.3) Redemptions of capital stock........................... (3.0) (.5) Other.................................................. (28.8) (43.2) --------- --------- NET CASH USED IN FINANCING ACTIVITIES.................... (179.9) (265.7) --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 7.7 (1.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 17.8 22.2 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 25.5 $ 21.0 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid (received) during the period for Interest (net of amount capitalized)........................... $ 193.1 $ 146.9 Income taxes........................................... (1.3) 17.9
See accompanying Notes to Condensed Consolidated Financial Statements IV-30 PACIFICORP CONDENSED CONSOLIDATED BALANCE SHEETS (MILLIONS OF US DOLLARS) ASSETS
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ (UNAUDITED) CURRENT ASSETS Cash and cash equivalents............................ $ 25.5 $ 17.8 Accounts receivable less allowance for doubtful accounts: 1997/$8.7 and 1996/$8.6................... 622.7 718.6 Materials, supplies and fuel stock at average cost... 188.9 188.7 Inventory............................................ 50.4 55.2 Other................................................ 67.2 78.2 --------- --------- TOTAL CURRENT ASSETS................................... 954.7 1,058.5 PROPERTY, PLANT AND EQUIPMENT Domestic Electric Operations......................... 11,788.4 11,698.8 Australian Electric Operations....................... 1,359.7 1,361.9 Telecommunications................................... 1,688.0 1,670.0 Other Operations..................................... 69.4 68.8 Accumulated depreciation and amortization............ (4,699.6) (4,583.8) --------- --------- TOTAL PROPERTY, PLANT AND EQUIPMENT -- NET............. 10,205.9 10,215.7 OTHER ASSETS Investments in and advances to affiliated companies.. 350.3 358.9 Intangible assets -- net............................. 864.3 870.5 Regulatory assets -- net............................. 1,014.5 1,017.4 Finance note receivable.............................. 214.0 214.6 Finance assets -- net................................ 425.7 425.6 Real estate investments.............................. 218.1 217.0 Deferred charges and other........................... 257.2 256.3 --------- --------- TOTAL OTHER ASSETS..................................... 3,344.1 3,360.3 --------- --------- TOTAL ASSETS........................................... $14,504.7 $14,634.5 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements IV-31 PACIFICORP CONDENSED CONSOLIDATED BALANCE SHEETS (MILLIONS OF US DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ (UNAUDITED) CURRENT LIABILITIES Long-term debt currently maturing..................... $ 263.6 $ 235.6 Notes payable and commercial paper.................... 708.3 701.5 Accounts payable...................................... 330.2 469.7 Taxes, interest and dividends payable................. 381.2 303.5 Customer deposits and other........................... 165.0 152.6 --------- --------- TOTAL CURRENT LIABILITIES............................... 1,848.3 1,862.9 DEFERRED CREDITS Income taxes.......................................... 1,946.7 1,953.1 Investment tax credits................................ 146.1 148.4 Other................................................. 729.2 758.9 --------- --------- Total deferred credits.................................. 2,822.0 2,860.4 MINORITY INTEREST....................................... 33.0 31.9 LONG-TERM DEBT.......................................... 5,205.8 5,323.8 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES......................... 209.7 209.7 PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION......... 175.0 178.0 PREFERRED STOCK......................................... 135.5 135.5 COMMON EQUITY Common shareholders' capital shares authorized 750,000,000; shares outstanding: 1997/295,638,426 and 1996/295,139,753..................................... 3,247.6 3,236.8 Retained earnings..................................... 818.4 782.8 Cumulative currency translation adjustment............ 9.4 12.7 --------- --------- TOTAL COMMON EQUITY..................................... 4,075.4 4,032.3 --------- --------- COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $14,504.7 $14,634.5 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements IV-32 PACIFICORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 NOTE 1 FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements as of March 31, 1997 and December 31, 1996 and for the periods ended March 31, 1997 and 1996, in the opinion of management, include all adjustments, constituting only normal recording of accruals, necessary for a fair presentation of financial position, results of operations and cash flows for such periods. A significant part of the business of PacifiCorp (the "Company") is of a seasonal nature; therefore, results of operations for the periods ended March 31, 1997 and 1996 are not necessarily indicative of the results for a full year. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes incorporated by reference in the Company's 1996 Annual Report on Form 10-K. The condensed consolidated financial statements of the Company include its 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 Holdings, Inc. ("Holdings"), which holds all of the Company's nonintegrated electric utility investments, including Powercor Australia Limited ("Powercor"), an Australian electricity distributor; Pacific Telecom, Inc. ("PTI"), a telecommunications operation, and PacifiCorp Financial Services, Inc., a financial services business. Together these businesses are referred to herein as the Companies. Significant intercompany transactions and balances have been eliminated. Investments in and advances to affiliated companies represent investments in unconsolidated affiliated companies carried on the equity basis, which approximates the Company's equity in their underlying net book value. Certain amounts from the prior period have been reclassified to conform with the 1997 method of presentation. These reclassifications had no effect on previously reported consolidated net income. NOTE 2 CONTINGENT LIABILITIES 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 December 31, 1996, 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. 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. 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. This is consistent with industry practices, and the Company believes that it has adequately provided for its reclamation obligations. 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 IV-33 PACIFICORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) (UNAUDITED) MARCH 31, 1997 NOTE 2 CONTINGENT LIABILITIES -- (CONTINUED) 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. The Company's 1991, 1992 and 1993 federal income tax returns are currently under examination by the Internal Revenue Service (the "IRS"). The Company has received an examination report for 1989 and 1990 proposing adjustments that would increase income tax by $11 million. The Company filed a protest of certain proposed adjustments on July 30, 1996 and is currently holding discussions with the Appeals Division of the IRS. NOTE 3 NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share." SFAS 128 changes the standards for computing and presenting earnings per share ("EPS"). The statement is effective for periods ending after December 15, 1997 and requires reinstatement of all prior periods. The adoption of SFAS 128 will have no effect on the current calculation of EPS or previously reported EPS. IV-34 APPENDIX V ADDITIONAL INFORMATION 1. RESPONSIBILITY (a) The directors of PacifiCorp Acquisitions, whose names are set out in paragraph 2(a) of this Appendix V, accept responsibility for the information contained in this document other than information relating to The Energy Group, the TEG Group and the directors of The Energy Group and their immediate families. To the best of the knowledge and belief of the directors of PacifiCorp Acquisitions (who have taken all reasonable care to ensure that such is the case), the information contained in this document for which they are responsible is in accordance with the facts and does not omit anything likely to affect the import of such information. (b) The directors of The Energy Group, whose names are set out in paragraph 2(b) of this Appendix V, accept responsibility for the information contained in this document relating to The Energy Group, the TEG Group and the directors of The Energy Group and their immediate families. To the best of the knowledge and belief of the directors of The Energy Group (who have taken all reasonable care to ensure that such is the case), the information contained in this document for which they are responsible is in accordance with the facts and does not omit anything likely to affect the import of such information. 2. DIRECTORS (a) The directors of PacifiCorp Acquisitions are: Frederick W. Buckman -- Chairman Richard T. O'Brien -- Chief Financial Officer William E. Peressini -- Deputy Chief Financial Officer Dennis P. Steinberg Verl R. Topham (b) The directors of The Energy Group are: Derek C. Bonham -- Chairman John F. Devaney -- Chief Executive--Eastern Irl F. Engelhardt -- Chief Executive--Peabody Eric E. Anstee -- Finance Director Sir Christopher Harding -- Non-executive director Baroness Hogg -- Non-executive director David P. Nash -- Non-executive director John Neerhout, Jr. -- Non-executive director 3. STOCK EXCHANGE QUOTATIONS, MARKET PRICE DATA AND PRINCIPAL PURCHASES The following table shows the Closing Price for Energy Group Shares and the closing sale price on the New York Stock Exchange for Energy Group ADSs on the first dealing day of each of the four months immediately prior to the date of this document, on 9 June 1997 (the last Business Day before the commencement of the Offer period) and on 24 June 1997 (the latest practicable date prior to the publication of this document):
ENERGY ENERGY GROUP GROUP DATE SHARES (PENCE) ADSS ($) ---- -------------- -------- 3 March 1997....................................... 526.5 34 1 April 1997....................................... 496.0 32 3/4 1 May 1997......................................... 486.0 31 3/8 2 June 1997........................................ 544.5 35 1/4 9 June 1997........................................ 561.5 36 7/8 24 June 1997....................................... 635.5 42 3/4
V-1 Energy Group Shares have been listed and traded on the London Stock Exchange and Energy Group ADSs have been listed and traded on the New York Stock Exchange since 24 February 1997. The following table sets out, for the periods indicated, (i) the reported closing highest and lowest middle market quotations for Energy Group Shares on the London Stock Exchange as derived from the Daily Official List of the London Stock Exchange and (ii) the high and low closing sales prices for Energy Group ADSs on the New York Stock Exchange as obtained from the New York Stock Exchange. Each Energy Group ADS represents four Energy Group Shares. For current price information, holders of Energy Group Shares and Energy Group ADSs are urged to consult publicly available sources.
ENERGY ENERGY GROUP SHARES GROUP ADSS (PENCE) ($) ------------- ------------- HIGH LOW HIGH LOW ------ ------ ------ ------ Calendar 1997 First Quarter (24 February 1997-31 March 1997)....................................... 568.5 466.5 37 29 3/4 Second Quarter (1 April 1997-9 June 1997).... 566.5 486.0 36 7/8 31 3/8
In accordance with normal UK practice, PacifiCorp Acquisitions or its nominees or brokers (acting as agents for PacifiCorp Acquisitions) or a subsidiary of PacifiCorp (other than PacifiCorp Acquisitions) may make certain purchases of Energy Group Securities outside the United States during the period in which the Offer remains open for acceptance, and affiliates of Goldman Sachs International and Morgan Stanley will continue to act as market makers for Energy Group Shares on the London Stock Exchange, pursuant to relief granted by the SEC staff from Rule 10b-13 under the Exchange Act. In accordance with the terms of this relief, among other things, (i) such purchases may not be effected within the United States, (ii) information regarding such purchases must be disclosed in the United States by press release to the extent disclosure is required pursuant to the City Code, and (iii) PacifiCorp Acquisitions and any such other persons must comply with any applicable rules of UK regulatory organisations. 4. SHAREHOLDINGS AND DEALINGS In this paragraph: "disclosure period" means the period commencing 10 June 1996 (the date 12 months prior to the announcement by The Energy Group that it was involved in talks with PacifiCorp in connection with the Offer) and ending on 23 June 1997 (the latest practicable date prior to the publication of this document); "relevant securities" means Energy Group Securities, including any securities convertible into, rights to subscribe for, or options (including traded options) in respect of, or derivatives referenced to, such Energy Group Securities; "arrangement" includes indemnity or option arrangements, and any agreement or understanding, formal or informal, of whatever nature which may be an inducement to deal or refrain from dealing; and V-2 "associate" means, in relation to The Energy Group, any member of the TEG Group and any associated company of any member of the TEG Group, their banks and financial and other professional advisers (including stockbrokers), including persons controlling, controlled by or under the same control as such banks or financial or other professional advisers, their directors and such directors' close relatives and related trusts and their pension funds. (A) SHAREHOLDINGS AND DEALINGS IN PACIFICORP SECURITIES Neither The Energy Group nor any of the directors of The Energy Group or member of their immediate families, owns or controls or (in the case of the directors of The Energy Group and their immediate families) is directly or indirectly interested in any securities in PacifiCorp or any securities convertible into, rights to subscribe for, or options (including traded options) in respect of, or derivatives referenced to, any such securities, nor has any such person dealt for value therein during the disclosure period. (B) SHAREHOLDINGS AND DEALINGS IN ENERGY GROUP SECURITIES (i) PacifiCorp As at the close of business on 23 June 1997 (being the latest practicable date prior to the publication of this document): (aa) PacifiCorp Retirement Plan, a discretionary pension fund of the PacifiCorp Group under independent control, owned 47,300 Energy Group Shares; (bb) the following persons deemed to be acting in concert with PacifiCorp Acquisitions owned or controlled the following Energy Group Securities:
NUMBER OF ENERGY TYPE OF ENERGY NAME GROUP SECURITIES GROUP SECURITIES ---- ---------------- ---------------- CIN Management........................ 6,517,433 Energy Group Shares Goldman, Sachs & Co. Discretionary Customer accounts...... 111,639 Energy Group Shares Goldman Sachs International Discretionary Customer accounts...... 9,000 Energy Group Shares Goldman, Sachs & Co. ................. 194,187 Energy Group ADSs
(cc) the following dealings for value in Energy Group Securities by persons deemed to be acting in concert with PacifiCorp Acquisitions have taken place during the disclosure period: Energy Group Shares
NUMBER OF ENERGY NATURE OF GROUP NAME TRANSACTION DATE SHARES PRICE ---- ----------- ------------- --------- ------------ Goldman, Sachs & Co....... Buy May 14, 1997 120,700 (Pounds)5.31 Goldman, Sachs & Co....... Sell May 14, 1997 5,700 $8.75 Goldman, Sachs & Co....... Sell May 14, 1997 115,000 $8.85 Goldman, Sachs & Co....... Buy May 16, 1997 13,700 (Pounds)5.38 Goldman, Sachs & Co....... Sell May 16, 1997 13,700 $8.82 Goldman, Sachs & Co....... Buy May 28, 1997 1,000 $9.21 Goldman, Sachs & Co....... Sell May 28, 1997 1,000 (Pounds)5.65 Goldman, Sachs & Co....... Buy June 10, 1997 2,856 (Pounds)5.63 Goldman, Sachs & Co....... Sell June 10, 1997 2,856 (Pounds)5.63
V-3
NUMBER OF ENERGY NATURE OF GROUP NAME TRANSACTION DATE SHARES PRICE ---- ----------- -------------- --------- ------------ CIN Management........... Buy April 1, 1997 14,745 (Pounds)4.99 CIN Management........... Buy April 2, 1997 200,000 (Pounds)5.06 CIN Management........... Buy April 3, 1997 100,000 (Pounds)5.00 CIN Management........... Buy April 7, 1997 350,000 (Pounds)5.06 CIN Management........... Buy April 8, 1997 250,000 (Pounds)5.04 CIN Management........... Buy April 9, 1997 100,000 (Pounds)5.01 CIN Management........... Buy April 10, 1997 100,000 (Pounds)4.90 CIN Management........... Buy April 21, 1997 100,000 (Pounds)5.02 CIN Management........... Buy April 28, 1997 250,000 (Pounds)4.94 CIN Management........... Buy May 1, 1997 14,661 (Pounds)4.89 CIN Management........... Buy May 9, 1997 250,000 (Pounds)5.23
Energy Group ADSs
NUMBER OF ENERGY NATURE OF GROUP NAME TRANSACTION DATE ADSS PRICE ---- ----------- -------------- --------- ------------- Goldman, Sachs & Co..... Buy March 26, 1997 31,100 $31.75 Goldman, Sachs & Co..... Buy March 26, 1997 15,000 $31.88 Goldman, Sachs & Co..... Sell March 26, 1997 16,100 (Pounds)19.62 Goldman, Sachs & Co..... Sell March 26, 1997 30,000 (Pounds)19.55 Goldman, Sachs & Co..... Buy March 27, 1997 1,100 $32.63 Goldman, Sachs & Co..... Buy March 27, 1997 22,900 $32.75 Goldman, Sachs & Co..... Sell March 27, 1997 24,000 (Pounds)20.12 Goldman, Sachs & Co..... Buy March 31, 1997 600 $32.13 Goldman, Sachs & Co..... Sell April 1, 1997 600 $32.75 Goldman, Sachs & Co..... Buy April 3, 1997 25,000 $32.50 Goldman, Sachs & Co..... Sell April 3, 1997 25,000 (Pounds)19.80 Goldman, Sachs & Co..... Buy April 7, 1997 100 $32.38 Goldman, Sachs & Co..... Sell April 8, 1997 100 $32.13 Goldman, Sachs & Co..... Buy April 10, 1997 10,000 $31.88 Goldman, Sachs & Co..... Buy April 10, 1997 102,500 $31.75 Goldman, Sachs & Co..... Sell April 10, 1997 10,000 (Pounds)19.72 Goldman, Sachs & Co..... Sell April 10, 1997 40,000 (Pounds)19.60 Goldman, Sachs & Co..... Sell April 10, 1997 62,500 (Pounds)19.67 Goldman, Sachs & Co..... Buy April 11, 1997 11,250 $31.88 Goldman, Sachs & Co..... Buy April 11, 1997 120,000 $31.75 Goldman, Sachs & Co..... Sell April 11, 1997 12,500 (Pounds)19.59 Goldman, Sachs & Co..... Sell April 11, 1997 18,750 (Pounds)19.62 Goldman, Sachs & Co..... Sell April 11, 1997 50,000 (Pounds)19.67 Goldman, Sachs & Co..... Sell April 11, 1997 50,000 (Pounds)19.58 Goldman, Sachs & Co..... Buy April 14, 1997 35,100 $32.13 Goldman, Sachs & Co..... Buy April 14, 1997 19,800 $32.25 Goldman, Sachs & Co..... Sell April 14, 1997 4,900 $32.25 Goldman, Sachs & Co..... Sell April 14, 1997 25,000 (Pounds)19.88 Goldman, Sachs & Co..... Sell April 14, 1997 25,000 (Pounds)19.90 Goldman, Sachs & Co..... Buy April 15, 1997 25,000 $32.75 Goldman, Sachs & Co..... Sell April 15, 1997 25,000 (Pounds)20.22 Goldman, Sachs & Co..... Sell April 17, 1997 10,000 $32.38 Goldman, Sachs & Co..... Buy April 18, 1997 12,500 $32.50 Goldman, Sachs & Co..... Sell April 18, 1997 12,500 (Pounds)19.95
V-4
NUMBER OF ENERGY NATURE OF GROUP NAME TRANSACTION DATE ADSS PRICE ---- ----------- -------------- --------- ------------- Goldman, Sachs & Co..... Buy April 21, 1997 10,000 $32.50 Goldman, Sachs & Co..... Buy April 21, 1997 12,500 $32.25 Goldman, Sachs & Co..... Buy April 21, 1997 12,500 (Pounds)20.00 Goldman, Sachs & Co..... Sell April 21, 1997 12,500 (Pounds)19.92 Goldman, Sachs & Co..... Sell April 21, 1997 12,500 $32.63 Goldman, Sachs & Co..... Buy April 22, 1997 1,500 $32.00 Goldman, Sachs & Co..... Buy April 22, 1997 16,250 $32.25 Goldman, Sachs & Co..... Sell April 22, 1997 12,500 (Pounds)19.71 Goldman, Sachs & Co..... Sell April 23, 1997 5,250 $31.88 Goldman, Sachs & Co..... Buy April 28, 1997 20,000 (Pounds)19.40 Goldman, Sachs & Co..... Sell April 28, 1997 20,000 $31.50 Goldman, Sachs & Co..... Buy May 2, 1997 72,700 $31.63 Goldman, Sachs & Co..... Sell May 2, 1997 5,000 (Pounds)19.62 Goldman, Sachs & Co..... Sell May 2, 1997 12,700 $31.63 Goldman, Sachs & Co..... Sell May 2, 1997 10,000 (Pounds)19.59 Goldman, Sachs & Co..... Sell May 2, 1997 20,000 (Pounds)19.61 Goldman, Sachs & Co..... Sell May 2, 1997 25,000 (Pounds)19.62 Goldman, Sachs & Co..... Buy May 8, 1997 25,000 $32.88 Goldman, Sachs & Co..... Sell May 8, 1997 25,000 (Pounds)20.32 Goldman, Sachs & Co..... Buy May 9, 1997 34,600 $33.88 Goldman, Sachs & Co..... Buy May 9, 1997 25,000 $34.00 Goldman, Sachs & Co..... Sell May 9, 1997 4,000 (Pounds)20.89 Goldman, Sachs & Co..... Sell May 9, 1997 25,000 (Pounds)20.91 Goldman, Sachs & Co..... Sell May 9, 1997 30,000 (Pounds)20.95 Goldman, Sachs & Co..... Buy May 14, 1997 5,500 (Pounds)21.33 Goldman, Sachs & Co..... Buy May 14, 1997 6,000 $34.63 Goldman, Sachs & Co..... Buy May 14, 1997 19,000 $34.88 Goldman, Sachs & Co..... Buy May 14, 1997 44,300 $35.00 Goldman, Sachs & Co..... Sell May 14, 1997 5,500 $34.63 Goldman, Sachs & Co..... Sell May 14, 1997 14,500 (Pounds)21.33 Goldman, Sachs & Co..... Sell May 14, 1997 25,000 (Pounds)21.25 Goldman, Sachs & Co..... Sell May 14, 1997 30,000 (Pounds)21.37 Goldman, Sachs & Co..... Buy May 19, 1997 4,400 $34.88 Goldman, Sachs & Co..... Buy May 19, 1997 40,600 $35.00 Goldman, Sachs & Co..... Sell May 19, 1997 20,000 (Pounds)21.37 Goldman, Sachs & Co..... Sell May 19, 1997 25,000 (Pounds)21.38 Goldman, Sachs & Co..... Buy May 22, 1997 28,700 $36.50 Goldman, Sachs & Co..... Sell May 22, 1997 3,700 (Pounds)22.35 Goldman, Sachs & Co..... Sell May 22, 1997 4,100 (Pounds)22.37 Goldman, Sachs & Co..... Sell May 22, 1997 10,000 (Pounds)22.36 Goldman, Sachs & Co..... Sell May 22, 1997 10,900 (Pounds)22.45 Goldman, Sachs & Co..... Buy May 30, 1997 25,000 $35.75 Goldman, Sachs & Co..... Sell May 30, 1997 25,000 (Pounds)21.82
V-5 (ii) The Energy Group (aa) At the close of business on 23 June 1997 (the latest practicable date prior to the publication of this document), the interests of the directors of The Energy Group and their immediate families, all of which are beneficial (unless stated otherwise), in Energy Group Securities, which have been notified to The Energy Group under sections 324 and 328 of the Companies Act or which were required to be entered in the register of directors' interests maintained under the provisions of section 325 of the Companies Act, are set out below:
CONDITIONAL CONDITIONAL AWARD OF ENERGY AWARD OF ENERGY GROUP SHARES GROUP SHARES UNDER THE UNDER THE ENERGY GROUP ENERGY GROUP ENERGY LONG-TERM SPECIAL GROUP INCENTIVE PLAN ADDITION BONUS DIRECTOR SHARES ("LTIP")/(2)/ SCHEME/(3)/ -------- ------ --------------- --------------- Derek C. Bonham.................. 90,870 64,285 21,428 John F. Devaney.................. 5,000 50,000 16,666 Irl F. Engelhardt................ 10,644/(1)/ 48,292 16,097 Eric E. Anstee................... 5,000 35,714 11,904 Sir Christopher Harding.......... 20,653 -- -- David P. Nash.................... 2,000 -- --
- -------- (1) Includes Energy Group Shares represented by Energy Group ADSs. (2) Under the terms of the LTIP, certain executives are granted performance- related awards of Energy Group Shares up to a maximum market value of 75% of base salary each year. The first awards, granted in February 1997, require the achievement of a total shareholder return over the relevant performance period which is greater than the return achieved by at least half of the constituents of the FTSE 100 Index for the awards to vest. 30% of the awards will vest if The Energy Group achieves a total shareholder return greater than that achieved by 50% of the comparator group, with all the awards vesting if the total shareholder return is greater than that achieved by 80% of the comparator group over the performance period. Awards will vest proportionately if total shareholder return falls between these two points. In the event of a change of control of The Energy Group, the performance period for outstanding awards will be foreshortened to the date of the change of control. (3) In recognition of the fact that the first awards under the LTIP were not due to vest, in the absence of special circumstances, until the expiration of a three year performance period, a special additional bonus scheme for certain executives was established. Under this arrangement, if earnings of the TEG Group increased by RPI plus 6% or more in each of the years ending 31 March 1998 and 1999, participants would be entitled to receive an award of Energy Group Shares, valued at the beginning of the respective year, equal to 25% of base salary for that year. These awards are payable in cash, rather than Energy Group Shares, following a change of control of The Energy Group. The Energy Group Shares conditionally awarded under each of the schemes referred to in notes (2) and (3) above were valued at 525p per share. (bb) In addition to the beneficial interests in Energy Group Securities set out above, the executive directors of The Energy Group are for the purposes of the Companies Act regarded as interested in the 4,100,891 Energy Group Shares held by The Energy Group Employee Benefit Trust (the "Trust"). These are technical interests in shares, and it is not expected that any of the executive directors will be entitled to receive from the Trust a greater number of shares than that to which he is entitled on exercise of options or the vesting of outstanding awards under the Energy Group Share Schemes. V-6
OPTIONS ISSUED PURSUANT TO THE ENERGY GROUP SHARESAVE SCHEME(/1/) ------------------------------------- NUMBER OF ENERGY EXERCISE DATE OF GROUP PRICE EXERCISE DIRECTOR GRANT SHARES (P) PERIOD -------- -------- --------- -------- --------- Derek C. Bonham........................ 25/03/97 2,363 438 4/2002 to 9/2002 John F. Devaney........................ 25/03/97 3,938 438 4/2002 to 9/2002 Eric E. Anstee......................... 25/03/97 3,150 438 4/2002 to 9/2002 Eric E. Anstee......................... 25/03/97 419 465 4/2000 to 9/2000
(1) Under the Energy Group Sharesave Scheme, options over Energy Group Shares may be granted at a price equivalent to not less than 80% of the market value of Energy Group Shares at the time when participation in the scheme is offered, and are normally exercisable three or five years after the date of grant. (cc) At the close of business on 23 June 1997 (being the latest practicable date prior to the publication of this document): Morgan Stanley Capital (Luxembourg) SA held 67,860 Energy Group Shares, Dean Witter Inter-Capital held 1,225,000 Energy Group Shares; Morgan Stanley Asset Management Inc. held 4 Energy Group Shares and 57,514 Energy Group ADSs; Van Kampen American Capital Inc. held 80,000 Energy Group ADSs; and person(s) whose investments are managed on a discretionary basis by Cazenove Financiere held 390 Energy Group Shares. (dd) The following dealings for value in Energy Group Securities by the directors of The Energy Group and members of their immediate families have taken place during the disclosure period:
NUMBER OF TYPE OF ENERGY ENERGY PRICE NATURE OF GROUP GROUP PER DIRECTOR TRANSACTION DATE SECURITIES SECURITIES SECURITY -------- ----------- -------- ---------- ---------- -------- John F. Devaney.......... Purchase 26/02/97 5,000 Ordinary 541p Irl F. Engelhardt........ Purchase 11/03/97 1,875 ADSs $34.00 Eric E. Anstee........... Purchase 26/02/97 5,000 Ordinary 539p David P. Nash............ Purchase 09/04/97 2,000 Ordinary 501p
(ee) Save as disclosed above: (i) neither PacifiCorp Acquisitions, nor any director of PacifiCorp Acquisitions or any member of his immediate family or his related trusts, nor any person acting in concert with PacifiCorp Acquisitions, nor any person who prior to the publication of this document committed himself to accept the Offer, owns or controls or (in the case of a director of PacifiCorp Acquisitions) is interested in any relevant securities, nor has any such person dealt for value in such securities during the disclosure period; (ii) neither The Energy Group, nor any director of The Energy Group or any member of his immediate family or his related trusts, owns or controls or (in the case of a director of The Energy Group) is interested in any relevant securities, nor has any such person dealt for value in such securities during the disclosure period; (iii) neither any subsidiary of The Energy Group, nor any pension fund of any member of the TEG Group, nor any bank, financial or other professional adviser to The Energy Group (including stockbrokers but excluding exempt market-makers), including any person controlling, controlled by or under the same control as any such bank, financial or other professional adviser nor any person whose investments are managed on a discretionary basis by a fund manager (other than an exempt fund manager) connected with The Energy Group owns or controls any relevant securities, V-7 nor has any such person dealt for value therein during the period commencing on 10 June 1997 (being the date of the announcement by The Energy Group that it was involved in talks with PacifiCorp in connection with the Offer) and ending on 23 June 1997 (the latest practicable date prior to the publication of this document); (iv) neither PacifiCorp Acquisitions nor any person acting in concert with PacifiCorp Acquisitions has any arrangement with any person in relation to relevant securities; and (v) neither The Energy Group nor any associate of The Energy Group has any arrangement with any person in relation to relevant securities. 5. IRREVOCABLE UNDERTAKINGS Certain of the directors of The Energy Group have given irrevocable undertakings to accept or procure acceptance of the Offer in respect of their personal holdings of Energy Group Securities. Details of Energy Group Securities subject to those undertakings are as follows:
DIRECTOR ENERGY GROUP SHARES ENERGY GROUP ADSS -------- ------------------- ------------------- Derek C. Bonham.................... 84,000 -- John F. Devaney.................... 5,000 -- Irl F. Engelhardt.................. -- 1,550 Eric E. Anstee..................... 5,000 -- Sir Christopher Harding............ 20,385 -- David P. Nash...................... 2,000 -- Pursuant to the undertakings, the directors covenant, subject to their fiduciary duties as directors, (i) in the announcement of the Offer and in the offer document for the Offer, to recommend all shareholders of The Energy Group to accept the Offer, (ii) to co-operate with The Energy Group in the production of an offer document containing the Offer and, among other things, the information required by Rules 24 and 25 of the City Code and to take responsibility for the information in the offer document relating to The Energy Group, its directors, their close families and any related companies and trusts in the terms required or permitted by Rule 19.2 of the City Code, and (iii) not to solicit any general offer for Energy Group Shares or any other class of its shares from any third party or any proposal for a merger of The Energy Group with any other entity. 6. SERVICE AGREEMENTS OF THE DIRECTORS OF THE ENERGY GROUP AND RELATED MATTERS All executive directors of The Energy Group (other than Mr. Engelhardt) entered into service agreements with The Energy Group at the time of its demerger from Hanson. Mr. Engelhardt's service agreement is with Peabody Holding. Mr. Engelhardt's contract was entered into in 1987, and was amended on 27 January 1997 with effect from 24 February 1997 in the context of the Demerger. Details of the service agreements of the directors of The Energy Group are as follows: DIRECTOR DATE BASIC ANNUAL SALARY -------- ------------------- ------------------- Derek C. Bonham.................... 27 January 1997 (Pounds)450,000 John F. Devaney.................... 27 January 1997 (Pounds)350,000 Irl F. Engelhardt.................. 16 September 1987 $ 550,000 Eric E. Anstee..................... 27 January 1997 (Pounds)250,000
Each of the executive directors' service agreements (other than that of Mr Engelhardt, who is resident and works in the US) is terminable either by The Energy Group giving 52 weeks' notice or the executive director giving 26 weeks' notice, unless there is a change of control in The Energy Group within two years after 24 February 1997, in which case the period of notice required to be given by V-8 The Energy Group increases to 104 weeks until 12 months after the date of the relevant change of control when that notice period reverts to 52 weeks. Mr Bonham's service agreement expires on his 60th birthday, those of Messrs Devaney and Anstee on their respective 63rd birthdays and that of Mr Engelhardt on his 65th birthday. On a change of control of The Energy Group and if (a) either The Energy Group summarily terminates the employment of any of the executive directors (other than Mr Engelhardt) (other than for cause), directly or indirectly in connection with that change of control, within 12 months or (b) any such executive director terminates his employment within 12 months of a change of control by giving The Energy Group 28 days' notice, then that director is entitled to: (i) payment of a sum equivalent to gross salary for a period equal to the notice period required to be given by The Energy Group; (ii) cash compensation in respect of contractual benefits (or, at The Energy Group's option, a continuation of those contractual benefits) for such period; (iii) (save in the case of Mr Bonham) cash compensation (or at The Energy Group's option, augmentation) in respect of loss of pension entitlement (including unfunded retirement benefits) for a two year period; and (iv) compensation for loss of expectation of annual bonuses calculated over the applicable notice period by reference to salary at that time. Peabody Holding may terminate Mr Engelhardt's service agreement without cause, by giving 90 days' notice. In such event, Mr Engelhardt would be entitled to: (i) a payment of a sum equivalent to gross salary for a 30 month period (either in a lump sum or in a semi-monthly basis at Mr Engelhardt's option); (ii) the provision of contractual benefits and executive perquisites for a 30 month period; (iii) pension entitlement for a 30 month period; (iv) the matching amount under the Peabody savings plans for a 30 month period; and (v) annual cash payments by way of compensation for loss of expectation of annual bonus, equivalent to three payments of 75 per cent. of base salary in the immediately preceding year on each 1 March in the three years following the termination date. In the event of termination of Mr Engelhardt's service agreement, Peabody Holding will also provide an office and executive secretarial support during the 30 month period. In lieu of providing 90 days' notice, Peabody Holding may provide compensation, pension and all other benefits for such 90 day period. Each of the executive directors is entitled to participate in the LTIP, the Annual Incentive Compensation Plan for Key Employees and the Energy Group Sharesave Scheme, except that Mr Engelhardt is entitled to participate in a Peabody Savings Plan and an unfunded supplemental savings plan and is not entitled to participate in the Energy Group Sharesave Scheme. Details of the directors' interests in Energy Group Securities under each of these arrangements are set out in paragraph 4(a) above. In addition, each of the executive directors is entitled to certain other benefits in kind, including the provision of a fully expensed motor car and medical insurance. In recognition of the fact that the first awards under the LTIP were not scheduled to vest (in the absence of a change of control) until after the expiration of the applicable three year performance period, each of the executive directors is eligible to participate in a special additional bonus scheme. Under this arrangement, if the earnings of the TEG Group increase by a factor equal to or exceeding RPI plus six per cent. in the years ending 31 March 1998 and 31 March 1999 respectively, compared to the preceding year, participants will be entitled to receive an amount of Energy Group Shares valued as at the beginning of that year equal to 25 per cent. of their base salary in respect of each such year. Details of the executive directors' interests in Energy Group Shares under this arrangement are set out in paragraph 4(b)(ii)(aa) above. V-9 In the event of a change of control of The Energy Group and a continuation of their service agreements until The Energy Group's accounting reference date in 1999, each of the executive directors is entitled to payment under the special additional bonus scheme referred to above in respect of each year in cash. In the event of a change of control of The Energy Group and the termination of their service agreements prior to The Energy Group's accounting reference date in 1999, each of the executive directors is entitled to payment under the special additional bonus scheme referred to above in respect of each year in cash, calculated by reference to their base salary on termination. Each of the executive directors is entitled to participate in an annual bonus scheme based upon the achievement of annual profit targets prescribed by the remuneration committee of The Energy Group. These targets relate to: (i) in the case of Messrs Bonham and Anstee, the profits of the TEG Group taken as a whole; (ii) in the case of Mr Devaney, 50 per cent. of the profits of the TEG Group taken as a whole and 50 per cent. of the profits of Eastern; (iii) in the case of Mr Engelhardt, 50 per cent. of the profits of the TEG Group taken as a whole and 50 per cent. of the profits of Peabody. Payments under the annual bonus scheme are capped at 50 per cent. of the base salary for each of Messrs Bonham, Anstee and Devaney and 75 per cent. of base salary in the case of Mr Engelhardt. However, each of Messrs Bonham, Anstee and Devaney may elect at the commencement of the financial year concerned to take their bonus in whole or in part on a deferred basis in Energy Group Shares in lieu of cash, and if they do so and remain in employment with the TEG Group for a further three years, they would receive, three years after the cash bonus would otherwise be payable, Energy Group Shares equal to a maximum of 66.7 per cent. of base salary (the number of such shares being calculated at the date when the cash bonus would otherwise have been paid). Any such elections cease to have effect upon a change of control of The Energy Group and payments will be made in cash. Save as set out in this paragraph 6, there are no service agreements between any of the directors of The Energy Group and any member of the TEG Group which have unexpired terms exceeding one year and save as aforesaid, no such service agreements have been entered into or amended since 27 January 1997 (the date on which the current arrangements were put in place). 7. OTHER INFORMATION (a) PacifiCorp has stated that, subject to all Conditions being satisfied, fulfilled or, where permitted, waived, it intends to invite Mr Derek Bonham and Mr John Devaney to join the board of directors of PacifiCorp. In addition, PacifiCorp intends, following the Acquisition, to form a management committee which will co-ordinate the activities of the combined group and which it will invite Mr Derek Bonham, Mr John Devaney, Mr Eric Anstee and Mr Irl Engelhardt of The Energy Group to join. Mr Frederick Buckman will remain as President and Chief Executive of PacifiCorp, Mr Richard O'Brien as Chief Financial Officer and Mr Verl Topham as Senior Vice President and General Counsel. PacifiCorp Acquisitions has also indicated that the existing service agreements of the executive directors of The Energy Group and all other employees of the TEG Group will be honoured. Detailed terms upon which the executive directors of The Energy Group may be invited to take up the positions within the combined group as described above have not yet been proposed by PacifiCorp or agreed by the executive directors of The Energy Group. Save as disclosed in this document, there is no agreement, arrangement or understanding (including any compensation arrangement) between PacifiCorp Acquisitions or any person acting in concert with it for the purposes of the Offer and any of the directors, recent directors, shareholders or recent shareholders of The Energy Group having any connection with or dependence upon, or which is conditional on, the outcome of the Offer. V-10 (b) No proposal exists in connection with the Offer for any payment or other benefit to be made or given by PacifiCorp Acquisitions or any person acting in concert with it for the purpose of the Offer to any director of The Energy Group as compensation for loss of office or as consideration for or in connection with his retirement from office. (c) There is no agreement, arrangement or understanding whereby the beneficial ownership of any of the Energy Group Securities to be acquired pursuant to the Offer will be transferred to any other person. (d) Goldman Sachs International, Lazard and Morgan Stanley have given and not withdrawn their respective written consents to the issue of this document with the references to their names, including, in the case of Goldman Sachs International, the reference to its valuation of the Loan Notes, in the form and context in which they appear. Goldman Sachs International, Lazard and Morgan Stanley are regulated in the United Kingdom by The Securities and Futures Authority Limited. (e) Save as disclosed in this document, there has been no material change in the financial or trading position of PacifiCorp since 31 December 1996 or the financial or trading position of The Energy Group since 31 March 1997. (f) Goldman Sachs International is satisfied that the financial resources necessary to implement the Offer in full are available to PacifiCorp Acquisitions. 8. MATERIAL CONTRACTS (a) In addition to the financing arrangements referred to in paragraph 10 below, the following contracts, not being contracts entered into in the ordinary course of business, have been entered into by PacifiCorp and/or PacifiCorp Acquisitions since 10 June 1995 (being two years prior to the commencement of the Offer period) and are or may be material: (i) an agreement, dated 16 November 1995, by and between State Electricity Commission of Victoria, as seller, The Honourable Alan Robert Stockdale, PacifiCorp Australia Holdings Pty Ltd, as buyer and asset buyer, and PacifiCorp Holdings, Inc., as guarantor, related to the sale of the ordinary shares of Powercor Australia Limited, ACN 064 651 109, an Australian electric distribution utility, to PacifiCorp Australia Holdings Pty Ltd for A$1.65 billion; (ii) an agreement, dated 16 November 1995, by and between Powercor Australia Limited, ACN 064 651 109, as seller, and PacifiCorp Australia Holdings Pty Ltd, ACN 068 231 005, as asset buyer, related to the sale of the assets of Powercor Australia Limited for A$1.65 billion; (iii) an agreement, dated 12 December 1995, by and between PacifiCorp Australia Holdings Pty Ltd, ACN 068 231 005, as seller, and Powercor Australia Limited, ACN 064 651 109, as asset buyer, related to the sale of the assets of PacifiCorp Australia Holdings Pty Ltd to Powercor Australia Limited for A$1.65 billion; (iv) an agreement, dated 11 June 1997, by and between PacifiCorp Holdings, Inc., Pacific Telecom, Inc. (a wholly owned subsidiary of PacifiCorp Holdings, Inc.), Century Telephone Enterprises, Inc., and Century Cellunet, Inc. (a wholly owned subsidiary of Century Telephone Enterprises, Inc.), pursuant to which Century Cellunet, Inc. has agreed to purchase from Pacific Telecom, Inc. the stock of Pacific Telecom Cellular, Inc. and of Pacific Telecom Cellular of Alaska, Inc. (collectively, the "Cellular Stock"), and Century Telephone Enterprises, Inc. has agreed to purchase the stock of Pacific Telecom, Inc. PacifiCorp Holdings, Inc. will receive $1.523 billion in cash (including the $240 million to be paid by Century Cellunet, Inc. for the Cellular Stock, which amount will be distributed to PacifiCorp Holdings, Inc. in the form of a dividend immediately prior to the closing of the sale of stock of Pacific Telecom, Inc.); and (v) an agreement and plan of merger dated as of 11 March 1997 by and among TPC Corporation, PacifiCorp Holdings, Inc. and Power Acquisition Company, entered into in V-11 connection with the cash tender offer by Power Acquisition Company for all the outstanding shares of capital stock of TPC Corporation at a purchase price of $13.41 per share. (b) The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by The Energy Group or its subsidiaries since 10 June 1995 (being two years prior to the commencement of the Offer period) and are or may be material: (i) an agreement dated 27 January 1997 between (1) Hanson and (2) The Energy Group (the "Demerger Agreement") pursuant to which the parties agreed the terms on which The Energy Group would be demerged from Hanson. The Demerger Agreement provided for the repayment of certain inter-company debt prior to the Demerger and contains certain provisions under which each of the parties agreed after the Demerger to transfer or assign its interest (if any) in any assets belonging to the other party for no consideration. Each of Hanson and The Energy Group also agreed that it would use all reasonable endeavours after the Demerger to obtain a full and effective release of each member of the other's group from any guarantees, indemnities, counter-indemnities and letters of comfort (if any) which the other's group may have given in respect of its group. Hanson and The Energy Group have also agreed under the terms of the Demerger Agreement to enter into various ancillary arrangements including arrangements relating to indemnification against certain tax liabilities; (ii) an indemnification agreement under the terms of which the TEG Group agreed to indemnify Hanson against all "TEG Liabilities" as therein defined, being, broadly, all liabilities (other than tax, which was dealt with in other documents and liabilities arising from transactions in the ordinary course of business) past, present or future of any of the businesses or assets acquired by the TEG Group pursuant to the Demerger including (except as expressly otherwise provided) any former businesses or assets of any companies within the TEG Group. Hanson likewise agrees to indemnify the TEG Group against all "Hanson Liabilities" as therein defined being, broadly, all liabilities (other than tax, which was dealt with in other documents and liabilities arising from transaction in the ordinary course of business) past, present or future of Hanson and any subsidiary past, present or future of Hanson other than the "TEG Parties" (as therein defined); (iii) a stock purchase agreement dated as of 24 February 1997 between (1) Peabody US Holdings Inc. ("PUSH"), (2) GFAC International Holdings Inc. ("GFAC"), (3) Hanson and (4) The Energy Group pursuant to which PUSH sold and GFAC purchased the entire issued share capital of Peabody Holding for a cash consideration of $1,637.5 million; (iv) an agreement dated 5 August 1996 between (1) The Energy Group, (2) Citibank International plc (as Agent), (3) Barclays Bank PLC and Midland Bank plc (as Arrangers) and (4) the Banks named therein relating to (Pounds)1,000 million revolving credit facilities for the purposes of repaying certain outstanding indebtedness to Hanson and certain of its subsidiaries and for the general corporate purposes of The Energy Group and its subsidiaries; (v) (aa) a deed of assignment of rents dated 28 October 1996 between Eastern Merchant Properties Limited ("EMPL"), Eastern Group Finance Limited and Barclays Bank PLC for itself and as agent for others by which for a period of five years the rights of EMPL to receive the rental income for those years in relation to the leased power station facilities at Drakelow C, High Marnham, Ironbridge, Rugeley B and West Burton were assigned for a capital payment equal to the discounted aggregate value of the rental stream (approximately (Pounds)1,097 million) and, in certain tax-related or default-related events, assignee banks have the right to sell (and at any time EMPL has the right to require the banks to sell) their participations in the rental receivables then outstanding to a buyer recommended by the Guarantors (as defined therein); and (bb) a deed of guarantee and indemnity dated 28 October 1996 by which Eastern Group plc and Eastern Generation Limited provided a guarantee and indemnities and certain undertakings and other provisions containing protections in favour of the assignee banks and their sub-participants in respect of certain claims, liabilities and losses; V-12 (vi) a standby facility agreement dated 28 October 1996 between Eastern Group plc and Eastern Generation Limited as guarantors, EMPL and Eastern Merchant Generation Limited ("EMGL") as obligors, The Industrial Bank of Japan, Limited ("IBJ") as arranger and as agent for the financial institutions listed therein as lenders, and such lenders, whereby the lenders have agreed to make available committed funds in the amount equal to that required under the documentation described at (v) above to be paid to the assignee banks if they sell their participations in the rents as provided therein, but subject to a maximum availability of (Pounds)1,050 million; and (vii) agreements relating to the securing of EMPL's obligations for the payment by it under an irrevocable payment direction deed of part of certain deferred lease premiums payable under EMPL's lease of three of the properties referred to in (v) above and the variation of the terms of a facility agreement dated 1 July 1996, as amended and restated on 8 August 1996, between EMGL, EMPL, Eastern Electricity plc, IBJ, (as arranger and as agent for the banks and participants listed therein), and such banks and participants, by the cash- collateralisation of such deferred lease premiums and accrued interest, in the aggregate amount of (Pounds)408 million, and the variation of the guarantee thereof, such agreements comprising: (i) three charges on cash dated 28 October 1996 from EMPL in favour of IBJ, The Bank of Nova Scotia and Societe Generale; and (ii) a deferred premium settlement deed dated 28 October 1996 between EMPL, EMGL, Eastern Electricity plc, IBJ for itself and as agent and arranger, and the banks and the participants named therein, containing the terms on which the irrevocable payment direction deed and the facility agreement referred to above were agreed to be varied. 9. BACKGROUND TO THE OFFER In January 1996, Hanson announced its intention to demerge its respective chemical, tobacco and energy interests. Beginning in the last quarter of 1996, as part of its ongoing strategic review, PHI began to focus increasingly on the possibility of a combination with or acquisition of the energy businesses of Hanson as one of the more promising of the various possible transactions it was considering. In January 1997, the PacifiCorp Group engaged Goldman, Sachs & Co. as its financial adviser with respect to evaluating any potential transaction involving the energy businesses of Hanson. Shortly thereafter, PHI, together with the legal and financial advisers and consultants to the PacifiCorp Group began its due diligence review of publicly available information with respect to The Energy Group, including a review of the Energy Group Listing Particulars. Previously, at a meeting in December 1996 between Frederick W. Buckman, President and Chief Executive Officer of PacifiCorp, and Irl F. Engelhardt, Chief Executive Officer of Peabody, who have known each other and have met from time to time since 1994, Mr Buckman expressed a general desire to pursue opportunities with Hanson. Mr Engelhardt informed Mr Buckman that Hanson was committed to the proposed demerger of The Energy Group and had no intention of entering into discussions with any party in relation to the possible disposal of the energy businesses of Hanson. On 24 February 1997, Hanson demerged The Energy Group, a newly-formed public limited company incorporated under the laws of England and Wales to hold the international energy businesses of Hanson. On 3 April 1997, Mr. Buckman contacted Derek Bonham, Chairman of The Energy Group, suggesting that they meet to discuss items of mutual interest to their respective companies, and they agreed to meet in New York on 17 April 1997. On 9 April 1997, while touring the United States in order to introduce John F. Devaney, Chief Executive of Eastern, to a number of utility chief executive officers, Mr Devaney and Mr Engelhardt met with Mr Buckman and other senior executives of PacifiCorp, but did not have any substantive discussions relating to any proposed transaction, although the scheduled meeting with Mr. Bonham was noted. V-13 On 17 April 1997, a meeting was held, attended by Mr Buckman and Richard T. O'Brien, Senior Vice President and Chief Financial Officer of PacifiCorp, and Mr Bonham and Eric E. Anstee, Finance Director of The Energy Group. Mr. Buckman proposed that the companies examine ways that they might combine, including a merger or an acquisition of one party by the other, and the parties agreed to speak further at a later date. On 29 April 1997, Mr Buckman and Mr Bonham met again and discussed the possibility of a recommended offer by PHI for The Energy Group, but failed to agree on valuation. On 8 and 9 May 1997, senior executives of PHI, together with representatives of the PacifiCorp Group's financial adviser, Goldman, Sachs & Co., and The Energy Group, together with representatives of Morgan Stanley, met to discuss a possible offer for The Energy Group, again failing to reach an agreement, but narrowing the difference on price between them. The parties concluded that further discussions would be worthwhile, and PacifiCorp and The Energy Group executed a confidentiality and mutual standstill agreement on 9 May 1997. That agreement provided that PacifiCorp and The Energy Group would deal with each other exclusively for a period of 28 days, subject to the fiduciary duties of each company's directors. Over the course of the subsequent weeks, PHI proceeded to complete its due diligence review and to resolve with The Energy Group substantially all the outstanding issues in relation to a possible offer, other than price. On 6 June 1997, Mr Buckman proposed a price per share of 690 pence (without provision for a dividend). Mr Bonham agreed to put the matter to his board. On 9 June 1997, the board of directors of The Energy Group met to consider the discussions that had taken place with PacifiCorp. On 10 June 1997, the boards of directors of PacifiCorp and PHI met to consider making an offer for all the outstanding Energy Group Securities upon terms presented to the boards of directors by senior executives of PHI and its legal and financial advisers. Senior executives of PHI reviewed the terms of the proposed offer with the respective boards of directors and reported on the due diligence examination of the TEG Group conducted by the counsel, consultants and advisers of PHI. Subject to agreement as to the offer price and the finalisation of banking facilities, the board of directors of PacifiCorp approved a resolution supporting the making of the Offer and the board of directors of PHI approved the making of the Offer. On 10 June 1997, following discussion with the Panel, The Energy Group issued a press release announcing that it was in talks with PacifiCorp which might lead to a recommended cash offer for The Energy Group and that, if such an offer were to be made, it would be expected to be at a premium of about 20 per cent. to that day's Closing Price of 580 pence per Energy Group Share. On 11 June 1997, subject to agreement as to the offer price and the finalisation of banking facilities, the board of directors of PacifiCorp Acquisitions approved the Offer. On the same day, Mr O'Brien sent a letter to The Energy Group containing an offer at a price of 690 pence per Energy Group Share, plus a dividend of 5.5 pence (net) per Energy Group Share, subject to (i) the board of directors of The Energy Group unanimously recommending such offer, (ii) PacifiCorp Acquisitions finalising its banking facilities and (iii) those directors of The Energy Group who had personal holdings of Energy Group Securities irrevocably undertaking to accept such offer. Later that day, PHI was informed that the board of directors of The Energy Group, having been so advised by Lazard and Morgan Stanley, its financial advisers, had unanimously concluded that the terms of the Offer were fair and reasonable and had decided to recommend that all holders of Energy Group V-14 Shares and Energy Group ADSs accept the Offer. In providing advice to the board of The Energy Group, Lazard and Morgan Stanley took account of the board's commercial assessment of the Offer. In addition, those directors of The Energy Group who had personal holdings of Energy Group Securities agreed to enter into irrevocable undertakings to accept the Offer in respect of those holdings of 116,385 Energy Group Shares and 1,550 Energy Group ADSs. Following execution of the financing arrangements described in paragraph 10 below and execution of the irrevocable undertakings referred to above, the parties issued a press release publicly announcing the Offer on 13 June 1997. 10. FINANCING ARRANGEMENTS (A) GENERAL PacifiCorp Acquisitions estimates that the total amount of funds necessary to purchase pursuant to the Offer all Energy Group Securities that are outstanding, and to pay estimated fees and expenses of the Offer including the costs of any proposals made to participants in the Energy Group Share Schemes, will be approximately (Pounds)3,745 million. In addition, PacifiCorp Acquisitions estimates that additional funds of up to approximately (Pounds)787 million may be required to refinance certain debt of the TEG Group. The funds needed for these purposes will principally come from the proceeds of borrowings under four bank credit facilities described below, namely, the PacifiCorp Acquisitions Facility, the Powercoal Facility, the EnergyCo Facility and the PHI Facility (collectively, the "Facilities"). Payments of interest and principal on the Facilities will be funded partly out of income received by the PacifiCorp Group from its investment in the TEG Group and partly from sources within the PacifiCorp Group, including sales of certain assets of the PacifiCorp Group. To the extent that the loans under the Facilities are made to holding companies of PacifiCorp Acquisitions and/or to its fellow subsidiary, Powercoal, those companies will assist PacifiCorp Acquisitions in funding the Offer and in refinancing certain existing debt of the TEG Group by making available to PacifiCorp Acquisitions, directly or indirectly, the requisite part of such proceeds, net of expenses. This will be done by a combination of capital contributions to PacifiCorp Acquisitions and its intermediate holding companies, and inter-company loans directly or indirectly to PacifiCorp Acquisitions from its direct and indirect holding companies, and from Powercoal. Each of the Facilities contains conditions, representations and warranties, undertakings and financial covenants and events of default provisions customarily required for similar financings. Such covenants include, among other things, (i) agreements to not alter certain terms of the Offer, (ii) agreements to cause the entities (other than Lee Ranch Coal Company) holding Peabody's US coal operations (the "Peabody Subsidiaries"), as well as PacifiCorp Power Marketing, Inc. ("PPM"), to be transferred to Powercoal within 270 days of the initial borrowing under the Facilities, (iii) agreements to repay certain indebtedness of certain members of the PacifiCorp Group and the TEG Group within specified time periods, (iv) negative pledges, (v) restrictions on sales of assets and incurrence of debt, (vi) restrictions on payments of dividends and intercompany and subordinated debt and (vii) restrictions on mergers. Such events of default include, among other things, (a) failure to make payments under other indebtedness, (b) defaults under other indebtedness which permit acceleration of such other indebtedness and (c) changes of control of certain members of the PacifiCorp Group. A breach of any such condition, representation, warranty, undertaking or covenant or the occurrence of an event of default may, amongst other things, result in the commitments under the relevant Facilities being terminated and/or the amounts then outstanding under the relevant Facility becoming or being declared immediately due and payable in whole or in part. The Facilities, other than the PacifiCorp Acquisitions Facility, provide for the borrowing of US dollars. To ensure that PacifiCorp Acquisitions will have sufficient pounds sterling available to purchase all outstanding Energy Group Securities and to satisfy other obligations denominated in pounds sterling in case of a change in the dollar/pound exchange rate, the PacifiCorp Group has entered, and will V-15 enter, into option contracts which give the PacifiCorp Group the right to purchase pounds sterling at fixed prices. (B) PACIFICORP ACQUISITIONS FACILITY A facility agreement dated 13 June 1997 (the "PacifiCorp Acquisitions Facility Agreement") has been entered into by (i) PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited and PacifiCorp Acquisitions as guarantors, (ii) PacifiCorp Acquisitions as borrower, (iii) Citibank, N.A., Goldman Sachs International and J.P. Morgan Securities Ltd. as arrangers, (iv) Citibank, N.A., Goldman Sachs Credit Partners L.P. and Morgan Guaranty Trust Company of New York as original lenders, (v) Citibank International plc as facility agent and (vi) Citibank, N.A., as security agent and LC Bank, relating to a (Pounds)2,250 million term loan facility (the "PacifiCorp Acquisitions Term Loan Facility") and a (Pounds)600 million revolving credit facility (the "PacifiCorp Acquisitions Revolving Loan Facility") (together, the "PacifiCorp Acquisitions Facility"). The PacifiCorp Acquisitions Term Loan Facility is available for, inter alia, (a) acquiring the Energy Group Securities, (b) refinancing certain outstanding indebtedness of the TEG Group and (c) payment of costs incurred in connection with the Offer, provided that the amount of such facility that may be used to acquire Energy Group Securities is (Pounds)1,620 million. The PacifiCorp Acquisitions Revolving Loan Facility is available for, inter alia, (a) refinancing certain outstanding indebtedness of the TEG Group and (b) the general corporate purposes of PacifiCorp Acquisitions and its subsidiaries. The PacifiCorp Acquisitions Term Loan Facility consists of a two tranche sterling term loan facility. The PacifiCorp Acquisition Revolving Loan Facility consists of a multicurrency advance and letter of credit facility. The final maturity date of the PacifiCorp Acquisitions Facility is five years from the date of the PacifiCorp Acquisitions Facility Agreement. Interest is calculated by reference to the London Inter-Bank offered rate ("LIBOR"), plus an applicable margin ranging from 0.35 per cent. to 1.3 per cent. (depending on the level of gearing and the identity of the borrower) and certain mandatory liquid asset and reserve asset costs. A debenture (the "Debenture") dated 13 June 1997 between PacifiCorp Services Limited, PacifiCorp Finance (UK) Limited, PacifiCorp Acquisitions (the "Chargors") and Citibank, N.A. as security agent provides that borrowings under the PacifiCorp Acquisitions Facility Agreement (i) are secured by way of a charge on the shares of PacifiCorp Finance (UK) Limited and PacifiCorp Acquisitions and (ii) once members of the TEG Group are able to provide financial assistance (as discussed below under "Proposed reorganisation of coal assets"), will be guaranteed by The Energy Group, Rollalong Limited, Rollalong Hire Limited and Eastern Group PLC (the "Additional Chargors") and secured by way of a charge on the shares of their directly-held subsidiaries. The Debenture also creates a first floating charge on all the undertakings and assets of the Chargors and Additional Chargors, with certain initial exceptions. The PacifiCorp Acquisitions Facility Agreement also provides that, under certain circumstances, The Energy Group and its subsidiaries may become direct borrowers thereunder. (C) POWERCOAL FACILITY A credit agreement dated as of 12 June 1997 (the "Powercoal Agreement") has been entered into by (i) Powercoal as borrower, (ii) Morgan Guaranty Trust Company of New York, Citibank N.A., and Goldman Sachs Credit Partners L.P. as original lenders and (iii) Morgan Guaranty Trust Company of New York as paying agent, collateral agent, issuing bank and swingline lender, relating to a $1,050 million two-tranche term loan facility (the "Powercoal Term Loan Facility") and a $575 million revolving credit facility (the "Powercoal Revolving Credit Facility") (together, the "Powercoal Facility"). The Powercoal Term Loan Facility, together with the proceeds of an equity contribution received by Powercoal from PacifiCorp Group Holdings Company ("PGHC"), is available to fund a loan (the "Powercoal/PA Loan") by Powercoal to PacifiCorp Acquisitions and to pay fees and expenses related to the Offer. The Powercoal/PA Loan will be evidenced by a loan note issued by PacifiCorp V-16 Acquisitions in favour of Powercoal. The proceeds of the Powercoal/PA Loan will be used to finance the Offer. The Powercoal Revolving Credit Facility is available to (i) refinance certain existing indebtedness of the TEG Group and (ii) fund the general corporate purposes of Powercoal and its subsidiaries. Loans incurred under the Powercoal Term Loan Facility are to be repaid in quarterly instalments over approximately 6 years in the case of borrowings under one tranche of the Powercoal Term Loan Facility ("Tranche A Loans") and 8 years, in the case of borrowings under the second tranche ("Tranche B Loans"). The final maturity date of the revolving credit facility is 12 June 2003. Interest on Tranche A Loans is calculated, at the option of Powercoal, by reference to (i) LIBOR plus an applicable margin ranging from 0.75 per cent. to 2.5 per cent., depending on the leverage ratio of Powercoal and its consolidated subsidiaries as at the end of its most recent fiscal quarter (the "Applicable Leverage Ratio") or (ii) a US dollar Base Rate (which is the greatest of an announced Prime Rate and certain customary market rates) plus an applicable margin ranging from zero to 1.5 per cent., depending on the Applicable Leverage Ratio. Interest on Tranche B Loans is calculated by reference to (i) LIBOR plus an applicable margin ranging from 2 per cent. to 3 per cent., depending on the Applicable Leverage Ratio or (ii) the Base Rate plus an applicable margin ranging from 1 per cent. to 2 per cent., depending on the Applicable Leverage Ratio. As a condition to the funding of the Powercoal Facility, PHI will cause to be transferred to Powercoal all of the stock of TPC Corporation ("TPC"), PHI's natural gas marketing subsidiary, as well as a portion of the proceeds of the PHI Facility. The Powercoal Facility will be secured by (i) all of the outstanding stock of Powercoal, (ii) all of the outstanding stock of TPC, (iii) substantially all of TPC's assets and (iv) the note evidencing the Powercoal/PA Loan. Powercoal's obligations under the Powercoal Facility will be guaranteed by TPC. Additionally, following the transfer of the Peabody Subsidiaries to Powercoal as described below under "Proposed reorganisation of coal assets", the Powercoal Facility will be secured by substantially all of the assets of the Peabody Subsidiaries and each Peabody Subsidiary will guarantee Powercoal's obligations under the Powercoal Facility. Following the contemplated transfer of PPM to Powercoal, the Powercoal Facility will be secured by a pledge of PPM's stock and assets and PPM will guarantee Powercoal's obligations under the Powercoal Facility. (D) ENERGYCO FACILITY A bridge loan agreement dated as of 12 June 1997 (the "Bridge Loan Agreement") has been entered into by (i) PacifiCorp EnergyCo ("EnergyCo") as borrower, (ii) PGHC as guarantor, (iii) Goldman Sachs Credit Partners L.P., Morgan Guaranty Trust Company of New York and Citibank N.A. as arrangers and lenders and (iv) Citibank N.A. as paying agent, relating to $1,575 million unsecured bridge term loans facility (the "EnergyCo Facility"). The proceeds of bridge loans under the EnergyCo Facility are to be used primarily to provide PacifiCorp Acquisitions, through certain of EnergyCo's subsidiaries, with funds to finance, in part, the Offer and fees and expenses in connection with the Offer and to provide EnergyCo with funds to pay interest on loans made under the Bridge Loan Agreement. The obligations of EnergyCo under the Bridge Loan Agreement have been guaranteed by PGHC. Promptly following the purchase of Energy Group Securities in the Offer, EnergyCo intends to seek to refinance the borrowings under the EnergyCo Facility with longer term financing. To the extent not previously prepaid, all borrowings under the EnergyCo Facility will be repayable on the first anniversary of initial funding (the "Closing Date") under the Bridge Loan Agreement. However, EnergyCo has an option to extend the maturity date of the bridge loans to the tenth anniversary of the Closing Date, provided certain default type events have not occurred and are not continuing on the first anniversary of the Closing Date. Interest during the one year period following the Closing Date is calculated, at the option of EnergyCo, by reference to LIBOR (plus certain reserve costs) or a US dollar "Base Rate" plus an initial applicable margin, in the case of interest calculated by reference to LIBOR, V-17 of 4 per cent. and, in the case of interest determined by reference to a US dollar "Base Rate", of 3 per cent. The EnergyCo Facility provides for incremental increases in the applicable margin to occur 180 days after first utilisation of the EnergyCo Facility and at the end of each 90 day period thereafter. If the maturity date of the bridge loans is extended, as described above, then interest on the bridge loans shall be calculated by reference to formulas set forth in the EnergyCo Facility and shall increase by 0.5 per cent. at the end of each 90 day period, subject to a specified cap. Upon the occurrence of a change in control of PacifiCorp, PHI or PGHC, the holders of the bridge loans have the right to require EnergyCo to prepay the bridge loans held by such holder for a price equal to 101 per cent. of the principal amount thereof plus accrued and unpaid interest thereon and any other amounts then owing to such holder under the bridge loans. (E) PHI FACILITY A credit agreement dated as of 12 June 1997 (the "PHI Agreement") has been entered into by (i) PHI, (ii) Citibank N.A., Goldman Sachs Credit Partners L.P. and Morgan Guaranty Trust Company of New York, as original lenders, (iii) Citibank, N.A. as paying agent and issuing bank and (iv) Citicorp USA, Inc. as collateral agent, relating to a $1,200 million term loan facility (the "PHI Term Loan Facility") and a $85 million revolving loan facility (the "PHI Revolving Loan Facility") (together, the "PHI Facility"). The proceeds of the PHI Term Loan Facility are to be used (i) to refinance certain PHI indebtedness, (ii) to provide to PacifiCorp Acquisitions, through certain of PHI's direct and indirect subsidiaries, a portion of the funds necessary to finance the Offer, (iii) for the payment of certain fees and expenses in connection with the Offer and (iv) for general corporate purposes of PHI, and, for so long as each is a subsidiary of PHI, Pacific Telecom, Inc. ("PTI"), Pacific Generation Company ("PGC") and its subsidiaries and PPM. The proceeds of the PHI Revolving Loan Facility are to be used for the ordinary working capital needs of PHI and, for so long as each is a subsidiary of PHI, PTI, PGC and its subsidiaries, and PPM and to finance loans to PacifiCorp Financial Services, Inc. and its subsidiaries to be used by PacifiCorp Financial Services, Inc. and its subsidiaries for their ordinary working capital needs. To the extent not previously repaid, all borrowings under the PHI Facility are repayable on 12 June 1999. Interest is calculated at PHI's option by reference to LIBOR (plus certain reserve costs) or a US dollar "Base Rate" plus an applicable margin, in the case of interest calculated by reference to LIBOR, of 2 per cent. increasing to 2.5 per cent. on 13 December 1998 and in the case of interest calculated by reference to a US dollar "Base Rate", of 1 per cent. increasing to 1.5 per cent. on 13 December 1998. The PHI Facility will be secured by a pledge of all of the stock of PTI, PGC and PGHC, as well as a pledge of PHI's participation interest in a certain note (the "Spring Creek Note") in the principal amount of $225 million from Spring Creek Coal Company and certain other assets. Borrowings under the PHI Facility are required to be prepaid with the net proceeds of certain asset sales, including any sale of the stock or assets of PTI or PGC, any sale of the Spring Creek Note and under certain other circumstances. PHI has announced the proposed sale of PTI to Century Telephone Enterprises Inc. for $1,500 million plus assumption of debt and has engaged an investment bank to assist in the sale of PGC. See paragraph 1 of Appendix IV ("Nature of business of PacifiCorp Acquisitions and PacifiCorp"). It is the Company's current intention that the PHI Facility will be repaid prior to September 1999 with the proceeds of the sales of PTI, PGC and the Spring Creek Note. To the extent that the PHI Facility is not repaid on or prior to September 1999, the Company intends to refinance the PHI Facility with a permanent facility with substantially the same structure. (F) PROPOSED RE-ORGANISATION OF COAL OPERATIONS Following the purchase of Energy Group Securities in the Offer, PacifiCorp Acquisitions has agreed to procure the transfer of the Peabody Subsidiaries to Powercoal. V-18 The transfer of the Peabody Subsidiaries is intended primarily to segregate the Enlarged Group's coal interests from its interests in electricity generation and distribution, and, in so doing, achieve a more efficient financing and operating structure. Such transfer is required by the terms of the PacifiCorp Acquisitions Facility and the Powercoal Facility to take place within 270 days of the initial borrowing under either of those facilities. To effect the transfer, PacifiCorp Acquisitions will first acquire the Peabody Subsidiaries from another TEG Group subsidiary in exchange for an unsecured subordinated interest bearing term note in an amount equal to the then fair market value of the Peabody Subsidiaries. PacifiCorp Acquisitions will then transfer the Peabody Subsidiaries to Powercoal in exchange for the cancellation of the Powercoal/PA Loan. Each of the PacifiCorp Acquisitions Facility, the Powercoal Facility and the EnergyCo Facility includes a condition that PacifiCorp Acquisitions may not reduce the percentage of Energy Group Securities required to satisfy the Acceptance Condition without the consent of a majority of the lending banks in each such Facility, which consent may not be unreasonably withheld or delayed if it is shown to the reasonable satisfaction of such lenders that PacifiCorp Acquisitions will achieve acceptances sufficient to enable it to give notice under section 429 of the Companies Act (compulsory acquisition procedure) in relation to the Energy Group Securities to which the Offer relates. See paragraph 11 of this Appendix V ("Compulsory acquisition") below. If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp Acquisitions effects the compulsory acquisition of all outstanding Energy Group Securities in accordance with the relevant procedures and time limits described in Sections 428 to 430F of the Companies Act (thereby causing The Energy Group to become a wholly-owned subsidiary of PacifiCorp Acquisitions), PacifiCorp Acquisitions will be required to procure the transfer of the Peabody Subsidiaries to Powercoal, on the basis indicated above, and to procure that certain other steps are taken which may involve the provision of financial assistance by members of the TEG Group to members of the PacifiCorp Group (subject to compliance, where necessary, with the procedures set out in sections 155 to 158 of the Companies Act (the so-called "whitewash" procedures, which are referred to in more detail below)). If all Conditions are satisfied, fulfilled or, where permitted, waived and PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer or otherwise, Energy Group Securities giving it more than 75 per cent. of voting rights at general meetings of The Energy Group, but PacifiCorp Acquisitions is not in a position to effect the compulsory acquisition of all outstanding Energy Group Securities in accordance with the relevant procedures and time limits of the Companies Act referred to above, PacifiCorp Acquisitions intends to seek to procure the making of an application by The Energy Group to the London Stock Exchange for the Energy Group Shares to be delisted and the making of an application by The Energy Group to the New York Stock Exchange for Energy Group ADSs to be delisted. PacifiCorp Acquisitions further intends that, subject to the London Stock Exchange delisting taking place, it will procure the transfer of the Peabody Subsidiaries to Powercoal and the provision of financial assistance by members of the TEG Group, as described in the previous paragraph, subject to compliance, where necessary, with the whitewash procedures. In order to operate the whitewash procedures, it would be necessary to procure the passing of special resolutions of The Energy Group and, depending on the circumstances, of appropriate subsidiaries, and to satisfy certain other requirements set out in the Companies Act. Such requirements are designed to protect creditors and shareholders of the TEG Group. If PacifiCorp Acquisitions acquires Energy Group Securities giving it 75 per cent. or more of the voting rights at general meetings of The Energy Group, it will have sufficient votes to approve such special resolutions. PacifiCorp Acquisitions also expects to be able to satisfy the other statutory requirements. The Companies Act gives dissenting shareholders (constituting specified minimum numbers or proportions of shareholders) the right to apply to court for cancellation of the special resolution required by the whitewash procedures. V-19 11. COMPULSORY ACQUISITION If, within four months after the date of this document, as a result of the Offer or otherwise, PacifiCorp Acquisitions acquires or contracts to acquire Energy Group Securities representing at least 90 per cent. in value of Energy Group Securities to which the Offer relates, then (a) PacifiCorp Acquisitions will be entitled and intends to effect the compulsory acquisition procedures provided for in Sections 428 to 430F of the Companies Act to compel the purchase of any outstanding Energy Group Securities on the same terms as provided in the Offer in accordance with the relevant procedures and time limits described in such Act, and (b) a holder of Energy Group Securities may require PacifiCorp Acquisitions to purchase his Energy Group Securities on the same terms as provided in the Offer in accordance with the relevant procedures and time limits described in section 430A of the Companies Act. If for any reason the above-mentioned compulsory acquisition procedures are not invoked, PacifiCorp Acquisitions will evaluate other alternatives to obtain the remaining Energy Group Securities not purchased pursuant to the Offer or otherwise. Such alternatives could include acquiring additional Energy Group Securities in the open market, in privately negotiated transactions, through another offer to purchase, by means of a scheme of arrangement under the Companies Act or otherwise. Any such additional acquisitions could be for a consideration greater or less than, or equal to, the consideration for Energy Group Securities under the Offer. However, under the City Code, except with the consent of the Panel, PacifiCorp Acquisitions may not acquire any Energy Group Securities on better terms than those of the Offer within six months of the termination of the Offer if PacifiCorp Acquisitions, together with any persons acting in concert with it (as defined by the City Code), holds shares carrying more than 50 per cent. of the voting rights normally exercisable at general meetings of The Energy Group. Holders of Energy Group Securities do not have appraisal rights as a result of the Offer. However, in the event that the compulsory acquisition procedures referred to above are available to PacifiCorp Acquisitions, holders of Energy Group Securities whose Energy Group Securities have not been purchased pursuant to the Offer will have certain rights to object under section 430C of the Companies Act. 12. CERTAIN CONSEQUENCES OF THE OFFER (A) MARKET EFFECT The purchase of Energy Group Securities pursuant to the Offer will reduce the number of holders of Energy Group Securities and the number of the Energy Group Securities that might otherwise trade publicly and, depending upon the number of Energy Group Securities so purchased, could adversely affect the liquidity and market value of the remaining Energy Group Securities held by the public. In addition, Energy Group Shares will cease to be listed on the London Stock Exchange and Energy Group ADSs will cease to be listed on the New York Stock Exchange if PacifiCorp Acquisitions completes the compulsory acquisition procedures referred to in paragraph 11 above. Moreover, in the circumstances referred to in paragraph 10(f) ("Proposed re-organisation of coal operation") above, PacifiCorp Acquisitions intends to seek the delisting of the Energy Group Shares from the London Stock Exchange and intends to seek the delisting of the Energy Group ADSs from the New York Stock Exchange. If PacifiCorp Acquisitions does not seek such delistings in those circumstances, the Energy Group Securities may nevertheless no longer be eligible for continued listing on such exchanges. (B) PUBLIC AVAILABILITY OF INFORMATION In the event that Energy Group Shares continue to be listed on the London Stock Exchange following the purchase of Energy Group Securities pursuant to the Offer, holders of Energy Group Shares who have not tendered their Energy Group Shares pursuant to the Offer will continue to receive the same financial and other information from The Energy Group that The Energy Group presently is V-20 required by the rules of the London Stock Exchange to send to such holders. If Energy Group Shares are no longer listed on the London Stock Exchange following the Offer, The Energy Group would no longer be required by those rules to make publicly available such financial and other information. Energy Group ADSs currently are registered under the Exchange Act. Registration of such Energy Group ADSs may be terminated upon application of The Energy Group to the SEC if Energy Group ADSs are neither listed on a national securities exchange nor held by 300 or more beneficial owners in the US. Termination of registration of Energy Group ADSs under the Exchange Act would substantially reduce the information required to be furnished by The Energy Group to holders of Energy Group ADSs and to the SEC and would make certain provisions of the Exchange Act, such as the requirements of Rule 13e-3 thereunder with respect to "going private" transactions, no longer applicable to The Energy Group. Furthermore, "affiliates" of The Energy Group and persons holding "restricted securities" of The Energy Group may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act. If, as a result of the purchase of Energy Group ADSs pursuant to the Offer and prior to completing the compulsory acquisition procedures referred to in paragraph 9 above, The Energy Group is not required to maintain registration of Energy Group ADSs under the Exchange Act, PacifiCorp Acquisitions intends to cause The Energy Group to apply for termination of such registration. If registration of Energy Group ADSs is not terminated prior to completion of the aforementioned compulsory acquisition procedures, then Energy Group ADSs will cease trading on the New York Stock Exchange and the registration of Energy Group ADSs under the Exchange Act would be terminated following completion of the aforementioned compulsory acquisition procedures. (C) MARGIN SECURITIES Energy Group ADSs currently are "margin securities" under the regulations of the Board of Governors of the US Federal Reserve System, which status has the effect, among other things, of allowing US brokers to extend credit on the collateral of Energy Group ADSs for purposes of buying, carrying and trading in securities ("Purpose Loans"). Depending on factors such as the number of holders of record of Energy Group ADSs and the number and market value of publicly held Energy Group ADSs following the purchase of Energy Group Securities pursuant to the Offer, it is possible that Energy Group ADSs would no longer be eligible for listing on the New York Stock Exchange. As a result, Energy Group ADSs might no longer constitute margin securities and, therefore, could no longer be used as collateral for Purpose Loans made by US brokers. 13. LEGAL AND REGULATORY MATTERS (A) GENERAL Except as set out herein and other than the requirement to comply with the Panel's requirements in relation to the City Code and with US securities laws, PacifiCorp Acquisitions is not aware of (i) any licence or regulatory permit that appears to be material to the business of the TEG Group taken as a whole, which might be adversely affected by PacifiCorp Acquisitions' acquisition of Energy Group Securities as contemplated herein, or (ii) any approval or other action by any domestic or foreign governmental, administrative or regulatory agency or authority that appears to be material to the TEG Group taken as a whole, and required for the acquisition or ownership of Energy Group Securities by PacifiCorp Acquisitions as contemplated herein. Should any such approval or other action be required, PacifiCorp Acquisitions currently contemplates that such approval or other action would be sought. There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions being attached thereto or that failure to obtain any such approval or other action might not result in consequences adverse to The Energy Group's business. (B) UK COMPETITION LAWS The Offer gives rise to a merger situation qualifying for investigation under section 75 of the Fair Trading Act 1973. It is therefore conditional on an announcement being made in terms reasonably V-21 satisfactory to PacifiCorp Acquisitions that it is not the intention of the Secretary of State to refer the Acquisition, or any matters arising from it, to the Monopolies and Mergers Commission. In that connection, PacifiCorp Acquisitions has submitted a merger notice to the Director General of Fair Trading and, together with The Energy Group, is in discussions with the DGES. (C) UK ELECTRICITY REGULATION Eastern and its subsidiary companies hold licences issued under the Electricity Act 1989. The Offer is conditional on the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that it is not his intention to seek modifications to those licences and that he will not seek undertakings or assurances from any member of the PacifiCorp Group or the TEG Group except, in either case, on terms reasonably satisfactory to PacifiCorp Acquisitions. The Offer is also conditional on the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that, in connection with the Acquisition, he will seek or agree to such modifications (if any) and such other consents and/or directions (if any) as are in the reasonable opinion of PacifiCorp Acquisitions necessary or appropriate with respect to those licences. OFFER has invited comments on the regulatory issues raised by the Offer by a consultation paper dated 16 June 1997. This consultation paper sets out the key Electricity Act considerations that OFFER will take into account when assessing the Acquisition. These include the implications for the satisfying of all reasonable demands for electricity, the ability of the licensee to finance its authorised activities, the promotion of competition in generation and supply and the protection of customers. OFFER has invited comments by 23 June 1997. PacifiCorp Acquisitions, together with The Energy Group, will continue discussions with OFFER in order to reach agreement in relation to the matters raised which will meet regulatory objectives in relation to the Enlarged Group. (D) US ANTITRUST LAWS The Offer is subject to the US HSR Act, which provides that certain acquisition transactions may not be consummated until certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC"). Pursuant to the US HSR Act, PacifiCorp expects to file a Notification and Report Form relating to the Offer with the Antitrust Division and the FTC on 1 July 1997. The waiting period under the US HSR Act applicable to the Offer will then expire at 11.59 p.m., New York City time, on 16 July 1997, unless early termination of the waiting period is granted. However, if the Antitrust Division or the FTC requests additional information or documentary material from PacifiCorp, the waiting period would expire ten calendar days after the date of substantial compliance with such request. The additional ten calendar day waiting period may be terminated sooner by the Antitrust Division or the FTC. The FTC and the Antitrust Division frequently scrutinise the legality under the US antitrust laws of transactions such as the proposed acquisition of Energy Group Securities by PacifiCorp Acquisitions pursuant to the Offer. At any time before or after the purchase of Energy Group Securities, the FTC or the Antitrust Division could take such action under the US antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Energy Group Securities pursuant to the Offer, or seeking divestiture of Energy Group Securities purchased by PacifiCorp Acquisitions or the divestiture of substantial assets of PacifiCorp, The Energy Group or their respective subsidiaries. Private parties may also bring legal action under the US antitrust laws in certain circumstances. There can be no assurance that a challenge to the Offer on US antitrust grounds will not be made or, if such a challenge is made, of the result. (E) US POWER MARKETING REGULATION Certain subsidiaries (the "Power Subsidiaries") of Citizens Power, an indirect wholly-owned subsidiary of The Energy Group, are engaged in market- rate based electric power marketing in the US or otherwise hold public utility assets that are subject to the jurisdiction of the FERC. In a number of V-22 similar recent situations, including the recent acquisition of Citizens Power by The Energy Group, FERC has asserted that a transfer of control of a licensed power marketer requires FERC approval under section 203 of the US Federal Power Act. Accordingly, FERC could assert that any transfer of control of the Power Subsidiaries resulting from completion of the Offer requires FERC approval. However, PacifiCorp and PacifiCorp Acquisitions have indicated to The Energy Group that they do not intend to acquire control of the Power Subsidiaries. As a result, the parties plan to dispose of the Power Subsidiaries to someone other than PacifiCorp and PacifiCorp Acquisitions prior to the completion of the Offer with such sale conditional only upon the completion of the Offer and FERC approval. Application for approval of such a sale will be made to FERC as soon as practicable. If FERC approval of the sale of the Power Subsidiaries is not obtained before the Conditions are satisfied, fulfilled or, where permitted, waived voting rights with respect to all outstanding shares of common stock and other interests held by Citizens Power in such Power Subsidiaries will be held by an independent trustee in a manner that ensures that PacifiCorp will not exercise control over the Power Subsidiaries, notwithstanding the completion of the Acquisition. Accordingly, completion of the Offer will not result in a functional transfer of control of the Power Subsidiaries and PacifiCorp Acquisitions does not believe FERC approval is required as a condition to the Offer. In the event that all the Conditions are not satisfied, fulfilled or, where permitted, waived, The Energy Group is to retain the Power Subsidiaries. (F) AUSTRALIAN FOREIGN INVESTMENT REVIEW The acquisition by PacifiCorp Acquisitions pursuant to the Offer of indirect ownership of Peabody Australia's coal operations is subject to the Foreign Acquisitions and Takeovers Act 1975 of Australia. Under that Act, the Treasurer of Australia has broad powers to prohibit or place conditions on the acquisition of interests in Australian business operations by foreign investors if such acquisitions are found to be contrary to the national interest. If a notification of a proposed acquisition is made to the Australian Foreign Investment Review Board, the Treasurer is precluded from taking any action with respect to the acquisition after the expiration of a 40-day review period, although this period may be extended for up to 90 additional days. PacifiCorp Acquisitions notified the Foreign Investment Review Board of the proposed acquisition on 18 June 1997. (G) US COAL LEASING REQUIREMENTS Both PacifiCorp and Peabody hold coal leases on properties owned by the United States. The US Coal Leasing Act imposes limitations on the acreage that any one affiliated group can lease from the United States. Upon consummation of the Offer, the Enlarged Group's US coal lease holdings will exceed those acreage limitations. Although PacifiCorp and Peabody have not yet identified the specific leases to be relinquished or disposed of, PacifiCorp Acquisitions believes the Enlarged Group will be able to relinquish or dispose of sufficient leases to reduce its holdings below the applicable acreage limitations without materially interfering with planned operations. (H) US STATE TAKEOVER LAWS A number of states of the US have adopted takeover laws and regulations which purport, in varying degrees, to be applicable to attempts to acquire securities of corporations which have substantial assets, shareholders, principal executive offices or principal places of business in such states. PacifiCorp Acquisitions believes that no such US state takeover statutes apply to the Offer and PacifiCorp Acquisitions has not attempted to comply with any such US state takeover statutes in connection with the Offer. PacifiCorp Acquisitions reserves the right to challenge the validity or applicability of any US state law allegedly applicable to the Offer and nothing in this document nor any action taken in connection herewith is intended as a waiver of that right. In the event that any US state takeover statute is asserted to be applicable to the Offer and an appropriate court does not determine that such law or regulation is not applicable to the Offer, PacifiCorp Acquisitions might be required to file certain information with, or to receive approvals from, the relevant US state authorities and might be unable to purchase Energy Group Securities pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, PacifiCorp Acquisitions may not be obliged to purchase such Energy Group Securities. V-23 (I) LAWS OF OTHER JURISDICTIONS The Energy Group and certain of its subsidiaries conduct business in certain countries in addition to the UK and the US where regulatory filings or approvals may be required in connection with the Offer. Certain of such filings or approvals, if required, may not be made or obtained prior to the expiry of the Offer. There is no assurance that any such approvals would be obtained or that adverse consequences to PacifiCorp's or The Energy Group's business might not result from a failure to obtain such approvals or from conditions that might be imposed in connection therewith. 14. UNITED KINGDOM TAXATION THE FOLLOWING PARAGRAPHS, WHICH ARE INTENDED AS A GENERAL GUIDE ONLY, ARE BASED ON CURRENT UK LEGISLATION AND INLAND REVENUE PRACTICE. THEY SUMMARISE CERTAIN LIMITED ASPECTS OF THE UK TAXATION TREATMENT OF ACCEPTANCE OF THE OFFER AND THE LOAN NOTE ALTERNATIVE, AND THEY RELATE (EXCEPT INSOFAR AS EXPRESS REFERENCE IS MADE TO THE TREATMENT OF NON-UK RESIDENTS) ONLY TO THE POSITION OF HOLDERS OF ENERGY GROUP SHARES WHO ARE THE BENEFICIAL OWNERS OF THEIR ENERGY GROUP SHARES, WHO HOLD THEIR ENERGY GROUP SHARES AS AN INVESTMENT, AND WHO ARE RESIDENT IN THE UK FOR TAX PURPOSES. SHAREHOLDERS WHO ARE IN ANY DOUBT AS TO THEIR TAXATION POSITION OR WHO ARE SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UK, SHOULD CONSULT AN APPROPRIATE PROFESSIONAL ADVISER. (A) TAXATION OF CHARGEABLE GAINS Liability to UK taxation on chargeable gains ("CGT") will depend on the particular circumstances of holders of Energy Group Shares and on the form of consideration received. Cash To the extent that a holder of Energy Group Shares receives cash under the Offer, this will constitute a disposal, or part disposal, of his Energy Group Shares for CGT purposes. Such a disposal, or part disposal, may, depending on that shareholder's individual circumstances, give rise to a liability to CGT. Loan Notes A holder of Energy Group Shares who, together with persons connected with him, holds not more than five per cent. of the issued share capital of The Energy Group, will not be treated as making a disposal to the extent he elects for and receives Loan Notes by way of consideration. In the case of a shareholder who is an individual, any gain or loss which would otherwise have arisen on a disposal of his Energy Group Shares will be "rolled over" into the Loan Notes and the Loan Notes will be treated as the same asset as his Energy Group Shares acquired at the same time and price as his Energy Group Shares. In the case of a shareholder within the charge to UK corporation tax, any gain or loss which would otherwise have arisen on a disposal of its Energy Group Shares will be calculated and "held over" until it subsequently disposes of the Loan Notes and indexation relief will not accrue on the Loan Notes. A holder of Energy Group Shares who, together with persons connected with him, holds more than five per cent. of the issued share capital of The Energy Group is advised that an application has been made for clearance under section 138 of the Taxation of Chargeable Gains Act 1992. Subject to the granting of this clearance, any such holder of Energy Group Shares will be treated in the manner described in the previous paragraph. A subsequent disposal of Loan Notes (including their redemption or repayment) may give rise to a chargeable event for CGT purposes. V-24 Non-UK resident holders of Energy Group Securities Holders of Energy Group Securities who are not resident or ordinarily resident for tax purposes in the UK may be liable for UK tax on capital gains realised on the disposal of their Energy Group Shares or Energy Group ADSs if such securities are used, held or acquired for the purposes of a trade, profession or vocation carried on in the UK through a branch or agency or for the purposes of such branch or agency. Such holders may be subject to foreign taxation on any gain under local law. (B) TAXATION OF LOAN NOTES--INCOME Withholding Tax Payments of interest on the Loan Notes will be made subject to the deduction of UK income tax at the lower rate (currently 20 per cent.) unless PacifiCorp Acquisitions has been directed by the Inland Revenue, in respect of a particular holding of Loan Notes, to make the payment free of deduction or subject to a reduced rate of deduction (by virtue of relief under the terms of an applicable double taxation agreement). Such a direction will only be made following an application in the appropriate manner to the relevant tax authorities by the holder of the relevant Loan Notes. Payments of interest may also be subject to withholding of US federal income tax in certain circumstances. Please refer to paragraph 15(b) below. Individuals Subject to the above, the gross amount of such interest will form part of the recipient's income for the purposes of UK income tax, credit being allowed for the tax withheld. Individuals who are taxable only at the lower or basic rate will have no further tax to pay in respect of the interest. In certain cases, holders of Loan Notes may be able to recover an amount in respect of the credit from the Inland Revenue. Under the "accrued income scheme" a transfer of Loan Notes may also give rise to a charge to United Kingdom income tax in respect of an amount representing interest on the Loan Notes which has accrued since the preceding interest payment date. Corporates Holders within the charge to United Kingdom corporation tax in respect of the Loan Notes will generally bring into the charge to tax as income, interest on, profits and gains arising from and fluctuations in the value of, the Loan Notes in each accounting period broadly in accordance with the accounting treatment of such holders authorised for this purpose. (C) GENERAL Special tax provisions may apply to holders of Energy Group Shares who have acquired or acquire their Energy Group Shares by exercising options under the Energy Group Share Schemes, including provisions imposing a charge to income tax. (D) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT") These comments are intended as a guide to the general position and do not relate to persons such as market makers, brokers, dealers and persons connected with depositary arrangements or clearance services, to whom special rules apply. Acceptance of the Offer No stamp duty or SDRT will be payable by holders of Energy Group Shares as a result of accepting the Offer. V-25 Loan Notes Under current Inland Revenue practice, no stamp duty or SDRT will be payable on a transfer or sale of (or an agreement to transfer or sell) Loan Notes. 15. UNITED STATES FEDERAL INCOME TAXATION (A) UNITED STATES RESIDENTS The following paragraphs address certain United States federal income tax consequences applicable to holders of Energy Group Securities that are citizens or residents of the United States, United States domestic corporations or otherwise taxable as United States residents. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which (which may be retroactive) may affect the tax consequences described herein. This summary assumes that the Energy Group Securities have been held as capital assets. It does not address the tax treatment of individuals who have received Energy Group Securities in connection with employment, such as by the exercise of options granted to employees. This summary also assumes that The Energy Group is not and has never been either a passive foreign investment company or a controlled foreign corporation for US federal income tax purposes. This summary does not discuss all tax consequences that may be relevant to a holder of Energy Group Securities in the light of such holder's particular circumstances or to holders subject to special rules, such as certain financial institutions, regulated investment companies, insurance companies, dealers in securities, exempt organisations and holders that are residents of countries other than the United States or whose functional currency is not the United States dollar. In general, a holder of Energy Group Securities that sells such securities pursuant to this Offer will, for United States federal income tax purposes, recognise a gain or loss equal to the difference between such holder's adjusted tax basis in the Energy Group Securities transferred and the amount of cash received in exchange therefor. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if, on the date of sale, the Energy Group Securities were considered for US federal income tax purposes to have been held for more than one year. In addition, an accrual basis holder of Energy Group Securities that sells such securities pursuant to the Offer and does not elect to be treated as a cash basis taxpayer pursuant to the foreign currency exchange regulations may have a foreign currency exchange gain or loss for United States federal income tax purposes because of differences between the US dollars/pounds sterling exchange rates prevailing on the date of sale and on the date of payment. Any such currency gain or loss would be treated as ordinary income or loss and would be in addition to the gain or loss realised by the holder on the disposition of Energy Group Securities pursuant to the Offer. A holder of Energy Group Securities may be subject to US back-up federal income tax withholding with respect to the cash payment if (i) the holder fails to furnish a taxpayer identification number ("TIN") to the payer or establish an exemption from back-up withholding, (ii) the US Internal Revenue Service notifies the payer that the TIN furnished by the holder is incorrect, (iii) there has been a notified payee underreporting with respect to interest or dividends described in section 3406(c) of the Code, or (iv) there is a failure of the holder to certify under the penalty of perjury that the holder is not subject to withholding as described in section 3406 of the Code. To prevent back-up withholding on any cash payment delivered pursuant to the Offer, each holder of Energy Group ADSs that accepts the Offer by means of the Letter of Transmittal and each holder of Energy Group Shares that accepts the Offer by sending the Form of Acceptance to the US Depositary must provide the US Depositary with that holder's correct taxpayer identification number and certify that the holder is not subject to US back-up federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal or Form of Acceptance, or, if the holder is a non-resident alien or foreign entity for US federal income tax purposes, establish an exemption from US back-up federal income tax withholding by completing a Form W-8, Certificate of Foreign V-26 Status, a copy of which is available, upon request, from either the US Depositary or the US Internal Revenue Service. In addition to gain or loss upon sale of Energy Group Securities, a holder of Energy Group Securities as of the close of business on 27 June 1997 will recognise income for US federal income tax purposes with respect to the dividend to be paid by The Energy Group on 4 July 1997. Although there is some potential uncertainty regarding the characterization of this distribution as a dividend or as additional sales proceeds, the distribution most likely will be treated as a dividend for US federal income tax purposes. THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS INTENDED TO BE A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE OFFER. EACH HOLDER OF ENERGY GROUP SECURITIES SHOULD CONSULT THE HOLDER'S OWN TAX ADVISER CONCERNING THE UNITED STATES FEDERAL AND APPLICABLE STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER. (B) UNITED STATES TAX TREATMENT OF LOAN NOTES For United States federal income tax purposes, PacifiCorp Acquisitions is treated as part of a US domestic corporation. To prevent United States withholding tax on interest payments on the Loan Notes, holders of Energy Group Shares that elect the Loan Note Alternative must certify that they are not US persons, on a US Internal Revenue Service Form W-8 or other statement meeting the requirements of section 871(h) of the Code. For holders of Energy Group Shares that elect the Loan Note Alternative, but that do not provide this certification that they are not US persons, the gross amount of payments of interest on Loan Notes will be subject to withholding of US federal income tax at the rate of 30 per cent., unless a US income tax treaty applies to reduce or eliminate withholding. To claim the benefit of a tax treaty, the holder must provide a properly executed Form 1001 (or its successor) before interest is paid. This form must be updated periodically. 16. FEES AND EXPENSES Pursuant to a letter from Goldman, Sachs & Co. dated 26 March 1997 and addressed to PacifiCorp (the "Engagement Letter"), Goldman, Sachs & Co. is acting as financial adviser to PacifiCorp in connection with the Offer. Pursuant to the terms of the Engagement Letter, Goldman, Sachs & Co. will receive $13,320,000 as compensation for its services as financial adviser to PacifiCorp together with reimbursement for its reasonable out of pocket expenses, assuming that PacifiCorp acquires at least 50 per cent. of the Energy Group Securities or 50 per cent. of the assets of The Energy Group. In addition, PacifiCorp has agreed to indemnify Goldman, Sachs & Co. and its affiliates including Goldman Sachs International and certain others against, inter alia, certain losses and expenses arising out of the engagement or performance by Goldman, Sachs & Co. of its duties to advise and assist PacifiCorp in connection with the Offer, including liabilities under the US federal securities laws. Goldman, Sachs & Co. and its affiliates will be acting in various capacities in connection with the Offer and the transactions contemplated thereby, including acting as (i) arranger in connection with the bank facilities described in paragraph 10 of this Appendix V, and (ii) financial adviser in connection with certain asset divestitures by PacifiCorp and its affiliates. Goldman, Sachs & Co. and its affiliates will assist PacifiCorp in executing certain foreign currency hedging transactions relating to the Offer and the transactions contemplated thereby and may assist PacifiCorp and its affiliates in executing certain interest rate hedging transactions also relating to the Offer and the transactions contemplated thereby. Pursuant to the terms of the Engagement Letter, PacifiCorp shall offer Goldman, Sachs & Co. the right to act, and Goldman, Sachs & Co. may act, as (i) lead manager or lead placement agent on any public or private offerings of debt securities relating to the Offer and the transactions contemplated thereby which are rated less than investment grade and occur within one year of the consummation of the Offer, and (ii) lead manager or lead placement agent in any public or private offerings of common equity by PacifiCorp occurring within one year after the Offer and the transactions contemplated V-27 thereby. In connection with the foregoing, if Goldman, Sachs & Co. agrees to act in such capacity, it will enter into an appropriate form of underwriting, placement agency, engagement or other agreement relating to the type of transaction involved and containing customary terms and conditions, including customary fee provisions and provisions relating to indemnity. Pursuant to a letter dated 30 June 1997 (the "US Dealer Manager Agreement"), PacifiCorp Acquisitions and PHI have retained Goldman, Sachs & Co., as US Dealer Manager for the Offer in the United States to perform those services in connection with the Offer as are customarily performed in the United States by investment banking concerns acting as dealer manager in connection with offers of a like nature. Goldman, Sachs & Co. will not receive additional compensation for acting in this capacity. Under the terms of the US Dealer Manager Agreement, PHI has agreed to indemnify Goldman, Sachs & Co. and certain other persons against certain liabilities and expenses which may be incurred in connection with the Offer including liabilities under the US federal securities laws. PacifiCorp Acquisitions has retained Independent Registrars Group Limited as the UK Receiving Agent, Continental Stock Transfer & Trust Company as the US Depositary, and Shareholder Communications Corporation as the Information Agent. PacifiCorp Acquisitions will pay the UK Receiving Agent, the US Depositary and the Information Agent reasonable and customary compensation for their services in connection with the Offer, together with reimbursement of out of pocket expenses. PacifiCorp will indemnify the US Depositary and the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the US federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by PacifiCorp for customary mailing and handling expenses incurred by them in forwarding material to their customers. PacifiCorp and PacifiCorp Acquisitions will not pay any fees or commissions to any broker or dealer or any other person for soliciting acceptances of the Offer (other than to Goldman Sachs International, Goldman, Sachs & Co., and the Information Agent, as described above). Lazard and Morgan Stanley are acting as The Energy Group's financial advisers in connection with the Offer. Pursuant to a letter agreement dated 5 June 1997 between The Energy Group and Lazard, The Energy Group undertook to make an initial payment to Lazard of (Pounds)1.5 million upon announcement of the Offer and agreed to pay an additional fee of (Pounds)4.3 million upon the Offer becoming wholly unconditional. Pursuant to a letter agreement dated 27 May 1997 between The Energy Group and Morgan Stanley, The Energy Group agreed to make an initial payment to Morgan Stanley of (Pounds)3.4 million if the Offer was announced and agreed to pay an additional fee of (Pounds)6.8 million upon the Offer becoming wholly unconditional. Each letter agreement further provides that The Energy Group will reimburse Lazard and Morgan Stanley for their respective out-of-pocket expenses, and indemnify Lazard and Morgan Stanley, respectively, against certain expenses and liabilities in connection with their engagement. 17. SOURCES OF INFORMATION AND BASES OF CALCULATION (a) The value of the fully diluted share capital of The Energy Group is based upon 520,857,817 Energy Group Shares in issue on 12 June 1997 and 9,495,553 Energy Group Shares which could fall to be issued on exercise in full of options and vesting of all outstanding awards granted under the Energy Group Share Schemes. (b) The pro forma financial information in respect of The Energy Group for the year ended 31 March 1996 is taken from the pro forma profit and loss accounts set out in The Energy Group's statement of results for the six months ended 31 March 1997. V-28 18. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the documents listed below may be inspected at the offices of Linklaters & Paines, Barrington House, 59-67 Gresham Street, London EC2V 7JA (such address also being the registered office of PacifiCorp Acquisitions) during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) whilst the Offer remains open for acceptance: (a) the Memorandum and Articles of Association of PacifiCorp Acquisitions; (b) the Memorandum and Articles of Association of The Energy Group; (c) the audited financial statements of PacifiCorp for the three years ended 31 December, 1996, together with the notes thereto; (d) the Energy Group Listing Particulars and the statement of The Energy Group's results for the six months ended 31 March 1997; (e) the irrevocable undertakings referred to in paragraph 5 above; (f) the service agreements referred to in paragraph 6 above; (g) the consents referred to in paragraph 7(d) above; (h) the material contracts referred to in paragraph 8 above; (i) documentation relating to the financing arrangements detailed in paragraph 10 above; and (j) the loan note instrument in substantially final form. V-29 APPENDIX VI DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires:
"Acceptance Condition"................ the Condition as to acceptances set out in paragraph (a) of Part A of Appendix I "Acceptance Form"..................... the Form of Acceptance and, with respect to holders of Energy Group ADSs only, the Letter of Transmittal and Notice of Guaranteed Delivery accompanying this document "Acquisition"......................... the proposed acquisition of The Energy Group pursuant to the Offer "Board" or "Directors"................ the directors of PacifiCorp Acquisitions "Book-Entry Confirmation"............. the confirmation of a book-entry transfer of Energy Group ADSs into the US Depositary's account at a Book- Entry Transfer Facility "Book-Entry Transfer Facility"........ each of The Depository Trust Company and the Philadelphia Depository Trust Company, together the "Book-Entry Transfer Facilities" "Business Day"........................ has the meaning given to it in Rule 14d-1 under the Exchange Act "Canada".............................. Canada, its provinces, territories and all areas subject to its jurisdiction and any political sub-division thereof "certificated" or "in certificated a share or other security which is not form"................................ in uncertificated form "Citizens Power"...................... Citizens Power LLC, previously named Citizens Lehman Power L.L.C. "City Code"........................... The City Code on Takeovers and Mergers of the UK "Closing Price"....................... the closing middle market quotation of an Energy Group Share as derived from the London Stock Exchange Daily Official List "Companies Act"....................... the Companies Act 1985 (as amended) of England and Wales "Conditions".......................... the conditions of the Offer described in Part A of Appendix I and "Condition" means any one of them "CREST"............................... the relevant system (as defined in the Regulations) in respect of which by CRESTCo is the Operator (as defined in the Regulations) "CRESTCo"............................. CRESTCo Limited "CREST member"........................ a person who has been admitted by CRESTCo as a system-member (as defined in the Regulations) "CREST participant"................... a person who is, in relation to CREST, a system-participant (as defined in the Regulations) "CREST sponsor"....................... a CREST participant admitted to CREST as a sponsored member
VI-1 "CREST sponsored member".............. a CREST member admitted to CREST as a sponsored member "Dealer Manager"...................... Goldman, Sachs & Co., in its capacity as dealer manager for the Offer in the US "Demerger"............................ the demerger by Hanson of The Energy Group "Demerger Agreement".................. the agreement dated 27 January 1997 between Hanson and The Energy Group relating to the Demerger "Demerger Date"....................... 24 February 1997 "Demerger Transactions"............... the transactions described in the Demerger Agreement, pursuant to which The Energy Group became the holding company of the TEG Group, as then constituted, and the Peabody Holding Transaction "Deposit Agreement"................... the deposit agreement between The Energy Group, Citibank, N.A. and the holders, from time to time, of Energy Group ADSs "DGES"................................ The Director General of Electricity Supply of the UK "Eastern"............................. Eastern Group plc and/or its subsidiaries or any of them from time to time as the context may require "Electricity Pool".................... the electricity trading market in England and Wales "Eligible Institution"................ a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program, or the Stock Exchange Medallion Program "Energy Group ADRs"................... American Depositary Receipts evidencing Energy Group ADSs "Energy Group ADSs"................... American Depositary Shares issued in respect of Energy Group Shares, each representing four Energy Group Shares, as evidenced by Energy Group ADRs "Energy Group Listing Particulars" or the listing particulars relating to "Listing Particulars"................ The Energy Group dated 27 January 1997, published in accordance with the Listing Rules "Energy Group Securities"............. Energy Group Shares and Energy Group ADSs "Energy Group Shares"................. shares of 10p each in the share capital of The Energy Group "Energy Group Share Schemes".......... the Energy Group Executive Share Option Scheme, the Energy Group Sharesave Scheme, the Energy Group Long-term Incentive Plan and the Energy Group Special Additional Bonus Scheme "Enlarged Group"...................... the PacifiCorp Group as enlarged by the acquisition of The Energy Group "Exchange Act"........................ the US Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder
VI-2 "FERC"................................ the US Federal Energy Regulatory Commission "First Hydro"......................... the pumped storage business of National Grid Group "Form of Acceptance".................. the form of acceptance, election and authority relating to the Offer accompanying this document for use by holders of Energy Group Shares (but not by holders of Energy Group ADSs) "Guaranteed Delivery Procedures"...... the guaranteed delivery procedures for Energy Group ADSs set out in paragraph 9 of Part B of Appendix I "Hanson".............................. Hanson PLC "Hanson Group"........................ Hanson and its subsidiary undertakings from time to time "Information Agent"................... Shareholder Communications Corporation, in its capacity as information agent for the Offer "Initial Closing Date"................ 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997, unless and until PacifiCorp Acquisitions, in its discretion, shall have extended the Initial Offer Period, in which case the term "Initial Closing Date" shall mean the latest time and date at which the Initial Offer Period, as so extended by PacifiCorp Acquisitions, will expire or, if earlier, the time at which the Offer becomes or is declared wholly unconditional "Initial Offer Period"................ the period from the date of this document to and including the Initial Closing Date "Lazard".............................. Lazard Brothers & Co., Limited and Lazard Freres & Co. Limited "Letter of Transmittal"............... the letter of transmittal relating to the Offer accompanying this document for use by holders of Energy Group ADSs "LIBOR"............................... the London Inter-Bank Offered Rate, determined in accordance with the terms of the Loan Notes, a summary of which is set out in Appendix II "Listing Rules"....................... the Listing Rules of the London Stock Exchange "Loan Note Alternative"............... the alternative under which holders of Energy Group Shares who validly accept the Offer will be entitled to elect to receive Loan Notes instead of the cash consideration otherwise payable to them "Loan Notes".......................... the Floating Rate Unsecured Loan Notes 2004 of PacifiCorp Acquisitions, to be issued pursuant to the Loan Note Alternative "London Stock Exchange"............... London Stock Exchange Limited "member account ID"................... the identification code or number attached to any member account in CREST "Morgan Stanley"...................... Morgan Stanley & Co. Limited "National Grid Group"................. The National Grid Group plc "National Power"...................... National Power plc
VI-3 "Offer"............................... the offer made by Goldman Sachs International on behalf of PacifiCorp Acquisitions to acquire the Energy Group Securities as set out in this document including, where the context permits and/or requires, the Loan Note Alternative and any subsequent revision, variation, extension, or renewal of such offer or such alternative "OFFER"............................... the Office of Electricity Regulation of the UK "PacifiCorp Group".................... PacifiCorp and its subsidiaries and subsidiary undertakings and, where the context permits, each of them "Panel"............................... The Panel on Takeovers and Mergers of the UK "participant ID"...................... the identification code or membership numbered used in CREST to identify a particular CREST member or other CREST participant "Peabody"............................. Peabody Holding, Lee Ranch Coal Company and Peabody Australia "Peabody Australia"................... Peabody Resources Limited and its subsidiaries, the Australian operations of Peabody "Peabody Holding"..................... Peabody Holding Company, Inc. and its subsidiaries "Peabody Holding Transaction"......... the transaction whereby Peabody US Holding Inc., a subsidiary of Hanson, transferred to GFAC International Holdings Inc. the entire issued share capital of Peabody Holding for a cash sum of US$1,637.5 million "PHI"................................. PacifiCorp Holdings, Inc. "Powercoal"........................... PacifiCorp Powercoal, LLC, a wholly owned subsidiary of PacifiCorp "PowerGen"............................ PowerGen plc "Regulations"......................... the Uncertificated Securities Regulations 1995 (SI 1995 No. 95/3272) "Rollalong"........................... Rollalong Limited and, where the context permits, its subsidiary, Rollalong Hire Limited "SEC"................................. the US Securities and Exchange Commission "Securities Act"...................... the US Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder "Subsequent Offer Period"............. the period following the Initial Closing Date during which the Offer remains open for acceptance "TEG Group"........................... The Energy Group and its subsidiaries and subsidiary undertakings and, where the context permits, each of them "TFE instruction"..................... a Transfer from Escrow instruction (as defined by the CREST Manual issued by CRESTCo) "The Energy Group".................... The Energy Group PLC "TTE instruction"..................... a Transfer to Escrow instruction (as defined by the CREST Manual issued by CRESTCo)
VI-4 "UK" or "United Kingdom".............. the United Kingdom of Great Britain and Northern Ireland "UK GAAP"............................. UK generally accepted accounting principles "UK Receiving Agent".................. Independent Registrars Group Limited, in its capacity as UK receiving agent to the Offer "uncertificated" or "in uncertificated form"................................ recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST, and title to which, by virtue of the Regulations, may be transferred by means of CREST "United States" or "US"............... the United States of America, its territories and possessions, any State of the United States and the District of Columbia, and all other areas subject to its jurisdiction "US Depositary"....................... Continental Stock Transfer & Trust Company, in its capacity as US depositary "US GAAP"............................. US generally accepted accounting principles "US HSR Act".......................... the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder "(Pounds)" or "pounds sterling"....... the lawful currency of the United Kingdom "$" or "US dollar".................... the lawful currency of the United States
VI-5 ACCEPTANCES IN RESPECT OF ENERGY GROUP SHARES Duly completed Forms of Acceptance, accompanied by certificates in respect of Energy Group Shares and/or other documents of title, should be delivered to the UK Receiving Agent or the US Depositary at one of the addresses set out below. The UK Receiving Agent for the Offer is: New Issues Department, Independent Registrars Group Limited For Information Call: 0181 639 2166 By Mail: By Hand: PO Box 166, 23 Ironmonger Lane, Bourne House, London EC2 34 Beckenham Road, Beckenham Kent BR3 4TH ACCEPTANCES IN RESPECT OF ENERGY GROUP ADSS Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, Energy Group ADRs and any other required documents should be sent or delivered by each holder of Energy Group ADSs or his broker, dealer, commercial bank, trust company or other nominee to the US Depositary at one of its addresses set out below. The US Depositary for the Offer is: Continental Stock Transfer & Trust Company For Information Call: 1-800 733 8481 ext. 475 Facsimile Transmission: By Hand or Overnight By Mail (for Eligible Institutions Only) Courier: Continental Stock (212) 248 8495 Continental Stock Transfer & Trust Company Transfer & Trust Company c/o Shareholder c/o Shareholder Communications Communications Corporation Corporation 17 State Street, 24th 17 State Street, 24th Floor Floor New York, NY 10004 New York, NY 10004 Attn: Tenders & Exchanges Attn: Tenders & Exchanges ADDITIONAL INFORMATION Any questions or requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery or the Form of Acceptance may be directed to Goldman Sachs International, the Dealer Manager or the Information Agent at their respective addresses and telephone numbers listed below, or to the US Depositary or the UK Receiving Agent at their respective addresses and telephone numbers mentioned above. You may also contact your local broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: Shareholder Communications Corporation 17 State Street 27th Floor New York, New York 10004 Call Toll Free: 1-800-733-8481, ext. 475 The Offer is being made on behalf of PacifiCorp Acquisitions by: Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB 0171 774 1000 The Dealer Manager for the Offer is: Goldman, Sachs & Co. 85 Broad Street New York New York 10004 (212) 902 1000 within New York City 1-800-323-5678 (Toll Free) outside New York City EX-99.A.2 3 FORM OF LETTER OF TRANSMITTAL THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. In considering what action you should take, you are recommended immediately to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial advisor. If you have sold or otherwise transferred all your American Depositary Shares ("Energy Group ADSs") of The Energy Group PLC ("The Energy Group"), please pass this document and all accompanying documents as soon as possible to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. HOWEVER, SUCH DOCUMENTS SHOULD NOT BE DISTRIBUTED, FORWARDED OR TRANSMITTED IN OR INTO AUSTRALIA, CANADA OR JAPAN. Goldman Sachs International is acting for PacifiCorp Acquisitions and PacifiCorp in relation to the Offer and no one else, and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to customers of Goldman Sachs International nor for providing advice in relation to the Offer. Goldman Sachs International is acting through Goldman, Sachs & Co. for the purpose of making the Offer in the United States. - ------------------------------------------------------------------------------- LETTER OF TRANSMITTAL TO ACCEPT THE OFFER FOR AMERICAN DEPOSITARY SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS OF THE ENERGY GROUP PLC PURSUANT TO THE OFFER TO PURCHASE DATED JUNE 30, 1997 BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS (A WHOLLY OWNED SUBSIDIARY OF PACIFICORP) - -------------------------------------------------------------------------------- THERE WILL BE AN INITIAL OFFER PERIOD WHICH WILL EXPIRE AT 3:00 PM (LONDON TIME), 10:00 AM (NEW YORK CITY TIME) ON JULY 29, 1997, UNLESS EXTENDED. AT THE CONCLUSION OF THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, IF ALL CONDITIONS OF THE OFFER HAVE BEEN SATISFIED, FULFILLED OR, WHERE PERMITTED, WAIVED, THE OFFER WILL BE EXTENDED FOR A SUBSEQUENT OFFER PERIOD OF AT LEAST 14 CALENDAR DAYS. HOLDERS OF ENERGY GROUP SECURITIES WILL HAVE THE RIGHT TO WITHDRAW THEIR ACCEPTANCES OF THE OFFER DURING THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, BUT NOT DURING THE SUBSEQUENT OFFER PERIOD.
- ------------------------------------------------------------------------------------------------ DESCRIPTION OF ENERGY GROUP ADSS TENDERED - ------------------------------------------------------------------------------------------------ NAME(S) & ADDRESS(ES) OF REGISTERED HOLDER(S) ADS(S) TENDERED (ATTACH (PLEASE FILL IN, IF BLANK, EXACTLY AS ADDITIONAL LIST IF NECESSARY) NAME(S) APPEAR(S) ON ADR(S)) - ------------------------------------------------------------------------------------------------ TOTAL NUMBER ADR OF ADSS NUMBER SERIAL REPRESENTED BY OF ADSS NUMBER(S)* ADR(S)* TENDERED** ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- - ------------------------------------------------------------------------------------------------
* Need not be completed for book-entry transfers. ** Unless otherwise indicated, it will be assumed that all Energy Group ADSs delivered to the US Depositary are being tendered. See Instruction 4. THE U.S. DEPOSITARY FOR THE OFFER IS: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: Continental Stock Transfer & Trust By Facsimile Transmission: By Hand or Overnight Courier: Company (for Eligible Institutions Only) c/o Shareholder Communications (212) 248-8495 Continental Stock Transfer & Trust Corporation Company 17 State Street, 24th Floor c/o Shareholder Communications New York, NY 10004 For Information Call: Corporation (800) 733-8481, ext. 475 17 State Street, 24th Floor Attn: Tenders & Exchanges New York, NY 10004 Attn: Tenders & Exchanges
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. ACCEPTING HOLDERS OF ENERGY GROUP ADSs EVIDENCED BY ENERGY GROUP ADRs WILL RECEIVE PAYMENT IN DOLLARS INSTEAD OF POUNDS STERLING UNLESS THEY ELECT OTHERWISE HEREIN TO RECEIVE PAYMENT IN POUNDS STERLING. IF YOU WISH TO RECEIVE POUNDS STERLING INSTEAD OF DOLLARS, YOU MUST PLACE AN "X" IN THE BOX ENTITLED "POUNDS STERLING PAYMENT ELECTION". ACCEPTANCE OF THE OFFER IN RESPECT OF ENERGY GROUP SHARES (EXCEPT INSOFAR AS THEY ARE REPRESENTED BY ENERGY GROUP ADSs EVIDENCED BY ENERGY GROUP ADRs) CANNOT BE MADE BY MEANS OF THIS LETTER OF TRANSMITTAL. If you hold Energy Group Shares that are not represented by Energy Group ADSs, you can obtain a Form of Acceptance for accepting the Offer in respect of those Energy Group Shares from the Information Agent, the US Depositary or the UK Receiving Agent. See Instruction 13 of this Letter of Transmittal. Delivery of a Letter of Transmittal, American Depositary Receipts evidencing Energy Group ADSs ("Energy Group ADRs") (or book-entry transfer of such Energy Group ADSs evidenced by Energy Group ADRs) and any other required documents to the US Depositary by Energy Group ADS holders will be deemed (without any further action by the US Depositary) to constitute an acceptance of the Offer by such holder with respect to such Energy Group ADSs evidenced by Energy Group ADRs subject to the terms and Conditions set out in the Offer to Purchase dated June 30, 1997 (the "Offer to Purchase") and this Letter of Transmittal. Capitalized terms and certain other terms used in this Letter of Transmittal and not otherwise defined herein shall have the respective meanings assigned to them in the Offer to Purchase. This Letter of Transmittal is to be used either if Energy Group ADRs evidencing Energy Group ADSs are to be forwarded herewith or if delivery of Energy Group ADSs is to be made by book-entry transfer to an account maintained by the US Depositary at a Book-Entry Transfer Facility as defined in and pursuant to the procedures for book-entry transfer set forth in "Procedures for Tendering Energy Group ADSs--Book-Entry Transfer" in Part B of Appendix I to the Offer to Purchase. 2 [_]CHECK BOX IF ENERGY GROUP ADSs IN RESPECT OF WHICH THE OFFER IS BEING ACCEPTED ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE US DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER ENERGY GROUP ADSs EVIDENCED BY ENERGY GROUP ADRs BY BOOK-ENTRY TRANSFER): Name of Delivering Institution ________________________________________________ Check box opposite name of relevant Book-Entry Transfer Facility: [_]The Depository Trust Company [_]Philadelphia Depository Trust Company Account Number Transaction Code Number If a holder of Energy Group ADSs wishes to accept the Offer and Energy Group ADRs evidencing such Energy Group ADSs are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis, or if time will not permit all required documents to reach the US Depositary prior to the expiry of the Subsequent Offer Period, such holder's acceptance of the Offer may nevertheless be effected using the guaranteed delivery procedure set out under "Procedures for Tendering Energy Group ADSs-- Guaranteed Delivery" in Part B of Appendix I to the Offer to Purchase. See Instruction 2 of this Letter of Transmittal. HOWEVER, RECEIPT OF A NOTICE OF GUARANTEED DELIVERY WILL NOT BE TREATED AS A VALID ACCEPTANCE FOR THE PURPOSE OF SATISFYING THE ACCEPTANCE CONDITION. [_]CHECK BOX ONLY IF ENERGY GROUP ADSs IN RESPECT OF WHICH THE OFFER IS BEING ACCEPTED ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE US DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of registered owner(s)______________________________________________ Date of execution of Notice of Guaranteed Delivery__________________________ Name of Institution that guaranteed delivery________________________________ NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby instructs the US Depositary to accept the Offer on behalf of the undersigned with respect to the Energy Group ADSs evidenced by Energy Group ADRs (which expression in this Letter of Transmittal shall, except where the context otherwise requires, be deemed to include, without limitation, the Energy Group Shares represented thereby) specified in the box entitled "Description of Energy Group ADSs Tendered" subject to the terms and Conditions set forth in the Offer to Purchase and this Letter of Transmittal, by informing PacifiCorp Acquisitions in writing that the Offer has been so accepted. The undersigned hereby acknowledges that delivery of this Letter of Transmittal, the Energy Group ADRs evidencing tendered Energy Group ADSs (or book-entry transfer of such Energy Group ADSs evidenced by Energy Group ADRs) and any other required documents to the US Depositary by a holder of Energy Group ADSs will be deemed (without any further action by the US Depositary) to constitute acceptance of the Offer by such holder in respect of such holder's Energy Group ADSs, subject to the terms and Conditions set out in the Offer to Purchase and this Letter of Transmittal. The undersigned understands that acceptance of the Offer by the undersigned pursuant to the procedures described herein and in the instructions hereto, subject to the withdrawal rights described in the Offer to Purchase, will constitute a binding agreement between the undersigned and PacifiCorp Acquisitions upon the terms and subject to the Conditions of the Offer. IF ACCEPTANCE HAS BEEN MADE IN RESPECT OF THE ENERGY GROUP ADSs THEN A SEPARATE ACCEPTANCE IN RESPECT OF THE ENERGY GROUP SHARES REPRESENTED BY SUCH ENERGY GROUP ADSs MAY NOT BE MADE. 3 The undersigned hereby delivers to the US Depositary the above-described Energy Group ADSs evidenced by Energy Group ADRs for which the Offer is being accepted, in accordance with the terms and Conditions of the Offer to Purchase and this Letter of Transmittal, receipt of which is hereby acknowledged. Upon the terms of the Offer (including, if the Offer is extended, revised or amended, the terms or conditions of any such extension, revision or amendment), and effective at the time that all Conditions to the Offer have been satisfied, fulfilled or, where permitted, waived (at which time PacifiCorp Acquisitions will give notice thereof to the US Depositary), and if he or she has not validly withdrawn his or her acceptance, the undersigned hereby sells, assigns and transfers to, or upon the order of, PacifiCorp Acquisitions all right, title and interest in and to all Energy Group ADSs evidenced by Energy Group ADRs with respect to which the Offer is being accepted (and any and all Energy Group ADSs or other securities or rights issuable in respect of such Energy Group ADSs) and irrevocably constitutes and appoints the US Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Energy Group ADSs (and any such other Energy Group ADSs, securities or rights), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver Energy Group ADRs for such Energy Group ADSs (and any such other Energy Group ADSs, securities or rights) or accept transfer of ownership of such Energy Group ADSs (and any such other Energy Group ADSs, securities or rights) on the account books maintained by a Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, PacifiCorp Acquisitions, (b) present such Energy Group ADRs for such Energy Group ADSs (and any other Energy Group ADSs, securities or rights) for transfer, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Energy Group ADSs (and any such other Energy Group ADSs, securities or rights), all in accordance with the terms of the Offer. The undersigned agrees that its execution hereof (together with any signature guarantees) and its delivery to the US Depositary shall constitute an authority to any director of PacifiCorp Acquisitions or Goldman Sachs International in accordance with the terms of paragraph 6 of Part B of Appendix I to the Offer to Purchase. The undersigned agrees that effective from and after the date hereof or, if later, the date on which all Conditions to the Offer are satisfied, fulfilled or, where permitted, waived: (a) PacifiCorp Acquisitions or its agents shall be entitled to direct the exercise of any votes attaching to the Energy Group Shares represented by any Energy Group ADSs evidenced by Energy Group ADRs in respect of which the Offer has been accepted or is deemed to have been accepted (the "Accepted ADSs") and any other rights and privileges attaching to such Energy Group Shares, including any right to requisition a general meeting of The Energy Group or of any class of its shareholders, and (b) the execution of this Letter of Transmittal by a holder of Energy Group ADSs (together with any signature guarantees) and its delivery to the US Depositary shall constitute in respect of Accepted ADSs (i) an authority to The Energy Group or its agents from the undersigned to send any notice, circular, warrant, document or other communications that may be required to be sent to him or her as an Energy Group ADS holder to PacifiCorp Acquisitions at its registered office, (ii) an authority to PacifiCorp Acquisitions or its agent to sign any consent to short notice of a general meeting or separate class meeting on behalf of the holder of Accepted ADSs and/or to execute a form of proxy in respect of the Accepted ADSs appointing any person nominated by PacifiCorp Acquisitions to attend general meetings and separate class meetings of The Energy Group or its members (or any of them) (or any adjournments thereof) and to exercise the votes attaching to the Energy Group Shares represented by such Accepted ADSs on his or her behalf, and (iii) the agreement of the undersigned not to exercise any such rights without the consent of PacifiCorp Acquisitions and the irrevocable undertaking of the undersigned not to appoint a proxy for or to attend general meetings or separate class meetings of The Energy Group in respect of such Accepted ADSs. The undersigned hereby represents and warrants that the undersigned has full power and authority to accept the Offer and to sell, assign and transfer the Energy Group ADSs evidenced by Energy Group ADRs (and the Energy Group Shares represented by such Energy Group ADSs) in respect of which the Offer is being accepted or deemed to be accepted (and any and all other Energy Group ADSs, securities or rights issued or issuable in respect of such Energy Group ADSs) and, when the same are purchased by PacifiCorp Acquisitions, PacifiCorp Acquisitions will acquire good title thereto, free from all liens, equitable interests, charges, encumbrances and together with all rights attaching thereto, including voting rights and the right to receive all dividends (other than 4 the right to receive a dividend of 5.5 pence (net) per Energy Group Share to be paid on July 4, 1997) and other distributions declared, made or paid after June 13, 1997 with respect to the Energy Group Shares represented by the Energy Group ADSs. The undersigned will, upon request, execute any additional documents deemed by the US Depositary or PacifiCorp Acquisitions to be necessary or desirable to complete the sale, assignment and transfer of the Energy Group ADSs evidenced by Energy Group ADRs in respect of which the Offer is being accepted (and any and all other Energy Group ADSs, securities or rights). The undersigned irrevocably undertakes, represents, and warrants to and agrees with PacifiCorp Acquisitions (so as to bind him or her, his or her personal representatives, heirs, successors and assigns) to the effect that the undersigned: (i) has not received or sent copies of this document or any Acceptance Form or any related documents in, into or from Canada, Japan or Australia and has not otherwise utilized in connection with the Offer, directly or indirectly, the Canadian, Australian or Japanese mails or any means or instrumentality (including, without limitation, facsimile transmission, telex and telephone) of interstate or foreign commerce, or any facilities of a national securities exchange, of Canada, Australia or Japan, (ii) is accepting the Offer from outside Canada, Japan and Australia and (iii) is not an agent or fiduciary acting on a nondiscretionary basis for a principal, unless such agent or fiduciary is an authorized employee of such principal or such principal has given any instructions with respect to the Offer from outside Canada, Japan and Australia. All authority herein conferred or agreed to be conferred pursuant to this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this acceptance is irrevocable. Unless otherwise indicated herein under "Special Payment Instructions", the undersigned hereby instructs the US Depositary to issue, or cause to be issued, the check for the purchase price in the name(s) of the registered holder(s) appearing under "Description of Energy Group ADSs Tendered". Similarly, unless otherwise indicated under "Special Delivery Instructions", the undersigned hereby instructs the US Depositary to mail, or cause to be mailed, the check for the purchase price and/or return, or cause to be returned, any Energy Group ADRs evidencing Energy Group ADSs in respect of which the Offer is not being accepted or which are not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Energy Group ADSs Tendered". In the event that the "Special Payment Instructions" and/or the "Special Delivery Instructions" are completed, the undersigned hereby instructs the US Depositary to (i) issue and/or mail, or cause to be issued and/or mailed, the check for the purchase price, if any, in the name of, and/or to the address of, the person or persons so indicated, and/or (ii) return, or cause to be returned, any Energy Group ADRs evidencing Energy Group ADSs in respect of which the Offer is not being accepted or which are not purchased, if any, to the person at the address so indicated. In the case of a book-entry delivery of Energy Group ADSs evidenced by Energy Group ADRs, the undersigned hereby instructs the US Depositary to credit the account maintained at the Book-Entry Transfer Facility indicated above with any Energy Group ADSs in respect of which the Offer is not being accepted or which are not purchased. The undersigned recognizes that the US Depositary will not transfer any Energy Group ADSs which are not purchased pursuant to the Offer from the name of the registered holder thereof to any other person. If the box headed "Pounds Sterling Payment Election" is not checked, the undersigned hereby instructs the relevant payment agent (either the US Depositary or the UK Receiving Agent) to convert all amounts payable pursuant to the Offer from pounds sterling to US dollars at the exchange rate obtainable by the relevant payment agent on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery to holders of Energy Group ADSs and to pay such amounts by check payable in US dollars. The actual amount of US dollars received will depend upon the exchange rate prevailing on the day funds are made available to the relevant payment agent by PacifiCorp Acquisitions. Energy Group ADS holders should also be aware that the US dollar/pound sterling exchange rate which is prevailing at the date on which the undersigned executes this Letter of Transmittal and on the date of dispatch of payment may be different from that prevailing on the day funds are made available to 5 the relevant payment agent by PacifiCorp Acquisitions. In all cases, fluctuations in the US dollar/pounds sterling exchange rate are at the risk of accepting Energy Group ADS holders who do not elect to receive their consideration in pounds sterling. Such currency exchange will be effected by the relevant payment agent on behalf of the requesting Energy Group ADS holder and PacifiCorp Acquisitions shall have no responsibility or obligation with respect thereto. SUBJECT TO THE TERMS OF THE OFFER TO PURCHASE, THIS LETTER OF TRANSMITTAL SHALL NOT BE CONSIDERED COMPLETE AND VALID, AND PAYMENT OF CONSIDERATION PURSUANT TO THE OFFER SHALL NOT BE MADE, UNTIL THE ENERGY GROUP ADRs EVIDENCING THE ENERGY GROUP ADSs IN RESPECT OF WHICH THE OFFER IS BEING ACCEPTED AND ALL OTHER REQUIRED DOCUMENTATION HAVE BEEN RECEIVED BY THE US DEPOSITARY AS PROVIDED IN THE OFFER TO PURCHASE AND THIS LETTER OF TRANSMITTAL. 6 [_]CHECK HERE IF ANY OF THE ENERGY GROUP ADRs REPRESENTING ENERGY GROUP ADSs THAT YOU OWN HAVE BEEN LOST, STOLEN OR DESTROYED AND SEE INSTRUCTION 12. Number of Energy Group ADSs represented by the lost, stolen or destroyed Energy Group ADRs: - -------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND (SEE INSTRUCTIONS 1, 5, 6 AND 7) 7) [_]Check box ONLY if the check [_]Check box ONLY if the check for the purchase price with for the purchase price with respect to Energy Group ADSs respect to Energy Group ADSs purchased is to be issued in purchased and/or Energy the name of someone other Group ADRs evidencing Energy than the undersigned. Group ADSs in respect of which the Offer is not ac- cepted or which are not pur- chased are to be mailed to someone other than the un- dersigned, or to the under- signed at an address other than that shown above. Issue to: Name ___________________________ (PLEASE PRINT) Address ________________________ ________________________________ (INCLUDE ZIP CODE) ________________________________ Mail [_] Check [_] ADR cer- (TAX IDENTIFICATION OR SOCIAL tificates to: SECURITY NO.) (SEE SUBSTITUTE Name____________________________ FORM W-9 INCLUDED HEREIN) (PLEASE PRINT) Address ________________________ ________________________________ (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POUNDS STERLING PAYMENT ELECTION [_]Check box ONLY if you wish to receive all (but not part) of the amount of cash consideration to be paid by a check in pounds sterling. If you do not check this box you will receive payment by a check in US dollars and the relevant payment agent (either the US Depositary or the UK Receiving Agent) will arrange for the conversion of the pound sterling amounts payable to you to US dollars at the exchange rate obtainable by the relevant payment agent on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery to holders of Energy Group ADSs. - -------------------------------------------------------------------------------- 7 SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN ____________________________________________________________________________ ____________________________________________________________________________ (SIGNATURE(S) OF OWNER(S)) Dated: ________________________________________________________________ 1997 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Energy Group ADR(s) evidencing the Energy Group ADS(s) or by person(s) to whom Energy Group ADR(s) surrendered have been assigned and transferred, as evidenced by endorsement, stock powers and other documents transmitted herewith. If signature is by any trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or others acting in a fiduciary or representative capacity, please set forth the following and see Instruction 5.) Name(s)_____________________________________________________________________ _____________________________________________________________________ (PLEASE TYPE OR PRINT) Capacity (full title) ______________________________________________________ Address_____________________________________________________________________ _____________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number _____________________________________________ Tax Identification or Social Security No. ________________________________________________________ GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature _______________________________________________________ Name _______________________________________________________________________ (PLEASE TYPE OR PRINT) Title ______________________________________________________________________ Name of Firm _______________________________________________________________ Address ____________________________________________________________________ Area Code and Telephone No. ________________________________________________ Dated: _____________________________________________________________________ 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on the Letter of Transmittal if (a) the Letter of Transmittal is signed by the registered holder(s) of the Energy Group ADSs evidenced by Energy Group ADRs in respect of which the Offer is being accepted herewith and such holder(s) have not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) the Offer is being accepted in respect of such Energy Group ADSs for the account of an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program, or the Stock Exchange Medallion Program (an "Eligible Institution"). See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND ADSS. This Letter of Transmittal is to be completed either if Energy Group ADRs evidencing Energy Group ADSs are to be forwarded herewith or if delivery is to be made by book-entry transfer to an account maintained by the US Depositary at a Book-Entry Transfer Facility pursuant to the procedures for book-entry transfer set out in "Procedures for Tendering Energy Group ADSs--Book-Entry Transfer" in Part B of Appendix I to the Offer to Purchase. Energy Group ADRs evidencing Energy Group ADSs or confirmation of a book-entry transfer of such Energy Group ADSs into the US Depositary's account at a Book-Entry Transfer Facility, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other documents required by this Letter of Transmittal, must be delivered to the US Depositary at one of its addresses set forth herein. Energy Group ADS holders whose Energy Group ADRs are not immediately available or who cannot deliver their Energy Group ADRs and all other required documents to the US Depositary or complete the procedures for book-entry transfer prior to the expiration of the Subsequent Offer Period may accept the Offer with respect to their Energy Group ADSs by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set out in "Procedures for Tendering Energy Group ADSs-- Guaranteed Delivery" in Part B of Appendix I to the Offer to Purchase. Pursuant to the guaranteed delivery procedures: (a) acceptance must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by PacifiCorp Acquisitions must be received by the US Depositary prior to the expiration of the Subsequent Offer Period; and (c) the Energy Group ADRs evidencing the Energy Group ADSs in respect of which the Offer is being accepted (or, in the case of Energy Group ADSs held in book-entry form, timely confirmation of the book-entry transfer of such Energy Group ADSs into the US Depositary's account at a Book-Entry Transfer Facility as described in the Offer to Purchase) together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other documents required by this Letter of Transmittal, are received by the US Depositary within three business days after the date of execution of such Notice of Guaranteed Delivery. For these purposes, a "business day" is any day on which the New York Stock Exchange is open for business. THE METHOD OF DELIVERY OF ENERGY GROUP ADSS EVIDENCED BY ENERGY GROUP ADRS AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE HOLDERS OF ENERGY GROUP ADSS ACCEPTING THE OFFER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent acceptance will be accepted and no fractional Energy Group ADSs will be purchased. All accepting Energy Group ADS holders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Energy Group ADSs for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the serial numbers of the certificates and/or the number of Energy Group ADSs should be listed on a separate schedule attached hereto. 9 4. PARTIAL ACCEPTANCES (NOT APPLICABLE TO BOOK-ENTRY TRANSFERS). If the Offer is to be accepted in respect of less than all of the Energy Group ADSs evidenced by any Energy Group ADRs delivered to the US Depositary herewith, fill in the number of Energy Group ADSs in respect of which the Offer is being accepted in the box entitled "Number of ADSs Tendered". In such case, a new Energy Group ADR for the remainder of the Energy Group ADSs (in respect of which the Offer is not being accepted) represented by the old Energy Group ADR will be sent to the registered holder as promptly as practicable following the date on which the Energy Group ADSs in respect of which the Offer has been accepted are purchased. The Offer will be deemed to have been accepted in respect of all Energy Group ADSs evidenced by Energy Group ADRs delivered to the US Depositary unless otherwise indicated. In the case of partial acceptances, Energy Group ADSs in respect of which the Offer was not accepted will not be reissued to a person other than the registered holder. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Energy Group ADSs in respect of which the Offer is being accepted hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without any change whatsoever. If any of the Energy Group ADSs evidenced by Energy Group ADRs in respect of which the Offer is being accepted hereby are owned of record by two or more owners, all such owners must sign this Letter of Transmittal. If any of the Energy Group ADSs in respect of which the Offer is being accepted are registered in different names on different Energy Group ADRs, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Energy Group ADRs. If this Letter of Transmittal or any Energy Group ADRs or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to PacifiCorp Acquisitions of their authority so to act must be submitted. When this Letter of Transmittal is signed by the registered holder(s) of the Energy Group ADSs listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be issued to a person other than the registered holder(s). Signatures on such Energy Group ADRs or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Energy Group ADSs listed, the Energy Group ADRs must be endorsed or accompanied by appropriate stock powers signed exactly as the names(s) of the registered holder(s) appear(s) on the Energy Group ADRs evidencing such Energy Group ADSs. Signatures on such Energy Group ADRs or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. PacifiCorp Acquisitions will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale to it or its order of Energy Group ADSs evidenced by Energy Group ADRs pursuant to the Offer. If, however, payment of the purchase price is to be made to any persons other than the registered holder(s), or if Energy Group ADSs in respect of which the Offer is being accepted are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person(s) payment on account of the transfer to such person) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Energy Group ADRs listed in this Letter of Transmittal. 10 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price is to be issued in the name of a person other than the signer of this Letter of Transmittal or if the check for the purchase price is to be sent and/or any Energy Group ADRs evidencing Energy Group ADSs in respect of which the Offer is not being accepted or which are not purchased are to be returned to a person other than the signer of this Letter of Transmittal or to an address other than that shown on the reverse, the boxes labeled "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. 8. POUNDS STERLING PAYMENT ELECTION. If the check for the purchase price is to be issued in pounds sterling, please check the box marked "Pounds Sterling Payment Election". If you do not check such box all pound sterling amounts payable pursuant to the Offer will be converted by the relevant payment agent (either the US Depositary or the UK Receiving Agent) into US dollars at the exchange rate obtainable by the relevant payment agent on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery to holders of Energy Group ADSs. 9. WAIVER OF CONDITIONS. PacifiCorp Acquisitions reserves the absolute right in its sole discretion to waive any of the specified conditions of the Offer, in whole or in part, to the extent permitted by applicable law and the rules of the City Code. 10. 31% U.S. BACKUP WITHHOLDING. In order to avoid "backup withholding" of US federal income tax on any cash payment received upon the surrender of Energy Group ADSs pursuant to the Offer, an Energy Group ADS holder must, unless an exemption applies, provide the US Depositary with his or her correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 on this Letter of Transmittal and certify, under penalties of perjury, that such number is correct and that he or she is not subject to backup withholding. If the correct TIN is not provided, a $50 penalty may be imposed by the Internal Revenue Service and cash payments made in exchange for the surrendered Energy Group ADSs may be subject to backup withholding. If backup withholding applies, the US Depositary is required to withhold 31% of any payment made pursuant to the Offer. Backup withholding is not an additional US federal income tax. Rather, the US federal income tax liability of persons subject to back-up withholding will be reduced by the amount of such tax withheld. If backup withholding results in an overpayment of taxes, a refund may be applied for from the Internal Revenue Service. The TIN that is to be provided on the Substitute Form W-9 is that of the registered holder(s) of the Energy Group ADSs or of the last transferee appearing on the transfers attached to, or endorsed on, the Energy Group ADSs. The TIN for an individual is his or her social security number. Each tendering Energy Group ADS holder generally is required to notify the US Depositary of his or her correct TIN by completing the Substitute Form W-9 contained herein, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder is awaiting a TIN), and that (1) such holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends, or (2) the Internal Revenue Service has notified such holder that such holder is no longer subject to backup withholding (see Part III of Substitute Form W-9). Notwithstanding that the "TIN Applied For" box is checked (and the Certification is completed), the US Depositary will withhold 31% on any cash payment of the purchase price for the Energy Group ADSs made prior to the time it is provided with a properly certified TIN. Exempt persons (including among others, corporations) are not subject to back-up withholding. A foreign individual or foreign entity may qualify as an exempt person by submitting a statement (on Form W-8), signed under penalties of perjury, certifying such person's foreign status. Form W-8 can be obtained from the US Depositary. An Energy Group ADS holder should consult his or her tax advisor as to his or her qualification for an exemption from backup withholding and the procedure for obtaining such exemption. For additional guidance, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 11 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the US Depositary at the address and telephone number set forth above, to the Information Agent or the Dealer Manager at the addresses and telephone numbers set forth below, or to the UK Receiving Agent at the appropriate address and telephone number set forth in the Offer to Purchase. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Energy Group ADR evidencing Energy Group ADSs has been lost, destroyed or stolen, the holder thereof should promptly notify the US Depositary by checking the box immediately preceding the special payment/special delivery instructions boxes and indicating the number of Energy Group ADSs evidenced by such lost, destroyed or stolen Energy Group ADRs. The holder thereof will then be instructed as to the steps that must be taken in order to replace such Energy Group ADRs. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Energy Group ADRs have been followed. 13. HOLDERS OF ENERGY GROUP SHARES NOT REPRESENTED BY ENERGY GROUP ADSS. Holders of Energy Group Shares have been sent a Form of Acceptance with the Offer to Purchase and may not accept the Offer in respect of Energy Group Shares pursuant to this Letter of Transmittal except insofar as those shares are represented by Energy Group ADSs. If any holder of Energy Group Shares which are not represented by Energy Group ADSs needs to obtain a copy of a Form of Acceptance, such holder should contact the UK Receiving Agent at the appropriate address and telephone number set forth in the Offer to Purchase or the US Depositary. 12 PAYER'S NAME: CONTINENTAL STOCK TRANSFER & TRUST COMPANY, AS DEPOSITARY AGENT SUBSTITUTE PART I--Taxpayer Identification Number (TIN) FORM W-9 DEPARTMENT OF Please enter your correct number in the appropriate THE TREASURY box below. NOTE: If the account is more than one INTERNAL REVENUE name, see the chart on the enclosed form, Guidelines SERVICE for Certification of Taxpayer Identification Number on Substitute Form W-9, for guidance on which number to enter. PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION Social Security Number Or Employer Identification Number ------------------------- ------------------------------ If you do not have a TIN, see the instructions "How to Get a TIN" and check the box below. TIN Applied For [_] PART II--For Payees Exempt from Backup Withholding (see instructions) - -------------------------------------------------------------------------------- PART III CERTIFICATION--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest and dividends, or (c) IRS has notified me that I am no longer subject to backup withholding, and (3) All other information provided on this form is true, correct and complete. Certification Instructions. You must cross out Item (2) above if you have been notified by IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return. Please indicate the taxpayer's name associated with the TIN if other than the first name appearing in the registration: (X) ________________________________ (Please Print) Please Sign (X) Signature(s) ________________________ Date _________________ - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 13 THE INFORMATION AGENT FOR THE OFFER IS: SHAREHOLDER COMMUNICATIONS CORPORATION 17 State Street, 27th Floor New York, NY 10004 Call: (800) 733-8481, ext. 475 (Toll Free) THE DEALER MANAGER FOR THE OFFER IS: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (212) 902-1000 within New York City (800) 323-5678 (Toll Free) outside New York City 14 EX-99.A.3 4 FORM OF ACCEPTANCE - -------------------------------------------------------------------------------- THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. When considering the action you should take, you are recommended immediately to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services Act 1986. This document should be read in conjunction with the accompanying Offer Document dated 30 June 1997 from Goldman Sachs International (the "Offer Document"). If you have sold or otherwise transferred all your Energy Group Shares, please send this Form of Acceptance (but NOT if it is personalised), together with the accompanying Offer Document and reply-paid envelope, as soon as possible, to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. However, such documents should not be forwarded or transmitted in or into Canada, Australia or Japan. The Offer is not being made, directly or indirectly, in or into Canada, Australia or Japan and neither this Form of Acceptance nor the accompanying Offer Document is being mailed or otherwise distributed or sent in or into Canada, Australia or Japan. All persons (including nominees, trustees and custodians) who would, or otherwise intend to, forward this Form of Acceptance and the accompanying Offer Document must not distribute or send them in, into or from Canada, Australia or Japan, and doing so may render invalid any related purported acceptance of the Offer. Further details in this regard are set out in paragraph 8 of Part B of Appendix I to the accompanying Offer Document. To accept the Offer, holders of Energy Group ADSs must complete the Letter of Transmittal (rather than the Form of Acceptance) in accordance with the instructions printed on it. The Loan Notes to be issued pursuant to the Offer have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or under any relevant securities laws of any state or district of the United States, will not be the subject of a prospectus under the securities laws of any province of Canada and will not be registered under any relevant securities laws of any other country. The Loan Notes are not being offered, sold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan. If you are a CREST sponsored member, you should refer to your CREST sponsor before completing this Form. - -------------------------------------------------------------------------------- FORM OF ACCEPTANCE, AUTHORITY AND ELECTION [LOGO OF PACIFICORP APPEARS HERE] RECOMMENDED CASH OFFER by GOLDMAN SACHS INTERNATIONAL on behalf of PACIFICORP ACQUISITIONS A WHOLLY-OWNED SUBSIDIARY OF PACIFICORP for THE ENERGY GROUP PLC - -------------------------------------------------------------------------------- Unless the context otherwise requires, the definitions contained in the Offer Document also apply in this Form of Acceptance (the "Form"). ACTION TO BE TAKEN . To accept the Offer, complete page 3 of this Form, following the instructions and notes for guidance set out on pages 2 and 4. . Return this Form, duly completed and signed and, if your Energy Group Shares are in certificated form, accompanied by your share certificate(s) and/or other document(s) of title, by hand or by post to New Issues Department, Independent Registrars Group Limited, PO Box 166, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TH or by hand (during normal business hours only) to Independent Registrars Group Limited, 23 Ironmonger Lane, London EC2, as soon as possible but, in any event, so as to be received by no later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. A reply-paid envelope is enclosed (for use within the United Kingdom and the United States only) for you to lodge documents by post. . If your Energy Group Shares are in uncertificated form (that is, if you do not have a paper share certificate because your shares are held in CREST), you should return this Form and take the action described in Part B (in particular, paragraphs 10(d)- 10(l)) of Appendix I to the Offer Document to transfer your Energy Group Shares to an escrow balance. For this purpose, the participant ID of the escrow agent, Independent Registrars Group Limited, in its capacity as a CREST receiving agent, is RA10, the member account ID of the escrow agent is ENERGY and the Form of Acceptance Reference Number of this Form (for insertion in the first eight characters of the shared note field on the TTE instruction) is shown next to Box 5 on page 3 of this Form. You should ensure that the transfer to escrow settles not later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. If you are a CREST sponsored member, you should refer to your CREST sponsor before completing this Form. . If you hold Energy Group Shares in both certificated and uncertificated form (that is, in CREST), you should complete a separate Form for each holding. If you hold Energy Group Shares in uncertificated form, but under different member account IDs, you should complete a separate Form in respect of each member account ID. Similarly, if you hold Energy Group Shares in certificated form, but under different designations, you should complete a separate Form in respect of each designation. You can obtain further Forms by contacting Independent Registrars Group Limited on telephone number 0181 639 2166. . If your Energy Group Shares are in certificated form and your share certificate(s) and/or other document(s) of title are with your bank, stockbroker or other agent and your share certificate(s) and/or other document(s) of title are readily available, you should complete and sign this Form and arrange for it to be lodged by such agent with the relevant document(s). If your share certificate(s) and/or other document(s) of title is/are not readily available, please read Note 6 on page 4 of this Form. . If you hold Energy Group Shares jointly with others, you must arrange for all your co-holders to sign this Form. . Any Form which is received in an envelope postmarked in, or which appears to PacificCorp Acquisitions or its agents to have been sent from Canada, Australia or Japan may be treated as invalid. . Please read Part B of Appendix I to the Offer Document, the provisions of which form part of this Form. . If you require assistance on how to complete this Form, please contact New Issues Department, Independent Registrars Group Limited on telephone number 0181 639 2166. . If, however, you have any general queries about the Offer, please contact the PacifiCorp Helpline on telephone number 0345 573 838. - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Page 2 INSTRUCTIONS FOR COMPLETING PAGE 3 OF THIS FORM THE PROVISIONS OF PART B OF APPENDIX I TO THE OFFER DOCUMENT FORM PART OF THIS FORM - ------------------------------------------------------------------------------- [1] TO ACCEPT THE OFFER [2] TO ELECT FOR THE LOAN NOTE ALTERNATIVE To accept the Offer for If, but only if, you wish to your Energy Group Shares, elect for the Loan Note insert in Box [_] 1 the Alternative, you must total number of Energy complete Box [_] 2 . When Group Shares for which you you have completed Box wish to accept the Offer, [_] 1 , insert in Box including any Energy Group [_] 2 the number of Energy Shares in respect of which Group Shares in respect of you wish to make an which you wish to elect for election for the Loan Note the Loan Note Alternative. Alternative set out in Box If you insert a number in [_] 2 . Box [_] 2 which is greater You must sign Box [_] 6 in than the number inserted (or the presence of a witness deemed to be inserted) in in accordance with the Box [_] 1 , you will be instructions set out below, deemed to have elected for which will constitute your the Loan Note Alternative in acceptance of the Offer. If respect of the number no number, or a number inserted (or deemed to be greater than your entire inserted) in Box [_] 1 . holding of Energy Group The Loan Note Alternative is Shares, is inserted in Box not available to persons [_] 1 and you have signed entitled to participate in Box [_] 6 , you will be the Offer who are citizens deemed to have accepted the or residents of the United Offer in respect of your States. Please note that in entire holding of Energy order for PacifiCorp Group Shares (being your Acquisitions to pay interest entire holding, if your on the Loan Notes without Energy Group Shares are in the United States certificated form, under withholding tax of 30 per the name(s) and address(es) cent., PacifiCorp specified in Box [_] 3 Acquisitions must receive a (or, if applicable, Box statement certifying that [_] 4 ) or, if your Energy the beneficial owner of the Group Shares are in CREST, Loan Notes is not a United under the participant ID States person or, in the and member account ID case of an individual, not a specified in Box [_] 5 ). citizen or resident of the By accepting the Offer, you United States. If you elect will be deemed (unless you the Loan Note Alternative, insert "YES" in Box [_] 8 ) you will be furnished with a to give the warranties in United States Internal paragraph 11(l) of Part B Revenue Service Form W-8 to of Appendix I to the Offer enable you to make that Document. certification. PLEASE ENSURE YOUR SHARE CERTIFICATE(S) AND/OR OTHER DOCUMENT(S) OF TITLE ARE ENCLOSED. - ------------------------------------------------------------------------------- [3] - ------------------------------------------------------------------------------- [4] FULL NAME(S) AND ADDRESS(ES) OF REGISTERED SHAREHOLDER(S) TELEPHONE NUMBER FOR If the details shown in Box QUERIES 4 [_] 3 (or on your share Please enter a day-time certificate(s)) are not telephone number (including correct in all respects, STD code) where you can be please complete Box [_] 4 contacted in the event of with the full name(s) and any query arising from address(es) of all completion of this Form. You registered holder(s) in must not insert a telephone BLOCK CAPITALS. Please do number in Canada, Australia not complete Box [_] 4 if or Japan. details shown in Box [_] 3 (or on your share certificate(s)) are correct in all respects. Unless you complete Box [_] 7 , the address of the first-named holder shown in Box [_] 3 (or, if applicable, Box [_] 4 ) is the address to which the payment of the cash consideration and/or Loan Notes becoming due to you will be sent. If you insert in Box [_] 4 an address in Canada, Australia or Japan, you must insert in Box [_] 7 an alternative address outside Canada, Australia and Japan. - ------------------------------------------------------------------------------- [5] PARTICIPANT ID AND MEMBER ACCOUNT ID If your Energy Group Shares the Form of Acceptance 5 are in CREST, you must Reference Number of this insert in Box [_] 5 the Form and the other participant ID and the information referred to in member account ID under paragraph 10(f) of Part B of which such Shares are held Appendix I to the Offer by you in CREST. You must Document. The Form of also transfer (or procure Acceptance Reference Number the transfer of) the Energy appears next to Box [_] 5 Group Shares concerned to on page 3 of this Form. an escrow balance, specifying in the TTE instruction the participant ID and member account ID inserted in Box [_] 5 and - ------------------------------------------------------------------------------- [6] SIGNATURES To accept the Offer for joint holder(s), insert the your Energy Group Shares, name(s) and capacity(ies) 6 you MUST SIGN Box [_] 6 , (eg. executor) of the regardless of which other person(s) making the boxes you complete. In the acceptance. A company may case of joint holders, ALL either execute under seal, joint holders must sign Box the seal being affixed and [_] 6 . Each holder must witnessed in accordance with sign in the presence of a its Articles of Association witness. The witness must or other regulations or, if be over 18 years of age and applicable, in accordance must not be one of the with section 36A of the registered joint holders. Companies Act 1985. The same witness may witness each signature of the registered joint holders. If the acceptance is not made by the registered - ------------------------------------------------------------------------------- [7] ALTERNATIVE ADDRESS If you want payment of the BLOCK CAPITALS with the name 7 cash consideration, Loan of such person and the Notes and/or other address (but not in Canada, documents to be sent to an Australia or Japan). Box address other than the [_] 7 must be completed by address of the first-named holders who have completed registered holder in Box Box [_] 4 with an address [_] 3 (or, if applicable, in Canada, Australia or Box [_] 4 ) (e.g. the Japan. address of your bank manager or stockbroker), you should complete Box [_] 7 in - ------------------------------------------------------------------------------- [8] OVERSEAS PERSONS If you are, or hold Energy to give the warranties Group Shares for, a required by paragraph 11(l) 8 citizen, resident or of Part B of Appendix I to national of a country other the Offer Document, you must than the United Kingdom or put "YES" in Box [_] 8 . If United States, please refer you do not put "YES" in Box to paragraph 8 of Part B of [_] 8 , you will be deemed Appendix I to the Offer to have given such Document. If you are unable warranties. - ------------------------------------------------------------------------------- [9] US DOLLAR PAYMENT ELECTION If, but only if, you want your cash consideration in payment of the cash US dollars. Details of the 9 consideration in US dollars basis of payment in US (rather than in pounds dollars is set out in sterling), you must put paragraph 15(f) of the "YES" in Box [_] 9 . You letter from Goldman Sachs may not elect to receive International in the Offer payment of the cash Document. Please note that consideration in US dollars any fluctuation in the US and pounds sterling. If you dollar/pound sterling put "YES" in Box [_] 9 , exchange rate will be at you will receive the whole your risk. of HELPLINES: IF YOU REQUIRE FURTHER ASSISTANCE ON COMPLETING THIS FORM, PLEASE CONTACT NEW ISSUES DEPARTMENT, INDEPENDENT REGISTRARS GROUP LIMITED ON TELEPHONE NUMBER 0181 639 2166. IF, HOWEVER, YOU HAVE ANY GENERAL QUERIES ABOUT THE OFFER, PLEASE CONTACT THE PACIFICORP HELPLINE ON TELEPHONE NUMBER 0345 573 838. - -------------------------------------------------------------------------------- Page 3 PLEASE COMPLETE IN ACCORDANCE WITH THE INSTRUCTIONS ON PAGE 2. THE NOTES ON PAGE 4 MAY ASSIST YOU. - -------------------------------------------------------------------------------- [1] To accept the Box [_] 1 [2] To elect the Box [_] 2 Offer for your Loan Note Energy Group Alternative, Shares, complete Box complete Box [_] 1 and [_] 1 and Box [_] 2 sign Box and sign Box [_] 6 in the [_] 6 . presence of a witness. -------------- -------------- Total number Number of of Energy Energy Group Group Shares Shares for for which which you you wish to wish to elect accept the the Loan Note PLEASE ENSURE Offer Alternative THAT YOUR SHARE CERTIFICATE(S) AND/OR OTHER DOCUMENT(S) OF TITLE ARE ENCLOSED TO COVER THE ABOVE NUMBER OF SHARES. - -------------------------------------------------------------------------------- [3] - -------------------------------------------------------------------------------- Box [_] 4 Full name(s) and address(es) of registered shareholder(s) (only if the details in Box [_] 3 or on your share certificate(s) are not correct in all respects) [4] First registered holder Second registered holder 1. Forename(s) ______________ 2. Forename(s) ______________ Surname _____________________ Surname _____________________ Address _____________________ Third registered holder _____________________________ 3. Forename(s) ______________ _____________________________ Surname _____________________ _____________________________ Fourth registered holder _____________________________ 4. Forename(s) ______________ Postcode ____________________ Surname _____________________ In case of query, please state your day-time telephone number (including STD code) _________________________________________ - -------------------------------------------------------------------------------- [5] Participant ID and Box [_] 5 member account ID Complete this Box only if Participant ID __________ your Energy Group Shares Member account ID _______ are in CREST. The Form of Acceptance Reference Number of this form is - -------------------------------------------------------------------------------- Sign here to accept the Offer [6] Signed and Witnessed by: delivered as a Box [_] 6 deed by: ------------------- ------------------- 1 Name Address ------------------- ------------------- ------------------- Signature ------------------- 1 First ------------------- Address registered holder 2 Name ------------------- ------------------- ------------------- ------------------- 2 Second Signature Address registered holder ------------------- ------------------- ------------------- 3 Name ------------------- 3 Third ------------------- Address registered holder Signature ------------------- ------------------- ------------------- 4 Fourth 4 Name registered holder ------------------- Signature IMPORTANT: EACH REGISTERED HOLDER WHO IS AN INDIVIDUAL MUST SIGN IN THE PRESENCE OF A WITNESS (NOT BEING ONE OF THE REGISTERED JOINT HOLDERS) WHO MUST BE OVER 18 YEARS OF AGE AND WHO MUST ALSO SIGN AND PRINT HIS NAME AND ADDRESS WHERE INDICATED. - -------------------------------------------------------------------------------- [7] Address (outside Canada, Australia and Japan) to which payment of the cash consideration, Loan Notes and/or other documents are to be sent (if different to the address of the first-named holder in Box [_] 3 (or, if applicable, Box [_] 4 ). Box [_] 7 (Complete in BLOCK CAPITALS) Name _______________________________________________________ Address ____________________________________________________ _______________________________ Postcode ___________________ - -------------------------------------------------------------------------------- [8] Overseas Person: Please put "YES" in Box [_] 8 if Box [_] 8 you are UNABLE to give the warranties set out in paragraph 11(l) of Part B of Appendix I to the Offer Document. - -------------------------------------------------------------------------------- [9] US dollar payment election: Please put "YES'' in Box Box [_] 9 [_] 9 if, but only if, you want to receive the whole of the payment of the cash consideration in US 9 dollars (rather than pounds sterling). - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Page 4 NOTES REGARDING THE COMPLETION AND LODGING OF THIS FORM In order to avoid inconvenience to you and delay, the following points may assist you. 1. IF YOUR NAME AND/OR OTHER DETAILS ARE SHOWN INCORRECTLY ON YOUR SHARE CERTIFICATE(S): (a) If your name and/or other details as recorded on your share certificate(s) are incorrect, you should write the correct details in Box [_]4 and lodge this Form with your share certificate(s). (b) If you have changed your name, lodge your marriage certificate or the deed poll with this Form for noting. (c) If you have changed your address, write the correct address in Box [_]4. 2. IF YOU HAVE SOLD OR OTHERWISE TRANSFERRED ALL, OR WISH TO SELL PART, OF YOUR HOLDING OF ENERGY GROUP SHARES: If you have sold or otherwise transferred all your holding of Energy Group Shares, you should at once send the accompanying Offer Document and reply- paid envelope (but NOT this Form if it is personalised) to the purchaser or transferee or to the stockbroker, bank or other agent through whom you made the sale or transfer for delivery to the purchaser or transferee. If your Energy Group Shares are in certificated form, and you wish to sell or otherwise transfer part of your holding of Energy Group Shares and wish to accept the Offer in respect of the balance but are unable to obtain the balance certificate by 29 July 1997, you should ensure that the stockbroker or other agent through whom you make the sale or transfer obtains the appropriate endorsement or indication, signed on behalf of Lloyds Bank Registrars, in respect of the balance of your holding of Energy Group Shares. 3. IF A HOLDER IS AWAY FROM HOME (E.G. ABROAD OR ON HOLIDAY): Send this Form by the quickest means (e.g. airmail), but not in or into Canada, Australia or Japan, to the holder for execution or, if he has executed a power of attorney, lodge this Form with Independent Registrars Group Limited, at one of the addresses given on page 1 of this Form, after it has been signed by the attorney. In the latter case, the attorney should sign in the presence of a witness who should also sign this Form and the original power of attorney (or a copy thereof duly certified in accordance with the Powers of Attorney Act 1971) must be lodged with this Form for noting. No other signatures are acceptable. The power of attorney will be returned as directed. 4. IF THE SOLE HOLDER HAS DIED: A grant of probate or letters of administration must be taken out in respect of the relevant Energy Group Shares. If the grant of probate or letters of administration has/have been registered with Lloyds Bank Registrars, this Form must be signed by the personal representative(s) of the deceased holder, each in the presence of a witness who must also sign this Form. This Form should then be lodged with Independent Registrars Group Limited, at one of the addresses given on page 1 of this Form, together with the relevant share certificate(s) and/or other document(s) of title. If the grant of probate or letters of administration has/have not been registered with Lloyds Bank Registrars, the personal representative(s) or the prospective personal representative(s) should sign this Form, each in the presence of a witness who must also sign this Form and forward it to Independent Registrars Group Limited with the relevant share certificate(s) and/or other document(s) of title. However, the grant of probate or letters of administration must be lodged with Independent Registrars Group Limited at one of the addresses given on page 1 of this Form, before the consideration due under the Offer can be forwarded to the personal representative(s). 5. IF ONE OF THE JOINT HOLDERS HAS DIED: This completed Form should be signed by all the surviving holders, each in the presence of a witness, who must also sign this Form. This Form should then be lodged with Independent Registrars Group Limited, at one of the addresses given on page 1 of this Form, with the relevant share certificate(s) and/or other documents(s) of title and accompanied by the death certificate or the grant of probate or letters of administration in respect of the deceased joint holder. These documents will be noted by Independent Registrars Group Limited and returned as directed. 6. IF YOUR ENERGY GROUP SHARES ARE IN CERTIFICATED FORM AND THE CERTIFICATE(S) ARE HELD BY YOUR STOCKBROKER, BANK OR OTHER AGENT: If your share certificate(s) and/or other document(s) of title is/are with your stockbroker, bank or other agent, you should complete this Form and, if the certificate(s) and/or other document(s) of title is/are readily available, arrange for this Form to be lodged by such agent with Independent Registrars Group Limited at one of the addresses given on page 1 of this Form, accompanied by the share certificate(s) and/or other document(s) of title. If your share certificate(s) and/or other documents of title is/are not readily available, complete, sign and lodge this Form with Independent Registrars Group Limited at one of the addresses given on page 1 of this Form, together with a letter stating that the balance will follow and any available share certificate(s) and/or other document(s) of title, and then arrange for the outstanding share certificate(s) and/or other document(s) of title to be forwarded as soon as possible thereafter. (It will be helpful for your agent to be informed of the full terms of the Offer.) No acknowledgement of receipt of documents will be given. 7. IF YOUR ENERGY GROUP SHARES ARE IN CERTIFICATED FORM AND ANY SHARE CERTIFICATE HAS BEEN LOST: This completed Form, together with any share certificate(s) and/or other document(s) of title which may be available, should be lodged with Independent Registrars Group Limited, at one of the addresses given on page 1 of this Form, accompanied by a letter stating that you have lost one or more of your share certificate(s) and/or other document(s) of title, no later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997. You should write as soon as possible to Lloyds Bank Registrars at The Causeway, Goring-by-Sea, Worthing, West Sussex BN99 6DA, for a letter of indemnity which, when completed in accordance with the instructions given, should be returned to Independent Registrars Group Limited, at one of the addresses given on page 1 of this Form. No acknowledgement of receipt of documents will be given. 8. IF YOUR ENERGY GROUP SHARES ARE IN CREST: You should take the action described in Part B (in particular, paragraphs 10(d)--10(l)) of Appendix I to the Offer Document to transfer your Energy Group Shares to an escrow balance. You are reminded to keep a record of the Form of Acceptance Reference Number (which appears next to Box [_]5 on page 3 of this Form) so that such Number can be inserted in the TTE instruction. If you are a CREST sponsored member, you should refer to your CREST sponsor before completing this Form, as only your CREST sponsor will be able to send the necessary TTE instruction to CRESTCo. 9. IF YOU ARE NOT RESIDENT IN THE UNITED KINGDOM OR THE UNITED STATES: The attention of Energy Group shareholders not resident in the United Kingdom or the United States is drawn to paragraph 8 of Part B of Appendix I to the Offer Document. Subject to the City Code, PacifiCorp Acquisitions reserves the right to treat as valid, in whole or in part, any acceptance of the Offer which is not entirely in order or which is not accompanied by (as applicable) the relevant transfer to escrow or the relevant share certificate(s) and/or other document(s) of title, or which is received by it at a place or places other than set out on this Form. In that event, no payment of cash or issue of Loan Notes under the Offer will be made until after (as applicable) the relevant transfer to escrow has settled or the relevant share certificate(s) and/or other document(s) of title or indemnities satisfactory to PacifiCorp Acquisitions have been received. HELPLINES IF YOU REQUIRE FURTHER ASSISTANCE ON COMPLETING THIS FORM, PLEASE CONTACT NEW ISSUES DEPARTMENT, INDEPENDENT REGISTRARS GROUP LIMITED ON TELEPHONE NUMBER 0181 639 2166. IF, HOWEVER, YOU HAVE ANY GENERAL QUERIES ABOUT THE OFFER, PLEASE CONTACT THE PACIFICORP HELPLINE ON TELEPHONE NUMBER 0345 573 838. Printed by RR Donnelley Financial, 89040 EX-99.A.4 5 FORM OF NOTICE OF GUARANTEED DELIVERY THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. In considering what action you should take, you are recommended immediately to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial advisor. If you have sold or otherwise transferred all your American Depositary Shares ("Energy Group ADSs") of The Energy Group PLC ("The Energy Group"), please pass this document and all accompanying documents as soon as possible to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. HOWEVER, SUCH DOCUMENTS SHOULD NOT BE DISTRIBUTED, FORWARDED OR TRANSMITTED IN OR INTO AUSTRALIA, CANADA OR JAPAN. Goldman Sachs International is acting for PacifiCorp Acquisitions and PacifiCorp in relation to the Offer and no one else, and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to customers of Goldman Sachs International nor for providing advice in relation to the Offer. Goldman Sachs International is acting through Goldman, Sachs & Co. for the purpose of making the Offer in the United States. - ------------------------------------------------------------------------------- NOTICE OF GUARANTEED DELIVERY TO ACCEPT THE OFFER FOR AMERICAN DEPOSITARY SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS OF THE ENERGY GROUP PLC PURSUANT TO THE OFFER TO PURCHASE DATED JUNE 30, 1997 BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS (A WHOLLY OWNED SUBSIDIARY OF PACIFICORP) - ------------------------------------------------------------------------------- As set forth in "Procedures for Tendering Energy Group ADSs" in Part B of Appendix I to the Offer to Purchase, this form or one substantially equivalent hereto must be used for acceptance of the Offer in respect of Energy Group ADSs, if American Depositary Receipts evidencing Energy Group ADSs ("Energy Group ADRs") are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or if time will not permit all required documents to reach the US Depositary prior to the expiration of the Subsequent Offer Period (as defined in the Offer to Purchase). Such form may be delivered by hand or mailed to the US Depositary and must include a signature guarantee by an Eligible Institution in the form set out herein. See "Procedures for Tendering Energy Group ADSs--Guaranteed Delivery" in Part B of Appendix I to the Offer to Purchase. - ------------------------------------------------------------------------------- TO: CONTINENTAL STOCK TRANSFER & TRUST COMPANY, US DEPOSITARY By Mail: By Facsimile Transmission: By Hand or Overnight (for Eligible Institutions Only) Courier: Continental Stock (212) 248-8495 Transfer & Trust Continental Stock Company For Information Telephone: Transfer & Trust c/o Shareholder Company Communications Corporation (800) 733-8481, ext. 475 c/o Shareholder 17 State Street, 24th Communications Corporation Floor 17 State Street, 24th New York, NY 10004 Floor Attn: Tenders & Exchanges New York, NY 10004 Attn: Tenders & Exchanges DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature or a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. ACCEPTANCE OF THE OFFER IN RESPECT OF ENERGY GROUP SHARES (EXCEPT INSOFAR AS THEY ARE REPRESENTED BY ENERGY GROUP ADSS) MAY NOT BE MADE WITH THIS FORM AND PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES. Ladies and Gentlemen: The undersigned hereby accepts the Offer in respect of Energy Group ADSs upon the terms and subject to the conditions set forth below pursuant to the guaranteed delivery procedure set out in "Procedures for Tendering Energy Group ADSs--Guaranteed Delivery" in Part B of Appendix I to the Offer to Purchase. THE UNDERSIGNED UNDERSTANDS THAT THE ACCEPTANCE OF THE OFFER IN RESPECT OF ENERGY GROUP ADSS PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES WILL NOT BE TREATED AS A VALID ACCEPTANCE FOR THE PURPOSE OF SATISFYING THE ACCEPTANCE CONDITION. SEE "PROCEDURES FOR TENDERING ENERGY GROUP ADSS--GUARANTEED DELIVERY" IN PART B OF APPENDIX I TO THE OFFER TO PURCHASE. TO BE COUNTED TOWARDS SATISFACTION OF THE ACCEPTANCE CONDITION, THE ENERGY GROUP ADRS EVIDENCING SUCH ENERGY GROUP ADSS MUST, PRIOR TO THE INITIAL CLOSING DATE, BE RECEIVED BY THE US DEPOSITARY OR, IF APPLICABLE, TIMELY CONFIRMATION OF A BOOK-ENTRY TRANSFER OF SUCH ENERGY GROUP ADSS INTO THE US DEPOSITARY'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY PURSUANT TO THE PROCEDURES SET OUT IN "PROCEDURES FOR TENDERING ENERGY GROUP ADSS--BOOK-ENTRY TRANSFER" IN PART B OF APPENDIX I TO THE OFFER TO PURCHASE MUST BE RECEIVED BY THE US DEPOSITARY, TOGETHER WITH A DULY EXECUTED LETTER OF TRANSMITTAL OR FACSIMILE THEREOF WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS. Signature(s): _______________________ Address(es): ________________________ _____________________________________ _____________________________________ (Include Zip Code) _____________________________________ Area Code(s) and Tel. No(s).: _______ Name of Record Holder(s): ___________ If Energy Group ADSs will be tendered by book-entry transfer, check one box: _____________________________________ _____________________________________ [_] The Depository Trust Company (Please Type or Print) [_] Philadelphia Depository Trust Number of Energy Group ADSs: ________ Co. Energy Group ADR No.(s) (if Account Number: _____________________ available): _____________________________________ _____________________________________ Dated: ______________________________ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchanges Medallion Program, hereby guarantees that the undersigned will deliver to the US Depositary either the Energy Group ADRs representing the Energy Group ADSs with respect to which the Offer is being accepted hereby, in proper form for transfer, or confirmation of the book-entry transfer of such Energy Group ADSs into the US Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company, in any such case together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof), with any required signature guarantees and any other required documents, all within three New York Stock Exchange trading days after the date hereof. _____________________________________ _____________________________________ (Authorized Signature) Name of Firm, Agent or Trustee _____________________________________ Name: _______________________________ (Please type or print) Address _____________________________________ Title: ______________________________ (Zip Code) Area Code and Tel. No.: _____________ Date: _______________________________ NOTE: DO NOT SEND ENERGY GROUP ADRS WITH THIS FORM; ENERGY GROUP ADRS SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.A.5 6 FORM OF LETTER TO BROKERS This document should not be forwarded or transmitted in or into Australia, Canada or Japan. RECOMMENDED CASH OFFER FOR ALL ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS OF THE ENERGY GROUP PLC BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS (A WHOLLY OWNED SUBSIDIARY OF PACIFICORP) THERE WILL BE AN INITIAL OFFER PERIOD WHICH WILL EXPIRE AT 3:00 PM (LONDON TIME), 10:00 AM (NEW YORK CITY TIME) ON JULY 29, 1997, UNLESS EXTENDED. AT THE CONCLUSION OF THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, IF ALL CONDITIONS OF THE OFFER HAVE BEEN SATISFIED, FULFILLED OR, WHERE PERMITTED, WAIVED, THE OFFER WILL BE EXTENDED FOR A SUBSEQUENT OFFER PERIOD OF AT LEAST 14 CALENDAR DAYS. HOLDERS OF ENERGY GROUP SECURITIES WILL HAVE WITHDRAWAL RIGHTS DURING THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, BUT NOT DURING THE SUBSEQUENT OFFER PERIOD. June 30, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Goldman, Sachs & Co. has been appointed by PacifiCorp Acquisitions to act as dealer manager in the United States (the "Dealer Manager") in connection with an offer by Goldman Sachs International, on behalf of PacifiCorp Acquisitions, to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 30, 1997 (the "Offer to Purchase") and the accompanying Acceptance Forms (collectively, the "Offer"), all outstanding ordinary shares of 10p each ("Energy Group Shares") of The Energy Group PLC ("The Energy Group") for (Pounds)6.90 in cash per Energy Group Share, including all American Depositary Shares ("Energy Group ADSs") of The Energy Group, each representing four Energy Group Shares and evidenced by American Depositary Receipts ("Energy Group ADRs"), for (Pounds)27.60 in cash per Energy Group ADS. THE BOARD OF THE ENERGY GROUP, WHICH HAS BEEN SO ADVISED BY LAZARD BROTHERS & CO., LIMITED, LAZARD FRERES & CO. LIMITED (TOGETHER "LAZARD") AND MORGAN STANLEY & CO. LIMITED ("MORGAN STANLEY"), ITS FINANCIAL ADVISERS, CONSIDERS THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE. IN PROVIDING ADVICE TO THE BOARD OF THE ENERGY GROUP, LAZARD AND MORGAN STANLEY HAVE TAKEN ACCOUNT OF THE BOARD'S COMMERCIAL ASSESSMENT OF THE OFFER. ACCORDINGLY, THE DIRECTORS OF THE ENERGY GROUP UNANIMOUSLY RECOMMEND ALL HOLDERS OF ENERGY GROUP SECURITIES TO ACCEPT THE OFFER, AS THEY HAVE IRREVOCABLY UNDERTAKEN TO DO IN RESPECT OF THEIR PERSONAL HOLDINGS OF ENERGY GROUP SECURITIES. 2 For your information and for forwarding to those of your clients for whom you hold Energy Group ADSs registered in your name or in the name of your nominee, we are enclosing the following documents: 1. The Offer to Purchase; 2. A printed form of letter that may be sent to your clients for whose account you hold Energy Group ADSs registered in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 3. The Letter of Transmittal to be used by holders of Energy Group ADSs to accept the Offer; 4. The Notice of Guaranteed Delivery; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. The return envelope addressed to the US Depositary. THE OFFER CANNOT BE ACCEPTED IN RESPECT OF ENERGY GROUP SHARES BY MEANS OF A LETTER OF TRANSMITTAL. A FORM OF ACCEPTANCE FOR ACCEPTING THE OFFER IN RESPECT OF ENERGY GROUP SHARES CAN BE OBTAINED FROM THE US DEPOSITARY OR THE UK RECEIVING AGENT (AS EACH SUCH TERM IS DEFINED IN THE OFFER TO PURCHASE). In all cases, payment for Energy Group ADSs purchased pursuant to the Offer will be made only after timely receipt by the US Depositary of Energy Group ADRs evidencing such Energy Group ADSs or a confirmation of book-entry transfer, together with the Letter of Transmittal (or a facsimile copy thereof) properly completed and duly executed, and any other documents required by the Letter of Transmittal. PacifiCorp Acquisitions will not pay any fees or commissions to any broker, dealer, or other person (other than Goldman Sachs International, the Dealer Manager, the US Depositary and the UK Receiving Agent and the Information Agent as described in the Offer to Purchase) in connection with the solicitation of acceptances of the Offer with respect to Energy Group ADSs evidenced by Energy Group ADRs. You will, however, be reimbursed for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your client. Additional copies of the enclosed materials may be obtained from the Dealer Manager or the Information Agent at their respective addresses and telephone numbers set forth in the Offer to Purchase. Terms defined in the Offer to Purchase shall have the same meanings in this letter. Very truly yours, Goldman, Sachs & Co. 85 Broad Street New York, NY 10004 (212) 902-1000 within New York City (800) 323-5678 (Toll Free) outside New York City NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF GOLDMAN SACHS INTERNATIONAL, PACIFICORP ACQUISITIONS, PACIFICORP, THE US DEPOSITARY, THE DEALER MANAGER, OR THE UK RECEIVING AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL. EX-99.A.6 7 FORM OF LETTER TO CLIENTS This document should not be forwarded or transmitted in or into Australia, Canada or Japan. RECOMMENDED CASH OFFER FOR ALL ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS OF THE ENERGY GROUP PLC BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS (A WHOLLY OWNED SUBSIDIARY OF PACIFICORP) - -------------------------------------------------------------------------------- THERE WILL BE AN INITIAL OFFER PERIOD WHICH WILL EXPIRE AT 3:00 PM (LONDON TIME), 10:00 AM (NEW YORK CITY TIME) ON JULY 29, 1997, UNLESS EXTENDED. AT THE CONCLUSION OF THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, IF ALL CONDITIONS OF THE OFFER HAVE BEEN SATISFIED, FULFILLED OR, WHERE PERMITTED, WAIVED, THE OFFER WILL BE EXTENDED FOR A SUBSEQUENT OFFER PERIOD OF AT LEAST 14 CALENDAR DAYS. HOLDERS OF ENERGY GROUP SECURITIES WILL HAVE THE RIGHT TO WITHDRAW THEIR ACCEPTANCES OF THE OFFER DURING THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, BUT NOT DURING THE SUBSEQUENT OFFER PERIOD. - -------------------------------------------------------------------------------- June 30, 1997 To Our Clients: Enclosed for your consideration is the Offer to Purchase dated June 30, 1997 (the "Offer to Purchase"), the Letter of Transmittal and Notice of Guaranteed Delivery relating to an offer by Goldman Sachs International, acting in the United States through Goldman, Sachs & Co., and on behalf of PacifiCorp Acquisitions, to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase and the accompanying Acceptance Forms (as defined in the Offer to Purchase) (collectively, the "Offer"), all outstanding ordinary shares of 10p each ("Energy Group Shares") of The Energy Group PLC ("The Energy Group") for (Pounds)6.90 in cash per Energy Group Share, including all Energy Group Shares represented by American Depositary Shares ("Energy Group ADSs") of The Energy Group, each representing four Energy Group Shares and evidenced by American Depositary Receipts ("Energy Group ADRs"), for (Pounds)27.60 in cash per Energy Group ADS. We are the holder of record of Energy Group ADSs evidenced by Energy Group ADRs held by us for your account. An acceptance of the Offer in respect of such Energy Group ADSs can be made only by us as the holder of record and pursuant to your instructions. Accordingly, we request instructions as to whether you wish to have us accept the Offer on your behalf in respect of any or all Energy Group ADSs held by us for your account pursuant to the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The Offer is being made for all Energy Group Shares and Energy Group ADSs evidenced by Energy Group ADRs and has been recommended by the board of directors of The Energy Group. 2. The Offer is on the terms and subject to the Conditions set forth in Appendix I to the Offer to Purchase. 3. The Initial Offer Period of the Offer will expire at 3:00 p.m. (London time), 10:00 a.m. (New York City time) on July 29, 1997, unless extended (in accordance with the terms thereof). 4. At the conclusion of the Initial Offer Period, including any extension thereof, if all conditions of the Offer have been satisfied, fulfilled or, where permitted, waived, the Offer will be extended for a Subsequent Offer Period of at least 14 calendar days. 5. Energy Group ADS holders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes applicable to a sale of Energy Group ADSs evidenced by Energy Group ADRs to PacifiCorp Acquisitions. If you wish to have us accept the Offer in respect of any or all of the Energy Group ADSs evidenced by Energy Group ADRs held by us for your account, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize us to accept the Offer in respect of your Energy Group ADSs evidenced by Energy Group ADRs, the Offer will be accepted in respect of all such Energy Group ADSs unless otherwise indicated in such instruction form. Please forward your instruction form to us in ample time to permit us to accept the Offer on your behalf prior to the expiration of the Offer. The specimen Letter of Transmittal is furnished to you for your information only and cannot be used by you to accept the Offer in respect of Energy Group ADSs evidenced by Energy Group ADRs held by us for your account. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER FOR ALL ENERGY GROUP SHARES AND ENERGY GROUP ADSS EVIDENCED BY ENERGY GROUP ADRS The undersigned acknowledge(s) receipt of your letter and the Offer to Purchase dated June 30, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal relating to an offer by Goldman Sachs International, acting in the United States through Goldman, Sachs & Co., and on behalf of PacifiCorp Acquisitions to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase and the accompanying Letter of Transmittal (collectively, the "Offer") all outstanding ordinary shares of 10p each ("Energy Group Shares") of The Energy Group PLC ("The Energy Group") for (Pounds)6.90 in cash per Energy Group Share, including all Energy Group Shares represented by American Depositary Shares ("Energy Group ADSs") of The Energy Group, each representing four Energy Group Shares and evidenced by American Depositary Receipts, for (Pounds)27.60 in cash per Energy Group ADS. This will instruct you to accept the Offer in respect of the number of Energy Group ADSs indicated below (or, if no number is indicated below, all Energy Group ADSs) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Dated , 1997 - ------------------------------------------------ Number of Energy Group ADSs to be tendered/1/ ______ Energy Group ADSs - ------------------------------------------------ ------------------------------------- ------------------------------------- Signature(s) ------------------------------------- ------------------------------------- Please print name(s) ------------------------------------- ------------------------------------- Address(es) ------------------------------------- Area Code and Tel. No. ------------------------------------- Employer Identification or Social Security No. - ----------------------- 1. Unless otherwise indicated, it will be assumed that the Offer is to be accepted in respect of all Energy Group ADSs held by us for your account. 3 EX-99.A.7 8 GUIDELINES FOR FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. NAME. If you are an individual, you must generally enter the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change please enter your first name, the last name shown on your social security card, and your new last name. - --------------------------------------------------------------------------------
GIVE THE NAME AND SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------------------------------- 1. Individual The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a The usual revocable savings trust The grantor-trustee(1) account (grantor is also trustee) b So-called trust account that is not The actual owner(1) a legal or valid trust under state law 5. Sole proprietorship account The owner(3) 6. Sole Proprietorship The owner (3) - --------------------------------------------------------------------------------
GIVE THE NAME AND EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------------------------------- 7. A valid trust, estate, or pension trust Legal entity (4) 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational, or other tax- exempt organization 10.Partnership The partnership 11.A broker or registered nominee The broker or nominee 12.Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - --------------------------------------------------------------------------------
(1) List above the signature line first and circle the name of the person whose number you furnish. (2) List first and circle minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use your social security number or employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title). NOTE: If no name above the signature line is listed when more than one name appears in the registration, the number will be considered to be that of the first name appearing in the registration. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 Section references are to the Internal Revenue Code. PURPOSE OF FORM.--A person who is required to file an information return with the IRS must get your correct TIN to report, for example, income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. Use Form W-9 to give your correct TIN to the requester (the person requesting your TIN) and, when applicable, (1) to certify the TIN you are giving is correct (or you are waiting for a number to be issued), (2) to certify you are not subject to backup withholding, or (3) to claim exemption from backup withholding if you are an exempt payee. NOTE: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form if it is substantially similar to Form W-9. WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding. If you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return, payments you receive will not be subject to backup withholding. Payments you receive WILL be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS tells the requester that you furnished an incorrect TIN, or 3. The IRS tells you that you are subject to backup withholding because you did not report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. Certain payees and payments are exempt from backup withholding and information reporting. See below. HOW TO GET A TIN: If you do not have a TIN, apply for one immediately. To apply for an SSN, get Form SS-5 from your local Social Security Administration office. Get Form W-7 to apply for an Individual TIN or Form SS-4 to apply for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676). If you do not have a TIN, check the box titled "Applied For" in the space for the TIN, sign and date the form, and give it to the requester. Generally, you will then have 60 days to get a TIN and give it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN. NOTE: Checking the box titled "Applied For" on the form means that you have already applied for a TIN OR that you intend to apply for one soon. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. PAYEES EXEMPT FROM BACKUP WITHHOLDING Individuals (including sole proprietors) are NOT exempt from backup withholding. Corporations are exempt from backup withholding for certain payments, such as interest and dividends. If you are exempt from backup withholding, you should still complete Form W-9 to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "Exempt" in Part II, and sign and date the form. If you are a nonresident alien or a foreign entity not subject to backup withholding, give the requester a completed FORM W-8, Certificate of Foreign Status. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 3 Payments of dividends and patronage dividends that are generally exempt from backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payments of interest that generally are exempt from backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid to you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. PRIVACY ACT NOTICE.--Section 6109 requires you to give your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation and to cities, states, and the District of Columbia to carry out their tax laws. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not give a TIN to a payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TIN.--If you fail to furnish your TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) MISUSE OF TINS.--If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.8 9 TEXT OF PRESS RELEASE BY PACIFICORP AND TEG Not for release, publication or distribution, in whole or in part, in or into Canada, Australia or Japan FOR IMMEDIATE RELEASE 13 June 1997 PACIFICORP RECOMMENDED CASH OFFER FOR THE ENERGY GROUP PLC PacifiCorp and The Energy Group announce the terms of a recommended cash offer for The Energy Group to be made by Goldman Sachs International on behalf of PacifiCorp Acquisitions, a wholly owned subsidiary of PacifiCorp. The Offer: . including the dividend referred to below, values each Energy Group Share at 695.5 pence; . allows holders of Energy Group Shares to retain the right to receive a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July 1997; . including the dividend referred to above, represents a premium of approximately 31 per cent. to the Closing Price of 529.5 pence per Energy Group Share on 13 May 1997, the Business Day 30 days before this announcement and a premium of approximately 24 per cent. to the Closing Price of 561.5 pence per Energy Group Share on 9 June 1997, the last Business Day before the announcement by The Energy Group that it was involved in talks with PacifiCorp in relation to the Offer; . values the fully diluted share capital of The Energy Group at approximately (POUNDS) 3,659 million; and . includes a Loan Note Alternative. The board of The Energy Group, which has been so advised by Lazard and Morgan Stanley, its financial advisers, considers the terms of the Offer to be fair and reasonable. In providing advice to the board of The Energy Group, Lazard and Morgan Stanley have taken account of the directors of The Energy Group's commercial assessment of the Offer. Accordingly, the directors of The Energy Group will unanimously recommend all holders of Energy Group Shares and Energy Group ADSs to accept the Offer, as they have irrevocably undertaken to do in respect of their personal holdings of 116,385 Energy Group Shares and 1,550 Energy Group ADSs (each Energy Group ADS representing four Energy Group Shares). The Combined Group will be an international low-cost power provider, with: . over five million retail electricity customers across the United States, the United Kingdom and Australia; . 17,000 megawatts of generation capacity; and 1 . more than 9 billion tonnes of coal reserves, of which half is low sulphur. The Combined Group will be committed to a strategy of capitalising on the on-going liberalisation of the world-wide energy industry by reducing costs and increasing efficiency in its core markets, while expanding into high-growth international markets and building strong positions in power generation, marketing and distribution. Mr. Frederick Buckman intends to recommend that Mr. Derek Bonham and Mr. John Devaney be invited to join the board of directors of the Combined Group following the Acquisition. In addition, it is intended that following the Acquisition a management committee will be formed consisting of Mr. Derek Bonham, Mr. John Devaney, Mr. Eric Anstee and Mr. Irl Engelhardt of The Energy Group and senior executives from PacifiCorp. Mr. Frederick Buckman will remain as President and Chief Executive Officer of the Combined Group, Mr. Richard O'Brien as Chief Financial Officer and Mr. Verl Topham as Senior Vice President and General Counsel. Commenting on the Offer, Mr Frederick Buckman, President and Chief Executive Officer of PacifiCorp said; "We are delighted to announce an agreed offer for The Energy Group. We believe that The Energy Group's large, diverse customer base, expertise in energy trading and risk management and leading position in coal complement our own strengths in fuel management, low cost power generation and bulk power marketing. The Acquisition represents a landmark step in achieving our strategy and will position the Combined Group as a premier global energy group with a leading presence in three continents." Mr Derek Bonham, Chairman of The Energy Group, said: "Our results, announced today, demonstrate the soundness of our businesses. We have successfully taken the initial steps to implement our strategy. PacifiCorp recognised the benefits of this strategy and has offered a price that represents excellent value for our shareholders." The Conditions of the Offer are attached as Appendix I. Appendix V contains definitions of certain expressions used in this announcement. This summary should be read in conjunction with the attached announcement. Analysts' Meeting There will be an analysts' meeting today at 10.15 a.m. at The City Presentation Centre, Chiswell Street, London EC1. Enquiries:
PacifiCorp Acquisitions/PacifiCorp Investors Scott Hibbs 1 503 731 2123 Angela Hult 1 503 731 2192 Dave Mead 1 503 464 6262 Goldman Sachs International Richard Sapp 44 171 774 1000 Meyrick Cox 44 171 774 1000 Brunswick Alan Parker 44 171 404 5959
2 The Energy Group Derek Bonham 44 171 647 3200 Eric Anstee 44 171 647 3200 Aviva Gershuny-Roth 44 171 647 3200 Lazard Nicholas Jones 44 171 588 2721 John Wilford 44 171 588 2721 Morgan Stanley Robert Jones 1 212 761 8230 Piers de Montfort 44 171 513 5007 Brunswick Louise Charlton 44 171 404 5959
The Offer will not be made, directly or indirectly, in or into Canada, Australia or Japan. Accordingly, copies of this announcement are not being, and must not be, mailed or otherwise distributed or sent in or into Canada, Australia or Japan. Goldman Sachs International, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for PacifiCorp Acquisitions and PacifiCorp and for no one else in connection with the Offer and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to its customers or for giving advice in relation to the Offer. Goldman Sachs International will be acting through Goldman, Sachs & Co. for the purposes of making the Offer in and into the United States. Lazard and Morgan Stanley & Co. Limited, which are regulated in the United Kingdom by The Securities and Futures Authority Limited, are acting for The Energy Group and for no one else in connection with the Offer and will not be responsible to anyone other than The Energy Group for providing the protections afforded to their customers or for giving advice in relation to the Offer. 3 Not for release, publication or distribution, in whole or in part, in or into Canada, Australia or Japan. FOR IMMEDIATE RELEASE 13 June 1997 PACIFICORP RECOMMENDED CASH OFFER FOR THE ENERGY GROUP PLC 1 Introduction The boards of PacifiCorp and The Energy Group announce the terms of a recommended cash offer to be made by Goldman Sachs International on behalf of PacifiCorp Acquisitions, a wholly owned subsidiary of PacifiCorp, for the whole of the issued and to be issued share capital of The Energy Group. The board of The Energy Group, which has been so advised by Lazard and Morgan Stanley, its financial advisers, considers the terms of the Offer to be fair and reasonable. In providing advice to the board of The Energy Group, Lazard and Morgan Stanley have taken account of the directors of The Energy Group's commercial assessment of the Offer. Accordingly, the directors of The Energy Group will unanimously recommend all holders of Energy Group Shares and Energy Group ADSs to accept the Offer, as they have irrevocably undertaken to do in respect of their personal holdings of 116,385 Energy Group Shares and 1,550 Energy Group ADSs. The definitions of certain expressions used in this announcement are contained in Appendix V. 2 The Offer The Offer will be subject to the Conditions set out in Appendix I which will, together with the further terms of the Offer, appear in the Offer Document and will be made by Goldman Sachs International, on behalf of PacifiCorp Acquisitions, on the following basis: for each Energy Group Share 690 pence; and for each Energy Group ADS (POUNDS) 27.60 In addition, holders of Energy Group Shares will retain the right to receive a dividend of 5.5 pence (net) per Energy Group Share announced today and to be paid on 4 July 1997 to holders of Energy Group Shares on the register at close of business on 27 June 1997. The Offer values The Energy Group at approximately (POUNDS) 3,659 million (assuming the exercise in full of all outstanding options and the vesting of all outstanding awards under the Energy Group Share Schemes). Including the dividend referred to above, the Offer represents a premium of approximately 31 per cent. to the Closing Price of 529.5 pence per Energy Group Share on 13 May 1997, the Business Day 30 days before this announcement and a premium of approximately 24 per 4 cent. to the Closing Price of 561.5 pence per Energy Group Share on 9 June 1997, the last Business Day before the announcement by The Energy Group that it was involved in talks with PacifiCorp in relation to the Offer. The Offer will be subject to the applicable requirements of both the City Code in the United Kingdom and United States federal securities laws. 3 Loan Note Alternative A Loan Note Alternative will be available to holders of Energy Group Shares (other than North American Persons and certain other shareholders) who validly accept the Offer on the basis of, for every (POUNDS) 1 of cash under the Offer, (POUNDS) 1 nominal of Loan Notes, subject to aggregate valid elections being received on or before the date on which all the Conditions are waived, fulfilled or satisfied as applicable, for in excess of (POUNDS) 1 million nominal value of Loan Notes. If insufficient elections are received, holders of Energy Group Shares who elect for the Loan Note Alternative will instead receive cash in accordance with the terms of the Offer. Goldman Sachs International has advised that, based on market conditions on 12 June 1997 (the latest practicable date prior to the publication of this announcement), in its opinion, if the Loan Notes had then been in issue, the value of each (POUNDS) 1 nominal would have been approximately 98 pence. In considering the Loan Note Alternative, holders of Energy Group Shares should note that the obligations of the issuer of the Loan Notes are not guaranteed. A summary of the terms of the Loan Notes is set out in Appendix II to this announcement. 4 Information on the PacifiCorp Group PacifiCorp is a diversified energy group based in Portland, Oregon. The company serves 1.4 million retail customers in Oregon, Washington, California, Montana, Idaho, Utah and Wyoming. It is one of the lowest cost electricity suppliers in the United States, with an average net retail price in 1996 of 4.8 cents per kilowatt-hour, compared with a national average of 7.15 cents. PacifiCorp is the leading private wholesaler of electricity in the western United States and is one of the top power marketers in the eastern United States. In addition, PacifiCorp recently acquired TPC Corporation, a natural gas storage, processing and marketing company based in Houston, Texas. PacifiCorp operates one of the largest open-access transmission systems in the United States with over 150 access points across 15,000 circuit miles and has generating capacity of over 10,000 megawatts. It is the 12th largest coal producer in the United States, producing 22.6 million tonnes in 1996. In 1996, the average electricity production costs at its coal- fired plants were 25 per cent. lower than the national average. PacifiCorp also has substantial operations in Australia through Powercor, the largest electricity distribution business in Victoria and its partnership interest in the Hazelwood power generating station and associated mine. PacifiCorp is listed on the New York and Pacific Stock Exchanges under the symbol "PPW". In the year ended 31 December 1996, PacifiCorp recorded net income attributable to holders of ordinary stock of $475 million based on revenues of $4,298 million. As at the close of trading on the New York Stock Exchange on 12 June 1997, PacifiCorp had a market capitalisation of approximately $6.4 billion. 5 PacifiCorp Acquisitions, a wholly owned subsidiary of PacifiCorp, is a newly incorporated unlimited company incorporated in England and Wales on 9 June 1997 for the purpose of making the Offer. 5 Information on The Energy Group The Energy Group is a diversified international energy group which includes Peabody, the world's largest private producer of coal, and Eastern, one of the leading integrated electricity and gas groups in the United Kingdom. Peabody, the largest producer of coal in the United States, operates 26 underground and surface mines in the United States and three surface mines in Australia. As at 30 September 1996, Peabody had 8.5 billion tonnes of proven and probable coal reserves and in the year ended that date sold 148 million tonnes of coal. Peabody Australia, one of the ten largest coal producers in Australia, has interests in four surface mines in New South Wales, three of which currently operate under its management. Peabody's equity share of the coal sales of these mines amounted to 6.1 million tonnes in the year ended 30 September 1996 and its equity share of the proven and probable reserves associated with these operations as at 30 September 1996 amounted to 263 million tonnes. Through Eastern, The Energy Group is one of the leading integrated electricity and gas groups in the United Kingdom and is involved in a wide range of operations: . Eastern Generation, the fourth largest generator of electricity in Great Britain. Eastern Generation currently owns, operates or has an interest in eight power stations, representing approximately 10 per cent. of the United Kingdom's total registered generating capacity as at 30 September 1996; . Eastern Power & Energy Trading, which manages the price and volume risks associated with the generation, wholesaling and sale to end users of electricity. These exposures are managed by trading its contract portfolio, and bidding Eastern's generation output into the Pool (the electricity trading market in England and Wales); . Eastern Natural Gas, a major wholesaler and retail supplier of natural gas in the United Kingdom with upstream shipping, purchasing, trading and sales operations, is one of the largest suppliers of natural gas in the United Kingdom after Centrica plc. Its principal activities are the buying and selling of natural gas. It also has small equity interests in three gas-producing fields in the North Sea; and . Eastern Group, one of the largest suppliers of electricity in the United Kingdom with over three million customers whose authorised area covers approximately 20,300 sq. km. in the east of England and parts of North London. In the year ended 30 September 1996, The Energy Group reported pro forma consolidated turnover of (POUNDS) 3,635 million and pro forma consolidated net income of (POUNDS) 310 million. The Energy Group's results for the six months ended 31 March 1997 are set out in Appendix III. 6 Reasons for the Offer A number of trends in the world energy industry are influencing PacifiCorp and The Energy Group. Energy providers have been required to provide better service, lower prices and more choice to their customers in the United States, the United Kingdom, Europe and Australia. The deregulation of electricity markets has led to increased customer choice and competition between suppliers. Industry participants have reacted to this by restructuring their businesses and diversifying their activities. 6 The Combined Group will be an international low-cost power provider, with: . over five million retail electricity customers across the United States, the United Kingdom and Australia; . 17,000 megawatts of generation capacity; and . more than 9 billion tonnes of coal reserves, of which half is low sulphur. The Combined Group will be committed to a strategy of capitalising on the on-going liberalisation of the world-wide energy industry by reducing costs and increasing efficiency in its core markets while expanding into high-growth international markets and building strong positions in power generation, marketing and distribution. The combination of PacifiCorp and The Energy Group will create a premier international vertically integrated energy provider able to: . continue both companies' proven ability in providing value added services to customers at competitive prices; . capitalise on deregulation in both home markets and abroad and further enhance competition; . integrate fuel management, power generation, energy marketing and distribution to customers on three continents; . build on existing skills and adopt best practices in mining, energy marketing, trading and risk management and information technology; and . increase the efficient utilisation of generation resources through effective fuel management and plant optimisation. 7 Regulation The Offer is subject to certain regulatory consents and confirmations being obtained. Amongst other approaches to relevant regulatory authorities, PacifiCorp Acquisitions is making a submission to the Office of Fair Trading concerning the Offer and, together with The Energy Group, will enter into discussions with the DGES. The Offer is also subject to the expiry or early termination of the waiting period under the US HSR Act. 8 The Energy Group Share Schemes The Offer will extend to any fully paid Energy Group Shares which are unconditionally allotted or issued while the Offer is open for acceptance, including those unconditionally allotted or issued pursuant to the exercise of options under the Energy Group Share Schemes. Appropriate proposals will be made in due course to the participants in the Energy Group Share Schemes if the Offer becomes or is declared unconditional in all respects. 9 Directors, management and employees PacifiCorp Acquisitions has given assurances to the board of The Energy Group that the existing employment rights, including pension rights, of all Energy Group directors, management and 7 employees will be fully safeguarded. PacifiCorp looks forward to working with Energy Group employees. Mr. Frederick Buckman intends to recommend that Mr. Derek Bonham and Mr. John Devaney be invited to join the board of directors of the Combined Group following the Acquisition. In addition, it is intended that following the Acquisition a management committee will be formed consisting of Mr. Derek Bonham, Mr. John Devaney, Mr. Eric Anstee and Mr. Irl Engelhardt of The Energy Group and senior executives from PacifiCorp. Mr. Frederick Buckman will remain as President and Chief Executive Officer of the Combined Group, Mr. Richard "Brien as Chief Financial Officer and Mr. Verl Topham as Senior Vice President and General Counsel. 10 Holdings in The Energy Group Neither PacifiCorp Acquisitions, nor any of the directors of PacifiCorp Acquisitions, nor, so far as PacifiCorp Acquisitions is aware, any party acting in concert with PacifiCorp Acquisitions, owns or controls any Energy Group Securities or holds any options to purchase Energy Group Shares or holds any derivatives referenced to Energy Group Securities, other than as set out below: 10.1 PacifiCorp Retirement Fund, a discretionary pension fund of the PacifiCorp Group under independent control, owns 25,000 Energy Group Shares; 10.2 CIN Management, a subsidiary of Goldman Sachs International owns 6,517,433 Energy Group Shares; 10.3 Goldman Sachs & Co. Discretionary Customer accounts hold 111,639 Energy Group Shares; 10.4 Goldman Sachs International Discretionary Customer accounts hold 9,000 Energy Group Shares; and 10.5 Goldman Sachs & Co. owns 776,748 Energy Group Shares. 11 Financing PacifiCorp Acquisitions has arranged appropriate financing in connection with the Offer. Other wholly-owned subsidiaries of PacifiCorp have arranged their own funding to assist in PacifiCorp Acquisitions' financing of the Offer. 12 General (a) Goldman Sachs International, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for PacifiCorp Acquisitions and PacifiCorp and for no one else in connection with the Offer and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to its customers or for giving advice in relation to the Offer. Goldman Sachs International will be acting through Goldman, Sachs & Co. for the purposes of making the Offer in and into the United States. (b) Lazard and Morgan Stanley & Co. Limited, which are regulated in the United Kingdom by The Securities and Futures Authority Limited, are acting for The Energy Group and for no one else in connection with the Offer and will not be responsible to anyone other than The Energy Group for providing the protections afforded to their customers or for giving advice in relation to the Offer. 8 (c) The Offer Document will be posted in due course and will be available for inspection at the offices of Linklaters & Paines, Barrington House, 59-67 Gresham Street, London EC2V 7JA. The Conditions are set out in Appendix I to this announcement. (d) Energy Group Securities will be acquired by PacifiCorp Acquisitions fully paid and free from all liens, equities, charges, encumbrances and other interests and, except in respect of the dividend referred to below, together with all rights now or hereafter attaching thereto, including without limitation the right to receive and retain all dividends (other than the right to receive a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July 1997) and other distributions declared, made or paid hereafter. (e) The Initial Offer Period is expected to expire at 3.00 p.m. (London time), 10.00 a.m. (New York City time) on the day following the 20th Business Day from the date of the Offer Document, unless extended. At the conclusion of the Initial Offer Period, including any extension thereof, the Offer will be extended for a Subsequent Offer Period of at least 14 calendar days. Holders of Energy Group Securities will have withdrawal rights during the Initial Offer Period, including any extension thereof, but not during the Subsequent Offer Period, including any extension thereof. (f) The Offer will not be made, directly or indirectly, in or into Canada, Australia or Japan. Accordingly, copies of this announcement are not being, and must not be, mailed or otherwise distributed or sent in or into Canada, Australia or Japan. (g) The Loan Notes to be issued pursuant to the Offer have not been, nor will be, registered under the United States Securities Act of 1933, as amended, or under any relevant securities laws of any states or district of the United States, will not be the subject of a prospectus under the securities laws of any province of Canada and will not be registered under any relevant securities laws of any other country. Accordingly, unless an exception under such Act or laws is available, the Loan Notes may not be offered, sold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan. 9 Appendix I Conditions of the Offer The Offer, which will be made by Goldman Sachs International on behalf of PacifiCorp Acquisitions, will comply with the rules and regulations of the City Code and with US federal securities laws (except to the extent that exemptive relief has been granted by the SEC) and the rules and regulations made thereunder, will be governed by English law and be subject to the jurisdiction of the courts of England and the following Conditions: (a) valid acceptances being received (and not, where permitted, withdrawn) by not later than 3.00 p.m. (London time), 10.00 a.m. (New York City time) on the day following the 20th Business Day following the date of the Offer Document (or such later time(s) and/or date(s) as PacifiCorp Acquisitions may, subject to the rules and regulations of the City Code, decide) in respect of not less than 90 per cent. (or such lesser percentage as PacifiCorp Acquisitions may decide) in nominal value of Energy Group Securities to which the Offer relates, provided that this Condition shall not be satisfied unless PacifiCorp Acquisitions and its wholly owned subsidiaries shall have acquired or agreed to acquire, whether pursuant to the Offer or otherwise, Energy Group Securities carrying in aggregate more than 50 per cent. of the voting rights then exercisable at general meetings of The Energy Group. For the purposes of this Condition: (i) any Energy Group Shares which have been unconditionally allotted shall be deemed to carry the voting rights they will carry upon being entered in the register of members of The Energy Group; (ii) the expression "Energy Group Securities to which the Offer relates" shall be construed in accordance with sections 428 to 430F of the Companies Act; and (iii) valid acceptances shall be treated as having been received in respect of any Energy Group Shares which PacifiCorp Acquisitions shall, pursuant to section 429(8) of the Companies Act, be treated as having acquired or contracted to acquire by virtue of acceptance of the Offer; (b) an announcement being made in terms reasonably satisfactory to PacifiCorp Acquisitions that it is not the intention of the Secretary of State for Trade and Industry to refer the Acquisition, or any matters arising from it, to the Monopolies and Mergers Commission; (c) the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that it is not his intention to seek modifications to any of Eastern's licenses under the Electricity Act 1989 (except on terms reasonably satisfactory to PacifiCorp Acquisitions); (d) the DGES indicating in terms reasonably satisfactory to PacifiCorp Acquisitions that he will not seek undertakings or assurances from any member of the PacifiCorp Acquisitions Group or the TEG Group (except on terms reasonably satisfactory to PacifiCorp Acquisitions) and that in connection with the Acquisition he will seek or agree to such modifications (if any) and such other consents and/or directions (if any) as are in the reasonable opinion of PacifiCorp Acquisitions necessary or appropriate with respect to the licenses referred to in Condition (c); (e) the expiry or early termination of all applicable waiting periods under the US HSR Act; (f) PacifiCorp Acquisitions being reasonably satisfied that the acquisition of Energy Group Securities pursuant to the Offer will not subject PacifiCorp Acquisitions to regulation, or 10 PacifiCorp Acquisitions will be exempt from regulation, under the US Public Utility Holding Company Act of 1935; (g) no final FERC order being in effect requiring FERC approval of the acquisition of Energy Group Securities pursuant to the Offer; (h) the Foreign Investment Review Board of Australia indicating on terms reasonably satisfactory to PacifiCorp Acquisitions that it has no objection to the Acquisition; (i) no relevant authority having intervened in a way which would be likely, or having failed to institute or implement any action the failure of which would be likely (to an extent which is, in the case of (i) to (iv) below, material in the context of the PacifiCorp Acquisitions Group or of the TEG Group or of the financing of the Offer): (i) to require, prevent or delay the divestiture or materially alter the terms of any proposed divestiture by PacifiCorp Acquisitions or The Energy Group or any member of the PacifiCorp Acquisitions Group or the wider TEG Group of all or any portion of their respective businesses, assets or properties or impose any limitation on the ability of any of them to conduct any of their respective businesses or to own any of their respective assets or property or any part thereof; (ii) to impose any limitation on the ability of any member of the PacifiCorp Acquisitions Group or the wider TEG Group to acquire, or to hold or to exercise effectively, directly or indirectly, any rights of ownership in respect of shares in, or management control over, any member of the wider TEG Group; (iii) otherwise adversely to affect the financial or trading position of any member of the PacifiCorp Acquisitions Group or the wider TEG Group; (iv) to make the Offer or its implementation or the acquisition or the proposed acquisition of any Energy Group Shares or Energy Group ADSs or control of The Energy Group by any member of the PacifiCorp Acquisitions Group void, illegal, and/or unenforceable, or otherwise, directly or indirectly, restrain, restrict, prohibit, delay or otherwise interfere with the implementation thereof, or impose additional conditions or obligations with respect thereto, or otherwise challenge or hinder any thereof; (v) to result in a delay in the ability of any member of the PacifiCorp Acquisitions Group, or render any such person unable, to acquire some or all of the Energy Group Shares or Energy Group ADSs or require or prevent or materially delay divestiture by any such person of any such securities; or (vi) to require any member of the PacifiCorp Acquisitions Group or the wider TEG Group to offer to acquire any shares or other securities (or the equivalent) in any member of the wider TEG Group owned by any third party; and all applicable waiting and other time periods during which any relevant authority could, in respect of the Offer or the acquisition or proposed acquisition of any Energy Group Shares or Energy Group ADSs or control of The Energy Group by PacifiCorp Acquisitions, intervene having expired, lapsed or terminated; (j) all necessary filings having been made, all regulatory and statutory obligations having been complied with, all appropriate waiting periods under any applicable legislation or regulations of any jurisdiction having expired, lapsed or terminated in each case in respect of the Offer or the acquisition of any shares or other securities in, or control of, 11 The Energy Group by any member of the PacifiCorp Acquisitions Group and all authorisations and determinations necessary or appropriate in any jurisdiction for or in respect of the Offer (including, without limitation, its implementation and financing) or proposed acquisition of any shares or other securities in, or control of, The Energy Group by any member of the PacifiCorp Acquisitions Group or in relation to the affairs of any member of the PacifiCorp Acquisitions Group or the wider TEG Group having been obtained in terms and in a form reasonably satisfactory to PacifiCorp Acquisitions from all relevant authorities or (without prejudice to the generality of the foregoing) from any persons or bodies with whom any member of the PacifiCorp Acquisitions Group or the wider TEG Group, as the case may be, has entered into contractual arrangements and such authorisations and determinations together with all material authorisations and determinations necessary or appropriate for any member of the PacifiCorp Acquisitions Group or the wider TEG Group to carry on a business which is material in the context of the PacifiCorp Acquisitions Group or the TEG Group as a whole or of the financing of the Offer remaining in full force and effect and all filings necessary for such purpose having been made and there being no notice or intimation of any intention to revoke or not to renew any of the same and all necessary statutory or regulatory obligations in all relevant jurisdictions having been complied with; (k) PacifiCorp Acquisitions not having discovered any provision of any agreement, arrangement, licence or other instrument to which any member of the wider TEG Group is a party or by or to which any member of the wider TEG Group or any part of its assets may be bound, entitled or subject which would be likely, as a result of the Offer, the proposed acquisition by PacifiCorp Acquisitions of any shares in, or change in the control or management of, The Energy Group or otherwise, to result in (to an extent which is material in the context of the PacifiCorp Acquisitions Group or the wider TEG Group as a whole or of the financing of the Offer): (i) any moneys borrowed by or any other indebtedness, actual or contingent, of any member of the wider TEG Group being or becoming repayable or capable of being declared repayable immediately or prior to its stated maturity, or the ability of any such member to borrow moneys or incur any indebtedness being withdrawn or inhibited; (ii) any such agreement, arrangement, licence or instrument being terminated or adversely modified or any obligation or liability arising or any action being taken or arising thereunder; (iii) the rights, liabilities, obligations or interests of any member of the wider TEG Group under any such agreement, arrangement, licence or instrument or the interests or business of any such member in or with any other person, firm, company or body (or any arrangements relating to any such interests or business) being terminated or adversely modified or affected; (iv) any assets or interests of any such member being or becoming liable to be disposed of or charged, or any right arising under which any such asset or interest is required or is likely to be required to be disposed of or charged, in each case, other than in the ordinary course of business; (v) the creation of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any member of the wider TEG Group or any such security interest, whenever arising or having arisen, becoming enforceable; 12 (vi) the creation of liabilities for any member of the wider TEG Group other than in the ordinary course of business; or (vii) the financial or trading position of any member of the wider TEG Group being prejudiced or adversely affected; (l) PacifiCorp Acquisitions not having discovered, save as publicly announced in accordance with the Listing Rules prior to the date of this announcement, that any member of the wider TEG Group has, since 30 September 1996 to an extent which is material in the context of the TEG Group as a whole or of the financing of the Offer: (i) save to any member of the TEG Group and save for the issue of Energy Group Securities on the exercise of options granted under any of the Energy Group Share Schemes prior to the date of this announcement, issued or agreed to issue or authorised or proposed the issue of additional shares of any class, or of securities convertible into, or rights, warrants or options to subscribe for or acquire, any such shares or convertible securities or redeemed, purchased or reduced any part of its share capital; (ii) recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus, dividend, or other distribution in respect of the share capital of The Energy Group (except a dividend of 5.5 pence (net) per Energy Group Share to be paid on 4 July 1997); (iii) merged with any body corporate or acquired or disposed of or transferred, mortgaged or charged or created any security interest over any assets or any right, title or interest in any assets (including shares and trade investments) or authorised or proposed or announced any intention to propose a merger, demerger, acquisition, disposal, transfer, mortgage, charge or security interest (in each case, other than in the ordinary course of business); (iv) made or authorised or proposed or announced an intention to propose any change in its share or loan capital save for options granted under any of the Energy Group Shares Schemes prior to the date of this announcement and for any Energy Group Securities allotted upon exercise of such options; (v) issued, authorised or proposed or announced an intention to propose the issue of any debentures or (save in the ordinary course of business) incurred or increased any indebtedness or contingent liability; (vi) otherwise than in the ordinary course of business, entered into any contract, reconstruction, amalgamation, commitment or other transaction or arrangement or (save for changes in remuneration notified to PacifiCorp Acquisitions prior to the date of this announcement) changed the terms of any contract with any director of The Energy Group; (vii) save in the ordinary course of business, entered into or varied any contract, transaction or commitment (whether in respect of capital expenditure or otherwise) which is of a long-term, onerous or unusual nature or magnitude or which involves or could involve an obligation of such a nature or magnitude; (viii) waived or compromised any claim otherwise than in the ordinary course of business; 13 (ix) taken any corporate action or had any order made for its winding-up, dissolution or reorganization or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of all or any of its assets or revenues; or (x) entered into any contract, commitment, agreement or arrangement or passed any resolution with respect to, or announced an intention to, or to propose to effect, any of the transactions, matters or events referred to in this Condition; (m) since 30 September 1996, save as publicly announced in accordance with the Listing Rules prior to the date of this announcement, none of the following having occurred to an extent which is material in the context of the wider TEG Group as a whole or of the financing of the Offer: (i) adverse change or deterioration in the business, assets, financial or trading position of any member of the wider TEG Group; (ii) litigation or arbitration proceedings, prosecution or other legal proceedings having been instituted or threatened in writing by or against or remaining outstanding against any member of the wider TEG Group or to which any member of the wider TEG Group is a party (whether as plaintiff, defendant or otherwise) and any investigation by any relevant authority against, or in respect of any member of, the wider TEG Group having been threatened in writing, announced or instituted or remaining outstanding by, against or in respect of any member of the wider TEG Group; and (iii) a contingent or other liability of any member of the wider TEG Group having arisen which would be likely adversely to affect any member of the wider TEG Group; (n) PacifiCorp Acquisitions not having discovered: (i) that any financial, business or other information which has been publicly disclosed at any time by or on behalf of any member of the wider TEG Group is materially misleading, contains a material misrepresentation of fact or omits to state a fact necessary to make the information contained therein not materially misleading and which in any such case is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; or (ii) that any member of the wider TEG Group was at the date of the Energy Group Listing Particulars, or has, outside the ordinary course of business since that date, become subject to any liability (contingent or otherwise) which is not disclosed or referred to in the Energy Group Listing Particulars and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; and (o) save as disclosed or provided for in the Energy Group Listing Particulars or as otherwise publicly announced in accordance with the Listing Rules prior to the date of this announcement, PacifiCorp Acquisitions not having discovered: (i) that any past or present member of the wider TEG Group has not complied with all applicable legislation or regulations of any jurisdiction with regard to the disposal, discharge, spillage, leak or emission of any waste or hazardous substance or any substance likely to impair the environment or harm human health, which non-compliance or any other disposal, discharge, spillage, leak or emission which has occurred would be likely to give rise to any liability (whether actual or contingent) 14 on the part of any member of the wider TEG Group and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer; or (ii) that there is, or is likely to be, any liability (whether actual or contingent) to make good, repair, reclaim, remediate, reinstate or clean up property now or previously owned, occupied or made use of by any past or present member of the wider TEG Group under any legislation, regulation, notice, circular or order of any relevant authority relating to the protection of or enhancement of the environment and which is material in the context of the wider TEG Group taken as a whole or of the financing of the Offer. For the purposes of these Conditions: (a) "relevant authority" means any government, government department or governmental, quasi-governmental, supranational, statutory or regulatory body, court, trade agency, professional association or institution or environmental body in any jurisdiction; (b) a relevant authority shall be regarded as having "intervened" if it has instituted, implemented or threatened to take any action, proceedings, suit, investigation or enquiry or reference, or made, enacted or proposed any statute, regulation, decision or order and "intervene" shall be construed accordingly; (c) "authorisations" mean authorisations, orders, grants, recognitions, certifications, confirmations, consents, licences, clearances, permissions and approvals; and (d) the "wider TEG Group" means The Energy Group and its subsidiary undertakings, associated undertakings and any other undertakings in which The Energy Group and such undertakings (aggregating their interests) have a substantial interest; and (e) the "PacifiCorp Acquisitions Group" means PacifiCorp Holdings, Inc. and its subsidiary undertakings, associated undertakings and any other undertaking in which PacifiCorp Holdings, Inc. and such undertakings (aggregating their interests) have a substantial interest and, for these purposes, "subsidiary undertaking", "associated undertaking", "holding company" and "undertaking" have the meanings given by the Companies Act (but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the Companies Act) and "substantial interest" means a direct or indirect interest in 20 per cent. or more of the equity capital of an undertaking. PacifiCorp Acquisitions will not invoke either of Conditions (i) or (j) in respect of actions taken by FERC or for the failure to obtain any approval from FERC. PacifiCorp Acquisitions reserves the right to waive all or any of the above Conditions, in whole or in part, except Condition (a). Conditions (b) to (o) inclusive, if not, where applicable, waived, must have been fulfilled or satisfied at the same time as Condition (a) is fulfilled, but subject thereto, PacifiCorp Acquisitions shall be under no obligation to waive or treat as satisfied any Condition by a date earlier than the latest date for the satisfaction thereof, notwithstanding that the other Conditions may at such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such Conditions may not be capable of fulfilment. If PacifiCorp Acquisitions is required by the Panel to make an offer for Energy Group Securities under the provisions of Rule 9 of the City Code, PacifiCorp Acquisitions may make such alterations to the above Conditions, including Condition (a), as are necessary to comply with the provisions of Rule 9. The Offer will lapse if the Acquisition is referred to the Monopolies and Mergers Commission before the Initial Closing Date. The Loan Note Alternative will be conditional upon the Offer being declared or becoming unconditional in all respects. 15 Appendix II Summary of the Terms of the Loan Notes The Floating Rate Unsecured Loan Notes 2004 of PacifiCorp Acquisitions will be created by a resolution of the Board or a duly authorised committee thereof and will be constituted by a Loan Note instrument (the "Loan Note Instrument") executed as a deed by PacifiCorp Acquisitions. The Loan Notes will not be guaranteed. The issue of the Loan Notes will be conditional on all Conditions being, where applicable, waived, fulfilled or satisfied. Loan Notes will be issued only if the aggregate valid elections for the Loan Note Alternative received on or before the date on which all Conditions are so waived, fulfilled or satisfied, as applicable, will result in PacifiCorp Acquisitions issuing in excess of (POUNDS) 1 million nominal value of Loan Notes. The Loan Note Alternative will not be available to North American Persons or any holder of Energy Group Shares who is unable to give a warranty relating to the fact that he has not received or accepted the Offer through the United States, Canada, Japan or Australia. The Loan Note Instrument will contain provisions, inter alia, substantially to the effect set out below. 1 The Loan Notes will be issued by PacifiCorp Acquisitions in amounts and integral multiples of (POUNDS) 1 in nominal amount only and will constitute unsecured obligations of PacifiCorp Acquisitions. No payment will be made in respect of any amount payable of less than (POUNDS) 1. The Loan Note Instrument will not contain any restrictions on borrowing, disposals or charging of assets by PacifiCorp Acquisitions. 2 Interest on the Loan Notes will be payable (subject to any requirement to deduct income tax therefrom) semi-annually in arrear on 30 June and 31 December in each year or, if such a day is not a business day, on the immediately preceding business day ("interest payment dates") except that the first payment of interest on the Loan Notes will be made 30 June 1998 in respect of the period from and including the date of issue of the relevant Loan Note up to but excluding 30 June 1998. The period from and including the date of issue of the relevant Loan Note up to but excluding 30 June 1998 and the period from and including that date or any subsequent interest payment date up to but excluding the next following interest payment date is herein called an "interest period". 3 (a) The rate of interest on the Loan Notes for each interest period will be the rate per annum which is 0.5 per cent. below LIBOR. "LIBOR" means the arithmetic mean (rounded down, if necessary, to four decimal places) of the respective rates which are quoted as of 11.00 a.m. on the first business day of the interest period on the "LIBP" page on the Reuter Monitor Money Rate Service (or such other page or service as may replace it for the purpose of displaying London inter-bank sterling offered rates of leading reference banks) as being the interest rates offered in the London inter-bank market for six month sterling deposits but: (i) if only two or three such offered quotations appear, the relevant arithmetic mean (rounded as mentioned above) shall be determined on the bases of those offered quotations; and (ii) if no, or only one, such offered quotations appear, the relevant arithmetic mean (rounded as mentioned above) shall be determined instead on the basis of the respective rates (as quoted to PacifiCorp Acquisitions at its request) at which each of Barclays Bank PLC and National Westminster Bank plc is offering six month sterling deposits to prime banks in the London inter-bank market at or about 11.00 am on the first business day of the relevant interest period. 16 (b) If LIBOR cannot be established in accordance with the provisions of sub-paragraph (a) above for any interest period, the rate of interest on the Loan Notes for such interest period shall be the same as that applicable to the Loan Notes during the previous interest period, unless in such case such other prime bank in the London inter-bank market as PacifiCorp Acquisitions shall reasonably select for the purpose shall have been prepared to offer a rate as aforesaid, in which case the rate of interest in respect of the relevant interest period shall be the rate so offered. (c) Each instalment of interest shall be calculated on the basis of a 365 day year and the number of days elapsed in the relevant interest period. 4 A holder of Loan Notes (a "Noteholder") shall be entitled to require PacifiCorp Acquisitions to repay the whole (whatever the amount) or any part (being any integral multiple of (Pounds)1) of the principal amount of his holding of Loan Notes at par, together with accrued interest (subject to any requirement to deduct income tax therefrom) up to but excluding the date of repayment, on any interest payment date, from and including 30 June 1998 and thereafter on any interest payment date falling prior to 30 June 2004 by giving not less than 30 days' prior notice in writing to PacifiCorp Acquisitions accompanied by the certificate(s) for all the Loan Notes to be repaid and notice of redemption (duly completed) in the prescribed form on the Loan Notes to be repaid. 5 If at any time the principal amount of all Loan Notes outstanding is 20 per cent. or less of the total nominal amount of Loan Notes issued in connection with the Offer, PacifiCorp Acquisitions shall have the right, on giving the remaining Noteholders not less than 30 days' notice in writing expiring on 30 June 1998 or any subsequent interest payment date, to redeem all (but not some only) of the outstanding Loan Notes at par together with accrued interest thereon (subject to any requirement to deduct income tax therefrom) up to but excluding the date of redemption. 6 Any Loan Notes not previously repaid, redeemed or purchased will be repaid in full at par on 30 June 2004, together with accrued interest thereon (subject to any requirement to deduct income tax therefrom) up to but excluding that date. 7 Any Loan Notes repaid, redeemed, or purchased will be cancelled and shall not be available for re-issue. 8 The Noteholders will have power by extraordinary resolution of the Noteholders passed in accordance with the provisions of the Loan Note Instrument or by resolution in writing signed by holders of not less than 75 per cent. in nominal value of the outstanding Loan Notes, inter alia, to sanction any modification, abrogation or compromise of or arrangement in respect of their rights against PacifiCorp Acquisitions and to assent to any amendment in respect of their rights against PacifiCorp Acquisitions and to assent to any amendment of the provisions of the Loan Note Instrument (but in each case subject to the consent of PacifiCorp Acquisitions). PacifiCorp Acquisitions may, with the consent of its financial advisers, amend the provisions of the Loan Note Instrument, without such sanction or consent, if such amendment is of a formal, minor or technical nature or to correct a manifest error. 9 Each Noteholder will have the right to acquire (by subscription at a nominal value of an amount up to or equal to such Noteholder's holding of Notes) additional loan notes to be issued by a subsidiary of PacifiCorp Acquisitions (the "Additional Notes") on terms and conditions substantially the same as those applicable to the Loan Notes, except as follows: (a) the Additional Notes will not be issued before 30 June 2003; (b) the rate of interest on the Additional Notes will be 1 per cent. below the rate per annum described in paragraph 3(a) above; and (c) the Additional Notes will not carry any right to acquire any additional securities. 17 10 Each Noteholder will be entitled to require all or part (being (Pounds)1 nominal amount or any integral multiple thereof) of the Loan Notes held by him to be repaid at par together with accrued interest (subject to any requirement to deduct income tax therefrom) if: (a) any principal or interest on any of the Loan Notes held by that Noteholder shall fall to be paid in full within 30 days after the due date for payment thereof; or (b) an order is made or an effective resolution is passed for the winding-up or dissolution of PacifiCorp Acquisitions (other than for the purposes of a solvent reconstruction or a solvent amalgamation or a members' voluntary winding-up on terms previously approved by extraordinary resolution of the Noteholders); or (c) an encumbrancer takes possession of, or a trustee, receiver, administrator or similar officer is appointed or an administration order is made in respect of, the whole or substantially the whole of the undertaking of PacifiCorp Acquisitions and such order has not been discharged and such person has not been paid out or discharged within 30 days. 11 PacifiCorp Acquisitions will be entitled at any time to purchase any Loan Notes at any price by tender (available to all Noteholders alike), private treaty or otherwise by agreement with the relevant Noteholder(s). 12 The Loan Notes will contain provisions entitling PacifiCorp Acquisitions, without the consent of Noteholders, to substitute any of its subsidiaries or any holding company or subsidiaries of such holding company resident in the UK for tax purposes (other than Eastern or any of its subsidiaries) as the principal debtor under the Loan Note Instrument and the Loan Notes or to require all or any of the Noteholders to exchange their Loan Notes for loan notes issued on the same terms mutatis mutandis by any such company provided that (a) PacifiCorp Acquisitions guarantees such company's obligations thereunder and (b) following such substitution or exchange, the Loan Notes or (as the case may be) such loan notes shall not contain a provision equivalent to this paragraph 12. References to PacifiCorp Acquisitions in this summary shall be construed accordingly. PacifiCorp Acquisitions' right to require substitution of such company as principal debtor (but not the right to require exchange of the Loan Notes) will be exercisable only if prior clearance has been obtained from the Inland Revenue to the effect that the substitution will not be treated as a disposal of the Loan Notes for the purposes of United Kingdom taxation of chargeable gains and PacifiCorp Acquisitions' right to require such an exchange will be exercisable only if the exchange will fall within section 135 of the Taxation of Chargeable Gains Act 1992, and to the extent relevant, clearance has been received from the Inland Revenue under section 138 of that Act in respect of the exchange. 13 The Loan Notes will be evidenced by certificates, will be registered and will be transferable in integral multiples of (Pounds)1 in excess of that amount, provided that transfers of Loan Notes will not be registered during the seven days immediately preceding an interest payment date or while the register of Noteholders is closed. 14 No application has been made or is intended to be made to any stock exchange or other dealing service for the Loan Notes to be listed or otherwise traded. 15 The Loan Notes and the Loan Note Instrument will be governed by and construed in accordance with English law. 18 Appendix III THE ENERGY GROUP RECORDS OPERATING PROFIT INCREASE OF 30 PER CENT FOR RESULTS TO - -------------------------------------------------------------------------------- 31 MARCH, 1997 - -------------- Results and Dividend On a pro forma basis, group turnover for the period of six months to 31 March, 1997 rose by 38 per cent from (Pounds)1,826 million to (Pounds)2,519 million, and underlying operating profit was 30 per cent above the same period last year (on a pro forma basis) at (Pounds)317 million. Underlying pro forma earnings per share increased 33 per cent. It is proposed to pay a dividend of 5.5p net per share on 4 July, 1997. Derek Bonham, Executive Chairman of The Energy Group said: "Today we have announced the terms of a recommended offer by PacifiCorp for The Energy Group; together we are well placed to take advantage of and compete effectively in the fast changing international energy markets. Detailed terms of the offer will be mailed to our shareholders in due course."
Operating Report Coal Pro forma 1997 1996 Turnover for the six months to 31 March (Pounds)647mn (Pounds)656mn Operating profit for the six months to 31 March (Pounds)66mn (Pounds)66mn Tons sold 81mn 77mn
Peabody continues to lead the industry in the USA with a 15 per cent market share of coal production. In Australia, our operations were responsible for 5 per cent of the country's coal production. Peabody's subsidiaries operate 26 coal mines in the USA and three mines in Australia. A fourth Australian mine, Bengalla, is under construction after receiving final development approval last year. In the calendar year 1996, our operating companies sold coal to more than 150 US utility power plants, generating more than 9 per cent of all US electricity, approximately equal to the total amount of US electricity produced from natural gas. Peabody also exports steam and metallurgical coal to 15 countries from its US and Australian mines. 19 Peabody increased its coal sales and its underlying operating profit levels in the six months ended 31 March, 1997. On a US dollar basis, underlying operating profits were 5 per cent ahead of last year, although adverse currency movements reduced reported profits to (Pounds)66 million, the same as last year's reported level. Productivity has risen consistently, with our US operating companies averaging 92 tons per employee per workshift for the six month period - a 13 per cent improvement on the previous year and a new company record. According to government statistics, the company's Powder River mines in Wyoming were the four most productive in the USA during 1996. At the three Australian mines, average productivity increased by more than 17 per cent from the prior year, maintaining one of the highest productivity rates in the country. Sales volume from Peabody's US and Australian mines increased by 6 per cent to 81.4 million tons, reflecting favourable customer demand for coal from the Powder River and Australian mines. Turnover of (Pounds)647 million fell slightly from the same period last year principally as a result of adverse currency movements, partially offset by increased volumes. Peabody is preparing for deregulation in the US by working with Citizens Power, our newly acquired power marketing business in the US, to create innovative solutions to electric utility fuel supplies. The safety record for Peabody's US mines was the second best in its history, capping six years of dramatic gains in safety. Our Freedom Mine was named as the safest underground coal mine in the USA. An ambitious new safety programme, One Future: Going For Perfect, has been launched with the goal of zero lost time accidents.
POWER Pro forma 1997 1996 Turnover for the six months to 31 March (Pounds)1,801m (Pounds)1,092m Operating profit for the six months to 31 March (Pounds)129m (Pounds)44m Generating capacity at 31 March 6,784MW 495 MW
Substantial growth in our Power businesses enabled Eastern to make a significant contribution to The Energy Group's operating profit increase in the six months to 31 March, 1997. The power businesses' operating profit rose by 193 per cent to (Pounds)129 million, reflecting our greatly expanded generation portfolio which now totals almost 7,000 MW, together with the contribution from related energy trading activities. The Group's power generation portfolio widened significantly in mid 1996 through the addition of five coal-fired plants leased from National Power and PowerGen to complement the three combined-cycle gas turbine (CCGT) plants - Peterborough, King's Lynn, and Barking. The five coal-fired stations were a major factor in the substantial profit increase in the six months under review. The performance of the portfolio stations over 20 the key winter period was excellent, with average availability levels in excess of 92 per cent, and our 360MW CCGT plant at Peterborough continues to maintain its outstanding availability record. Our new 340MW CCGT plant at King's Lynn, Norfolk, is undergoing commissioning trials and is due for final handover in 1997 following further work by the turnkey contractor to meet guaranteed performance levels. In March 1997, we announced plans to build a 240MW combined heat and power plant in Deeside using combined-cycle gas technology to serve the needs of Shotton Paper - the UK's leading newsprint manufacturer. Eastern's power and energy trading business manages and monitors Eastern's energy portfolio, including the bidding of its power plants into the Electricity Pool, the procurement of coal, oil and gas, and the management of risk for our retail energy operations. The business also offers risk management services to other independent energy retailers, generators and trading parties. During the period under review we have further improved our ability to manage the risks associated with such energy trading activities through the creation and operation of a variety of options, both physical, eg: our leased coal-fired generating plant, and through third party contractual arrangements, such as the innovative major plant-related contracts which were announced with Enron in January 1997 and Rolls-Royce in April 1997. Eastern Electricity has maintained its position as a leader in competitive electricity supply with an estimated 13 per cent of the contestable market. Major customers include Coats Viyella, McDonald's, Somerfield and Anglian Water. For franchise customers, new tariffs from 1 April, 1997 will provide average reductions of between 6 per cent and 9 per cent, and further discounts have been introduced for customers with annual bills above (Pounds)225 or below (Pounds)100. Eastern Electricity is recognised as being committed to the environment, and plans are well advanced to introduce a `green tariff' in October of this year. Eastern Natural Gas is now the leading retailer in the deregulating gas market (after British Gas/Centrica) with an annualised turnover of around (Pounds)250 million and approximately 11 per cent of the competitive gas market. It is also the leading competitor to British Gas/Centrica in those parts of the domestic market open to competition, with over 100,000 domestic customers. Eastern remains focused on delivering excellent service to its customers to ensure success in the next stages of deregulation in the UK electricity and gas markets. Its two customer service centres continue to operate at exceptionally high standards and answer customer enquiries 24 hours a day, 365 days a year. 21 NETWORKS
Pro forma 1997 1996 Turnover for the six months to 31 March (Pounds)274m (Pounds)278m Operating profit for the six months to 31 March (Pounds)122m (Pounds)133m
Operating profit for our Networks business has reduced by 8 per cent to (Pounds)122 million, reflecting a (Pounds)20 million reduction in regulatory income as a consequence of the last price review, partially offset by savings in operating costs. The re-opening of voluntary severance programmes and reshaping of the Networks business is already bringing through further cost savings. Eastern Electricity's UK network covers 20,300 square kilometres from Peterborough in the north to parts of London in the south, and from Aylesbury in the west to Lowestoft in the east. Recent statistics from the Office of Electricity Regulation show that the network remains one of the most reliable in the country. Targeted capital investment in the network continues to contribute to reliability and a new operations centre has helped to enhance network performance even further. Set up in November 1996, it centrally monitors and controls over 88,000km of cable and overhead lines. Eastern Group Telecoms has continued to develop its strong position as a network provider to telecoms operators, with operating profit of (Pounds)1.8 million (pro forma 1996 (Pounds)0.4mn). 22 THE ENERGY GROUP PLC - CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 31 March 1997
1997 (Pounds)mn Turnover 2,519 Costs and overheads less other income (2,222) ------ Operating profit 297 Net interest payable and similar charges (37) ------ Profit on ordinary activities before taxation 260 Taxation charge for period (81) ------ Profit on ordinary activities after taxation 179 Dividend (29) ------ Profit retained for the period 150 Earnings per ordinary share: Pre-exceptional 38.2p Basic 34.5p
The figures on pages 23 to 29 for the six months ended 31 March 1997 have been extracted from the audited financial statements, but do not themselves constitute full accounts within the meaning of the Companies Act 1985. Statutory accounts for the period will be delivered to the Registrar of Companies in England and Wales. The other information on pages 30 to 33 is not subject to audit. 23 SEGMENT INFORMATION for the six months ended 31 March 1997
1997 Operating Capital profit Turnover employed (Pounds)mn (Pounds)mn (Pounds)mn By activity: Coal 66 647 1,370 Power 129 1,801 1,117 Networks 122 274 1,063 Other - 9 8 Intra-Group trading (Networks to Power) - (212) - --- ----- ----- 317 2,519 3,558 Exceptional restructuring and reorganisation costs (20) - - --- ----- ----- 297 2,519 3,558 --- ----- ----- 1997 Operating Capital profit Turnover employed (Pounds)mn (Pounds)mn (Pounds)mn By geographical location: United Kingdom 228 1,853 2,166 USA 52 574 1,148 Australia 14 74 226 Other 3 18 18 --- ----- ----- 297 2,519 3,558 --- ----- -----
24 BALANCE SHEETS as at 31 March 1997
Group Company 1997 1997 (Pounds)mn (Pounds)mn Fixed Assets Tangible fixed assets 3,910 - Investments 72 63 ------ ---- 3,982 63 ------ ---- Current Assets Stocks 256 - Debtors 1,359 50 Investments 10 - Short-term deposits 753 - Cash 385 40 ------ ---- 2,763 90 ------ ---- Creditors - due within one year Short-term borrowings (738) - Overdrafts (61) - Other creditors (948) (45) ------ ---- (1,747) (45) ------ ---- Net current assets 1,016 45 ------ ---- Total assets less current liabilities 4,998 108 Creditors - due after one year (1,655) - Provisions for liabilities and charges (1,498) - ------ ---- Net assets 1,845 108 ------ ---- Capital and reserves Called up share capital 52 52 Other reserves 639 - Profit and loss account 1,154 56 ------ ---- Equity shareholders' funds 1,845 108 ------ ----
25 CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 March 1997
Note (Pounds)mn (Pounds)mn Cash flow from operating activities 1 346 Returns on investments and servicing of finance Interest received 29 Interest paid (83) Dividends received from investments 1 ---- (53) Taxation (23) Capital expenditure and financial investment Purchase of tangible fixed assets (133) Purchase of investments (39) Sale of tangible fixed assets 4 Sale of investments 12 ---- (156) Acquisition Purchase of subsidiary undertaking (20) ---- Cash flow before use of liquid resources and financing 94 Management of liquid resources Net cash placed on short-term deposit 3 (753) Financing Net new short-term borrowings 3 149 Debt due beyond a year: New secured loan repayable within 5 years 3 907 Repayment of amounts borrowed 3 (118) ---- ---- 938 ---- Increase in cash in the period 3 279 ---- ----
26 NOTES TO CONSOLIDATED CASH FLOW STATEMENT For the six months ended 31 March 1997 1. Reconciliation of operating profit to net cash inflow from operating activities
1997 (Pounds)mn Operating profit before exceptional items 317 Depreciation and depletion 100 Profit on sales of tangible fixed assets (3) Share of profit of associated undertakings (2) (Increase) in investments (2) (Increase) in stocks (8) (Increase) in debtors (83) Increase in creditors 50 Provisions (23) ---- Net cash inflow from operating activities 346 ----
2. Analysis of changes in financing
Share Loans and Current Current capital finance leases debenture loans bank loans (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn Balance as at 1 October 1996 - 945 154 14 Pro forma additional net debt at 1 October 1996 - - - 381 ------- ------- ------- ------- Pro forma balance at 1 October 1996 - 945 154 395 Non-cash demerger share issue 52 - - - Additional debt on demerger - - - 42 Exchange movements - (12) (9) - Cash inflow (outflow) from financing - 789 (113) 262 Other movements - (54) - (6) Current loan reallocations - (13) 13 - ------- ------- ------- ------- Balance as at 31 March 1997 52 1,655 45 693 ------- ------- ------- -------
The pro forma balance at 1 October 1996 reflects the figures included within the company's Listing Particulars issued in January 1997. 27 NOTES TO CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) For the six months ended 31 March 1997 3. Analysis of changes in net debt
Pro forma as at Additional debt Other Exchange As at 1 Oct 1996 on demerger Cash flow movements movements 31 Mar 1997 (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn Cash 173 - 221 (1) (8) 385 Overdrafts (119) - 58 - - (61) ------ 279 ------ Debt due after 1 year (945) - (789) 67 12 (1,655) Debt due within 1 year (549) (42) (149) (7) 9 (738) ------ (938) ------ Short-term deposits - - 753 - - 753 ------ ------ ------ ------ ------ ------ (1,440) (42) 94 59 13 (1,316) ------ ------ ------ ------ ------ ------
The pro forma net debt at 1 October 1996 reflects the figures included within the company's Listing Particulars issued in January 1997. 4. Reconciliation of net cash flow movement to movement in net debt
1997 (Pounds)m Net cash inflow in the period 279 Increase in liquid cash resources 753 Change in debt resulting from cash flows (938) ------ 94 Additional debt on demerger (42) Other movements 59 Exchange movements 13 ------ Movement in net debt in the period 124 Opening pro forma net debt (1,440) ------ Closing net debt (1,316) ------
28 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the six months ended 31 March 1997
1997 (Pounds)mn Actual invested capital as at 30 September 1996(*) 2,185 Pro forma adjustments as at 30 September 1996 (*): - - additional debt on demerger (381) - - other (2) ----- Pro forma invested capital as at 30 September 1996 (*) 1,802 Increase in additional net debt on demerger: - - contribution towards dividend paid by Hanson in January 1997 (32) - - other (10) ----- Pro forma opening shareholders' funds 1,760 Profit on ordinary activities after taxation 179 Dividend (29) Currency differences on foreign net investments (52) Other movements (13) ----- Closing shareholders' funds 1,845 -----
(*) As disclosed in the Group's Listing Particulars issued in January 1997 During the final stages of the demerger process, the amount of additional net debt allocated to the Group on demerger was increased by (Pounds)42 million to a total of (Pounds)423 million. The increase principally reflected a notional contribution to Hanson's dividend of 1.0p per Hanson ordinary share paid on 10 January 1997 in respect of the quarter ended 31 December 1996. 29 PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
Pro forma Pro forma Pro forma Pro forma six months six months year ended year ended ended ended 31 Mar 1997 30 Sept 1996 31 Mar 1997 31 Mar 1996 note (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn Turnover Coal 1,452 1,461 647 656 Power 2,887 2,178 1,801 1,092 Networks 478 482 274 278 Other 24 24 9 9 Intra-group (381) (378) (212) (209) ----- ----- ----- ----- 4,460 3,767 2,519 1,826 ----- ----- ----- ----- Operating Profit Coal 154 154 66 66 Power 168 83 129 44 Networks 200 211 122 133 Other (2) (2) - - ----- ----- ----- ----- Pre exceptional operating profit 520 446 317 243 Restructuring and reorganisation costs (2) (20) (20) National Grid Group flotation (3) 44 44 ----- ----- ----- ----- Total operating profit 500 490 297 287 Profit on disposal of First Hydro (4) 25 25 Net interest payable and similar charges (5) (88) (68) (37) (33) ----- ----- ----- ----- Profit on ordinary activities before taxation 412 447 260 279 Taxation charge for the period (6) (126) (137) (81) (89) ----- ----- ----- ----- Profit on ordinary activities after taxation 286 310 179 190 ----- ----- ----- ----- Earnings per share Pre-exceptional (7) 58.8p 51.8p 38.2p 28.8p Basic (7) 55.1p 59.5p 34.5p 36.5p
Notes to the pro forma consolidated profit and loss account are shown on page 31. 30 Notes to the pro forma profit and loss account (1) The pro forma information for the year ended 30 September 1996 has been extracted from the Listing Particulars issued during January 1997 in respect of the demerger. This assumed additional net debt of (Pounds)381 million arising as a result of the demerger, together with an average interest rate of 6.2 per cent. (2) Restructuring and reorganisation costs relate to the re-opening of Eastern's voluntary severance scheme. (3) National Grid Group flotation relates to an interim dividend of (Pounds)11 million and special dividends (net of associated costs) totalling (Pounds)165 million received in connection with the flotation of the National Grid Group plc ("National Grid Group"). Amounts credited to electricity customers in the form of a discount on electricity bills connected with this flotation totalled (Pounds)132 million. (4) Profit on disposal of First Hydro arose on the disposal of the Group's interest in the pumped storage business of National Grid Group. (5) Pro forma net interest payable and similar charges for the year ended 31 March 1997 are based on the actual interest charges borne by the individual operating entities which now comprise the Group, increased for an additional pro forma interest charge calculated as 7.5 per cent of the actual additional net debt allocated to the Group by Hanson on demerger. Pro forma net interest payable and similar charges for the six months ended 31 March 1996 are calculated on a similar basis, but incorporating an additional pro forma interest charge based on the additional net debt and average interest rate assumed in the Listing Particulars. (6) Pro forma tax charge for the year ended 31 March 1997 has been calculated at the same effective rate before exceptional items as that which existed for the six months ended 31 March 1997. Pro forma tax charge for the six months ended 31 March 1996 has been calculated at the same effective rate before exceptional items as that assumed in the pro forma tax charge for the year ended 30 September 1996. (7) The pro forma earnings per share for the six months ended 31 March 1996 have been calculated on the pro forma profit for the period and on 520,857,817 shares, being the number of ordinary shares assumed in the Listing Particulars. The actual earnings per share for the six months ended 31 March 1997 and the pro forma earnings per share for the year ended 31 March 1997 are based on the respective actual and pro forma profits for the relevant periods and on 518,607,817 shares which excludes the 2,250,000 shares held by The Energy Group Employee Benefit Trust, which has waived its right to dividends on the shares it holds. (8) No pro forma adjustments have been made for additional annual administration costs that are expected to arise following the demerger. The directors estimate that such costs will amount to approximately (Pounds)15 million per annum. 31 TRANSLATION TO US DOLLARS Income Statement and Capital Employed (UK GAAP) 31 March 1997
1997 Capital Income Sales employed $mn $mn $mn By activity: Coal 108 1,057 2,250 Power 211 2,943 1,834 Networks 199 448 1,745 Other - 15 13 Intra-group (Networks to Power) - (347) - ------ ------ ------ 518 4,116 5,842 Exceptional restructuring and reorganisation costs (33) ------ ------ ------ Operating income 485 Net interest expense (60) ------ Income from ordinary activities before taxation 425 Taxes on income from ordinary activities (132) ------ Net income 293 ====== Net income per ADS Pre-exceptional $2.50 Basic $2.25 1997 Capital Income Sales employed $mn $mn $mn By geographical location: United Kingdom 372 3,028 3,556 USA 85 938 1,885 Australia 23 121 371 Other 5 29 30 ------ ------ ------ 485 4,116 5,842 ------ ------ ------
The rates used to translate the above figures were the average rate for the six months period to 31 March 1997 of $1.6339 to the (Pounds) in respect of income and sales and the period end rate of $1.6420 to the (Pounds) for capital employed. 32 TRANSLATION TO US DOLLARS Pro forma consolidated income statements (UK GAAP)
Pro forma Pro forma Pro forma Six months six months year ended year ended ended ended 31 Mar 1997 30 Sept 1996 31 Mar 1997 31 Mar 1996 (Pounds)mn (Pounds)mn (Pounds)mn (Pounds)mn Sales Coal 2,372 2,387 1,057 1,072 Power 4,717 3,559 2,943 1,784 Networks 781 788 448 454 Other 39 39 15 15 Intra-group (Networks to Power) (622) (618) (347) (341) ------ ------ ------ ------ 7,287 6,155 4,116 2,984 ------ ------ ------ ------ Operating income Coal 252 252 108 108 Power 274 135 211 72 Networks 327 345 199 217 Other (3) (3) - - ------ ------ ------ ------ Operating income before exceptional items 850 729 518 397 Restructuring and reorganisation costs (33) - (33) - National Grid Group flotation - 72 - 72 ------ ------ ------ ------ Operating income 817 801 485 469 Profit on disposal of First Hydro - 41 - 41 Net interest expense (144) (111) (60) (54) ------ ------ ------ ------ Income from ordinary activities before taxation 673 731 425 456 Taxes on income from ordinary activities (206) (224) (132) (146) ------ ------ ------ ------ Net income 467 507 293 310 ====== ====== ====== ====== Net income per ADS Pre-exceptional $3.84 $3.39 $2.50 $1.88 Basic $3.60 $3.89 $2.25 $2.39
The rate used to translate the above figures was the average rate for the six months period to 31 March 1997 of $1.6333 to (Pounds). The assumptions behind these figures are shown on page 31. 33 Appendix IV Sources and Bases 1 The value of the fully diluted share capital of The Energy Group is based upon 520,857,817 Energy Group Shares in issue on 12 June 1997 and 9,495,553 Energy Group Shares which could fall to be issued on exercise in full of options and vesting of all outstanding awards granted under the Energy Group Share Schemes. 2 The pro forma financial information in respect of The Energy Group for the year ended 30 September 1996 is taken from the unaudited pro forma combined financial information set out in the Energy Group Listing Particulars. 34 Appendix V Definitions
"Acquisition" the proposed acquisition of The Energy Group pursuant to the Offer "Board" or "Directors" the directors of PacifiCorp Acquisitions "Business Day" has the meaning given by the US Williams Act "Canada" Canada, its provinces, territories and all areas subject to its jurisdiction and any political sub-division thereof "City Code" The City Code on Takeovers and Mergers of the UK "Closing Price" the closing middle market quotation of an Energy Group Share as derived from the London Stock Exchange Daily Official List "Combined Group" PacifiCorp and its subsidiaries, as enlarged by the acquisition of The Energy Group "Companies Act" the Companies Act 1985 (as amended) of England and Wales "Conditions" the conditions of the Offer described in Appendix I and "Condition" means any one of them "DGES" The Director General of Electricity Supply of the UK "DGGS" The Director General of Gas Supply of the UK "Energy Group ADRs" American Depositary Receipts evidencing Energy Group ADSs "Energy Group ADSs" American Depositary Shares issued in respect of Energy Group Shares, each representing four Energy Group Shares "Energy Group Listing Particulars" the listing particulars relating to Energy Group dated 27 January 1997 published in accordance with the Listing Rules "Energy Group Securities" Energy Group Shares and Energy Group ADSs "Energy Group Share Schemes" The Energy Group Executive Share Option Scheme, The Energy Group Sharesave Scheme, The Energy Group Long-term Incentive Plan and The Energy Group Special Bonus Scheme "Energy Group Shares" shares of 10p each in the share capital of The Energy Group in issue or allotted or issued prior to the date on which the Offer closes (or such earlier date, not being earlier than the Initial Closing Date (as it may be extended), as PacifiCorp Acquisitions may determine) "FERC" the US Federal Energy Regulatory Commission "Initial Closing Date" 3.00 p.m. (London time), 10.00 a.m. (New York City time) 20 Business Days after the date of the Offer Document, unless and until PacifiCorp Acquisitions, in its discretion, shall have extended the Initial Offer Period, in which case the term "Initial Closing Date" shall mean the latest time and date at which the Initial Offer Period, as so extended by PacifiCorp Acquisitions, will expire or, if earlier, the date on which Condition (a) becomes or is declared to have been satisfied
35 "Initial Offer Period" the period from the date of the Offer Document to and including the Initial Closing Date Lazard" Lazard Brothers & Co., Limited and Lazard Freres & Co. Limited "LIBOR" the London Inter-Bank Offered Rate, determined in accordance with the Terms of the Loan Notes, a summary of which is set out in Appendix II "Listing Rules" the Listing Rules of the London Stock Exchange "Loan Note Alternative" the alternative under which holders of Energy Group Shares who validly accept the Offer will be entitled to elect to receive Loan Notes instead of cash consideration otherwise payable to them "Loan Notes" the Floating Rate Unsecured Loan Notes 2004 of PacifiCorp Acquisitions to be issued pursuant to the Loan Note Alternative "London Stock Exchange" London Stock Exchange Limited "Morgan Stanley" Morgan Stanley & Co. Limited "North American Person" a person in the United States or in or resident in Canada "NYSE" the New York Stock Exchange "Offer" the offer to be made by Goldman Sachs International on behalf of PacifiCorp Acquisitions to acquire the Energy Group Shares (including those represented by Energy Group ADSs) and Energy Group ADSs as described in this document including, where the context permits and/or requires, the Loan Note Alternative and any subsequent revision, variation, extension, or renewal of such offer or the Loan Note Alternative "Offer Document" the document containing the Offer to be sent to holders of Energy Group Shares and Energy Group ADSs "Panel" The Panel on Takeovers and Mergers of the UK "SEC" the US Securities and Exchange Commission "Subsequent Offer Period" the period following the Initial Closing Date during which the Offer remains open for acceptance "TEG Group" The Energy Group and its subsidiaries and subsidiary undertakings and, where the context permits, each of them "The Energy Group" The Energy Group PLC "UKO or United Kingdom" the United Kingdom of Great Britain and Northern Ireland "United States or US" the United States of America, its territories and possessions, any State of the United States and the District of Columbia, and all other areas subject to its jurisdiction "US HSR Act" the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder "(Pounds)" pound sterling, the lawful currency of the United Kingdom "$" United States dollar, the lawful currency of the United States
36 EX-99.A.9 10 TEXT OF PRESS RELEASE OF PACIFICORP PacifiCorp News Release For further information contact: Scott Hibbs for investor contacts - (503) 731-2123 Angela Hult for investor contacts - (503) 731-2192 Dave Mead for media contacts - (503) 464-6262 June 13, 1997 PacifiCorp to Acquire The Energy Group for $9.6 Billion; Gains Significant Energy Presence on Three Continents NEW YORK - PacifiCorp (NYSE: PPW), a diversified energy company in the United States and Australia, dramatically accelerated its global expansion efforts today, announcing a cash tender offer for The Energy Group PLC (LSE/NYSE: TEG), a diversified energy company in the United Kingdom, the U.S. and Australia. The boards of directors of both companies unanimously approved the transaction, valued at $9.6 billion in debt and equity. PacifiCorp Holdings, Inc., a wholly owned subsidiary of PacifiCorp, is offering 6.955 pounds ($11.35) per ordinary share (including a net dividend of 5.5 pense to be paid prior to consummation of the offer) for The Energy Group. PacifiCorp will assume The Energy Group's $3.8 billion of debt in the transaction. Upon completion of the transaction, PacifiCorp will have 5 million electric and gas customers, 17,000 megawatts of generation capacity and more than 10 billion tons of coal reserves. In addition, PacifiCorp will be sharpening its focus in the energy sector by the planned sale of its Pacific Telecom (PTI) subsidiary to Century Telephone Enterprises, Inc. (NYSE: CTL) for $1.5 billion in cash, plus assumption of Pacific Telecom debt. Fred Buckman, President and Chief Executive Officer of PacifiCorp, said "This powerful combination positions the combined group as a premier global energy company with a significant presence on three continents. The Energy Group's large, diverse customer base, expertise in energy trading and risk management and industry-leading position in coal strategically complement PacifiCorp's competitive strengths in fuel management, low-cost power generation and bulk power marketing. PacifiCorp and The Energy Group are already among the lowest-cost energy suppliers in the marketplace and are committed to meeting customers' total energy needs. The combination will provide contestable customers with access to highly competitive energy prices and a wide range of superior products and services," Buckman said. "Additionally, the experience gained in contestable markets will benefit our retail customers as the U.S. market is restructured." Derek Bonham, The Energy Group Executive Chairman, said, "Our results, announced today, demonstrate the soundness of our business. We have successfully taken the initial steps to implement our strategy. "PacifiCorp recognized the benefits of this strategy and has offered a price that represents excellent value for our shareholders," Bonham said. The combination is expected to be meaningfully accretive to PacifiCorp's earnings in the first year following completion of the transaction and thereafter, without considering the benefits of synergy resulting from potential cost reductions and revenue enhancements. PacifiCorp will acquire The Energy Group through PacifiCorp Holdings, Inc., which will finance the cash transaction initially through borrowings and the sale of its noncore assets. The debt financing will be provided through multiple debt facilities arranged by Citibank, Goldman, Sachs & Co., and J.P. Morgan. The offer is subject to regulatory approvals in the U.K. and to the conditions of the Hart-Scott-Rodino Antitrust Act in the U.S. PacifiCorp expects to mail formal tender offer documents to The Energy Group shareholders shortly and to consummate the offer within a few months. Goldman, Sachs & Co. is PacifiCorp's financial adviser for the transaction and acted as coordinator for the financing. The Energy Group is represented by Lazard and Morgan Stanley & Co. Limited. The Energy Group, previously part of Hanson PLC, became an independent company on February 24, 1997. It owns Eastern, the largest British regional electric company (REC) with 3.1 million retail electric and gas customers. PacifiCorp has 1.4 million retail electric customers in the western U.S. and 550,000 in the State of Victoria, Australia. Eastern is one of the lowest-cost electricity suppliers in the U.K., and is well-positioned to prosper when the U.K. market becomes fully competitive in 1998. U.K. electricity customers with demand for more than 100 kilowatts can now choose their supplier. The Energy Group owns the world's largest private coal company, Peabody, a low-cost, low-sulfur coal producer with more than 9 billion tons of reserves in the U.S. and 260 million tons of reserves in Australia. Peabody provides fuel to 150 power plants in the U.S. PacifiCorp is a major coal operator in the U.S. with 421 million tons of reserves and in Australia with 450 million tons. PacifiCorp and The Energy Group both have natural gas marketing skills and assets. PacifiCorp recently purchased TPC Corporation, a Houston-based natural gas storage and marketing company. PacifiCorp owns or controls 10,000 megawatts of generation in the U.S., while The Energy Group has 6,700 megawatts of generation in the U.K. PacifiCorp is one of the lowest-cost providers of electricity in the U.S., with average production costs 25 percent less than the national average. The combination positions the company to be the largest power sales, marketing and trading company in the U.S. It joins PacifiCorp's significant western U.S. power marketing business, its expanding eastern U.S. power marketing business and Peabody's presence as one of the largest suppliers of fuel to the U.S. electricity industry. Buckman said he was delighted with the opportunity to work with The Energy Group management team and will recommend that Bonham and John Devaney, Chief Executive of Eastern, be invited to join the Board of Directors of PacifiCorp following the acquisition. In addition, Buckman said that a management committee will be formed consisting of Bonham and Devaney, as well as Eric Anstee, Finance Director of The Energy Group, Irl Engelhardt, Chief Executive of Peabody, and senior executives from PacifiCorp. Buckman will remain as President and Chief Executive Officer of the combined group, Richard O'Brien as Senior Vice President and Chief Financial Officer and Verl Topham as Senior Vice President and General Counsel. The combined company will have a workforce of 26,000. The companies do not expect the combination to result in significant workforce reductions. As part of the financing of the transaction, PacifiCorp has entered into an agreement to sell Pacific Telecom, a rural local exchange telephone company with 570,000 customer access lines in the U.S., to Louisiana-based Century for $1.5 billion in cash, in addition to Century's assumption of PTI's debt. "Pacific Telecom has been an important part of PacifiCorp's success for many years; however, our strategic focus is to become a leading global energy provider," Buckman said. "This transaction focuses PacifiCorp squarely on the energy sector and will enable us to better meet the diversified energy needs of our customers." The sale of Pacific Telecom is subject to regulatory approvals in certain of the states in which it does business. PacifiCorp also plans to sell other noncore assets, including PacifiCorp Financial Services and Pacific Generation Company. EX-99.A.10 11 SUMMARY ADVERTISEMENT PUBLISHED IN THE U.S. This announcement is neither an offer to purchase nor a solicitation of an offer to sell securities. The Offer is made in the United States solely by the Offer to Purchase dated June 30, 1997, the Letter of Transmittal, the Form of Acceptance and related materials and is not being made to, nor will acceptances be accepted from or on behalf of, holders of Energy Group Shares or Energy Group ADSs evidenced by Energy Group ADRs in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdictions. In those US jurisdictions whose securities laws or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of PacifiCorp Acquisitions by Goldman, Sachs & Co. or one or more registered brokers or dealers which are licensed under the laws of those jurisdictions. The Offer to Purchase, the Letter of Transmittal, the Form of Acceptance and related materials should not be forwarded or transmitted in or into Australia, Canada or Japan. Notice of Recommended Cash Offer by Goldman Sachs International on behalf of PacifiCorp Acquisitions a wholly owned subsidiary of PacifiCorp to acquire all Ordinary Shares and American Depositary Shares evidenced by American Depositary Receipts of The Energy Group PLC Goldman Sachs International, acting in the United States through Goldman, Sachs & Co., on behalf of PacifiCorp Acquisitions, is offering to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 30, 1997 (the "Offer to Purchase"), the related Letter of Transmittal and the related Form of Acceptance (collectively, the "Offer"), (i) all outstanding ordinary shares of 10p each ("Energy Group Shares") of The Energy Group PLC ("The Energy Group") for (Pounds)6.90 per Energy Group Share in cash and (ii) all outstanding American Depositary Shares of The Energy Group, each representing four Energy Group Shares ("Energy Group ADSs") and evidenced by American Depositary Receipts ("Energy Group ADRs"), for (Pounds)27.60 per Energy Group ADS in cash. Energy Group Shares and Energy Group ADSs evidenced by Energy Group ADRs are referred to collectively as "Energy Group Securities". - -------------------------------------------------------------------------------- THE INITIAL OFFER PERIOD WILL EXPIRE AT 3:00 P.M. (LONDON TIME), 10:00 A.M. (NEW YORK CITY TIME), ON JULY 29, 1997, UNLESS EXTENDED (THE "INITIAL OFFER PERIOD"). AT THE CONCLUSION OF THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, IF ALL CONDITIONS OF THE OFFER HAVE BEEN SATISFIED, FULFILLED OR, WHERE PERMITTED, WAIVED, THE OFFER WILL BE EXTENDED FOR A SUBSEQUENT OFFER PERIOD OF AT LEAST 14 CALENDAR DAYS (THE "SUBSEQUENT OFFER PERIOD"). HOLDERS OF ENERGY GROUP SECURITIES WILL HAVE THE RIGHT TO WITHDRAW THEIR ACCEPTANCES OF THE OFFER DURING THE INITIAL OFFER PERIOD, INCLUDING ANY EXTENSION THEREOF, BUT NOT DURING THE SUBSEQUENT OFFER PERIOD. - -------------------------------------------------------------------------------- THE BOARD OF THE ENERGY GROUP, WHICH HAS BEEN SO ADVISED BY LAZARD BROTHERS & CO., LIMITED, LAZARD FRERES & CO. LIMITED (TOGETHER "LAZARD") AND MORGAN STANLEY & CO. LIMITED ("MORGAN STANLEY"), ITS FINANCIAL ADVISERS, CONSIDERS THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE. IN PROVIDING ADVICE TO THE BOARD OF THE ENERGY GROUP, LAZARD AND MORGAN STANLEY 1 HAVE TAKEN ACCOUNT OF THE BOARD'S COMMERCIAL ASSESSMENT OF THE OFFER. ACCORDINGLY, THE DIRECTORS OF THE ENERGY GROUP UNANIMOUSLY RECOMMEND ALL HOLDERS OF ENERGY GROUP SECURITIES TO ACCEPT THE OFFER, AS THEY HAVE IRREVOCABLY UNDERTAKEN TO DO IN RESPECT OF THEIR PERSONAL HOLDINGS OF ENERGY GROUP SECURITIES. The Offer is conditional on, among other things, valid acceptances being received (and not, where permitted, withdrawn) by the expiration of the Initial Offer Period in respect of not less than 90 per cent. in nominal value of Energy Group Securities to which the Offer relates, or such lesser percentage as PacifiCorp Acquisitions may decide, provided that such condition (the "Acceptance Condition") shall not be satisfied unless PacifiCorp Acquisitions and its wholly-owned subsidiaries shall have acquired or agreed to acquire, whether pursuant to the Offer or otherwise, Energy Group Securities carrying in the aggregate more than 50 per cent. of the voting rights then exercisable at general meetings of The Energy Group. PacifiCorp Acquisitions expects that it will reduce the percentage of Energy Group Securities required to satisfy the Acceptance Condition at some time prior to all of the conditions being satisfied, fulfilled or, where permitted, waived. At least five Business Days prior to any such reduction, PacifiCorp Acquisitions will announce that it has reserved the right to so reduce the Acceptance Condition. PacifiCorp Acquisitions will not make such an announcement unless PacifiCorp Acquisitions believes there is a significant possibility that sufficient Energy Group Securities will be tendered to permit the Acceptance Condition to be satisfied at such reduced level. Holders of Energy Group Securities who are not willing to accept the Offer if the Acceptance Condition is reduced to the minimum permitted level should either not accept the Offer until the Subsequent Offer Period or be prepared to withdraw their acceptances promptly following an announcement by PacifiCorp Acquisitions of its reservation of the right to reduce the Acceptance Condition. Other conditions of the Offer are set out in Part A of Appendix I of the Offer to Purchase. PacifiCorp Acquisitions reserves the right (but will not be obliged) at any time to extend the Initial Offer Period, provided that PacifiCorp Acquisitions may not extend the Initial Offer Period beyond August 29, 1997 without the consent of the Panel on Takeovers and Mergers of the UK (the "Panel"). PacifiCorp Acquisitions reserves the right, if appropriate, to secure the Panel's approval to extend the final date for expiration of the Initial Offer Period to September 19, 1997, or such later date as the Panel may agree. A public announcement of any such extension will be made no later than 8:30 a.m. (London time) in the UK and by 8:30 a.m. (New York City time) in the US on the next business day after the previously scheduled expiration of the Initial Offer Period. PacifiCorp Acquisitions may terminate any extension of the Initial Offer Period (other than an extension required by the City Code on Takeovers and Mergers of the UK (the "City Code") or US federal securities laws) prior to its scheduled expiration if the Acceptance Condition and all other conditions to the Offer have been satisfied, fulfilled or, where permitted, waived. In that case, the Initial Offer Period and, consequently, withdrawal rights, except in certain limited circumstances, will terminate immediately. If all of the conditions are satisfied, fulfilled or, where permitted, waived at the expiration of the Initial Offer Period, the consideration for Energy Group Securities purchased pursuant to the Offer will be paid within 14 calendar days after the later of the expiration of the Initial Offer Period or the receipt of a complete and valid acceptance of the Offer. In all cases, payment for Energy Group Securities purchased pursuant to the Offer will be made only after timely receipt by either the US Depositary or the UK Receiving Agent, as the case may be, of (i) certificates representing the Energy Group Shares, Energy Group ADRs representing the Energy Group ADSs, or (only in the case of Energy Group ADSs) timely confirmation of a book-entry transfer of such Energy Group ADSs evidenced by Energy Group ADRs into the US Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Offer to Purchase, (ii) the Letter of Transmittal (in the case of acceptances relating to Energy Group ADSs) or Form of Acceptance (in the case of acceptances relating to Energy Group Shares), properly completed and duly executed, with any required signature guarantees, and (iii) any other 2 documents required by the Letter of Transmittal or Form of Acceptance. Although the Offer price is denominated in pounds sterling, accepting holders of Energy Group Shares will be entitled to have their cash consideration converted into US dollars at the exchange rate obtainable by the relevant payment agent (either the US Depositary or the UK Receiving Agent) on the spot market in London at approximately noon (London time) on the date the cash consideration is made available by PacifiCorp Acquisitions to the relevant payment agent for delivery to holders of Energy Group Shares. Unless they elect to receive pounds sterling, Energy Group ADS holders will receive consideration converted into dollars as described above, as if such holders of Energy Group ADSs had elected to receive dollars. If, as a result of the Offer and subject to certain conditions, PacifiCorp Acquisitions receives acceptances of the Offer in respect of Energy Group Securities representing at least 90 per cent. in value of the Energy Group Securities to which the Offer relates, then provided such requirement is achieved within four months of June 30, 1997, PacifiCorp Acquisitions will be entitled and intends to effect the compulsory acquisition procedures provided for in Sections 428 to 430F of the Companies Act 1985 (as amended) of England and Wales to compel the purchase of any outstanding Energy Group Securities on the same terms as provided in the Offer, in accordance with the relevant procedures and time limits described in such Act. If a holder of Energy Group ADSs wishes to accept the Offer in respect of Energy Group ADSs and the Energy Group ADRs evidencing such Energy Group ADSs are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis, or if time will not permit all required documents to reach the US Depositary prior to the expiration of the Subsequent Offer Period, such holder's acceptance of the Offer in respect of Energy Group ADSs may nevertheless be effected by following the guaranteed delivery procedures set forth in the Offer to Purchase. Except as described below and in the Offer to Purchase, acceptances of the Offer for Energy Group Securities are irrevocable. Acceptances of the Offer may be withdrawn pursuant to the procedures set out below at any time during the Initial Offer Period, including any extension thereof, but not during the Subsequent Offer Period. To be effective, a written notice of withdrawal must be timely received by the party (either the UK Receiving Agent or the US Depositary) to whom the acceptance was originally sent at one of the addresses set forth in the Offer to Purchase and must specify the name of the person whose acceptance is to be withdrawn, the number of Energy Group Securities to be withdrawn and (if an Energy Group Share certificate or Energy Group ADR has been delivered) the name of the registered holder of the Energy Group Securities, if different from the name of the person whose acceptance is to be withdrawn. In respect of Energy Group ADSs, if Energy Group ADRs have been delivered or otherwise identified to the US Depositary then, prior to the physical release of such Energy Group ADRs, the serial numbers shown on such Energy Group ADRs must be submitted and, unless the Energy Group ADSs evidenced by such Energy Group ADRs have been delivered by an Eligible Institution (as defined in Section 1 of Letter of Transmiittal) or the Offer accepted by means of a Letter of Transmittal, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Energy Group ADSs evidenced by Energy Group ADRs have been delivered pursuant to the procedures for book-entry transfer set forth in the Offer to Purchase, any notice of withdrawal must also specify the name and number of account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Energy Group ADSs and must otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the validity (including time of receipt) of any notice of withdrawal will be determined by PacifiCorp Acquisitions, whose determination (except as required by the Panel) shall be final and binding. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the US Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and incorporated herein by reference. 3 The Offer to Purchase, the Letter of Transmittal and the Form of Acceptance are being mailed to holders of record of Energy Group Securities and are being furnished to brokers, dealers, commercial banks, trust companies and similar persons, whose names or the names of whose nominees appear as holders of record for subsequent transmittal to beneficial owners of Energy Group Securities. THE OFFER TO PURCHASE AND RELATED MATERIALS CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISIONS ARE MADE WITH RESPECT TO THE OFFER. Requests for assistance or copies of the Offer to Purchase, the Letter of Transmittal, the Form of Acceptance and all other Offer materials may be directed to the Dealer Manager or the Information Agent as set forth below, and copies will be furnished promptly at PacifiCorp Acquisitions' expense. The Information Agent for the Offer is: --SHC LOGO-- SHAREHOLDER COMMUNICATIONS CORPORATION 17 State Street, 27th Floor New York, New York 10004 Call Toll Free: (800) 733-8481, ext. 475 The Dealer Manager for the Offer is: [LOGO OF GOLDMAN, SACHS & CO. APPEARS HERE] GOLDMAN, SACHS & CO. 85 Broad Street New York, NY 10004 (212) 902-1000 within New York City (800) 323-5678 (Toll Free) outside New York City June 30, 1997 4 EX-99.A.11 12 NEWSPAPER ADVERTISEMENT PUBLISHED IN THE U.K. [LOGO OF PACIFICORP APPEARS HERE] RECOMMENDED CASH OFFER BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF PACIFICORP ACQUISITIONS A WHOLLY-OWNED SUBSIDIARY OF PACIFICORP FOR THE ENERGY GROUP PLC Goldman Sachs International announces on behalf of PacifiCorp Acquisitions, a wholly-owned subsidiary of PacifiCorp, that, by means of an offer document dated and posted on 30 June 1997 (the "Offer Document") and by means of this advertisement, Goldman Sachs International is making a recommended cash offer (the "Offer") on behalf of PacifiCorp Acquisitions to acquire all of the issued and to be issued shares and American Depositary Shares (as evidenced by American Depositary Receipts) of The Energy Group PLC ("The Energy Group"). Terms defined in the Offer Document have the same meanings in this advertisement. Subject to the Offer becoming or being declared wholly unconditional, an Energy Group shareholder who validly accepts the Offer will receive 690 pence in cash for every Energy Group Share. An Energy Group ADS holder who validly accepts the Offer will receive (Pounds)27.60 in cash for every Energy Group ADS. In addition, holders of Energy Group Shares (including those represented by Energy Group ADSs) on the register of members at the close of business on 27 June 1997 will retain the right to receive the dividend of 5.5 pence (net) per Energy Group Share which was announced on 13 June 1997 and is to be paid on 4 July 1997. As an alternative to some or all of the cash consideration receivable under the Offer, Energy Group shareholders (other than citizens or residents of the United States and certain other overseas shareholders) who validly accept the Offer may elect to receive Loan Notes instead of cash, on the basis of (Pounds)1 nominal of Loan Notes for every (Pounds)1 of cash otherwise available under the Offer. The Loan Notes will, subject to certain conditions, be transferable but no application is intended to be made for them to be listed or dealt in on any stock exchange. The obligations of PacifiCorp Acquisitions under the Loan Notes are not guaranteed or secured. The full terms and conditions of the Offer and the Loan Note Alternative (including details of how the Offer may be accepted) are set out in the Offer Document and the Acceptance Form accompanying the Offer Document. Energy Group shareholders and Energy Group ADS holders who accept the Offer may rely only on the Offer Document and the Acceptance Form for all the terms and conditions of the Offer (including the Loan Note Alternative). The Offer is, by means of this advertisement, being extended to all persons to whom the Offer Document may not be despatched who hold, or who are entitled to have allotted or issued to them, Energy Group Shares and/or Energy Group ADSs. Such persons are informed that copies of the Offer Document and Acceptance Form are available for collection from New Issues Department, Independent Registrars Group Limited, at 23 Ironmonger Lane, London EC2 or at Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TH. The Offer, which is made by means of the Offer Document and this advertisement, will be open for acceptance until 3.00 p.m. (London time), 10.00 a.m. (New York City time) on 29 July 1997 (or such later time(s) and/or date(s) as PacifiCorp Acquisitions, subject to the rules of the City Code, may decide). The board of The Energy Group, which has been so advised by Lazard Brothers & Co., Limited and Lazard Freres & Co. Limited (together "Lazard") and Morgan Stanley & Co. Limited, its financial advisers, has stated that it considers the terms of the Offer to be fair and reasonable. In providing advice to the board of The Energy Group, Lazard and Morgan Stanley & Co. Limited have taken account of the board's commercial assessment of the Offer. Accordingly, the directors of The Energy Group have unanimously recommended all holders of Energy Group Shares and Energy Group ADSs to accept the Offer, as they have irrevocably undertaken to do in respect of their personal holdings of 116,385 Energy Group Shares and 1,550 Energy Group ADSs. The Loan Notes to be issued pursuant to the Offer have not been, nor will be, registered under the United States Securities Act of 1933, as amended, or under any relevant securities laws of any state or district of the United States, will not be the subject of a prospectus under the securities laws of any province of Canada and will not be registered under any relevant securities laws of any other country. The Loan Notes are not being offered, sold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan. This advertisement is not being published or otherwise distributed or sent to, into or from Canada, Australia or Japan and persons reading this advertisement (including nominees, trustees and custodians) must not distribute or send this advertisement, the Offer Document or the Acceptance Form (or any related offering document(s)), in, into or from Canada, Australia or Japan nor use Canadian, Australian or Japanese mails or any such means or instrumentality for any purpose, directly or indirectly, in connection with the Offer and doing so may invalidate any related purported acceptance of the Offer. This advertisement, which is published on behalf of PacifiCorp Acquisitions by Goldman Sachs International, has been approved by Goldman Sachs International solely for the purposes of section 57 of the Financial Services Act 1986. Goldman Sachs International, which is regulated in the UK by The Securities and Futures Authority Limited, is acting for PacifiCorp Acquisitions and PacifiCorp and no one else in connection with the Offer and will not be responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for providing the protections afforded to its customers or for giving advice in relation to the Offer. Goldman Sachs International is acting through Goldman, Sachs & Co. for the purposes of making the Offer in and into the United States. Lazard and Morgan Stanley & Co. Limited, who are regulated in the UK by The Securities and Futures Authority Limited, are acting for The Energy Group and no one else in connection with the Offer and will not be responsible to anyone other than The Energy Group for providing the protections afforded to their customers or for giving advice in relation to the Offer. 30 June 1997 EX-99.B.1 13 CREDIT AGREEMENT AMONG PACIFICORP HOLDINGS INC. CONFORMED COPY ================================================================================ CREDIT AGREEMENT Dated as of June 12, 1997, as amended and restated as of June 27, 1997 among PACIFICORP HOLDINGS, INC., THE LENDERS NAMED HEREIN, CITIBANK, N.A., as Paying Agent and Issuing Bank and CITICORP USA, INC., as Collateral Agent --------------------------- CITICORP SECURITIES, INC., GOLDMAN SACHS CREDIT PARTNERS, L.P. and J.P. MORGAN SECURITIES INC., as Arrangers ================================================================================
TABLE OF CONTENTS Page ---- ARTICLE I Definitions SECTION 1.01. Defined Terms............................................... 2 SECTION 1.02. Terms Generally............................................. 22 ARTICLE II The Credits SECTION 2.01. Commitments................................................. 22 SECTION 2.02. Loans....................................................... 23 SECTION 2.03. Borrowing Procedure......................................... 24 SECTION 2.04. Evidence of Debt; Repayment of Loans........................ 25 SECTION 2.05. Fees........................................................ 25 SECTION 2.06. Interest on Loans........................................... 26 SECTION 2.07. Default Interest............................................ 26 SECTION 2.08. Alternate Rate of Interest.................................. 27 SECTION 2.09. Termination and Reduction of Commitments.................... 27 SECTION 2.10. Conversion and Continuation of Borrowings................... 27 SECTION 2.11. Repayment of Term Borrowings................................ 29 SECTION 2.12. Optional Prepayments........................................ 29 SECTION 2.13. Mandatory Prepayments....................................... 29 SECTION 2.14. Reserve Requirements; Change in Circumstances............... 31 SECTION 2.15. Change in Legality.......................................... 32 SECTION 2.16. Indemnity................................................... 32 SECTION 2.17. Pro Rata Treatment.......................................... 33 SECTION 2.18. Sharing of Setoffs.......................................... 33 SECTION 2.19. Payments.................................................... 34 SECTION 2.20. Taxes....................................................... 34 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate...................................... 36 SECTION 2.22. Letters of Credit........................................... 37 ARTICLE III Representations and Warranties SECTION 3.01. Organization................................................ 41 SECTION 3.02. Corporate and Governmental Authorization; No Contravention.. 41
Contents, p. 2
Page ---- SECTION 3.03. Enforceability.............................................. 41 SECTION 3.04. Financial Statements........................................ 41 SECTION 3.05. No Material Adverse Change.................................. 42 SECTION 3.06. Restricted Subsidiaries..................................... 42 SECTION 3.07. Litigation; Compliance with Laws............................ 42 SECTION 3.08. Agreements.................................................. 43 SECTION 3.09. Federal Reserve Regulations................................. 43 SECTION 3.10. Investment Company Act; Public Utility Holding Company Act.. 43 SECTION 3.11. Use of Proceeds............................................. 43 SECTION 3.12. Tax Returns................................................. 43 SECTION 3.13. No Material Misstatements................................... 43 SECTION 3.14. Employee Benefit Plans...................................... 44 SECTION 3.15. Environmental Matters....................................... 44 SECTION 3.16. Pledge Agreement............................................ 45 ARTICLE IV Conditions SECTION 4.01. Effective Date.............................................. 45 SECTION 4.02. Borrowings.................................................. 46 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties........................ 47 SECTION 5.02. Insurance................................................... 48 SECTION 5.03. Obligations and Taxes....................................... 48 SECTION 5.04. Financial Statements, Reports, etc.......................... 48 SECTION 5.05. Litigation and Other Notices................................ 49 SECTION 5.06. Maintaining Records; Access to Properties and Inspections... 50 SECTION 5.07. Use of Proceeds............................................. 50 SECTION 5.08. Compliance with Laws........................................ 50 SECTION 5.09. Further Assurances.......................................... 50 SECTION 5.10. Repayment of Existing Indebtedness.......................... 50 SECTION 5.11. Open Market Shares.......................................... 50 SECTION 5.12. PPM Contribution............................................ 50
Contents, p. 3
Page ---- ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness................................................ 51 SECTION 6.02. Liens....................................................... 52 SECTION 6.03. Sale and Lease-Back Transactions............................ 54 SECTION 6.04. Investments, Loans and Advances............................. 54 SECTION 6.05. Mergers, Consolidations, Sales of Assets, Equity Issuances and Acquisitions.......................................... 55 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Restricted Subsidiaries to Pay Dividends.................. 56 SECTION 6.07. Transactions with Affiliates................................ 57 SECTION 6.08. Business of Borrower and Restricted Subsidiaries............ 57 SECTION 6.09. Other Agreements............................................ 57 SECTION 6.10. Interest Coverage........................................... 58 SECTION 6.11. PTI Total Debt/Total Capitalization......................... 58 SECTION 6.12. PTI Consolidated EBITDA..................................... 58 ARTICLE VII Events of Default ARTICLE VIII The Paying Agent and the Collateral Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices..................................................... 63 SECTION 9.02. Survival of Agreement....................................... 63 SECTION 9.03. Binding Effect.............................................. 64 SECTION 9.04. Successors and Assigns...................................... 64 SECTION 9.05. Expenses; Indemnity......................................... 66 SECTION 9.06. Right of Setoff............................................. 67 SECTION 9.07. APPLICABLE LAW.............................................. 68 SECTION 9.08. Waivers; Amendment.......................................... 68 SECTION 9.09. Interest Rate Limitation.................................... 68 SECTION 9.10. Entire Agreement............................................ 69 SECTION 9.11. WAIVER OF JURY TRIAL........................................ 69
Contents, p. 4
Page ---- SECTION 9.12. Severability................................................ 69 SECTION 9.13. Counterparts................................................ 69 SECTION 9.14. Headings.................................................... 70 SECTION 9.15. Jurisdiction; Consent to Service of Process................. 70 SECTION 9.16. Confidentiality............................................. 70 SECTION 9.17. Margin Regulations.......................................... 71
Exhibits and Schedules EXHIBIT A Administrative Questionnaire EXHIBIT B Assignment and Acceptance EXHIBIT C Borrowing Request EXHIBIT D Pledge Agreement EXHIBIT E-1 Opinion of Stoel Rives LLP EXHIBIT E-2 Opinion of Davis Polk & Wardwell SCHEDULE 1.01(a) Excluded Assets SCHEDULE 1.01(b) Existing Indebtedness SCHEDULE 1.01(c) PTI Asset Sales SCHEDULE 1.01(d) Refinanced Indebtedness SCHEDULE 1.01(e) Restricted Subsidiaries SCHEDULE 2.01 Commitments SCHEDULE 3.07 Litigation SCHEDULE 3.15 Environmental Matters SCHEDULE 6.04(b) Commitments for Investments, Loans and Advances of the Borrower and the Restricted Subsidiaries SCHEDULE 6.04(h) PTI Acquisitions
CREDIT AGREEMENT dated as of June 12, 1997, as amended and restated as of June 27, 1997, among PACIFICORP HOLDINGS, INC., a Delaware corporation (the "Borrower"), the Lenders (as defined in Article I), CITIBANK, N.A., a national banking association ("Citibank"), as paying agent (in such capacity, the "Paying Agent") for the Lenders, and as issuing bank (in such capacity, the "Issuing Bank"), and CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (in such capacity, the "Collateral Agent") for the Lenders. The parties hereto are parties to a Credit Agreement dated as of June 12, 1997 (the "Original Credit Agreement"). Pursuant to the Offer (such term and each other capitalized term used but not defined herein having the meaning given it in Article I), Bidco has offered or will offer to purchase each outstanding Share (including Shares represented by Depositary Shares) at a purchase price of 695.5 pence net per share in cash to the holder thereof (which includes a net dividend of 5.5 pence per share to be paid by the Target on July 4, 1997). In connection therewith and to provide a portion of the financing therefor, (a) Bidco has entered into the Bidco Facility Agreement, (b) Energyco has entered into the Energyco Bridge Loan Agreement and (c) Powercoal has entered into the Powercoal Credit Agreement. The Borrower has requested the Lenders to extend credit in the form of (a) Term Loans on a single date at any time during the Term Loan Availability Period in an aggregate principal amount not in excess of $1,200,000,000, and (b) Revolving Loans at any time and from time to time prior to the Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $85,000,000. The Borrower has requested the Issuing Bank to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $85,000,000, to support payment obligations incurred in the ordinary course of business, or to support investments made, directly or indirectly, by the Borrower, the Restricted Subsidiaries and PFS and its subsidiaries. The proceeds of the Term Loans are to be used solely (a) to refinance the principal of, and to pay all interest, fees and other amounts payable in respect of, the Refinanced Indebtedness, (b) to distribute to Bidco through certain of the Borrower's direct and indirect subsidiaries a portion of the funds necessary to finance the Offer, (c) for the payment of fees and expenses in connection with the Offer and (d) for general corporate purposes of the Borrower and the Restricted Subsidiaries. The proceeds of the Revolving Loans are to be used solely (a) for the ordinary working capital needs of the Borrower and the Restricted Subsidiaries and (b) to finance loans to PFS and its subsidiaries to be used by PFS and its subsidiaries for their ordinary working capital needs. Bidco will use (a) the proceeds from each Acquisition Borrowing, (b) the proceeds of the Powercoal/Bidco Loans, (c) certain proceeds from borrowings by Bidco under the Bidco Facility Agreement and (d) certain proceeds that Energyco will indirectly distribute to Bidco from borrowings by Energyco under the Energyco Bridge Loan Agreement to (i) finance the Offer and for the purposes specified in Clause 3.1(a)(i) of the Bidco Facility Agreement, as in effect on the Restatement Date, and (ii) refinance certain existing Indebtedness of the Target and its subsidiaries. The Borrower has requested that the Original Credit Agreement be amended and restated in the form hereof. The Lenders and the Issuing Bank are willing so to amend and restate the Original 2 Credit Agreement and to extend such credit to the Borrower, on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "Acquisition Borrowing" shall mean any Borrowing, the proceeds of which are distributed to Bidco through certain of the Borrower's direct and indirect subsidiaries to be used by Bidco to finance a portion of the Offer. "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A or such other form as shall be approved by the Paying Agent. "Affiliate" shall mean, when used with respect to a specified person, any other person that directly or indirectly, through one or more intermediaries, Controls or is Controlled by or is under direct or indirect common Control with such specified person; provided that, for purposes of Section 6.07 only, beneficial ownership of 10% or more of the voting securities of a person shall be deemed to be Control for purposes of the definition of "Affiliate". Neither the Lenders nor any of their Affiliates will be treated as an Affiliate of the Borrower or any of its subsidiaries for purposes of this Agreement. "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. "Assessment Rate" shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Paying Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Paying Agent to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Paying Agent's domestic offices. "Asset Sale" shall mean (a) the sale, lease, transfer or other disposition (by way of merger or otherwise, including as a result of a Condemnation Event or a Casualty Event) by the Borrower or any of the Restricted Subsidiaries (other than PTI or any of its subsidiaries) to any person other than the Borrower or any wholly owned Restricted Subsidiary of (i) any capital stock of any of the Restricted Subsidiaries or Newco or (ii) any other assets of the Borrower or any of the Restricted Subsidiaries (other than inventory, obsolete or worn-out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business), except for any sale, lease, transfer or other disposition in one transaction or a series of related transactions having a value of $25,000,000 or less or (b) any 3 payment in respect of the PFSAC Obligation. Notwithstanding the foregoing, the term "Asset Sale" shall not include (a) the PPM Contribution, the TPC Contribution, the PFS Pre-Funding Sale or the Powercor Contribution, (b) the transfer of Open Market Shares in accordance with Section 5.11, (c) transfers of assets that result in an investment permitted by Section 6.04(c) or (e), (d) transfers of assets as part of a sale and lease-back transaction permitted by Section 6.03, (e) the payment of a cash dividend permitted by Section 6.06(a), and (f) the transfer to a subsidiary of PacifiCorp of any of the Excluded Assets. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Paying Agent, in the form of Exhibit B or such other form as shall be approved by the Paying Agent. "Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Paying Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Paying Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Paying Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Paying Agent from three Federal funds brokers of recognized standing selected by it. "Base Rate Borrowing" shall mean a Borrowing comprised of Base Rate Loans. "Base Rate Loan" shall mean any Base Rate Term Loan or Base Rate Revolving Loan. "Base Rate Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II. "Base Rate Term Borrowing" shall mean a Borrowing comprised of Base Rate Term Loans. "Base Rate Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II. 4 "Bidco" shall mean PacifiCorp Acquisitions, an unlimited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by FinanceCo. "Bidco Agent" shall mean Citibank International plc, in its capacity as facility agent for the Bidco Lenders under the Bidco Facility Agreement, and any successor or assign in such capacity. "Bidco Facility Agreement" shall mean the facility agreement dated June 13, 1997, among Bidco, Recco, FinanceCo, the Bidco Lenders, the Bidco Agent and the Arrangers, the Security Agent and the LC Bank named therein. "Bidco Lenders" shall mean the financial institutions that are parties from time to time to the Bidco Facility Agreement as lenders thereunder. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. "Borrowing Request" shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C or such other form as shall be approved by the Paying Agent. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Income Available for Interest" shall mean, for any period, the sum of (a) the aggregate amount of cash dividends actually received by the Borrower during such period with respect to common stock of its subsidiaries; (b) the aggregate amount of payments actually received by the Borrower during such period with respect to the Borrower's interest in the Spring Creek Obligations, net of income taxes applicable thereto calculated at the Net Effective Tax Rate for such period; (c) the aggregate amount of any interest payments actually received by the Borrower during such period with respect to Indebtedness due to the Borrower under the Intercompany Loan Agreements and with respect to any other intercompany loans or advances, net of income taxes applicable thereto calculated at the Net Effective Tax Rate for such period; and (d) the aggregate amount of cash equity investments made by PacifiCorp in the Borrower during such period. For purposes of clause (d) of this definition, a cash equity investment made by PacifiCorp in the Borrower within 30 days of the end of any fiscal quarter shall be deemed to have been made during such fiscal quarter (and not during the following 5 fiscal quarter) if the Borrower so elects by giving written notice of such election to the Paying Agent within such 30-day period. "Casualty Event" shall mean an event pursuant to which the Borrower or any of the Restricted Subsidiaries has the right to collect insurance proceeds under any insurance policies with respect to any insured casualty or other insured damage to any property of the Borrower or any of the Restricted Subsidiaries. A "Change in Control" shall be deemed to have occurred if (a) any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the Closing Date) shall own directly or indirectly, beneficially or of record, shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of PacifiCorp; (b) a majority of the seats (other than vacant seats) on the board of directors of PacifiCorp shall at any time be occupied by persons who were neither (i) nominated by the board of directors of PacifiCorp, nor (ii) appointed by directors so nominated; (c) any change in control (or similar event, however denominated) with respect to PacifiCorp shall occur under and as defined in any indenture or agreement in respect of Indebtedness to which the Borrower, any person directly or indirectly Controlling the Borrower or any subsidiary of the Borrower is a party; (d) PacifiCorp consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, PacifiCorp in any such event pursuant to a transaction in which any of the issued and outstanding capital stock of PacifiCorp is converted into or exchanged for cash, securities or other property, other than any such transaction where the capital stock of PacifiCorp outstanding immediately prior to such transaction is converted into or exchanged for capital stock of the surviving or transferee person constituting a majority of the issued and outstanding shares of such capital stock of such surviving or transferee person (immediately after giving effect to such conversion or exchange); (e) PacifiCorp shall own, directly or indirectly, beneficially and of record, less than 80% of the outstanding capital stock of the Borrower; or (f) the Borrower shall own, directly or indirectly, beneficially and of record, less than 80% of the outstanding capital stock of Newco, free and clear of all Liens, other than Liens created by the Pledge Agreement. "Citibank" shall have the meaning assigned to such term in the preamble to this Agreement. "Citicorp USA" shall have the meaning assigned to such term in the preamble to this Agreement. "Closing Date" shall mean June 12, 1997. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral", as defined in the Pledge Agreement. "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment and Term Loan Commitment. "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). 6 "Condemnation Event" shall mean an event pursuant to which the Borrower or any of the Restricted Subsidiaries has the right to collect and receive proceeds as a result of any action or proceeding for the taking of any property of the Borrower or any Restricted Subsidiary, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner. "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower to be used by the Initial Lenders and their Affiliates in connection with the syndication of the Commitments following the Closing Date. "Consolidated EBITDA" shall mean, for any period, Consolidated Net Income for such period, plus, without duplication and to the extent deducted from revenues in determining Consolidated Net Income, the sum of (a) the aggregate amount of Consolidated Interest Expense for such period, (b) the aggregate amount of income tax expense for such period (including payments in respect of income taxes under the Tax Sharing Arrangement), (c) all amounts attributable to depreciation, depletion and amortization for such period and (d) all noncash nonrecurring charges during such period, and minus, without duplication, all nonrecurring gains during such period, all as determined on a consolidated basis with respect to PTI and its subsidiaries in accordance with GAAP. "Consolidated Interest Expense" shall mean, for any period, the gross interest expense, whether expensed or capitalized (including the interest component in respect of Capital Lease Obligations), accrued or paid by PTI and its subsidiaries during such period, in each case, as determined on a consolidated basis in accordance with GAAP. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments received by PTI or its subsidiaries with respect to the interest rate protection agreements relating to PTI and its subsidiaries. "Consolidated Net Income" shall mean, for any period, net income or loss of PTI and its subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any person in which any other person (other than PTI or any of its subsidiaries or any director holding qualifying shares in compliance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to PTI or any of its subsidiaries by such person during such period and (b) the income (or loss) of any person accrued prior to the date it becomes a subsidiary of PTI or is merged into or consolidated with PTI or any of its subsidiaries or the date that person's assets are acquired by PTI or any of its subsidiaries. "Consolidated Net Worth" shall mean, as at any date of determination, the consolidated stockholders' equity of PTI and its subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. 7 "Depositary Shares" shall mean the American Depositary Shares, evidenced by American Depositary Receipts, each such American Depositary Share representing four Shares. "dollars" or "$" shall mean lawful money of the United States of America. "Energyco" shall mean PacifiCorp EnergyCo, an unlimited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by Newco. "Energyco Bridge Loan Agreement" shall mean the bridge loan agreement dated as of the Closing Date, among Energyco, Newco, the lenders from time to time party thereto, the Arrangers named therein, and Citibank, as administrative agent thereunder. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or nonaccidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Issuance" shall mean any issuance or sale by the Borrower or any Restricted Subsidiary of any shares of capital stock or other equity securities of the Borrower or any Restricted Subsidiary or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such securities or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to, or any other capital contribution by, PacifiCorp, the Borrower, any wholly owned Restricted Subsidiary or Newco, (b) any issuance of directors' qualifying shares, (c) any issuance or sale to officers and employees under employee benefit or compensation plans and (d) any issuance or sale of an interest in a Single Purpose Entity. 8 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan, except a reportable event for which the requirement of notice to the PBGC has been waived; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability in excess of $1,000,000 under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of a Multiemployer Plan of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability in excess of $1,000,000 or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect to which the Borrower or any of its subsidiaries is a party to the prohibited transaction and is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which the Borrower or any such subsidiary could otherwise be liable; and (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in liability of the Borrower in excess of $1,000,000. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar Term Loan. "Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Eurodollar Term Borrowing" shall mean a Borrowing comprised of Eurodollar Term Loans. "Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Exchange Rate Protection Agreement" shall mean any Hedging Agreement that is (a) entered into by the Borrower with a counterparty that as of the date of such Hedging Agreement is a Lender 9 (or an affiliate of a Lender) and (b) designed to protect the Borrower against fluctuations in currency exchange rates and not for speculation. "Excluded Assets" shall mean the assets set forth on Schedule 1.01(a). "Existing Indebtedness" shall mean the Indebtedness of the Borrower existing on the Closing Date and set forth on Schedule 1.01(b). "Fees" shall mean the Commitment Fees, the L/C Participation Fees and the Issuing Bank Fees. "FinanceCo" shall mean PacifiCorp Finance (UK) Limited, a limited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by Recco. "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation. "Funding Exchange Rate Protection Agreement" shall mean any Exchange Rate Protection Agreement that is designed to ensure that the applicable borrowings under this Agreement, the Energyco Bridge Loan Agreement and the Powercoal Credit Agreement will provide a sufficient amount in pounds sterling (together with borrowings under the Bidco Facility Agreement and certain other sources of funds) to pay for the Shares. "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis. "Goldman" shall mean Goldman Sachs Credit Partners L.P., a Bermuda limited partnership. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated 10 biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed (provided that, for purposes hereof, the amount of such Indebtedness shall be limited to the lesser of (x) the principal amount thereof and (y) the fair market value of such property), (f) all Guarantees by such person of Indebtedness of others, (g) all Capital Lease Obligations of such person and (h) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances; provided that, for purposes of the definition of "Total Debt" as used in Section 6.11, "Indebtedness" shall also include all obligations of such person in respect of Hedging Agreements (other than any interest rate protection agreement and any exchange rate protection agreement, in each case relating to PTI) to the extent the Net Termination Value of such Hedging Agreements at any time exceeds $30,000,000. For purposes of this Agreement, the amount of Non-Recourse Indebtedness of the Borrower and its subsidiaries included in the calculation of Indebtedness of the Borrower and its subsidiaries at any time shall equal the lesser of (i) the aggregate principal amount of such Indebtedness and (ii) the equity of the Borrower and its subsidiaries in the asset or Single Purpose Entity, as the case may be, relating to such Non- Recourse Indebtedness. For purposes of this Agreement, the amount of Indebtedness (other than Non- Recourse Indebtedness) of any partnership, limited liability company or similar pass-through entity (as used in this definition, a "partnership") in which the Borrower or a subsidiary is a general partner or other member or equity holder with unlimited liability (as used in this definition, a "general partner") and in which there are one or more Qualified General Partners shall only be included in the calculation of Indebtedness of the Borrower and its subsidiaries at any time (a) to the extent of the Borrower's or such subsidiary's pro rata share of the interest of the general partners in the partnership at such time, or (b) if the applicable governing or other relevant agreement specifies that the Borrower or any of its subsidiaries is liable to the partnership or its creditors for a specific percentage of such partnership's liabilities, to the extent of such specified percentage. For purposes hereof, "Qualified General Partner" shall mean a general partner of a partnership that (a) is a person that was not created solely for the purpose of investing in such partnership, and (b) at the time of the investment in such partnership, the Borrower reasonably believes that (i) such person has a credit quality (or credit support) approximately equal to that of the Borrower or the applicable subsidiary and (ii) such person will be able to perform its share of the obligations under such Indebtedness when due. 11 "Initial Lenders" shall mean Citibank, Goldman and Morgan. "Intercompany Loan Agreement" shall mean (a) the Umbrella Loan Agreement dated as of April 4, 1983, between PacifiCorp and certain of its subsidiaries, as in effect on the Closing Date, (b) the Intercompany Borrowing Agreement dated as of April 1, 1991, between the Borrower and certain of its subsidiaries and affiliates, as in effect on the Closing Date, and (c) any additional or substitute intercompany lending agreement, or amendment thereto, among substantially the same parties and on substantially the same terms and conditions (other than rates of interest) as any agreement described in clause (a) or (b) above. "Interest Expense" shall mean, for any period of four consecutive fiscal quarters, the interest expense (including related commitment fees, facilities fees and similar fees) accrued during such period in respect of Indebtedness of the Borrower; provided that interest expense in respect of Indebtedness Guaranteed by the Borrower shall be included only to the extent actually paid by the Borrower. "Interest Expense (After Tax)" shall mean, for any period of four consecutive fiscal quarters, an amount equal to (a) the Interest Expense for such period minus (b) the Tax Benefit for such period. "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of such Borrowing or conversion of such Borrowing to a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect and (b) as to any Base Rate Borrowing, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.10 or repaid or prepaid in accordance with Section 2.11, 2.12 or 2.13; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Protection Agreement" shall mean any Hedging Agreement that is (a) entered into by the Borrower with a counterparty that as of the date of such Hedging Agreement is a Lender (or an affiliate of a Lender) and (b) designed to protect the Borrower against fluctuations in interest rates and not for speculation. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(b). 12 "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.22. "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(b). "Lenders" shall mean (a) the Initial Lenders (other than any such Initial Lender that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. "Letter of Credit" shall mean any letter of credit issued pursuant to Section 2.22. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Paying Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Paying Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) any other preferential arrangement that has substantially the same practical effect as a security interest. "Loan Documents" shall mean this Agreement and the Pledge Agreement. "Loans" shall mean the Revolving Loans and the Term Loans. "Margin Stock" shall have the meaning assigned to such term in Regulation U. 13 "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, liabilities, operations or condition, financial or otherwise, of the Borrower and the Restricted Subsidiaries, taken as a whole, (b) material impairment of the ability of the Borrower to perform its obligations under the Loan Documents to which it is or will be a party or (c) material impairment of the rights of or benefits available to the Lenders under the Loan Documents; provided, that only clauses (b) and (c) shall apply after PTI is no longer a subsidiary of the Borrower. "Material Hedging Obligations" shall mean payment obligations in respect of one or more Hedging Agreements with a single counterparty (or its Affiliates) that have Negative Termination Values exceeding $50,000,000 in the aggregate amount. "Maturity Date" shall mean June 12, 1999. "Morgan" shall mean Morgan Guaranty Trust Company of New York, a New York banking corporation. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Negative Termination Value" shall mean, with respect to any Hedging Agreement, the amount (if any) that would be required to be paid by the Borrower or any Restricted Subsidiary if such Hedging Agreement were terminated by reason of a default by or other termination event relating to the Borrower or any Restricted Subsidiary. The Negative Termination Value of any Hedging Agreement at any date shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter; provided, however, that if an agreement between the Borrower or any Restricted Subsidiary and the relevant counterparty provides that, upon any such termination by such counterparty, one or more other Hedging Agreements (if any then exist) between the Borrower or any Restricted Subsidiary and such counterparty would also terminate and the amount (if any) payable by the Borrower or any Restricted Subsidiary would be a net amount reflecting the termination of all Hedging Agreements so terminated, then the Negative Termination Value of all the Hedging Agreements subject to such netting shall be, at any date, a single amount equal to such net amount (if any) payable by the Borrower or any Restricted Subsidiary determined as of the later of (a) the end of the most recently ended fiscal quarter or (b) the date on which the most recent Hedging Agreement subject to such netting was entered into. "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale or a sale permitted by Section 6.05(a)(v), the cash proceeds thereof received by the Borrower or the Restricted Subsidiaries (including cash and cash equivalents and cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received), net of (i) costs of sale (including payment of the outstanding principal amount of, premium or penalty, if any, interest and other amounts on any Indebtedness (other than Loans) secured by a Lien permitted pursuant to Section 6.02 on such assets and required to be repaid under the terms thereof as a result of such Asset Sale), (ii) taxes paid or payable in the year such Asset Sale occurs or in the following year as a result thereof and (iii) amounts provided as a reserve against any liabilities under any indemnification obligations associated with such Asset Sale (except that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds); 14 provided, however, that in the event the Asset Sale is a result of a Casualty Event or Condemnation Event, the cash proceeds thereof for purposes of this definition shall not include proceeds thereof to the extent they are used (or committed to be used) to replace or repair the damaged or condemned property, as applicable, within 180 days of receipt of such proceeds, in each case so long as no Default or Event of Default shall have occurred and be continuing, and (b) with respect to any Equity Issuance or any issuance or other disposition of Indebtedness for borrowed money, the cash proceeds thereof net of underwriting commissions or placement fees and expenses directly incurred in connection therewith. Notwithstanding anything to the contrary, "Net Cash Proceeds" shall not include proceeds from an Asset Sale by any Restricted Subsidiary, to the extent that such Restricted Subsidiary shall have (a) applied such proceeds within three Business Days of the receipt thereof to the repayment of Indebtedness of such Restricted Subsidiary that cannot by its terms be reborrowed or (b) notified the Paying Agent, within three Business Days of receipt of such proceeds, of its intention to apply such proceeds to the repayment of such Indebtedness and shall have completed such repayment within 45 days of the receipt thereof. "Net Effective Tax Rate" shall mean, for any period, the net effective book rate of Federal and state income tax recorded for such period by the consolidated group of which the Borrower was a member. "Net Termination Value" shall mean, with respect to all Hedging Agreements (other than any Interest Rate Protection Agreement and any Exchange Rate Protection Agreement), the difference between (a) the aggregate amounts (if any) that would be required to be paid by the Borrower or any Restricted Subsidiary if such Hedging Agreements were terminated by reason of a default relating to the Borrower or any Restricted Subsidiary, and (b) the aggregate amounts (if any) that the Borrower or any Restricted Subsidiary would be entitled to receive if such Hedging Agreements were terminated by reason of a default relating to the Borrower or any Restricted Subsidiary. The Net Termination Value shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter. "Newco" shall mean PacifiCorp Group Holdings Company, a corporation organized under the laws of Oregon, all the outstanding capital stock of which on the Restatement Date is directly owned by the Borrower. "Non-Recourse Indebtedness" of any person shall mean at any time Indebtedness secured by a Lien in or upon one or more assets of such person where the rights and remedies of the holder of such Indebtedness in respect of such Indebtedness do not extend to any other assets of such person. Notwithstanding the foregoing, Indebtedness of any person shall not fail to constitute Non-Recourse Indebtedness by reason of the inclusion in any document evidencing, governing, securing or otherwise relating to such Indebtedness of provisions to the effect that such person shall be liable beyond the assets securing such Indebtedness, for (a) misapplied moneys, including insurance and condemnation proceeds and security deposits, (b) indemnification by such person in favor of holders of such Indebtedness and their affiliates in respect of liabilities to third parties, including environmental liabilities, (c) breaches of customary representations and warranties given to the holders of such Indebtedness and (d) such other similar obligations as are customarily excluded from the provisions that otherwise limit the recourse of commercial lenders making so-called "non- 15 recourse" loans to institutional borrowers. Indebtedness of a Single Purpose Entity shall constitute Non-Recourse Indebtedness of such Single Purpose Entity. "Obligations" shall have the meaning assigned to such term in the Pledge Agreement. "Offer" shall mean the offer by Goldman Sachs International on behalf of Bidco to acquire all of the outstanding Shares (including Shares represented by Depositary Shares), substantially on the terms and conditions referred to in the press release related thereto, as amended, supplemented or otherwise modified. "Offer Document" shall mean the document to be delivered to the shareholders of the Target containing the formal Offer. "Open Market Shares" shall mean the purchase of Shares by the Borrower in the open market prior to the Unconditional Date. "PacifiCorp" shall mean PacifiCorp, a corporation organized under the laws of Oregon. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "PCI" shall mean PacifiCorp Credit, Inc., a corporation organized under the laws of Oregon. "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper (or money market funds substantially all the assets of which are invested in such commercial paper) maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from Standard & Poor's Ratings Group or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000; and (d) obligations issued by any state or political subdivision thereof, having a rating of A or better by Standard & Poor's Ratings Group, or a similar rating by any other nationally recognized rating agency with maturities of not more than one year. 16 "person" shall mean any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "PFS" shall mean PacifiCorp Financial Services, Inc., a corporation organized under the laws of Oregon. "PFSAC" shall mean PFS Acquisition Corp., an Oregon corporation, all the capital stock of which is directly owned by PacifiCorp. "PFSAC Obligation" shall mean, collectively, the agreement between the Borrower and PFSAC, the obligation under which shall be payable with proceeds from the sale of certain assets of PFS, and the pledge agreement between the Borrower and PFSAC covering all of the issued and outstanding stock of PFS as security for payments under the agreement. "PFS Intercompany Note" shall mean the note issued by PFS to the Borrower evidencing certain intercompany loans made by the Borrower to PFS. "PFS Pre-Funding Sale" shall mean the sale of PFS by the Borrower to PFSAC, in exchange for $70,000,000 in cash and the PFSAC Obligation. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Pledge Agreement, substantially in the form of Exhibit D, between the Borrower and the Collateral Agent for the benefit of the Secured Parties. "pounds sterling" or "pence" shall mean the lawful currency for the time being of the United Kingdom. "Powercoal" shall mean PacifiCorp Powercoal LLC, an Oregon limited liability company, all the capital stock of which on the Restatement Date is directly owned by Newco. "Powercoal/Bidco Loans" shall have the meaning assigned to such term in the Powercoal Credit Agreement. "Powercoal Credit Agreement" shall mean the credit agreement dated as of the Closing Date, among Powercoal, the lenders from time to time party thereto, and Morgan, as paying agent, collateral agent, issuing bank and swingline lender. "Powercor" shall mean Powercor Australia Limited, a limited company organized under the laws of Australia. 17 "Powercor Contribution" shall mean the contribution of all the share capital of the members of the holding company of Powercor by the Borrower to Newco. "PPM" shall mean PacifiCorp Power Marketing, Inc., a corporation organized under the laws of Oregon. "PPM Contribution" shall mean the indirect contribution of all the capital stock of PPM by the Borrower to Powercoal. "Prepayment Account" shall have the meaning assigned to such term in Section 2.13(f). "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment. "PTI" shall mean Pacific Telecom, Inc., a corporation organized under the laws of the State of Washington. "PTI Asset Sale" shall mean the sale, lease, transfer or other disposition (by way of merger or otherwise, including as a result of a Condemnation Event or a Casualty Event) by PTI or any of its subsidiaries to any person other than the Borrower or any wholly owned Restricted Subsidiary of (a) any capital stock of any subsidiary of PTI or (b) any other assets of PTI or any of its subsidiaries (other than inventory, obsolete or worn-out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business), except for any sale, lease, transfer or other disposition in one transaction or a series of related transactions having a value of $25,000,000 or less. Notwithstanding the foregoing, the term "PTI Asset Sale" shall not include (a) the payment of a cash dividend permitted by Section 6.06(a), (b) the sale, lease, transfer or other disposition of assets included on Schedule 1.01(c), (c) transfers of assets as part of a sale and lease-back transaction permitted by Section 6.03 and (d) any substantially contemporaneous exchange (including by way of a substantially contemporaneous purchase and sale) of assets of PTI or any of its subsidiaries for one or more local exchange networks located in the United States, in each case to the extent that no net cash proceeds are received by PTI or any of its subsidiaries as consideration in connection with such exchange. "Recco" shall mean PacifiCorp Services Limited, a limited company incorporated in England and Wales, all of the outstanding share capital of which on the Restatement Date is directly owned by Energyco. "Refinanced Indebtedness" shall mean the Indebtedness of the Borrower listed on Schedule 1.01(d). "Refinancing Indebtedness" shall have the meaning assigned to such term in Section 6.01(g). "Register" shall have the meaning given to such term in Section 9.04(d). "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. 18 "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Required Lenders" shall mean, at any time, Lenders having Loans, L/C Exposure and unused Revolving Credit and Term Loan Commitments representing at least a majority of the sum of all Loans outstanding, L/C Exposure and unused Revolving Credit and Term Loan Commitments at such time. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restatement Date" shall mean June 27, 1997. "Restricted Subsidiary" shall mean any person listed on Schedule 1.01(e) until the date such person is no longer a subsidiary of the Borrower. "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure. 19 "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment. "Revolving Loans" shall mean the revolving loans made by the Lenders to the Borrower pursuant to Section 2.01(b). Each Revolving Loan shall be a Eurodollar Revolving Loan or a Base Rate Revolving Loan. "Secured Parties" shall have the meaning assigned to such term in the Pledge Agreement. "Shares" shall mean the ordinary shares of the Target (par value 10 pence per share). "Significant Subsidiary" shall mean, on any date, any Restricted Subsidiary that (a) has total assets, determined on a consolidated basis with its subsidiaries, as of the end of the fiscal quarter preceding such date equal to or greater than 2.5% of the total assets of the Borrower and the Restricted Subsidiaries on a consolidated basis as of the end of such fiscal quarter or (b) has income from continuing operations before income taxes, extraordinary items and the cumulative effect of a change in accounting principles ("Adjusted Income"), determined on a consolidated basis with its subsidiaries, for the four fiscal quarter period preceding such date equal to or greater than 2.5% of the Adjusted Income of the Borrower and the Restricted Subsidiaries on a consolidated basis for such period, in all cases as determined in accordance with GAAP. "Single Purpose Entity" shall mean a person, other than an individual, that (a) is organized solely for the purpose of holding, directly or indirectly, an ownership interest in one entity or property that is acquired, purchased or constructed or in the case of previously undeveloped, non-income generating property of the Borrower or a Restricted Subsidiary, developed by the Borrower or any of the Restricted Subsidiaries, (b) does not engage in any business unrelated to such entity or property or the financing thereof and (c) does not have any assets or Indebtedness other than those related to its interest in such entity or property or the financing thereof. "Spring Creek" shall mean Spring Creek Coal Company, a corporation organized under the laws of Montana. "Spring Creek Coal Supply Contract" shall mean the Coal Supply Agreement dated June 2, 1978, between Spring Creek and Utility Fuels, Inc., as amended from time to time. "Spring Creek Loan Agreement" shall mean the Loan Commitment and Agreement dated as of June 2, 1993, between Spring Creek and the Borrower (under which the Borrower designated PCI as the affiliate to make the initial loan of $225,000,000 to Spring Creek), as such agreement may be amended from time to time. "Spring Creek Loan Documents" shall mean the "Loan Documents" (as such term is defined in Section 1.1 of the Spring Creek Loan Agreement as in effect on the Closing Date), as such Loan Documents may be amended from time to time. "Spring Creek Note" shall mean the promissory note issued by Spring Creek to PCI pursuant to the Spring Creek Loan Agreement, as such note may be amended from time to time. 20 "Spring Creek Obligations" shall mean the obligations under the Spring Creek Loan Documents of Spring Creek, Spring Creek's affiliates and each issuer of a Letter of Credit (as defined in Section 1.1 of the Spring Creek Loan Agreement as in effect on the Closing Date), in each case whether now existing or hereafter issued or arising. "Spring Creek Participation Agreement" shall mean the Amended and Restated Participation Agreement dated as of June 2, 1993, between PCI and the Borrower (under which the Borrower purchased the Borrower's interest in the Spring Creek Obligations from PCI), as such agreement may be amended from time to time. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent. "Target" shall mean The Energy Group PLC, a public limited company incorporated in England and Wales. "Tax Benefit" shall mean, for any period of four consecutive fiscal quarters, the product of (a) the Interest Expense for such period and (b) the Net Effective Tax Rate for such period. "Tax Sharing Arrangement" shall mean the Capital Contribution Agreement dated as of the Closing Date, the Income Tax Allocation Policy, restated as of January 1, 1989, relating to the Borrower, PacifiCorp and the direct subsidiaries of the Borrower, and the Income Tax Allocation Policy, dated as of January 1, 1997, relating to Newco and its subsidiaries. "Term Borrowing" shall mean a Borrowing comprised of Term Loans. "Termination Date" shall mean the earlier of (a) December 30, 1997, and (b) the later of (i) the date that is three months after the Unconditional Date and (ii) the date that is 49 days after the first date on which Bidco acquires 90% of the outstanding Shares to which the Offer relates. 21 "Term Loan Availability Period" shall mean the period from and including the Closing Date to and including the Termination Date. "Term Loan Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Term Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Term Loans" shall mean the term loans made by the Lenders to the Borrower pursuant to Section 2.01(a). Each Term Loan shall be either a Eurodollar Term Loan or a Base Rate Term Loan. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Paying Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Total Debt" shall mean, as of any date of determination, without duplication, the aggregate principal amount of Indebtedness of PTI and its subsidiaries outstanding as of such date, determined on a consolidated basis (other than Indebtedness of the type referred to in clause (h) of the definition of the term "Indebtedness", except to the extent of any unreimbursed drawings thereunder). "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. "TPC" shall mean TPC Corporation, a corporation organized under the laws of Delaware. "TPC Contribution" shall mean the indirect contribution of all the capital stock of TPC by the Borrower to Powercoal. "Transaction Loan Documents" shall mean (a) the Loan Documents, (b) the Bidco Facility Agreement and the security documents and guarantees related thereto, (c) the Energyco Bridge Loan Agreement and the guarantees related thereto and (d) the Powercoal Credit Agreement and the security documents and guarantees related thereto. "Transactions" shall mean the Offer, the transactions contemplated thereby and the transactions contemplated by the Transaction Loan Documents. 22 "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Base Rate. "Unconditional Date" shall have the meaning assigned to such term in the Bidco Facility Agreement as in effect on the Restatement Date. "wholly owned Restricted Subsidiary" shall mean a Restricted Subsidiary which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power (other than directors' qualifying shares) or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the Borrower or one or more wholly owned Restricted Subsidiaries of the Borrower or by the Borrower and one or more wholly owned Restricted Subsidiaries of the Borrower. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Transaction Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrower notifies the Paying Agent that the Borrower wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Paying Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant or definition is amended in a manner satisfactory to the Borrower and the Required Lenders. ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (a) to make Term Loans to the Borrower at any time on a single date on or after the Closing Date, and until the earlier of the expiration of the Term Loan Availability Period and the termination of the Term Loan Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount not to exceed its Term Loan Commitment and (b) to make Revolving Loans to the Borrower, 23 at any time and from time to time on or after the Closing Date, and until the earlier of the Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding such Lender's Revolving Credit Commitment. Within the limits set forth in clause (b) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Term Loan Commitments or Revolving Credit Commitments, as applicable; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). The Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 and not less than $5,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised entirely of Base Rate Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not (i) affect the obligation of the Borrower to repay such Loan or (ii) increase the costs of the Borrower that would otherwise be payable under Section 2.14 or 2.20 with respect thereto, in each case in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 15 Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made or deemed made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Paying Agent may designate not later than 11:00 a.m., New York City time, and the Paying Agent shall by 12:00 (noon), New York City time, credit the amounts so received to an account in the name of the Borrower, maintained with the Paying Agent and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Paying Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Paying Agent such Lender's portion of such Borrowing, the Paying Agent may assume that such Lender has made such portion available to the Paying Agent on the date of such Borrowing in accordance with paragraph (c) above and the Paying Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Paying Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Paying Agent, such Lender and the Borrower severally agree to repay to the Paying Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to 24 the Borrower until the date such amount is repaid to the Paying Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Paying Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Paying Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Interest Period with respect to a Revolving Credit Borrowing or Term Borrowing that would end after the Maturity Date. (f) If the Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.22(e) within the time specified in such Section, the Issuing Bank will promptly notify the Paying Agent of the L/C Disbursement and the Paying Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Paying Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Paying Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Paying Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.22(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Paying Agent thereafter will be promptly remitted by the Paying Agent to the Revolving Credit Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Paying Agent as provided above, such Lender and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Paying Agent for the account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Borrowing, the Borrower shall hand deliver or telecopy to the Paying Agent a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of a Base Rate Borrowing, not later than 11:00 a.m., New York City time, on the Business Day of a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Eurodollar Borrowing or a Base Rate Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such 25 Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Paying Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender's portion of the requested Borrowing. SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby unconditionally promises to pay to the Paying Agent for the account of each Lender the principal amount of each Term Loan of such Lender as provided in Section 2.11 and the then unpaid principal amount of each Revolving Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Paying Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Paying Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Paying Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive a promissory note payable to such Lender and its registered assigns, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through the Paying Agent, on the last day of March, June, September and December in each year and on each date on which any Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") of 0.50% per annum on the average daily unused amount of the Commitments of such Lender during the preceding quarter (or other period commencing with the Closing Date or ending with the Maturity Date or the date on which the Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the Commitment of such Lender shall expire or be terminated as provided herein. 26 (b) The Borrower agrees to pay (i) to each Revolving Credit Lender, through the Paying Agent, on the last day of March, June, September and December of each year and on the date on which the Revolving Credit Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the Closing Date or ending with the Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to 2.00% per annum, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (c) All Fees shall be paid on the dates due, in immediately available funds, to the Paying Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances, absent manifest error. SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each Base Rate Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to (a) for the period from the Closing Date up to and including December 12, 1998, the Base Rate plus 1.00% and (b) thereafter, the Base Rate plus 1.50%. (b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (a) for the period from the Closing Date up to and including December 12, 1998, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus 2.00% and (b) thereafter, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus 2.50%. (c) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Base Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Paying Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) (a) in the case of overdue principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the sum of the Base Rate plus 2.00%. 27 SECTION 2.08. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Paying Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Lender or Lenders holding a majority of the Eurodollar Loans comprising such Eurodollar Borrowing of making or maintaining such Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Paying Agent shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Paying Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for a Base Rate Borrowing. Each determination by the Paying Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on the Termination Date. The Revolving Credit Commitments and the L/C Commitment shall automatically terminate on the Maturity Date. Notwithstanding the foregoing, the Revolving Credit Commitment and the L/C Commitment shall automatically terminate at 5:00 p.m., New York City time, on the Termination Date if the initial Borrowing hereunder shall not have occurred by such time. (b) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Paying Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and in a minimum amount of $5,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the Aggregate Revolving Credit Exposure at the time. (c) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrower shall pay to the Paying Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall have the right at any time upon prior irrevocable notice to the Paying Agent (a) not later than 12:00 (noon), New York City time, one Business Day prior to conversion, to convert any Eurodollar Borrowing into a Base Rate Borrowing, (b) not later than 11:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any Base Rate Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to 28 convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Lender and the Paying Agent by recording for the account of such Lender the new Loan of such Lender resulting from such conversion and reducing the Loan (or portion thereof) of such Lender being converted by an equivalent principal amount; accrued interest on any Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into a Base Rate Borrowing; and (vii) upon notice to the Borrower from the Paying Agent given at the request of the Required Lenders, after the occurrence and during the continuance of a Default or an Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan. Each notice pursuant to this Section 2.10 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or a Base Rate Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Paying Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.10 to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid 29 pursuant to the terms hereof), automatically be continued into a new Interest Period as a Base Rate Borrowing. SECTION 2.11. Repayment of Term Borrowings. (a) To the extent not previously paid, all Term Loans shall be due and payable on the Maturity Date together with accrued and unpaid interest on the principal amount to be paid to but excluding the date of payment. (b) All repayments pursuant to this Section 2.11 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. SECTION 2.12. Optional Prepayments. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Paying Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000. (b) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall repay or prepay all its outstanding Revolving Credit Borrowings on the date of such termination. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the effective date of such reduction, the Paying Agent shall notify the Borrower and the Revolving Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings in an amount sufficient to eliminate such excess. (b) Not later than the fourth Business Day following the receipt of Net Cash Proceeds from any Asset Sale (except to the extent the Borrower has notified the Paying Agent of its intention to reinvest the proceeds thereof in accordance with the definition of the term "Net Cash Proceeds" and such proceeds are in fact so reinvested within the 180-day period referred to in such definition), the Borrower or the applicable Restricted Subsidiary shall apply 100% of such Net Cash Proceeds received with respect thereto to prepay outstanding Term Loans. (c) In the event and on each occasion that an Equity Issuance occurs, the Borrower shall, substantially simultaneously with (and in any event not later than the fourth Business Day next following) the receipt of Net Cash Proceeds from any such Equity Issuance, apply 100% of such Net Cash Proceeds to prepay outstanding Term Loans. 30 (d) In the event that the Borrower or any Restricted Subsidiary shall receive Net Cash Proceeds from the issuance or other disposition of Indebtedness for money borrowed of the Borrower or any Restricted Subsidiary (other than Indebtedness permitted by Section 6.01), the Borrower shall, substantially simultaneously with (and in any event not later than the fourth Business Day next following) the receipt of such Net Cash Proceeds by the Borrower or such Restricted Subsidiary, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans. (e) The Borrower shall deliver to the Paying Agent, at the time of each prepayment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least four days' prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. (f) Amounts to be applied pursuant to this Section 2.13 to the prepayment of Term Loans and Revolving Loans shall be applied, as applicable, first to reduce outstanding Base Rate Term Loans and Base Rate Revolving Loans. Any amounts remaining after each such application shall, at the option of the Borrower, be applied to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as the case may be, immediately and/or shall be deposited in the Prepayment Account (as defined below). The Paying Agent shall apply any cash deposited in the Prepayment Account (i) allocable to Term Loans to prepay Eurodollar Term Loans and (ii) allocable to Revolving Loans to prepay Eurodollar Revolving Loans, in each case on the last day of their respective Interest Periods (or, at the direction of the Borrower, on any earlier date) until all outstanding Term Loans or Revolving Loans, as the case may be, have been prepaid or until all the allocable cash on deposit with respect to such Loans has been exhausted. For purposes of this Agreement, the term "Prepayment Account" shall mean an account established by the Borrower with the Paying Agent and over which the Paying Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this paragraph (f). The Paying Agent will, at the request of the Borrower, invest amounts on deposit in the Prepayment Account in Permitted Investments that mature prior to the last day of the applicable Interest Periods of the Eurodollar Term Borrowings or Eurodollar Revolving Borrowings to be prepaid, as the case may be; provided, however, that (i) the Paying Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Paying Agent to be in, or would result in any, violation of any law, statute, rule or regulation and (ii) the Paying Agent shall have no obligation to invest amounts on deposit in the Prepayment Account if an Event of Default shall have occurred and be continuing. The Borrower shall indemnify the Paying Agent for any losses relating to the investments so that the amount available to prepay Eurodollar Borrowings on the last day of the applicable Interest Period is not less than the amount that would have been available had no investments been made pursuant thereto. Other than any interest earned on such investments, the Prepayment Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited in the Prepayment Account and reinvested and disbursed as specified above. If the maturity of the Loans has been accelerated pursuant to Article VII, the Paying Agent may, in its sole discretion, apply all amounts on deposit in the Prepayment Account to satisfy any of the Obligations. The Borrower hereby grants to the Paying Agent, for its benefit and the benefit of the Issuing Bank and the Lenders, a security interest in the Prepayment Account to secure the Obligations. 31 SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or the Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender or the Issuing Bank to be material, then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, upon demand, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that the adoption after the Closing Date of any law, rule, regulation, agreement or guideline regarding capital adequacy, or any change after the Closing Date in any such law, rule, regulation, agreement or guideline (whether or not having the force of law) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or the Issuing Bank or any Lender's or the Issuing Bank's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be material, then from time to time the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its respective holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital 32 shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that neither any Lender nor the Issuing Bank shall be entitled to compensation under this Section 2.14 for any increased costs or reductions incurred or suffered with respect to any date unless such Lender or the Issuing Bank, as the case may be, shall have notified the Borrower under paragraph (c) above, not more than 90 days after the later of (i) such date and (ii) the date on which such Lender or Issuing Bank, as applicable, shall have become aware of such costs or reductions. The protection of this Section shall be available to each Lender and the Issuing Bank regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, agreement, guideline or other change or condition that shall have occurred or been imposed. SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the Closing Date, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Paying Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and Base Rate Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or to convert a Base Rate Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for a Base Rate Loan (or a request to continue a Base Rate Loan as such for an additional Interest Period or to convert a Eurodollar Loan into a Base Rate Loan, as the case may be) unless such declaration shall be subsequently withdrawn; and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to Base Rate Loans, in which event all such Eurodollar Loans shall be automatically converted to Base Rate Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the Base Rate Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against any loss or expense that such Lender may sustain or incur as a consequence of any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (a) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan 33 prior to the end of the Interest Period in effect therefor, (b) the conversion of any Eurodollar Loan to a Base Rate Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (c) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this sentence being called a "Breakage Event") . In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan (excluding loss of margin) that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.17. Pro Rata Treatment. Except as required under Section 2.15, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Paying Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid principal portion of its Term Loans and Revolving Loans and participations in L/C Disbursements shall be proportionately less than the unpaid principal portion of the Term Loans and Revolving Loans and participations in L/C Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Term Loans and Revolving Loans and L/C Exposure, as the case may be, of such other Lender, so that the aggregate unpaid principal amount of the Term Loans and Revolving Loans and L/C Exposure and participations in Term Loans and Revolving Loans and L/C Exposure held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Term Loans and Revolving Loans and L/C Exposure then outstanding as the principal amount of its Term Loans and Revolving Loans and L/C Exposure prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Term Loans and Revolving Loans and L/C Exposure outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery 34 and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Term Loan or Revolving Loan or L/C Disbursement deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.19. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the Issuing Bank) shall be made to the Paying Agent at its offices at 399 Park Avenue, New York, New York. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by the Borrower hereunder and under any other Loan Document shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings imposed by the United Kingdom, the United States or any political subdivision thereof, and all liabilities with respect thereto, excluding all taxes, levies, imposts, deductions, charges or withholdings imposed by reason of the Paying Agent or Lender or Issuing Bank (or any transferee or assignee thereof including a participation holder (any such entity, a "Transferee")), as the case may be, doing business or being regulated, organized, managed, controlled or having a lending office in the jurisdiction imposing such tax, other than solely as a result of this Agreement or any other Loan Document or any transaction contemplated hereby (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, being called "Taxes"). If the Borrower shall be required to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to the Paying Agent or any Lender or the Issuing Bank (or any Transferee), (i) the sum payable shall be increased by the amount (an "additional amount") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) the Paying Agent or such Lender or the Issuing Bank (or Transferee), as the case may be, shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay to the relevant Governmental Authority of the United Kingdom, the United States or any political subdivision thereof in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document ("Other Taxes"). 35 (c) The Borrower will indemnify the Paying Agent, each Lender and the Issuing Bank (or Transferee) for the full amount of Taxes and Other Taxes paid by the Paying Agent, such Lender or the Issuing Bank (or Transferee), as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared by the Paying Agent, a Lender or the Issuing Bank (or Transferee), or the Paying Agent on its behalf, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Paying Agent or any Lender or the Issuing Bank (or Transferee), as the case may be, makes written demand therefor. (d) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Borrower to the relevant Governmental Authority, the Borrower will deliver to the Paying Agent, at its address referred to in Section 9.01 to the extent legally available, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (e) Each Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Paying Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office") . In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.20(e), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.20(e) that such Non-U.S. Lender is not legally able to deliver. (f) The Borrower shall not be required to indemnify any Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, however, that this paragraph (f) shall not apply (x) to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer 36 or designation made at the request of the Borrower and (y) to the extent the indemnity payment or additional amounts any Transferee, or any Lender (or Transferee), acting through a New Lending Office, would be entitled to receive (without regard to this paragraph (f)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of paragraph (e) above. (g) Nothing contained in this Section 2.20 shall require any Lender or the Issuing Bank (or any Transferee) or the Paying Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.20, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Paying Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Paying Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing Bank), which consent shall not unreasonably be withheld, and (z) the Borrower or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including any amounts under Section 2.14 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower 37 is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer. SECTION 2.22. Letters of Credit. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account, for the account of any Restricted Subsidiary or for the account of PFS or any subsidiary thereof (provided that the Borrower shall be a co-applicant and co-obligor with respect to each Letter of Credit issued for the account of or in favor of any such Restricted Subsidiary, PFS or any subsidiary thereof), in a form reasonably acceptable to the Paying Agent and the Issuing Bank, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or telecopy to the Issuing Bank and the Paying Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit, the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $85,000,000 and (B) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance, renewal or extension, as applicable, of such Letter of Credit and the date that is five Business Days prior to the Maturity Date, unless such Letter of Credit expires by its terms on an earlier date. Each Letter of Credit may, upon the request of the Borrower, include a provision whereby such Letter of Credit shall be renewed automatically for additional consecutive periods of 12 months or less (but not beyond the date that is five Business Days prior to the Maturity Date) unless the Issuing Bank notifies the beneficiary thereof at least 30 days prior to the then-applicable expiration date that such Letter of Credit will not be renewed. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit 38 Lender, and each such Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Paying Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to the Paying Agent an amount equal to such L/C Disbursement not later than 2:00 p.m. on the day that the Borrower shall have received notice from the Issuing Bank of such L/C Disbursement, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Restricted Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Paying Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and 39 (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Paying Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Issuing Bank. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Paying Agent and the Borrower of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement in accordance with paragraph (e) above. The Paying Agent shall promptly give each Revolving Credit Lender notice thereof. (h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. 40 (i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 180 days' prior written notice to the Paying Agent, the Lenders and the Borrower, and may be removed at any time by the Borrower by notice to the Issuing Bank, the Paying Agent and the Lenders. Upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(b)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Paying Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If (i) any Event of Default shall occur and be continuing or (ii) to the extent and so long as the L/C Exposure exceeds the Total Revolving Credit Commitments, the Borrower shall, on the Business Day it receives notice from the Paying Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C Exposure (or in the case of clause (ii) of this sentence, the excess of the L/C Exposure over the Total Revolving Credit Commitment) as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made as selected by the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Paying Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrower is required to provide an amount of cash collateral pursuant to clause (i) of the first sentence of this paragraph (j), such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. If the Borrower is required to provide an amount of cash collateral pursuant to clause (ii) of the first sentence of this paragraph (j), such amount shall be returned to the Borrower from time to time to the extent that the amount of such cash collateral held by the Collateral Agent exceeds the excess, if any, of the L/C 41 Exposure over the Total Revolving Credit Commitment so long as no Event of Default shall have occurred and be continuing. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Paying Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that: SECTION 3.01. Organization. Each of the Borrower and the Restricted Subsidiaries is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be, and has all organizational powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except, in each case, where the failure to satisfy any of the above could not be reasonably expected to result in a Material Adverse Effect. SECTION 3.02. Corporate and Governmental Authorization; No Contravention. The execution and delivery by the Borrower of this Agreement and the Pledge Agreement and the performance by the Borrower of its obligations hereunder and thereunder are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Borrower. No registration, recordation or filing with or consent, approval or other action by any regulatory or other governmental body, agency or official is required in connection with the execution or delivery of this Agreement and the Pledge Agreement by the Borrower, except where the failure to register, record or file could not reasonably be expected to result in a Material Adverse Effect, or is necessary for the validity or enforceability hereof or thereof, and the execution, delivery, performance and enforcement of this Agreement and the Pledge Agreement do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, or of the certificate of incorporation or by-laws of the Borrower or any of the Restricted Subsidiaries, except where such contravention or default could not be reasonably expected to result in a Material Adverse Effect, or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any material Lien upon any asset of the Borrower or any of the Restricted Subsidiaries (other than any Lien created under the Loan Documents). SECTION 3.03. Enforceability. This Agreement constitutes (and, upon execution and delivery thereof as contemplated thereby, the Pledge Agreement will constitute) a valid and binding agreement of the Borrower, in each case enforceable in accordance with its terms, except as the foregoing may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, or other similar laws affecting the rights of creditors generally and by general principles of equity, including those limiting the availability of specific performance, injunctive relief, and other equitable remedies and those providing for defenses based on fairness and reasonableness, regardless of whether considered in a proceeding in equity or at law. SECTION 3.04. Financial Statements. (a) The Borrower has heretofore furnished to the Lenders (i) the consolidated balance sheet and statements of income and retained earnings and cash flows of each of (A) the Borrower and its subsidiaries and (B) PTI and its subsidiaries as of and for 42 the fiscal year ended December 31, 1996, in each case audited by and accompanied by the opinion of Deloitte & Touche LLP, independent public accountants, and (ii) as of and for the fiscal quarter ended March 31, 1997, certified by a Financial Officer of the Borrower or PTI, as the case may be. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. Such financial statements present fairly in accordance with GAAP the financial condition and results of operations and cash flows of the Borrower and PTI, in each case, as of such dates and for such periods. Such balance sheets and the notes thereto (if any) disclose all material liabilities, direct or contingent, of each of (A) the Borrower and its subsidiaries and (B) PTI and its subsidiaries, in each case, as of the dates thereof, as required in accordance with GAAP. (b) The Borrower has heretofore caused the delivery to the Lenders of the unaudited pro forma consolidating balance sheet of Newco and its subsidiaries as of December 31, 1996 and March 31, 1997, prepared to give effect to the Transactions as if they had occurred on such dates and the Borrower has delivered to the Lenders unaudited pro forma consolidating statements of income of Newco and its subsidiaries for the year ended December 31, 1996 and for the twelve months ended March 31, 1997, assuming the Transactions had actually occurred on January 1, 1996 and April 1, 1996, respectively. Such pro forma balance sheets and income statements have been prepared based on reasonable assumptions, are based on information which the Borrower believes to be the best information available to Newco as of the date of delivery thereof, accurately reflect all material adjustments required to be made to give effect to the Transactions and present fairly on a pro forma basis the estimated consolidated financial position of Newco and its subsidiaries as of December 31, 1996 and March 31, 1997, assuming that the Transactions had actually occurred on such dates, and present fairly on a pro forma basis the estimated consolidated results of operations of Newco and its subsidiaries for the years ended December 31, 1996 and March 31, 1997, assuming that the Transactions had actually occurred on January 1, 1996 and April 1, 1996, respectively. SECTION 3.05. No Material Adverse Change. There has been no material adverse change in the business, assets, operations, condition, financial or otherwise, or material agreements of the Borrower and the Restricted Subsidiaries, taken as a whole, since December 31, 1996, except for any such change that results solely from a sale of all the capital stock or all or substantially all of the assets of any of the Restricted Subsidiaries or PFS, the sale of the Spring Creek Note, the making of the Powercor Contribution, the PPM Contribution or the TPC Contribution, or the transfer of the Excluded Assets, in each case in accordance with the terms hereof. SECTION 3.06. Restricted Subsidiaries. The shares of capital stock or other ownership interests of the Restricted Subsidiaries pledged as Collateral under the Pledge Agreement are fully paid and non-assessable and are owned by the Borrower, directly or indirectly, free and clear of all Liens (other than any Lien created under the Loan Documents). SECTION 3.07. Litigation; Compliance with Laws. (a) Except as set forth in Schedule 3.07, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Restricted Subsidiary or any business, property or rights of any such person (i) that expressly involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, in either case, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. 43 (b) None of the Borrower or any of the Restricted Subsidiaries or any of their respective material properties or assets is in violation of, nor will the continued operation of their material properties and assets as currently conducted violate, any law, rule or regulation, or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.08. Agreements. (a) Neither the Borrower nor any of the Restricted Subsidiaries is a party to any agreement or instrument or subject to any corporate or other organizational restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. (b) Neither the Borrower nor any of the Restricted Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect. (c) Each of the Spring Creek Loan Agreement, the Spring Creek Note and the Spring Creek Participation Agreement is a valid and binding agreement or obligation of the parties thereto and is in full force and effect. The execution, delivery and performance of the Spring Creek Loan Agreement, the Spring Creek Note and the Spring Creek Participation Agreement did not and will not contravene, or constitute a default under, any provision of the Spring Creek Coal Supply Contract. SECTION 3.09. Federal Reserve Regulations. No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation G, T, U or X. SECTION 3.10. Investment Company Act; Public Utility Holding Company Act. Neither the Borrower nor any Restricted Subsidiary is subject to regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act or any other law or regulation which limits the incurrence by the Borrower of Indebtedness, including laws relating to common or contract carriers or the sale of electricity, gas, steam, water or other public utility services. SECTION 3.11. Use of Proceeds. The Borrower will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 3.12. Tax Returns. Each of the Borrower and the Restricted Subsidiaries, and any other affiliate with joint and several liability for taxes, has filed or caused to be filed all Federal, state, local and other material tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it pursuant thereto and all assessments received by it, except where the failure to do any of the foregoing could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.13. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement, exhibit or schedule furnished 44 by or on behalf of the Borrower to the Paying Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, when taken as a whole, contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.14. Employee Benefit Plans. Each of the Borrower and its ERISA Affiliates is in compliance with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder, except where the failure to comply could not be reasonably expected to result in a Material Adverse Effect. None of the Borrower or any ERISA Affiliate has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or made any amendment to any Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any material liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 3.15. Environmental Matters. Except as set forth in Schedule 3.15: (a) The properties owned or operated by the Borrower and the Restricted Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Restricted Subsidiaries are in compliance with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not result in a Material Adverse Effect; (c) There have been no Releases or threatened Releases at, from or under the Properties or otherwise in connection with the operations of the Borrower or the Restricted Subsidiaries, which Releases or threatened Releases, in the aggregate, could result in a Material Adverse Effect; (d) Neither the Borrower nor any of the Restricted Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Restricted Subsidiaries or with regard to any person whose liabilities for environmental matters the Borrower or the Restricted Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could result in a Material Adverse Effect, nor do the Borrower or the Restricted Subsidiaries have reason to believe that any such notice will be received or is being threatened; and (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a 45 manner that could give rise to liability under any Environmental Law, nor have the Borrower or the Restricted Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could result in a Material Adverse Effect. SECTION 3.16. Pledge Agreement. The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral and, when the Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute a duly perfected first priority Lien on, and security interest in, all right, title and interest of the pledgor thereunder in the Collateral, in each case prior and superior in right to any other person. ARTICLE IV Conditions SECTION 4.01. Effective Date. The effectiveness of this Agreement shall be subject to the satisfaction of each of the following conditions: (a) The Paying Agent shall have received, on behalf of itself and the Lenders and the Issuing Bank, a favorable written opinion of Stoel Rives LLP, counsel for the Borrower, substantially to the effect set forth in Exhibit E-1 and a favorable written opinion of Davis Polk & Wardwell, special counsel for the Borrower, substantially to the effect set forth in Exhibit E-2. (b) The Paying Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of the Borrower as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Borrower as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of the Borrower have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of the Borrower; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. (c) The Paying Agent shall have received a certificate, signed by a Financial Officer of the Borrower, dated the Closing Date and confirming that the representations and 46 warranties set forth in Article III hereof are true and correct in all material respects, except to the extent any such representation and warranty relates to an earlier date. (d) The Pledge Agreement shall have been duly executed by the parties thereto and delivered to the Collateral Agent. (e) The Paying Agent and the Initial Lenders shall have received all fees and other amounts due and payable on the Closing Date in connection with the Offer. SECTION 4.02. Borrowings. (a) The obligation of any Lender to make a Loan on the occasion of any Borrowing, the proceeds of which are to be used, directly or indirectly, to finance the Offer or to pay costs and expenses related thereto or for any other purpose set forth in Clause 3.1(a)(i) of the Bidco Facility Agreement, as in effect on the Restatement Date, or to enable the Borrower to repay or prepay the Existing Indebtedness or the Refinanced Indebtedness, is subject to the satisfaction of the following conditions: (i) The Paying Agent shall have received a notice of Borrowing as required by Section 2.03. (ii) At the time of and immediately after such Borrowing, no Event of Default described in clause (g), (h) or (l) of Article VII shall have occurred and be continuing with respect to the Borrower. (iii) The PFS Pre-Funding Sale shall have been consummated. (iv) The representations and warranties set forth in Sections 3.01, 3.02 and 3.03, as they relate to the Borrower, shall be true and correct in all material respects on the date of any such Borrowing with the same effect as though made on such date. (v) The Borrower shall have repaid in full (or shall have made satisfactory provision for the repayment in full of) the principal of all loans outstanding, interest thereon and other amounts due and payable in respect of the Refinanced Indebtedness, and the Paying Agent shall have received duly executed documentation either evidencing or reasonably providing for (A) the cancelation of the Refinanced Indebtedness and each agreement related thereto except for indemnity provisions that expressly survive the termination of such applicable agreement, (B) the cancelation of all commitments to lend under any such agreement and (C) the termination of all related guarantees and security interests granted by the Borrower or any other person in connection therewith and the discharge of all obligations or interests thereunder. (vi) Each of the applicable conditions precedent with respect to a borrowing to finance the Offer set forth in the Powercoal Credit Agreement, the Energyco Bridge Loan Agreement and the Bidco Facility Agreement (other than any condition in any such agreement requiring that borrowings shall have been made under this or any other such agreement and/or the proceeds of such borrowings have been made available directly or indirectly to Bidco) shall have been satisfied or waived in accordance with the terms thereof and each of such agreements shall be in full force and effect. 47 Each Borrowing hereunder of the type described in this Section 4.02(a) shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (ii), (iii), (iv), (v) and (vi) of this Section 4.02(a). (b) The obligation of any Lender to make a Loan, or of the Issuing Bank to issue a Letter of Credit (each, a "Credit Event") on the occasion of any Credit Event other than (i) a Borrowing of the type described in Section 4.02(a) or (ii) a continuation or conversion of a Borrowing of the type described in Section 2.10, is subject to the satisfaction of the following conditions: (i) The Paying Agent shall have received a notice of such Credit Event as required by Section 2.03 or, in the case of the issuance of a Letter of Credit, the Issuing Bank and the Paying Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.22(b). (ii) The representations and warranties set forth in Article III hereof shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (iii) At the time of and immediately after such Credit Event, no Event of Default or Default shall have occurred and be continuing. Each Credit Event of the type described in this Section 4.02(b) shall be deemed to constitute a representation and warranty by the Borrower on the date of such Credit Event as to the matters specified in paragraphs (ii) and (iii) of this Section 4.02(b). ARTICLE V Affirmative Covenants The Borrower covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts then due and payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Restricted Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect the legal existence of the Borrower and each Significant Subsidiary, except as otherwise expressly permitted under Section 6.05. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; except as contemplated by this Agreement, maintain and operate such business in substantially the manner in which it is presently conducted and operated; and at all times maintain and preserve all property material to the conduct 48 of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted in all material respects at all times, in each case, where the failure to do so could reasonably be expected to have a Material Adverse Effect. SECTION 5.02. Insurance. Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance (including self insurance), to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other material obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all material lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien. SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Paying Agent and each Lender: (a) as soon as available and in any event within 120 days after the end of each fiscal year, a consolidated balance sheet and related statement of income and retained earnings and cash flows showing the financial condition of each of (i) the Borrower and its subsidiaries and (ii) PTI and its subsidiaries as of the close of and during such fiscal year, in each case audited by Deloitte & Touche LLP or other independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of (A) the Borrower and its subsidiaries and (B) PTI and its subsidiaries, as the case may be, on a consolidated basis in accordance with GAAP consistently applied (except as otherwise provided in the notes thereto); (b) as soon as available and in any event within 120 days after the end of each fiscal year, an unaudited consolidating balance sheet and related statement of income for the Borrower and its subsidiaries for the four quarter period ending as of the close of such fiscal year; 49 (c) as soon as available and in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year (or, in the case of PFS, each fiscal quarter), a consolidated balance sheet and related statement of income and retained earnings and cash flows showing the financial condition of each of (i) the Borrower and its subsidiaries, (ii) PTI and its subsidiaries and (iii) PFS and its subsidiaries as of the close of and during such fiscal quarter and the then elapsed portion of the fiscal year, in each case certified by one of the Borrower's, PTI's or PFS's (as the case may be) Financial Officers as fairly presenting the financial condition and results of operations of (A) the Borrower and its subsidiaries, (B) PTI and its subsidiaries and (C) PFS and its subsidiaries, as the case may be, on a consolidated basis in accordance with GAAP consistently applied (except for the absence of footnote disclosure), subject to normal year-end audit adjustments; (d) concurrently with any delivery of financial statements under paragraph (a), (b) or (c) above, (i) a certificate of the applicable accounting firm or Financial Officer opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) certifying that no Event of Default has occurred and that no Default has occurred and is continuing or, if such an Event of Default has occurred or a Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) a certificate of a Financial Officer of the Borrower setting forth the Net Termination Value as of the date of such financial statements; (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Restricted Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its public shareholders, as the case may be; and (f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Restricted Subsidiary or any of its subsidiaries, or compliance with the terms of any Loan Document, as the Paying Agent or any Lender may reasonably request. SECTION 5.05. Litigation and Other Notices. Furnish to the Paying Agent, the Issuing Bank and each Lender prompt written notice of the following: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; and (c) any development of which a Responsible Officer is aware that has resulted in, or which such Responsible Officer has reasonably concluded will result in, a Material Adverse Effect. 50 SECTION 5.06. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of the Restricted Subsidiaries to, permit any representatives designated by the Paying Agent or any Lender to visit and inspect the financial records and the properties of the Borrower or any Restricted Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Paying Agent or any Lender to discuss (in the presence of the Borrower or such Restricted Subsidiary, as applicable, unless a Default or Event of Default shall have occurred and is continuing) the affairs, finances and condition of the Borrower or any Restricted Subsidiary with the officers thereof and independent accountants therefor. SECTION 5.07. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 5.08. Compliance with Laws. Comply in all respects with all applicable laws, ordinances, rules, regulations and requirements of Governmental Authorities (including Environmental Laws and ERISA and the rules and regulations thereunder), except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where non-compliance therewith could not reasonably be expected to have a Material Adverse Effect. SECTION 5.09. Further Assurances. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements) that may reasonably be required under applicable law, or that the Required Lenders, the Paying Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Pledge Agreement. SECTION 5.10. Repayment of Existing Indebtedness. As soon as practicable, and in any event no later than 30 days after the date of the initial Acquisition Borrowing, the Borrower shall repay or cause to be repaid all Existing Indebtedness, and all obligations thereunder shall be terminated (except for obligations that, by the terms of the applicable agreement, expressly survive termination) and all commitments thereunder shall be canceled. SECTION 5.11. Open Market Shares. On or prior to the date of the initial Acquisition Borrowing pursuant to Section 4.02(a), transfer or cause to be transferred all the Open Market Shares to Bidco. SECTION 5.12. PPM Contribution. As soon as practicable, but in any event not later than 270 days after the initial Acquisition Borrowing, effect the PPM Contribution. 51 ARTICLE VI Negative Covenants The Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts then due and payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not cause or permit any of the Restricted Subsidiaries to: SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness outstanding on the Closing Date, or available under debt instruments existing on the Closing Date; (b) Indebtedness created hereunder and under the other Loan Documents; (c) Guarantees in respect of Indebtedness permitted pursuant to this Section 6.01 or in respect of investments permitted by Section 6.04(b) (provided that any Guarantees in respect of Indebtedness that is subordinated to the Obligations shall be subordinated to the Obligations to the same extent as such Indebtedness is subordinated to the Obligations); (d) Indebtedness of any wholly owned Restricted Subsidiary to any other wholly owned Restricted Subsidiary or the Borrower; (e) Indebtedness of the Restricted Subsidiaries (including tax exempt financings and Capital Lease Obligations) to acquire, construct, develop or improve assets in the ordinary course of business after the Closing Date incurred in the ordinary course of business after the Closing Date or in connection with sale and lease-back transactions of a type described in Section 6.03; provided that the aggregate principal amount of any Indebtedness incurred pursuant to this paragraph (e) outstanding at any time shall not exceed $50,000,000; (f) Indebtedness of PTI and its subsidiaries; (g) extensions, renewals or refinancing of Indebtedness under paragraph (a) so long as (i) such Indebtedness (the "Refinancing Indebtedness") is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being extended, renewed or refinanced plus the amount of any premiums required to be paid thereon and fees and expenses associated therewith, (ii) such Refinancing Indebtedness has a later or equal final maturity and a longer or equal weighted average life than the Indebtedness being extended, renewed or refinanced, (iii) the interest rate applicable to such Refinancing Indebtedness shall be a market interest rate (as determined in good faith by the Board of Directors of the Borrower) as of the time of such extension, renewal or refinancing, (iv) if the Indebtedness being extended, renewed or refinanced is subordinated to the Obligations, such Refinancing 52 Indebtedness is subordinated to the Obligations to the extent of the Indebtedness being extended, renewed or refinanced, (v) the covenants, events of default and other provisions thereof (including any Guarantees thereof), taken as a whole, shall be no less favorable to the Lenders than those contained in the Indebtedness being refinanced and (vi) at the time of and after giving effect to such extension, renewal or refinancing, no Default or Event of Default shall have occurred and be continuing; (h) in the case of PPM only, Guarantees in respect of Powercoal's obligations under the Powercoal Credit Agreement; and (i) unsecured Indebtedness of the Restricted Subsidiaries in addition to that permitted by paragraphs (a) through (h) above in an aggregate principal amount outstanding not to exceed at any time $50,000,000. SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Restricted Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and the Restricted Subsidiaries existing on the Closing Date; provided that such Liens shall secure only those obligations which they secure on the Closing Date; (b) any Lien created under the Loan Documents; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Restricted Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any other property or assets of the Borrower or any Restricted Subsidiary; (d) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; (e) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03; (f) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations; (g) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; 53 (h) Liens created by or relating to any legal proceeding which at the time is being contested in good faith by appropriate proceedings; provided that, in the case of a Lien consisting of an attachment or judgment Lien, the judgment it secures shall, within 60 days of entry thereof, have been discharged or execution thereof stayed pending appeal, or discharged within 60 days after the expiration of any such stay; (i) any Lien on (i) the proceeds of sale of commercial paper issued by the Borrower or (ii) the Borrower's right to receive such proceeds, securing the Borrower's obligation to reimburse the issuer of a letter of credit for drawings to repay commercial paper previously issued by the Borrower; (j) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of the Restricted Subsidiaries; (k) purchase money security interests in real property, improvements thereto, equipment or other fixed assets hereafter acquired (or, in the case of improvements, equipment or other fixed assets, constructed) by the Borrower or any Restricted Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, no later than 90 days after such acquisition (or completion of such construction), (iii) the Indebtedness secured thereby does not exceed the cost of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrower or any Restricted Subsidiary (other than the proceeds of the real property, improvements, equipment or other fixed assets subject to such Lien); (l) Liens securing Refinancing Indebtedness, to the extent that the Indebtedness being refinanced was originally secured in accordance with this Section 6.02, provided that such Lien does not apply to any additional property or assets of the Borrower or any Restricted Subsidiary (other than the proceeds of the property or asset subject to such Lien); (m) Liens arising out of Indebtedness permitted under Section 6.01(e), so long as such Liens (i) attach only to the property subject to such Indebtedness and (ii) do not interfere with the business of the Borrower or any of the Restricted Subsidiaries in any material respect; (n) Liens securing Non-Recourse Indebtedness; provided that such Lien does not apply to any additional property or assets of the Borrower or any Restricted Subsidiary (other than the property or Single Purpose Entity relating to such Non-Recourse Indebtedness); (o) Liens on the property or assets of PTI and its subsidiaries; 54 (p) Liens on cash and cash equivalents securing hedging by PPM; provided that the aggregate amount of cash and cash equivalents subject to such Liens shall not exceed at any time $5,000,000; (q) Liens on the capital stock and assets of PPM to secure its obligations under the Indebtedness permitted under Section 6.01(h); and (r) Liens in addition to those permitted by paragraphs (a) through (q); provided, however, that the aggregate principal amount of Indebtedness and amount of other liabilities of the Restricted Subsidiaries that is secured by such Liens do not exceed at any time $50,000,000. SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred; provided that (a) the Borrower and the Restricted Subsidiaries may enter into any such transaction to the extent the Indebtedness and Liens associated therewith would be permitted by Sections 6.01(e) and 6.02(m), respectively and (b) PTI and its subsidiaries may enter into any sale and lease-back transaction. SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire any capital stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except: (a) existing investments in its subsidiaries (including PPM prior to the date the PPM Contribution is effected in accordance with Section 5.12) and additional investments in the Restricted Subsidiaries; (b) investments, loans and advances of the Borrower and the Restricted Subsidiaries existing on the Closing Date or pursuant to commitments set forth in Schedule 6.04(b); (c) investments, loans and advances in or to its subsidiaries the proceeds of which are used (i) by Bidco to finance a portion of the Offer or (ii) by Powercoal to prepay loans under the Powercoal Credit Agreement; (d) Permitted Investments; (e) investments, loans and advances in or to Affiliates (other than Newco and its subsidiaries) not exceeding in the aggregate $85,000,000 at any time outstanding; (f) investments in Hedging Agreements permitted under this Agreement, including any Funding Exchange Rate Protection Agreements and the contribution of such agreements to Newco and its subsidiaries in connection with the Offer; (g) investments constituting non-cash consideration received in connection with a sale of assets not prohibited by Section 6.05; 55 (h) investments, loans and advances by PTI and its subsidiaries; provided that the aggregate consideration to be paid by PTI or any of its subsidiaries in connection with the acquisition of any person or assets or business unit of any person in a single transaction or series of related transactions shall not exceed $150,000,000 (except with respect to any acquisition set forth in Schedule 6.04(h)); (i) loans, advances and letter of credit reimbursement obligations relating to the PFS Intercompany Note; (j) so long as no Event of Default shall have occurred and be continuing, investments in the form of payments made pursuant to the Tax Sharing Arrangement; (k) the Powercor Contribution, the PPM Contribution, the TPC Contribution and the PFS Pre-Funding Sale; and (l) investments, loans and advances to the extent not permitted by paragraphs (a) through (k) above; provided that such investments, loans and advances do not exceed in the aggregate $50,000,000. SECTION 6.05. Mergers, Consolidations, Sales of Assets, Equity Issuances and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, permit any Restricted Subsidiary to effect an Equity Issuance, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all the assets of the Borrower, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except: (i) the Borrower and any Restricted Subsidiary may purchase and sell inventory in the ordinary course of business; (ii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing, any wholly owned Restricted Subsidiary may merge into or consolidate with any other wholly owned Restricted Subsidiary in a transaction in which the surviving entity is a wholly owned Restricted Subsidiary and no person other than the Borrower or a wholly owned Restricted Subsidiary receives any consideration; (iii) PTI or any of its subsidiaries may effect any sale, lease, transfer or other disposition set forth in Schedule 1.01(c) or any PTI Asset Sale (other than as permitted by Section 6.05(a)(v) below) if the aggregate consideration to be received by PTI in connection with one such transaction or series of related transactions does not exceed $150,000,000; (iv) the Borrower may effect the Powercor Contribution, the PPM Contribution, the TPC Contribution and the PFS Pre-Funding Sale; (v) the Borrower may sell, transfer or otherwise dispose of all the capital stock of any Restricted Subsidiary (including PTI), the PFSAC Obligation or the Spring Creek Note so long as (i) at the time thereof and immediately after giving effect thereto, no Event of 56 Default or Default shall have occurred and be continuing, (ii) the Borrower complies with Section 2.13 with respect to the Net Cash Proceeds received from any such sale, transfer or other disposition, and (iii) in the case of any sale of the capital stock or substantially all of the assets of PTI, the terms and conditions of such sale (including with respect to the purchase price and the form of consideration to be received) shall be reasonably satisfactory to the Required Lenders, unless the Net Cash Proceeds from such sale of PTI exceed $1,000,000,000; (vi) acquisitions constituting investments permitted by Section 6.04; and (vii) the Borrower may sell, transfer or otherwise dispose of the Excluded Assets to any subsidiary of PacifiCorp. (b) Notwithstanding Section 6.05(a), no Asset Sale or PTI Asset Sale shall be permitted under this Agreement unless (i) the consideration to be received in connection therewith shall be at least equal to the fair market value of the assets or property sold, transferred or otherwise disposed of (as determined in good faith by the board of directors of the Borrower) and (ii) except with respect to any Asset Sale that results in an investment permitted by 6.04(l), in the case of an Asset Sale of property having a value of (x) more than $25,000,000 but less than $150,000,000, such Asset Sale shall be for consideration at least 50% of which is cash, and (y) $150,000,000 or more, such Asset Sale shall be for consideration at least 80% of which is cash. SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Restricted Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Restricted Subsidiary to purchase or acquire) any shares of any class of its capital stock or set aside any amount for any such purpose; provided, however, that (i) any Restricted Subsidiary may declare and pay dividends or make other distributions to the Borrower or another Restricted Subsidiary to facilitate a dividend to the Borrower and (ii) if no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the Borrower and the Restricted Subsidiaries may make payments required to be made under the Tax Sharing Arrangement so long as the payment thereunder by the Borrower and the Restricted Subsidiaries shall not exceed the amount the Borrower and its Restricted Subsidiaries would be required to pay under such arrangement as in effect on the Closing Date. (b) Permit the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such subsidiary to (i) pay any dividends or make any other distributions on its capital stock or any other interest or (ii) make or repay any loans or advances to the Borrower or the parent of such subsidiary (subclauses (i) and (ii) are collectively referred to as an "Upstream Payment"); provided, however, that the foregoing shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date under Indebtedness permitted by Section 6.01(a); (ii) contained in any debt instrument relating to a person acquired after the Closing Date; provided that (A) such encumbrances and restrictions are not applicable to any person 57 other than such person or property or assets acquired, (B) such instrument was in existence at the time of such acquisition and was not created in contemplation of or in connection with such acquisition, and (C) the Borrower reasonably believes at the time of such acquisition that the terms of such instrument will not encumber or restrict the ability of such acquired person to make an Upstream Payment in a manner that would adversely affect the Borrower's ability to perform its obligations under the Loan Documents when due; (iii) incurred in connection with any Indebtedness permitted pursuant to Section 6.01 (including any extension, refinancing, renewal or replacement of Indebtedness contemplated by clauses (i) and (ii) above); provided that (A) the Borrower reasonably believes at the time such Indebtedness is incurred that the terms of such Indebtedness will not restrict the ability of the person incurring such Indebtedness to make an Upstream Payment in a manner that would adversely affect the Borrower's ability to perform its obligations under the Loan Documents when due, and (B) such Indebtedness contains no express encumbrances on restrictions on the ability of such person to make an Upstream Payment; (iv) imposed on any Single Purpose Entity; (v) existing under, or by reason of, applicable law; and (vi) any encumbrance or restriction on the transfer of any property or asset in an agreement relating to the acquisition or creation or disposition of such property or asset or any Lien on such property or asset that is otherwise permitted by the terms of this Agreement. SECTION 6.07. Transactions with Affiliates. Make any material payment to, or sell, lease, transfer or otherwise dispose of any material properties or assets to, or purchase any material property or assets from, or enter into or make or amend any material transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such person (each of the foregoing, an "Affiliate Transaction"), unless such Affiliate Transaction is on terms that are no less favorable to the Borrower or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Borrower or such Restricted Subsidiary with an unrelated person; provided that (a) any payments that are permitted by Section 6.01, 6.04, 6.05(a)(vii) or 6.06(a) shall not be deemed to be Affiliate Transactions and (b) the foregoing restriction shall not apply to (i) transactions among the Borrower and the Restricted Subsidiaries, (ii) transactions pursuant to the PFS Intercompany Note and (iii) transactions pursuant to agreements entered into or in effect on the Closing Date (including the Tax Sharing Arrangement). SECTION 6.08. Business of Borrower and Restricted Subsidiaries. Engage at any time in any business or business activity other than the business currently conducted by it and business activities reasonably incidental thereto. SECTION 6.09. Other Agreements. Permit any waiver, supplement, modification, amendment, termination or release of any indenture, instrument or agreement pursuant to which any Indebtedness or preferred stock of the Borrower or any Restricted Subsidiary is outstanding or any other agreement (including the Tax Sharing Arrangement) that is material to the conduct and operations of the Borrower or any Restricted Subsidiary, or modify its charter or by-laws, in each case 58 to the extent that any such waiver, supplement, modification, amendment, termination or release would be adverse to the Lenders in any material respect. SECTION 6.10. Interest Coverage. As at the end of any fiscal quarter of the Borrower, permit the ratio of (i) Cash Income Available for Interest for the preceding four fiscal quarter period to (ii) Interest Expense (After Tax) for such period to be less than 1.25 to 1.00. SECTION 6.11. PTI Total Debt/Total Capitalization. For so long as PTI is a subsidiary of the Borrower, permit the ratio as at the end of any fiscal quarter of (i) Total Debt to (ii) the sum of Consolidated Net Worth and Total Debt to exceed 55%. SECTION 6.12. PTI Consolidated EBITDA. For so long as PTI is a subsidiary of the Borrower, permit Consolidated EBITDA for any period of four consecutive fiscal quarters to be less than $225,000,000. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Fee or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days; (d) default shall be made in the due observance or performance by the Borrower or any Restricted Subsidiary of any covenant, condition or agreement contained in Section 5.01(a), 5.05(a) or 5.07 or in Article VI; (e) default shall be made in the due observance or performance by the Borrower or any Restricted Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from the Paying Agent or any Lender to the Borrower; 59 (f) the Borrower or any Restricted Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than Non-Recourse Indebtedness) in a principal amount in excess of $50,000,000, when and as the same shall become due and payable, (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity or (iii) fail to make any payment in respect of any Material Hedging Obligations when due; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of PacifiCorp, the Borrower, Newco or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary), or of a substantial part of the property or assets of PacifiCorp, the Borrower, Newco, such Significant Subsidiary or such group of subsidiaries of the Borrower, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for PacifiCorp, the Borrower, Newco or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary) or for a substantial part of the property or assets of PacifiCorp, the Borrower, Newco, a Significant Subsidiary or any such group of subsidiaries of the Borrower or (iii) the winding-up or liquidation of PacifiCorp, the Borrower, Newco or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) PacifiCorp, the Borrower, Newco or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for PacifiCorp, the Borrower, Newco, any Significant Subsidiary or any such group of subsidiaries of the Borrower or for a substantial part of the property or assets of PacifiCorp, the Borrower, Newco, any Significant Subsidiary or any such group of subsidiaries of the Borrower, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; 60 (i) one or more judgments for the payment of money in an aggregate amount in excess of $50,000,000 shall be rendered against the Borrower, any Restricted Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Restricted Subsidiary to enforce any such judgment; (j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to have a Material Adverse Effect; (k) the security interest purported to be created by the Pledge Agreement shall cease to be, or shall be asserted by the Borrower not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or the Pledge Agreement) security interest with respect to a material portion of the Collateral, except to the extent that any such loss of perfection or priority results from an act or failure to act by the Collateral Agent; or (l) there shall have occurred a Change in Control; then, at any time during the continuance of such event (other than an event with respect to the Borrower described in paragraph (g) or (h) above), the Paying Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; provided that (A) in any event with respect to the Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding and (B) except as described in the immediately preceding clause (A), during the period commencing with the Closing Date and ending on the earlier of (x) the date of the initial Acquisition Borrowing and (y) the Termination Date, the Paying Agent and the Lenders shall not be entitled to terminate the Commitments, rescind this Agreement or seek to enjoin any use of proceeds of the Loans permitted hereby without the consent of the Borrower. 61 ARTICLE VIII The Paying Agent and the Collateral Agent In order to expedite the transactions contemplated by this Agreement, Citibank is hereby appointed to act as Paying Agent on behalf of the Lenders and as the Issuing Bank, and Citicorp USA is hereby appointed to act as Collateral Agent on behalf of the Lenders (for purposes of this Article VIII, the Paying Agent and the Collateral Agent are referred to collectively as the "Agents"). Each of the Lenders and each assignee of any such Lender and the Issuing Bank, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Paying Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Paying Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower pursuant to this Agreement or the other Loan Documents as received by the Paying Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Pledge Agreement. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of their respective obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by any other Lender or the Issuing Bank or the Borrower of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to 62 all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor, subject to the prior consent of the Borrower (not to be unreasonably withheld). If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, subject to the prior consent of the Borrower (not to be unreasonably withheld), which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Restricted Subsidiary or other Affiliate thereof as if it were not an Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on its Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower, provided that no Lender shall be liable to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent or any of its directors, officers, employees or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and its directors, employees and agents to the same extent and subject to the same limitations as provided above for the Agents. 63 Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at 700 NE Multnomah, Suite 1600, Portland, Oregon 97232, Attention of William E. Peressini-Vice President and Treasurer (Telecopy No. (503) 731-2017), with a copy to Stoel Rives LLP at 700 NE Multnomah, Suite 950, Portland, Oregon 97232, Attention of John M. Schweitzer, Esq. (Telecopy No. (503) 230-1907); (b) if to the Paying Agent, to Citibank, N.A., 399 Park Avenue, New York, New York 10043, Attention of Sandip Sen (Telecopy No. (212) 793-6130); and (c) if to a Lender, to it at its address (or telecopy number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and in full force and effect 64 regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Paying Agent, the Collateral Agent or any Lender or the Issuing Bank. SECTION 9.03. Binding Effect. This Agreement shall become effective (a) when it shall have been executed by the Borrower and the Paying Agent and when the Paying Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and (b) when each of the conditions set forth in Section 4.01 shall have been satisfied or waived in writing, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. By its execution and delivery of the amendment and restatement of this Agreement, the Borrower hereby confirms that the representations and warranties set forth in Article III are true and correct in all material respects on the date of this amendment and restatement with the same effect as though made on such date. SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, the Paying Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate of such Lender, (x) the Borrower (unless an Event of Default shall have occurred and is continuing) and the Paying Agent (and, in the case of any assignment of a Revolving Credit Commitment, the Issuing Bank) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld) and (y) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Paying Agent) shall not be less than $5,000,000 (or, if less, the entire remaining amount of such Lender's Commitment), (ii) the parties to each such assignment shall execute and deliver to the Paying Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (except for assignments by any Initial Lender or as otherwise agreed to by the Paying Agent) and (iii) the assignee, if it shall not be a Lender, shall deliver to the Paying Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). 65 (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Restricted Subsidiary or the performance or observance by the Borrower or any Restricted Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.04 or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Paying Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Paying Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Paying Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Paying Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrower, the Paying Agent, the Issuing Bank, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower, the Paying Agent and the Issuing Bank to such assignment, the Paying Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt 66 notice thereof to the Lenders and the Issuing Bank. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). (f) Each Lender may without the consent of the Borrower, the Issuing Bank or the Paying Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders (provided that a participant shall not be entitled to receive any greater payment under Sections 2.14, 2.16 and 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of such participation is made with the Borrower's prior written consent) and (iv) the Borrower, the Paying Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans or increasing or extending the Commitments). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16. (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. (i) The Borrower shall not assign or delegate any of its rights or duties hereunder without the prior written consent of the Paying Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void. SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Initial Lenders, the Paying Agent, the Collateral Agent and the Issuing Bank in connection with the arrangement of the credit facilities provided for herein and the 67 preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Initial Lenders, the Paying Agent, the Collateral Agent or (after the occurrence and during the continuance of an Event of Default) any other Lender in connection with the enforcement of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Paying Agent and the Collateral Agent, and, in connection with any such enforcement, the reasonable fees, charges and disbursements of any other counsel for the Paying Agent, the Collateral Agent or any Lender. (b) The Borrower agrees to indemnify the Initial Lenders, the Paying Agent, the Collateral Agent, each other Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, officers, partners, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of any claim, litigation, investigation or proceeding (whether or not an Indemnitee is a party thereto) relating to (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, the use of the proceeds of the Loans or issuance of Letters of Credit, whether or not any Indemnitee is a party thereto, or (ii) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by the Borrower or any of the Restricted Subsidiaries, or any Environmental Claim related in any way to the Borrower or the Restricted Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Paying Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor. SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. Promptly after exercising its rights under this Section 9.06, the applicable Lender shall notify the Paying Agent and the 68 Borrower of the exercise of such rights. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Paying Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Paying Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement, without the prior written consent of each Lender affected thereby, (ii) change or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender or (iii) amend or modify the pro rata requirements of the provisions of Section 2.17, amend or modify the provisions of Section 9.04(i), the provisions of this Section, the definition of the term "Required Lenders" or release all or any substantial part of the Collateral (except for any release expressly permitted by the Loan Documents), without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Paying Agent, the Collateral Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Paying Agent, the Collateral Agent or the Issuing Bank. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C 69 Disbursement, together with all Fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as 70 provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceedings shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Confidentiality. The Paying Agent, the Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and to use its best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to the extent requested by any regulatory authority, (c) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (d) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (e) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Paying Agent, any Lender, the Issuing Bank or the Collateral Agent on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) that are received from the Borrower and related to the Borrower, any shareholder of the Borrower or any employee, customer or supplier of the Borrower other than any of the foregoing that were available to the Paying Agent, the Collateral Agent, the 71 Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrower, and which are in the case of Information provided after the Closing Date, clearly identified at the time of delivery as confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration of this Agreement. SECTION 9.17. Margin Regulations. Notwithstanding any other provision contained in this Agreement or the Pledge Agreement, including Section 2.13(b), Section 6.02 and Section 6.05, the pledge or sale of the Shares by Bidco shall be permitted hereunder until the Depositary Shares have been delisted from the New York Stock Exchange (and the Shares shall not otherwise be "margin stock" as defined in Regulations G and U of the Board); provided that until such time the Borrower shall use its reasonable efforts to cause Bidco not to: (i) incur any Indebtedness other than (A) its obligations under the Offer, (B) its obligations under the Powercoal/Bidco Loans and (C) its obligations under or permitted under the Bidco Facility Agreement; (ii) engage in any business other than (A) acquiring and holding the Shares and (B) engaging in activities reasonably related to the Offer; or (iii) sell or otherwise dispose of the Shares, unless (A) such Shares are sold for cash, (B) fair value is received for such Shares and (C) the proceeds of such sale are either held as cash or invested in certificates of deposit, U.S. government securities, commercial paper, other money market instruments that are exempted securities under the United States federal securities laws or Cash Investment Equivalents (as defined in the Bidco Facility Agreement). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. PACIFICORP HOLDINGS, INC., by /s/ William E. Peressini -------------------------------------- Name: William E. Peressini Title: Treasurer 72 CITIBANK, N.A., individually as an Initial Lender and as Paying Agent and Issuing Bank, by /s/ Sandip Sen -------------------------------------- Name: Sandip Sen Title: Managing Director, Attorney-in-Fact CITICORP USA, INC., as Collateral Agent, by /s/ Sandip Sen -------------------------------------- Name: Sandip Sen Title: Managing Director, Attorney-in-Fact GOLDMAN SACHS CREDIT PARTNERS L.P., individually as an Initial Lender, by /s/ Edward C. Forst -------------------------------------- Name: Edward C. Forst Title: Authorized Signatory MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually as an Initial Lender, by /s/ Kathryn Sayko-Yanes -------------------------------------- Name: Kathryn Sayko-Yanes Title: Vice President EX-99.B.2 14 BRIDGE LOAN AGREEMENT AMONG PACIFICORP ENERGYCO. US$ 1,575,000,000.00 BRIDGE LOAN AGREEMENT dated as of June 12, 1997 among PACIFICORP ENERGYCO as Borrower PACIFICORP GROUP HOLDINGS COMPANY as Guarantor THE LENDERS named herein, GOLDMAN SACHS CREDIT PARTNERS L.P., MORGAN GUARANTY TRUST COMPANY OF NEW YORK CITIBANK N.A, as Arrangers, and CITIBANK N.A., as Paying Agent
TABLE OF CONTENTS Page ARTICLE I DEFINITIONS............................... 1 Section 1.1. Defined Terms............................................. 1 Section 1.2. Interpretation............................................ 29 ARTICLE II THE CREDIT FACILITY................................. 29 Section 2.1. Commitments to Make Bridge Loans.......................... 29 Section 2.2. Extension of Bridge Loans................................. 30 Section 2.3. Certain Fees.............................................. 31 Section 2.4. Interest; Payment in Kind Option; and Default Interest.... 31 Section 2.5. Mandatory Prepayment...................................... 32 Section 2.6. Optional Prepayment....................................... 33 Section 2.7. Indemnity................................................. 34 Section 2.8. Effect of Notice of Prepayment............................ 34 Section 2.9. Method of Payment......................................... 34 Section 2.10. Payments.................................................. 35 Section 2.11. Taxes..................................................... 36 Section 2.12. Right of Set Off; Sharing of Payments, Etc................ 40 ARTICLE III REPRESENTATIONS AND WARRANTIES..................... 41 Section 3.1. Representations and Warranties in the Credit Facilities... 41 Section 3.2. Organization; Powers...................................... 41 Section 3.3. Due Authorization and Enforceability...................... 42 Section 3.4. No Conflicts.............................................. 42 Section 3.5. No Violations; Material Contracts......................... 43 Section 3.6. Capital Stock; Subsidiaries............................... 43 Section 3.7. Liens..................................................... 45 Section 3.8. No Violation of Regulations of Board of Governors of Federal Reserve System................................... 45 Section 3.9. Governmental Regulations.................................. 45 Section 3.10. Financial Statements; No Undisclosed Liabilities.......... 45 Section 3.11. Full Disclosure........................................... 46 Section 3.12. Private Offering; Rule 144A Matters....................... 46
i Section 3.13. Absence of Proceedings..................................... 47 Section 3.14. Taxes...................................................... 47 Section 3.15. No Material Adverse Change................................. 47 ARTICLE IV COVENANTS......................................... 47 Section 4.1. Use of Proceeds............................................ 48 Section 4.2. Notice of Default and Related Matters...................... 48 Section 4.3. Merger and Sale............................................ 48 Section 4.4. Information; Special Rights; Compliance Certificates....... 49 Section 4.5. Authorizations and Approvals............................... 51 Section 4.6. Limitation on Incurrence of Additional Indebtedness and Issuance of Additional Preferred Stock................ 51 Section 4.7. Compliance with Laws....................................... 52 Section 4.8. Anti-Layering.............................................. 53 Section 4.9. Sale and Leaseback Transactions............................ 53 Section 4.10. Restricted Payments........................................ 53 Section 4.11. Limitation on Restrictions on Distributions from Subsidiaries............................................... 54 Section 4.12. Limitation on Sales of Assets and Subsidiary Stock......... 54 Section 4.13. Limitation on Transactions with Affiliates................. 55 Section 4.14. Line of Business; Limitation on Newco's Activities......... 55 Section 4.15. Other Indebtedness and Agreements.......................... 56 Section 4.16. Liens...................................................... 56 Section 4.17. Existence; Business and Properties......................... 56 Section 4.18. Insurance.................................................. 56 Section 4.19. Stay, Extension and Usury Laws............................. 57 Section 4.20. Change of Control.......................................... 57 Section 4.21. Obligations and Taxes...................................... 59 Section 4.22. Leverage Ratio............................................. 60 Section 4.23. Interest Expense Coverage Ratio............................ 60 Section 4.24. Offer Conditions........................................... 60 Section 4.25. Margin Stock Limitations................................... 62 ARTICLE V CONDITIONS............................................. 62 Section 5.1. Effectiveness.............................................. 62 Section 5.2. Closing.................................................... 63 Section 5.3. Conditions of the Lenders' Obligations..................... 63
ARTICLE VI ii TRANSFER OF THE SECURITIES; REPRESENTATIONS OF LENDERS.. 65 Section 6.1. Transfer of the Securities................................. 65 Section 6.2. Replacement Securities Upon Transfer or Exchange........... 66 Section 6.3. Register................................................... 66 ARTICLE VII EVENTS OF DEFAULT................................... 67 Section 7.1. Events of Default.......................................... 67 Section 7.2. Acceleration............................................... 70 Section 7.3. No Avoidance of Premium.................................... 71 Section 7.4. Rights and Remedies Cumulative............................. 71 Section 7.5. Delay or Omission Not Waiver............................... 71 Section 7.6. Waiver of Past Defaults.................................... 71 Section 7.7. Rights of Lenders To Receive Payment....................... 72 ARTICLE VIII PERMANENT SECURITIES................................ 72 Section 8.1. Permanent Securities....................................... 72 ARTICLE IX TERMINATION......................................... 73 Section 9.1. Termination................................................ 73 Section 9.2. Liability.................................................. 73 ARTICLE X GUARANTEE........................................... 73 Section 10.1. The Guarantee.............................................. 73 Section 10.2. Limitation on Liability.................................... 75 Section 10.3. Stay of Acceleration....................................... 75 ARTICLE XI INDEMNITY........................................... 76 Section 11.1. Indemnification............................................ 76 Section 11.2. Indemnity not Available.................................... 76 Section 11.3. Settlement of Claims....................................... 77 Section 11.4. Appearance Expenses........................................ 77 Section 11.5. Indemnity for Taxes, Reserves and Expenses................. 77 Section 11.6. Survival of Indemnification................................ 78 Section 11.7. Liability Not Exclusive; Payments.......................... 78
iii ARTICLE XII THE AGENT; THE ARRANGERS............................ 78 Section 12.1. Appointment................................................ 78 Section 12.2. Delegation of Duties....................................... 79 Section 12.3. Exculpatory Provisions..................................... 79 Section 12.4. Reliance by Agent.......................................... 79 Section 12.5. Notice of Default.......................................... 80 Section 12.6. Non-Reliance on Agent and Other Lenders.................... 80 Section 12.7. Indemnification............................................ 81 Section 12.8. Agent, in Its Individual Capacities........................ 81 Section 12.9. Successor Paying Agent..................................... 81 Section 12.10. Successor Paying Agent..................................... 82 ARTICLE XIII MISCELLANEOUS....................................... 82 Section 13.1. Expenses; Documentary Taxes................................ 82 Section 13.2. Notices.................................................... 82 Section 13.3. Consent to Amendments and Waivers.......................... 83 Section 13.4. Parties.................................................... 84 Section 13.5. New York Law; Submission to Jurisdiction; Waiver of Jury Trial..................................................... 84 Section 13.6. Replacement Notes.......................................... 85 Section 13.7. Marshalling; Recapture..................................... 85 Section 13.8. Limitation of Liability.................................... 85 Section 13.9. Independence of Covenants.................................. 86 Section 13.10. Currency Indemnity......................................... 86 Section 13.11. Waiver of Immunity......................................... 86 Section 13.12. Freedom of Choice.......................................... 86 Section 13.13. Successors and Assigns..................................... 86 Section 13.14. Severability Clause........................................ 87 Section 13.15. Representations, Warranties and Agreements to Survive Delivery.................................................. 87 Section 13.16. Appointment of Agent....................................... 87
iv
Schedules and Exhibits ---------------------- Schedule 3.5 Material Contracts Schedule 3.6 Newco Subsidiaries and Ownership Percentage Schedule 3.9 Governmental Regulations Schedule 3.13 Pending or Threatened Proceedings Schedule 4.10 Permitted Investments Schedule 4.13 Affiliate Transactions Exhibit A Assignment and Acceptance Exhibit B Bridge Note Exhibit C Equity Registration Rights Agreement Exhibit D Escrow Agreement Exhibit E Stockholders Agreement Exhibit F-1 Newco Tax Sharing Agreement Exhibit F-2 Capital Contribution Agreement Exhibit F-3 U.K. Tax Sharing Agreement Exhibit F-4 U.S. Tax Sharing Agreement Exhibit G-1 Opinion of Counsel of Stoel Rives LLP Exhibit G-2 Opinion of Counsel of Davis Polk & Wardwell Exhibit G-3 Opinion of Counsel of Linklaters & Paines Exhibit H Riki Note Agreement
v THIS BRIDGE LOAN AGREEMENT, dated as of June 12, 1997 (as amended, restated and/or otherwise modified from time to time, this "Agreement"), is by and among: (a) PACIFICORP ENERGYCO, an unlimited company incorporated in England and Wales (the "Borrower"), (b) PACIFICORP GROUP HOLDINGS COMPANY, an Oregon corporation, as Guarantor ("Newco"), (c) GOLDMAN SACHS CREDIT PARTNERS L.P., a Delaware limited partnership ("Goldman"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation ("J.P. Morgan"), and CITIBANK N.A., a national banking association ("Citibank" and, together with Goldman, and J.P. Morgan, the "Arrangers"). The parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into, or became a Subsidiary of, such specified Person including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person's merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Act" means the United Kingdom Electricity Act of 1989 and, unless the context otherwise requires, all subordinate legislation made pursuant thereto. "Action" has the meaning specified in Section 11.2. "Adjusted LIBO Rate" means with respect to any LIBOR Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Affected Party" means any Lender, any Lender's Eurodollar Lending Office, any beneficial owner of any Lender, and their respective successors and assigns. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that for purposes of Section 4.13, beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. Neither the Lenders nor any of their Affiliates will be treated as an Affiliate of Newco or any of its Subsidiaries for purposes of this Agreement. "Affiliate Transaction" has the meaning specified in Section 4.13. "Agreement" has the meaning specified in the preamble to this Agreement. "Announcement Date" shall have the meaning specified in the Recco Credit Facility as in effect on June 27, 1997. "Applicable Bridge Loan Margin" means: (i) with respect to Bridge Loans that are Base Rate Loans, 300 basis points at all times through, and including, the date that is 180 days subsequent to the Closing Date, 400 basis points at all times after the date that is 180 days subsequent to the Closing Date and prior to the date that is 270 days subsequent to the Closing Date and increasing by 50 basis points on the date that is 270 days subsequent to the Closing Date and on the last day of each 90-day period thereafter for so long as any Bridge Loans are outstanding through, and including, the Extension Date; and (ii) with respect to Bridge Loans that are LIBOR Loans, 400 basis points at all times through and including the date that is 180 days subsequent to the Closing Date, 500 basis points at all times after the date that is 180 days subsequent to the Closing Date and prior to the date that is 270 days subsequent to the Closing Date and increasing by 50 basis points on the date that is 270 days subsequent to the Closing Date and on the last day of each 90-day period thereafter for so long as 2 the Bridge Loans are outstanding through, and including, the Extension Date. "Arrangers" has the meaning specified in the preamble to this Agreement. "Assessment Rate" means for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Paying Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Paying Agent to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Paying Agent's domestic offices. "Asset Sale" means the sale, lease, exchange, assignment, transfer or other disposition (by way of merger or otherwise), by Newco or any of its Subsidiaries to any person other than Newco or any Subsidiary of Newco of (a) any Equity Interests of any of the Subsidiaries or (b) any other assets of Newco or any of its Subsidiaries (other than inventory, obsolete or worn-out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business), except (i) for any sale, lease, transfer or other disposition in one transaction or a series of related transactions having a value of $25.0 million (or the Dollar Equivalent thereof) or less, (ii) any sale of accounts receivable (or any related assets) under any Permitted Receivables Financing, (iii) transfers of assets in connection with making an Investment permitted by Section 4.10, (iv) transfers of assets as part of a Sale and Leaseback Transaction permitted by Section 4.9, (v) payment of a Restricted Payment permitted by Section 4.10 and (vi) any substantially contemporaneous exchange (including by way of substantially contemporaneous purchase and sale) of discrete assets of Powercoal, Powercor, Recco or any Subsidiary thereof for one or more other assets used for similar purposes, in each case provided that any Net Cash Proceeds received by such person as consideration in connection with such exchange are treated as Net Cash Proceeds of Asset Sales and applied as provided pursuant to Section 4.12. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Paying Agent, in the form of Exhibit A or such other form as shall be approved by the Paying Agent. "Attributable Debt" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended). 3 "Bankruptcy Law" means (i) Title 11 of the U.S. Code, (ii) the Insolvency Act 1986 or (iii) any other law of the United States, the United Kingdom, Australia, any political subdivision thereof or any other jurisdiction relating to bankruptcy, insolvency, winding up, liquidation, reorganization or relief of debtors. "Base Rate" means for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Paying Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Paying Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Paying Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Paying Agent from three Federal funds brokers of recognized standing selected by it. "Base CD Rate" means the sum of (a) the product of (i) the Three- Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Base Rate Loan" means a Bridge Loan at any time that the interest rate thereon is computed with reference to the Base Rate. "beneficial owner" has the meaning as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act. "Bidco" means PacifiCorp Acquisitions, an unlimited company incorporated in England and Wales, all of the outstanding share capital of which is beneficially owned by Finance. 4 "Board" means the Board of Governors of the Federal Reserve System of the United States or any successor. "Borrower" has the meaning specified in the preamble to this Agreement. "Bridge Loan" means a loan made by any Lender to the Borrower pursuant to Section 2.1. "Bridge Loan Commitment" means the "Bridge Loan Commitment" amount set forth opposite each Lender's signature to this Agreement. "Bridge Note" means a promissory note of the Borrower in the form attached as Exhibit B hereto evidencing the Bridge Loan of any Lender. "Business Day" means each day other than a Saturday, a Sunday or any other day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed and, if such day relates to a payment or prepayment of principal of, or interest on, or an Interest Period for, LIBOR Loans, any day which is also a day on which dealings in dollar deposits are carried out in the London interbank markets. "Capital Contribution Agreement" means the capital contribution agreement between Riki and Newco, for the benefit of the Lenders, in the form attached as Exhibit F-2 hereto. "Capital Lease Obligations" of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Markets Transaction" has the meaning specified in Section 2.5(a). "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock and (iii) in the case of a partnership or limited liability company, partnership (whether general or limited) or membership interests. "Change of Control" means the occurrence of any of the following: 5 (i) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as such term is defined in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner (except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 35% of the Voting Stock of Richard (measured by voting power rather than number of shares), (ii) the first day on which a majority of the members of the board of directors of any of the Borrower, Newco, Riki and Richard are not either (i) nominated by the Board of Directors of Richard or (ii) appointed by directors so nominated, (iii) the first day on which (a) unless Riki merges into Newco in a transaction not prohibited by this Agreement either (i) Richard ceases to own 80% or more of the outstanding Capital Stock and other Equity Interests of Riki or (ii) Riki ceases to own 80% or more of the outstanding Capital Stock and other Equity Interests of Newco, or (b) in the event Riki: merges into Newco in a transaction not prohibited by this Agreement, Richard ceases to own at least 80% of the outstanding Capital Stock and other Equity Interests in Newco. (iv) Richard consolidates with, or merges with or into, any Person, or any Person consolidates with or merges with or into Richard, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of Richard is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of Richard outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such conversion or exchange), or (v) a "Change of Control" (or similar event however denominated) under any of the Credit Facilities. "Change of Control Offer" has the meaning specified in Section 4.20(a). "Change of Control Payment" has the meaning specified in Section 4.20(a). 6 "Change of Control Payment Date" has the meaning specified in Section 4.20(a). "Citibank" has the meaning specified in the preamble to this Agreement. "Class" means (i) Lenders having Bridge Loan Commitments and Lenders owning Bridge Loans made pursuant to Section 2.1 (a) (taken together as a single class) and (ii) Lenders having Dedicated Interest Commitments and Lenders owning Bridge Loans made pursuant to Section 2.1 (b) (taken together as a single class). "Clean-up Period" shall mean the period commencing on the date hereof and ending on the date that is 90 days after the Closing Date. "Closing" has the meaning specified in Section 5.2. "Closing Date" has the meaning specified in Section 5.2. "Code" means the Internal Revenue Code of 1986, as amended, and any regulation promulgated thereunder. "Companies Act" means the Companies Act 1985 (as amended) of England and Wales. "Commitment" means, with respect to any Lender, the aggregate of the Bridge Loan Commitment and the Dedicated Interest Commitment (if any) of that Lender. "Consolidated EBITDA" shall mean, for any period, the Consolidated Net Income for such period, plus, without duplication and to the extent deducted from revenues in determining such Consolidated Net Income, the sum of (a) the aggregate amount of Consolidated Interest Expense for such period, (b) the aggregate amount of income tax expense for such period, (c) all amounts attributable to depreciation, depletion and amortization for such period and (d) all noncash nonrecurring charges taken during such period (other than those which would appear on a consolidated income statement of Powercoal for such period prepared in accordance with GAAP), and minus, without duplication, (i) to the extent included in determining Consolidated Net Income, all noncash or nonrecurring items increasing such Consolidated Net Income for such period and (ii) cash expenditures made during such period in respect of which a non-cash reserve or accrual was previously established (other than any such payments made by Powercoal or any of its Subsidiaries), all as determined on a consolidated basis for Newco and its Subsidiaries in accordance with GAAP. "Consolidated Interest Expense" shall mean, for any period, the gross interest expense (including the interest component in respect of Capital Lease 7 Obligations), accrued or, without duplication, paid (unless accrued in a previous period) by Newco and its Subsidiaries during such period, in each case, as determined on a consolidated basis in accordance with GAAP plus, without duplication, (a) interest-equivalent costs associated with any Permitted Receivables Financing, whether accounted for as an interest expense or loss on the sale of receivables and (b) imputed interest with respect to Attributable Debt. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments received (paid) by Newco or any of its Subsidiaries with respect to Interest Rate Protection Agreements. "Consolidated Net Income" shall mean, for any period, net income or loss of Newco and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded (a) the income of any Person in which any other Person (other than Newco or any of its Subsidiaries or any director holding qualifying shares in compliance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Newco or any of its Subsidiaries by such Person during such period and (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with Newco or any of its Subsidiaries or the date that person's assets are acquired by the Borrower or any of its Subsidiaries. "Credit Facilities" means, collectively, the Powercoal Credit Facility, the Recco Credit Facility and the Powercor Credit Facility. "Custodian" means any receiver, sequestrator, receiver, receiver and manager, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. "Dedicated Interest Commitment" means the "Dedicated Interest Commitment" amount set forth opposite each Arranger's signature to this Agreement. "Default" means any event that, with the passage of time, the giving of notice or both, would constitute an Event of Default. "Director General" means the person appointed from time to time by the Secretary of State (as defined in the Act) to hold office as the Director General of Electricity Supply (in the United Kingdom) for the purpose of the Act, and means the person appointed from time to time by the Secretary of State to hold office as the Director General of Gas Supply for the purpose of the Gas Act. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or 8 redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the ten year anniversary of the Closing Date. "Dollar Equivalent" means, with respect to any monetary amount in a currency other than dollars, at any time for the determination thereof, the amount of dollars obtained by converting such foreign currency involved in such computation into dollars at the spot rate for the purchase of dollars with the applicable foreign currency as quoted by the Paying Agent at approximately 11:00 a.m. (New York City time) on the date two business days prior to such determination (it being understood that any subsequent change in any such conversion rate shall not have any effect on the Dollar Equivalent of such monetary amount). "dollars" or "$" shall mean lawful money of the United States of America. "Energyco" shall mean PacifiCorp EnergyCo, an unlimited company incorporated in England and Wales, all of the outstanding share capital is on the Closing Date beneficially owned by Newco. "Engagement Letter" means the engagement letter among Goldman, Sachs & Co., Citicorp Securities Inc., and J.P. Morgan Securities Inc., on the one hand, and Riki, Newco and the Borrower, on the other hand, dated the date hereof. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Laws" means any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Entity, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters. "Equity Financing" means, collectively, (a) the borrowing by Riki of at least $1.20 billion under the Riki Credit Facility and (b) the contribution to the common equity capital of Newco by Riki on or before the Closing Date of (i) at least $777 million of the proceeds of such borrowing, (ii) the Riki Note and (iii) any and all Ordinary Shares (of 10p each) of Target (or American Depository Receipts therefor) owned directly or indirectly by Riki. "Equity Interests" means, collectively, Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). 9 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any regulation promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with Newco or any Subsidiary is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan except a reportable event for which the requirement of notice to the PBGC had been waived; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability in excess of $1,000,000 under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of Newco or any Subsidiary or any of their ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by Newco or any Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of a Multiemployer Plan of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by Newco or any Subsidiary or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability in excess of $1,000,000 or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect to which Newco or any Subsidiary is a party to the prohibited transaction and is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which Newco or any Subsidiary could otherwise be liable; and (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in liability in excess of $1,000,000 of Newco or any Subsidiary. "Escrow Account" has the meaning specified in the Escrow Agreement. "Escrow Agent" means the escrow agent under the Escrow Agreement. "Escrow Agreement" means the escrow agreement among Newco, the Borrower, the Paying Agent, on behalf of the Lenders, and the Escrow Agent, in the form attached as Exhibit D. 10 "Escrowed Shares" means the shares of common stock of Newco, no par value, deposited with the Escrow Agent pursuant to the Escrow Agreement. "Eurodollar Lending Office" means, with respect to any Lender, the office, if any, of such Lender specified from time to time as its "Eurodollar Lending Office" in a written notice to the Borrower. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board, as in effect from time to time. "Eurodollar Reserve Percentage" of any Lender for any Interest Period for any LIBOR Loan means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Event of Default" means any event specified in Section 7.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Rate Protection Agreement" shall mean any Hedging Agreement or other arrangement entered into by the Borrower with a counterparty that as of the date of such Hedging Agreement is a Lender (or an affiliate of a Lender), which is designed to protect the Borrower against fluctuations in currency exchange rates and not for speculation. "Extension Date" means the Maturity Date unless an Extension Default exists and is continuing on the date on which the Borrower exercises its rights to extend the maturity of the Bridge Loans in accordance with Section 2.2. "Extension Default" means the occurrence of any one or more of the following: (i) any Payment Default, (ii) any acceleration of any of the Credit Facilities, or (iii) any Default or Event of Default under Section 7.1(h). "Extension Rate" means, as of any date, the sum of (i) the then applicable Extension Spread, plus (ii) the greatest of the following (expressed as a fixed percentage per annum) determined on the Extension Date: 11 (a) the sum of (1) the rate of interest applicable on the Bridge Loans on the Extension Date plus (2) 50 basis points, (b) the sum of (1) the yield (expressed as a percentage per annum) in effect on the Extension Date for United States Treasury Notes with a remaining maturity closest to ten years from the Closing Date (provided, however, that if the remaining term of the Loans is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, such yield on United States Treasury Notes shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given), plus (2) 550 basis points, and (c) the sum of (1) the Goldman Sachs High Yield Composite Index Rate in effect on the Extension Date plus (2) 300 basis points. "Extension Spread" means zero basis points during the three-month period commencing on the Extension Date, increasing by 50 basis points at the beginning of each subsequent 90-day period. "Fee Letter" means that certain Fee Letter dated the date hereof, among Riki, Newco, the Borrower and the Arrangers. "Financeco" means PacifiCorp Finance (UK) Limited, a private limited company incorporated in England and Wales, all of the outstanding share capital of which is directly owned by Recco. "GAAP" means with respect to the financial statements or other financial information of any Person, generally accepted accounting principles in the jurisdiction of organization of such Person which are in effect from time to time. "Gas Act" means the Gas Act 1986 (as amended by the Gas Act 1995). "Goldman" has the meaning specified in the preamble to this Agreement. "Goldman Sachs High Yield Composite Index Rate" means the rate (expressed as a percentage per annum) determined by Goldman to represent the weighted average of the market yields during the preceding month on high-yield debt securities issued in minimum issue sizes of $100 million each. "Governmental Entity" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or 12 instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Guarantee" means the guarantee by Newco pursuant to Article X hereof. "guarantee" of or by any Person means any obligation, contingent or otherwise, of such Person guaranteeing (the "primary obligor") or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or other obligation, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment of such Indebtedness or other obligation or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; provided, however, that the term "guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Guaranteed Obligations" has the meaning specified in Section 10.1. "Hazardous Material" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade 13 accounts payable and accrued obligations incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed (provided that, for purposes hereof, the amount of such Indebtedness shall be limited to the lesser of (x) the principal amount thereof and (y) the fair market value of such property), (f) all guarantees by such person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances and (i) all obligations of such person for Production Payments from property operated by or on behalf of such person; provided that, for purposes of the definition of "Total Debt," "Indebtedness" shall also include all obligations of such person in respect of Hedging Agreements (other than any Interest Rate Protection Agreement and any Exchange Rate Protection Agreement) to the extent the Net Termination Value of such Hedging Agreements at any time exceeds $200 million (or the Dollar Equivalent thereof). To the extent such Indebtedness is included as consolidated Indebtedness of Newco and its Subsidiaries in accordance with GAAP, Non-Recourse Indebtedness shall be included in Indebtedness in an amount equal to the lesser of (i) the aggregate principal amount of such Indebtedness and (ii) the equity of the Borrower and its subsidiaries in the asset or Single Purpose Entity, as the case may be, relating to such Non-Recourse Indebtedness. To the extent such Indebtedness is included as consolidated Indebtedness of Newco and its Subsidiaries in accordance with GAAP, Indebtedness (other than Non-Recourse Indebtedness) of any partnership, limited liability company or similar pass-through entity (a "partnership") in which Newco or a Subsidiary is a general partner and in which there are one or more Qualified General Partners shall only be included (a) to the extent of Newco's or Subsidiary's pro rata share of the interest of the general partners in the partnership, or (b) if the applicable governing (or other relevant) agreement specifies that Newco or any of its Subsidiaries are liable to the partnership (or a creditor) for a specific percentage of such partnership's liabilities, to the extent of such specified percentage. For purposes hereof, "Qualified General Partner" shall mean a general partner of a partnership that (a) is a person that was not created solely for the purpose of investing in such partnership, and (b) at the time of the investment in such partnership, Newco reasonably believes that (i) such person has a credit quality (or credit support) approximately equal to that of Newco or the applicable Subsidiary, and (ii) such person will be able to perform its share of the obligations under such Indebtedness when due. Subject to the foregoing and without duplication, the Indebtedness of any Person shall include the Attributable Debt relating to any Sale and Leaseback Transaction. "Indemnified Party" has the meaning specified in Section 11.1. "Indemnifying Party" has the meaning specified in Section 11.1. 14 "Interest Expense Coverage Ratio" shall mean, as of the last day of any fiscal quarter, the ratio of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on such day to (b) Consolidated Interest Expense for such period. For purposes of determining the "Interest Expense Coverage Ratio" for each of the four-fiscal quarter periods ending December 31, 1997, March 31, 1998, and June 30, 1998, Consolidated Interest Expense and Consolidated EBITDA for such four-fiscal quarter period shall be determined on a pro forma basis as if the Transaction occurred on the first day of such four-fiscal quarter period. "Interest Payment Date" means (i) the last day of each March, June, September and December after the Closing Date in the case of the Base Rate Loans, (ii) the last day of each Interest Period in the case of LIBOR Loans, (iii) the Maturity Date and (iv) the date of any prepayment of all or any portion of the principal of the Loans. "Interest Period" means, in respect of any LIBOR Loan, (i) in the case of the first Interest Period (if any) applicable to the Bridge Loans, the period commencing on and including the Closing Date and ending on the numerically corresponding date in the month thereafter, and (ii) in the case of each subsequent Interest Period, the period beginning on the last day of the prior Interest Period and ending on the numerically corresponding date in the month thereafter; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended until the next succeeding Business Day unless the next Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Notwithstanding the foregoing, no Interest Period in respect of the Bridge Loans may extend beyond the Maturity Date and each Interest Period that would otherwise commence before and end after the Maturity Date shall end on the Maturity Date. "Interest Rate Protection Agreement" shall mean any Hedging Agreement entered into by the Borrower with a counterparty that, as of the date of such Hedging Agreement is a Lender (or an affiliate of a Lender) and is designed to protect the Borrower against fluctuations in interest rates and not for speculation. "Investment Banks" means, collectively, Goldman, Sachs & Co., J.P. Morgan Securities Inc. and Citicorp Securities, Inc. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with 15 all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Lenders" shall mean (a) each financial institutions that has executed a counterpart to this Agreement (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. "Leverage Ratio" shall mean, as of the last day of any fiscal quarter, the ratio of (a) Total Debt as of such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on such date (calculated, with respect to any such four-fiscal quarter period ending on or prior to June 30, 1998, on a pro forma basis as if the Transaction occurred on the first day of such four-fiscal quarter period). "LIBO Rate" means with respect to any LIBOR Loan for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Paying Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such LIBOR Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Paying Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIBOR Loan" means a Bridge Loan at any time that the interest rate thereon is computed with reference to the Adjusted LIBO Rate. "License" means a license for the generation, transmission or supply of electricity held by Newco or any of its Subsidiaries and issued pursuant to Section 6(1) of the Act, as modified or supplemented from time to time. "License Undertaking" means any and each written undertaking or assurance given in connection with the Offer by any one or more of Newco or the Target or any Affiliate of any of them to the Director General or the Secretary of State (as defined in the Act) concerning the management and/or ownership of and/or other 16 matters concerning the Target or any of its Subsidiaries once it has become a Subsidiary of Newco. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any capital lease and any other preferential arrangement that has substantially the same practical effect as a security interest in any asset). "Liquidated Damages" means any and all liquidated damages then owing pursuant to any of the Loan Documents. "Loan" means a Bridge Loan. "Loan Documents" means this Agreement, the Bridge Notes and the Related Documents. "Loan Register" means the register maintained by the Paying Agent on behalf of the Borrower pursuant to Section 6.3. "Majority Lenders" means at any time Lenders holding at least a majority of the then aggregate unpaid principal balance of the Loans, or, if no such principal amount is then outstanding, Lenders having at least a majority of the total Commitments; provided that, for purposes hereof, neither Newco, nor any of its Affiliates shall be included in (i) the Lenders holding such amount of the Loans or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Loans or the total Commitments. "Margin Stock" means "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System. "Material Contracts" has the meaning specified in Section 3.4(a). "Material Adverse Effect" means any circumstance or event that (i) has, or may be reasonably expected to have, any materially adverse effect upon the validity or enforceability of this Agreement or any of the Transaction Documents, (ii) is, or may be reasonably expected to be, materially adverse to the consolidated financial condition, business, operations, assets, liabilities, management of Newco, the Borrower and their Subsidiaries, taken as a whole or (iii) materially impairs the ability of Newco or the Borrower to consummate the Transaction or of Newco and the Borrower to perform their Obligations under the Loan Documents. 17 "Material Hedging Obligations" shall mean payment obligations in respect of one or more Hedging Agreements with a single counterparty (or its Affiliates) that have aggregate an Negative Termination Value exceeding $50 million (or the Dollar Equivalent thereof). "Material Subsidiary" means, at any time, each Subsidiary of Newco that is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof). "Maturity Date" means the date that is one year after the Closing Date, unless such date is extended in accordance with Section 2.2. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Negative Termination Value" shall mean, with respect to any Hedging Agreement, the amount (if any) that would be required to be paid by Newco or any of its Subsidiaries if such Hedging Agreement were terminated by reason of a default by or other termination event relating to Newco or any of its Subsidiaries. The Negative Termination Value of any Hedging Agreement at any date shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter; provided, however, that if an agreement between Newco or any of its Subsidiaries and the relevant counterparty provides that, upon any such termination by such counterparty, one or more other Hedging Agreements (if any then exist) between Newco or any of its Subsidiaries and such counterparty would also terminate and the amount (if any) payable by Newco or any of its Subsidiaries would be a net amount reflecting the termination of all Hedging Agreements so terminated, then the Negative Termination Value of all the Hedging Agreements subject to such netting shall be, at any date, a single amount equal to such net amount (if any) payable by Newco or any of its Subsidiaries determined as of the later of (a) the end of the most recently ended fiscal quarter or (b) the date on which the most recent Hedging Agreement subject to such netting was entered into. "Net Cash Proceeds" means the aggregate cash proceeds received (including any cash and cash equivalents and cash payments received by way of deferred payment of principal pursuant to a note, an installment receivable or otherwise, but only as and when received) from any Asset Sale or other Capital Markets Transaction, net, (a) in the case of an Asset Sale, of (i) costs of sale (including payment of the outstanding principal amount of, premium or penalty, if any, interest and other amounts on any Indebtedness (other than Loans) secured by a Lien permitted pursuant to Section 4.16 on such assets and required to be repaid under 18 the terms thereof as a result of such Asset Sale), (ii) taxes paid or payable in the year such Asset Sale occurs or in the following year as a result thereof and (iii) amounts provided as a reserve against any liabilities under any indemnification obligations associated with such Asset Sale (except that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds), and (b) with respect to any other Capital Market Transactions, the cash proceeds thereof net of underwriting commissions or placement fees and expenses directly incurred in connection therewith. "Net Termination Value" shall mean, with respect to all Hedging Agreements (other than any Interest Rate Protection Agreement and any Exchange Rate Protection Agreement), the difference between (a) the aggregate amounts (if any) that would be required to be paid by Newco or any Subsidiary if such Hedging Agreements were terminated by reason of a default relating to Newco or any Subsidiary, and (b) the aggregate amounts (if any) that Newco or any Subsidiary would be entitled to receive if such Hedging Agreements were terminated by reason of a default relating to Newco or any Subsidiary. The Net Termination Value shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter. "Newco Tax Sharing Agreement" means the agreement among Newco and its Subsidiaries, attached as Exhibit F-1 hereto. "Non-Recourse Indebtedness" of any person shall mean at any time Indebtedness secured by a Lien in or upon one or more assets of such person where the rights and remedies of the holder of such Indebtedness in respect of such Indebtedness do not extend to any other assets of such person or any other person. Notwithstanding the foregoing, Indebtedness of any person shall not fail to constitute Non-Recourse Indebtedness by reason of the inclusion in any document evidencing, governing, securing or otherwise relating such Indebtedness of provisions to the effect that such person shall be liable, beyond the assets securing such Indebtedness, for (a) misapplied moneys, including insurance and condemnation proceeds and security deposits, (b) indemnification by such person in favor of holders of such Indebtedness and their affiliates in respect of liabilities to third parties, including environmental liabilities, (c) breaches of customary representations and warranties given to the holders of such Indebtedness and (d) such other similar obligations as are customarily excluded from the provisions that otherwise limit the recourse of commercial lender making so-called "non-recourse" loans to institutional borrowers. Indebtedness of a Single Purpose Entity shall constitute Non-Recourse Indebtedness of such Single Purpose Entity. 19 "Obligations" means all now existing and hereafter arising obligations and liabilities of any of the Borrower and Newco to any and all of the Lenders arising under or in connection with the Loan Documents, whether absolute or contingent, and whether for principal, interest, penalties, premium, fees, indemnifications, reimbursements, damages (including, if applicable, Liquidated Damages), including post-petition interest (whether or not an allowable claim). "Offer" means the offer by Goldman Sachs International on behalf of Bidco to acquire all of the outstanding Ordinary Shares (of 10p each) of Target (including any such shares represented by American Depositary Receipts) substantially on the terms and conditions referred to in the press release related thereto, as amended, supplemented, varied, renewed, waived or otherwise modified. "Offer Document" means the document to be delivered to holders of Ordinary Shares of Target (or American Depository Receipts therefor) containing the formal Offer. "Offering Documents" means an offering memorandum or prospectus together with such other documents, instruments and agreements as the Investment Banks may request in their sole discretion in connection with the issuance of the Permanent Securities. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operation Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officer's Certificate" means a certificate signed on behalf of either Newco or the Borrower by an Officer of Newco or the Borrower, as the case may be, who must be the principal executive officer, a vice chairman, the principal financial officer, the treasurer or the principal accounting officer of Newco or the Borrower, as the case may be. "Opinion of Counsel" means an opinion from legal counsel of Newco or the Borrower, which legal counsel is reasonably acceptable to the Paying Agent. "Panel" shall have the meaning specified in the Recco Credit Facility as in effect on June 27, 1997. "Paying Agent" means Citibank, acting as agent pursuant to Article XII, or any successor or replacement Paying Agent, acting in such capacity. 20 "Payment Default" means any Default or Event of Default under Section 7.1(b), (c) or (d) or any matured or unmatured default under the analogous provisions of the documents governing any of the Credit Facilities. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any of its functions under ERISA. "Permanent Securities" means senior unsecured debt securities issued by the Borrower and fully and unconditionally guaranteed by Newco which have either been registered with the SEC and sold pursuant to a registration statement in a public offering or privately placed or otherwise sold in an offering exempt from registration with the SEC to refinance the Loans. "Permits" has the meaning specified in Section 4.5. "Permitted Distributions" means (a) the reimbursement on the Closing Date of cash advances by Riki to Newco prior to such date, the proceeds of which were used by Newco or its Subsidiaries to pay fees and expenses of Newco or such Subsidiaries, as the case may be, incurred in connection with the Transaction, in an aggregate amount not exceeding $75.0 million (or the Dollar Equivalent thereof); (b) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness or Equity Interests of Newco in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Newco) of, other Equity Interests of Newco (other than any Disqualified Stock); (c) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Borrower or Newco with the net cash proceeds from an incurrence of Refinancing Indebtedness (with respect to the Indebtedness being defeased, redeemed, repurchased or otherwise acquired); and (d) the payment of any dividend by a Subsidiary of Newco to the holders of its Equity Interests on a pro rata basis. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) Investments in commercial paper (or money market funds substantially all the assets of which are invested in such commercial paper) maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from Standard & Poor's Ratings Group or from Moody's Investors Service, Inc.; 21 (c) Investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000; (d) Obligations issued by any state or political subdivision thereof, having a rating of A or better by Standard & Poor's Ratings Group, or similar rating by any other nationally recognized rating agency with maturities of not more than one year; (e) Investments committed to be made on the date hereof and set forth on Schedule 4.10 and Investments existing on the date hereof; (f) Investments by Newco or any Subsidiary of Newco in Newco or any Subsidiary of Newco; (g) Investments constituting non-cash consideration received in connection with a sale of assets not prohibited by Section 4.12; (h) Investments in Hedging Agreements that are not prohibited by this Agreement; (i) Investments in a Receivables Subsidiary pursuant to any Permitted Receivables Financing; (j) Investments that are Sale and Leaseback Transactions permitted by Section 4.9; (k) Investments to the extent made with the proceeds of cash contributions to the common equity of Newco from Riki or Richard (other than amounts received by Newco in respect of the Capital Contribution Agreement and the Riki Note); (l) Investments in minority interests in businesses or in joint ventures or similar entities engaged in a Related Business, not exceeding in the aggregate $100.0 million (or the Dollar Equivalent thereof) at any time; (m) Investments in the nature of Production Payments, royalties, dedications of reserves under supply agreements or similar rights or interests granted, taken subject to, or otherwise imposed on properties consistent with normal practices in the mining industry; and 22 (n) Investments, in addition to those permitted by paragraphs (a) through (m), not exceeding in the aggregate $50.0 million (or the Dollar Equivalent thereof) at any time outstanding (measured as of the date made and without giving effect to subsequent changes in value). "Permitted Liens" means: (a) Liens for taxes not yet due or which are being contested in compliance with Section 4.21; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 4.21; (c) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other security laws or regulations; (d) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds, reclamation bonds and other obligations of a like nature incurred in the ordinary course of business; (e) Liens created by or relating to any legal proceeding which at the time is being contested in good faith by appropriate proceedings; provided that, in the case of a Lien consisting of an attachment or judgment Lien, the judgment it secures shall, within 60 days of entry thereof, have been discharged or execution thereof stayed pending appeal, or discharged within 60 days after the expiration of such stay; (f) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in account and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (g) purchase money security interests in real property, improvements thereto, equipment or other fixed assets hereafter acquired (or, in the case of improvements, equipment or other fixed assets, constructed) by Newco or any Subsidiary thereof, provided that (i) such security interests secure Indebtedness permitted by Sections 4.6(a)(v) and 4.6(a)(viii), (ii) such security interests are 23 incurred, and the Indebtedness secured thereby is created, no later than 90 days after such acquisition (or completion of such construction), (iii) the Indebtedness secured thereby does not exceed the cost of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets or any Subsidiary thereof (other than the proceeds of the real property, improvements, equipment or other fixed assets subject to such Lien); and (h) Liens arising out of Capitalized Lease Obligations permitted under Section 4.6(a)(v), so long as such Liens attach only to the property subject to such capitalized lease. "Permitted Receivables Financing" shall mean the sale, non-recourse borrowing against or similar financing (a "Sale") of receivables (and related assets) originated by Newco or any Subsidiary, provided that (i) such receivables financing involves Sales of receivables to secure not more than an aggregate $400.0 million of Indebtedness outstanding at any time, (ii) Sales of receivables are made at fair market value for the sales of receivables in comparable receivables financings, (iii) the interest rate applicable to such receivables financing shall be a market interest rate (as determined in good faith by a Responsible Officer of Newco or the relevant Subsidiary, as the case may be) as of the time such financing is entered into, (iv) such financing is non-recourse to Newco and its Subsidiaries (other than a Receivables Subsidiary), except to a limited extent customary for such financings, and (v) the covenants, events of default and other provisions thereof, collectively, shall be market terms (as determined in good faith by a Responsible Officer of Newco or the relevant Subsidiary, as the case may be). "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which Newco or any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "pounds" or "(Pound)" shall mean lawful money of the United Kingdom. "Powercoal" means PacifiCorp Powercoal LLC, an Oregon limited liability company, all of the Capital Stock of which is owned by Newco. "Powercoal Credit Facility" means the Credit Agreement, dated as of June 12, 1997, as amended and restated as of June 27, 1997, by and among 24 Powercoal, the Lenders referred to therein and Morgan Guaranty Trust Company of New York, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified, refinanced, refunded, replaced or substituted (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. The term "Powercoal Credit Facility" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. "Powercor" means PacifiCorp Australia L.L.C., an Oregon limited liability company. "Powercor Credit Facility" means the Credit Facility, dated as of December 11, 1995, and in effect on June 27, 1997, by and among, Powercor, as borrower, the Lenders referred to therein and Citibank, N.A., as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified, refinanced, refunded, replaced or substituted (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. The term "Powercor Credit Facility" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. "Powercor Members" means each of (i) Pan Pacific Global Corporation, an Oregon corporation and (ii) Eastern Investment Company, an Oregon corporation. "PPM" means PacifiCorp Power Marketing, Inc., an Oregon corporation. "Prepayment Date" has the meaning specified in Section 2.8. "Press Release" shall have the meaning specified in the Recco Credit Facility, as in effect on the date thereof. "Production Payments" means, with respect to any person, all production payment obligations and other similar obligations with respect to natural resources of such Person that are recorded as a liability or deferred revenue on the financial statements of such Person in accordance with GAAP. "Pro Forma Financial Statements" shall have the meaning assigned to such term in Section 3.10. "Rate Fixing Notice" means a written notice given by a Variable Rate Holder to the Borrower in connection with a transfer, after the Extension Date, of all or any portion of the outstanding balance of a Bridge Loan to a Person other than a Variable Rate Holder that the transferee wishes to fix the interest rate on the transferred Bridge Loan at the rate per annum in effect on the date of transfer. 25 "Rate Selection Notice" has the meaning specified in Section 2.4(a). "Receivables Subsidiary" shall mean a bankruptcy-remote, special- purpose Wholly Owned Subsidiary of Newco formed solely for purposes of engaging in any Permitted Receivables Financing. "Recco" means PacifiCorp Services Limited, a private limited company incorporated in England and Wales, all of the outstanding share capital of which is directly owned by the Borrower. "Recco Credit Facility" means the Credit Agreement, dated June 13, 1997, by and among Bidco as borrower, Recco, Bidco and Finance as guarantors, the Arrangers and Lenders referred to therein and Citibank International plc, as facility agent and Citibank as Security Agent and LC Bank, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified, refinanced, refunded, replaced or substituted (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. The term "Recco Credit Facility" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. "Refinancing Indebtedness" has the meaning specified in Section 4.6. "Registration Rights Agreement" means the registration rights agreement between Newco and the Arrangers pursuant to which the Escrowed Shares are required to be registered for public sale, in the form attached as Exhibit C. "Related Business" has the meaning specified in Section 4.14. "Related Documents" means the Tax Sharing Agreements, the Riki Note, the Registration Rights Agreement, the Escrow Agreement, the Stockholders Agreement, the Engagement Letter and the Fee Letter. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 96-1(24), and (b) all other actions required by a Governmental Entity or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, 26 welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Requisite Class Lenders" means at any time for any Class of Lenders, Lenders having or holding 66 2/3% of the aggregate outstanding Commitments and Loans of all Lenders of such Class. "Responsible Officer" of any corporation shall mean any executive officer or financial officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Payments" has the meaning specified in Section 4.10(a). "Richard" means PacifiCorp, an Oregon corporation, and its successors. "Riki" means PacifiCorp Holdings, Inc., a Delaware corporation, and its successors. "Riki Credit Facility" means the Credit Agreement, dated as of June 12, 1997, as amended and restated as of June 27, 1997, by and among Riki, as borrower, the Lenders referred to therein and Citibank, N.A., as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified, refinanced, refunded, replaced or substituted (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. The term "Riki Credit Facility" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. "Riki Note" means the promissory note agreement dated the Closing Date issued by Riki to Newco in substantially the form attached as Exhibit H. "Sale and Leaseback Transaction" has the meaning specified in Section 4.9. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities" means, collectively, the Bridge Notes and the Escrowed Shares. 27 "Single Purpose Entity" shall mean a Person, other than an individual, that is organized solely for the purpose of holding, directly or indirectly, an ownership interest in one entity or property that is acquired, purchased or constructed, or in the case of previously undeveloped, non-income generating property of Newco or a Subsidiary, developed, by Newco or its Subsidiaries or, does not engage in any business unrelated to such entity or property or the financing thereof and does not have any assets or Indebtedness other than those related to its interest in such entity or property or the financing thereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Statutory Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities. Such reserve percentages shall include those imposed pursuant to such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Stockholders Agreement" means the stockholders agreement among the Arrangers, Newco and each of the other parties listed therein, in the form attached as Exhibit E. "Subsidiary" means, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, directly or indirectly, by the parent. "Target" means The Energy Group plc, a company organized under the laws of England and Wales. "Tax Sharing Agreements" means each of the U.S. Tax Sharing Agreement, the U.K. Tax Sharing Agreement, the Newco Tax Sharing Agreement and the Capital Contribution Agreement. 28 "Termination Date" has the meaning specified in Section 9.1. "Three-Month Secondary CD Rate" means for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Paying Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Total Debt" shall mean, as of any date of determination, without duplication, the aggregate principal amount of Indebtedness of Newco and its Subsidiaries outstanding as of such date, determined on a consolidated basis (other than Indebtedness of the type referred to in clause (h) of the definition of the term "Indebtedness", except to the extent of any unreimbursed drawings thereunder). "TPC" shall mean TPC Corporation, a corporation organized under the laws of Delaware. "Transaction" means, collectively, (i) the Offer and the acquisition of up to 100% of the Equity Interests of Target pursuant thereto; (ii) the financing thereof, pursuant to the Equity Financing, and borrowings of up to $1,625 million and (pound)2,850 million under the Powercoal Credit Facility and the Recco Credit Facility, respectively and borrowings of up to $1,575 million hereunder and (iii) the payment of up to $350 million (or the Dollar Equivalent thereof) of fees and expenses in connection therewith. "Transaction Documents" means, collectively, the Offer Documents, the Loan Documents, the Credit Facilities, the Riki Credit Facility and the agreements, documents and instruments to be executed and delivered in connection therewith. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "U.K. Tax Sharing Agreement" means the Agreement among Energyco and certain of its Subsidiaries (including Target and certain of its subsidiaries which are, directly or indirectly, at least 75% owned by Target) in the form of Exhibit F-3 hereto. 29 "U.S. Tax Sharing Agreement" means the Agreement Regarding Tax Policy and the Tax Policy of Richard attached as Exhibit A thereto, all attached as Exhibit F-4 hereto. "Unconditional Date" shall have the meaning specified in the Recco Credit Facility as amended as of June 27, 1997. "Variable Rate Holder" means an Arranger, any of their affiliates and any Lender which is designated as a Variable Rate Holder by notice to the Borrower and to such holder given by the previous Lender substantially contemporaneously with the transfer to such subsequent Lender. "Voting Stock" means, with respect to any Person at any time, the Capital Stock of such Person that is at such time entitled to vote in the election of the board of directors of such Person. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person, 100% of the Capital Stock and other Equity Interests of which is owned directly or indirectly by such Person (other than directors' qualifying shares). "Withdrawal Liabilities" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2. Interpretation. In this Agreement, the singular includes the plural and the plural includes the singular; words implying either gender includes the other gender; references to any section, exhibit or schedule are to sections, exhibits or schedules hereto unless otherwise indicated; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a visible form; "including" following a word or phrase shall not be construed to limit the generality of such word or phrase; and an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect from time to time; provided, however, that if the Borrower notifies the Paying Agent that the Borrower wishes to amend any covenant in Article IV or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Paying Agent notifies the Borrower that the Majority Lenders wish to amend Article IV or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant or definition is amended in a manner satisfactory to the Borrower and the Majority Lenders. 30 ARTICLE II THE CREDIT FACILITY Section 2.1. Commitments to Make Bridge Loans. (a) In reliance upon the representations and warranties of Newco and the Borrower set forth herein and subject to the terms and conditions herein set forth, each of the Lenders severally agrees to make a Bridge Loan to the Borrower on the Closing Date in the amount of such Lender's Commitment. (b) In reliance upon the representations and warranties of Newco and the Borrower set forth herein and subject to the terms and conditions herein set forth, each of the Arrangers severally agrees to make one or more Bridge Loans to the Borrower on each Interest Payment Date during the period beginning on the Closing Date and ending on the date that is 365 days after the Closing Date in an aggregate amount during such period not exceeding, when taken together with all other Bridge Loans made on or prior to such date pursuant to this Section 2.1(b) by such Arranger, such Arranger's Dedicated Interest Commitment; provided, that the proceeds of all such Bridge Loans shall be -------- utilized by the Borrower solely to fund the payment of interest then due and owing on outstanding Bridge Loans. (c) The proceeds of each such Bridge Loan shall be disbursed by wire transfer as provided in Section 5.2. Each Bridge Loan shall be made by the applicable Lenders ratably in accordance with their respective Bridge Loan Commitments or Dedicated Interest Commitments, as applicable and will mature on the Maturity Date. Section 2.2. Extension of Bridge Loans. (a) If, on the Maturity Date: (i) all principal and interest in respect of the Bridge Loans has not been paid in full, (ii) no Extension Default exists and is continuing and (iii) the Paying Agent receives an Officer's Certificate from the Borrower certifying to the foregoing and requesting an extension of the maturity of the Bridge Loans, each of the Lenders hereby commits that, on the Maturity Date, such Lender will, upon delivery of such Officer's Certificate, extend the maturity of its Bridge Loan (including, without limitation, any Bridge Loans resulting from the capitalization of interest pursuant to Section 2.4(e) below), to the tenth anniversary of the Closing Date (and the Maturity Date shall be deemed to have been extended to such tenth anniversary date). (b) If, on the Maturity Date, (i) all principal and interest in respect of the Bridge Loans has not been paid in full, and (ii) an Extension Default exists arising solely by virtue of a Payment Default as to which a cure period is applicable but has 31 not then expired, the Maturity Date shall be automatically deemed extended until the earlier to occur of: (A) the expiration of such cure period without cure (without giving effect to any waivers or amendments other than those which have the effect of unconditionally waiving such Payment Default for a period of at least one year from the Maturity Date) of such Payment Default (in which case all Obligations shall become immediately due and payable on the last day of such cure period), or (B) the cure (without waiver or amendment other than those which have the effect of unconditionally waiving such Payment Default for a period of at least one year from the Maturity Date) of such Payment Default on or before the last day of the applicable cure period and delivery by the Borrower to the Paying Agent on or prior to such day of an Officer's Certificate certifying that no Extension Default exists and is continuing and requesting an extension of the maturity of the Bridge Loans to the tenth anniversary of the Closing Date (in which case the Extension Date shall be deemed to have occurred and the Maturity Date shall be deemed to have been extended to such tenth anniversary date). Section 2.3. Certain Fees. The Borrower agrees to pay to the Paying Agent, for its own account, a non-refundable administration fee in an amount, and on terms, previously agreed to with the Paying Agent. Section 2.4. Interest; Payment in Kind Option; and Default Interest. (a) Interest Rate Applicable to Bridge Loans. The Bridge Loans shall be Base Rate Loans unless, not later than three Business Days prior to the Closing Date, the Borrower shall irrevocably specify in a written notice (a "Rate Selection Notice") delivered to the Paying Agent that the Bridge Loans will be LIBOR Loans. Subject to Sections 2.4(d), (e) and (f) below prior to the Extension Date: (i) If the Bridge Loans are Base Rate Loans, the unpaid principal balance thereof shall bear interest until paid at a rate per annum equal to the sum of the Base Rate plus the Applicable Bridge Loan Margin, changing when and as the Base Rate and/or the Applicable Bridge Loan Margin changes, and (ii) If the Bridge Loans are LIBOR Loans, the unpaid principal balance thereof shall bear interest until paid at a rate per annum equal to the sum of the Adjusted LIBO Rate plus the Applicable Bridge Loan Margin, changing on the first day of each Interest Period when and as 32 the Adjusted LIBO Rate and/or the Applicable Bridge Loan Margin changes. (b) Interest After Extension Date. Subject to Sections 2.4(d), (e) and (f) below subsequent to the Extension Date: (i) Interest on the unpaid principal balance of the Bridge Loans of each Lender will accrue at a rate per annum equal to the Extension Rate, changing when and as the Extension Spread changes, unless and until a Rate Fixing Notice is delivered to the Borrower and the Escrow Agent by such Lender, and (ii) Upon transfer of any portion of a Bridge Loan to a Lender other than a Variable Rate Holder and delivery of a Rate Fixing Notice by such Lender, the interest rate on the portion of the Bridge Loan so transferred shall become fixed at the rate per annum applicable on the date of such transfer. (c) Basis of Computation of Interest; Payment of Interest. All interest shall be calculated for actual days elapsed on the basis of a 360-day year (or 365 days in the case of Base Rate Loans) and shall be payable in arrears not later than 12:00 noon (New York City time) on each Interest Payment Date by wire transfer of immediately available funds in accordance with Section 2.10. (d) Maximum Interest Rate. Notwithstanding anything contained in Section 2.4(a) or 2.4(b), but subject to Section 2.4(f), in no event shall the interest rate on the Loans for any Interest Period exceed an annual rate equal to the lesser of (i) 16% and (ii) the maximum interest rate permitted by law. (e) Option to Pay Interest in Kind. Subject to Section 2.4(f), to the extent that the interest rate on the Bridge Loans for any period exceeds an annual rate equal to 14% per annum, the Borrower shall have the option to pay to each Lender, pro rata, all or a portion of the interest payable in excess of the amount of interest that would have been payable on such date at an interest rate of 14% per annum, by capitalizing such excess interest and adding it to the aggregate principal amount of outstanding Loans held by such Lender. The Borrower shall give the Paying Agent an irrevocable notice that it will exercise such rights at least three Business Days prior to any Interest Payment Date as to which such right is to be exercised. (f) Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall, on demand from time to time, pay interest, to the extent permitted by law, on such 33 defaulted amount to but excluding the date of actual payment (after as well as before judgment) to the extent lawful, at a rate per annum equal to 200 basis points in excess of the interest rate in effect on the Loans from time to time. The Borrower shall pay such default interest and all interest accruing on any overdue Obligation in cash on demand from time to time. Section 2.5. Mandatory Prepayment. (a) The Borrower shall prepay the Loans ratably in accordance with the aggregate outstanding principal balances thereof, with the Net Cash Proceeds of: (i) any direct or indirect public offering or private placement of the Permanent Securities, or any other debt or equity securities of either of Newco or the Borrower other than (a) the Equity Financing, (b) any cash contribution by Richard or Riki to the common equity of Newco, (c) any issuance of directors' qualifying shares and (d) any issuance or sale of common stock (or common stock equivalents) of Newco to officers and employees under employee benefit or compensation plans, (ii) the incurrence of any other Indebtedness by any of Newco or the Borrower (other than Indebtedness permitted to be incurred under Section 4.6) and (iii) any Asset Sale by any of Newco or the Borrower (each of the transactions in the foregoing clauses (i), (ii) and (iii), a "Capital Markets Transaction"). Newco or the Borrower shall, not later than the fourth Business Day following the receipt of the Net Cash Proceeds of any Capital Markets Transaction, prepay the Loans pursuant to this Section 2.5, without premium or penalty, by paying to each Lender an amount equal to 100% of such Lender's pro rata share of the aggregate principal amount of the Loans to be prepaid, plus accrued and unpaid interest thereon to the Prepayment Date. Any amounts to be applied pursuant to Section 2.5(a) to prepay LIBOR Loans shall, at the option of the Borrower, be applied to prepay LIBOR Loans immediately and/or shall be deposited in the Prepayment Account (as defined below). The Paying Agent shall apply any cash deposited in the Prepayment Account to prepay LIBOR Loans on the last day of their Interest Period (or, at the direction of the Borrower, on any earlier date) until all outstanding Loans have been prepaid or until all the cash on deposit with respect to such Loans has been exhausted. For purposes of this Agreement, the term Prepayment Account" shall mean an account established by the Borrower with the Paying Agent and over which the Paying Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this paragraph. The Paying Agent will, at the request of the Borrower, invest amounts on deposit in the Prepayment Account in Permitted Investments of the kind specified in clauses (a), (b) and (c) of the definition thereof that mature prior to the last day of the applicable Interest Period of the LIBOR Loans to be prepaid; provided, however, that (i) the Paying Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Paying Agent to be in, or would result in, any violation of any law, statute, rule or regulation and (ii) the Paying Agent shall have no obligation to invest amounts on deposit in the Prepayment Account if an Event of Default shall have occurred and be continuing. The Borrower shall indemnify 34 the Paying Agent for any losses relating to the investments so that the amount available to prepay LIBOR Loans on the last day of the applicable Interest Period is not less than the amount that would have been available had no investments been made pursuant thereto. Other than any interest earned on such investments, the Prepayment Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited in the Prepayment Account and reinvested and disbursed as specified above. If the maturity of the Loans has been accelerated pursuant to Article VII, the Paying Agent may, in its sole discretion, apply all amounts on deposit in the Prepayment Account to satisfy any of the Obligations. The Borrower hereby grants to the Paying Agent, for its benefit and the benefit of the Lenders, a security interest in the Prepayment Account to secure the Borrower's obligations hereunder. (b) Subject to and in accordance with Section 4.20, in the event of any Change of Control, the Borrower shall offer to prepay the Loans pursuant to Section 4.20. Section 2.6. Optional Prepayment. The Borrower may, upon three Business Days' prior written notice (which may not be conditional) to each of the Lenders, prepay the Loans at any time, in whole or in part, on a pro rata basis, by paying to each applicable Lender an amount equal to 100% of such Lender's pro rata share of the aggregate principal amount of Loans to be prepaid, plus accrued and unpaid interest thereon to the Prepayment Date. Section 2.7. Indemnity. The Borrower agrees to indemnify and hold each Affected Party harmless from and against any loss or expense which such Affected Party sustains or incurs as a consequence of: (a) the failure by the Borrower to borrow LIBOR Loans on the Closing Date after the Borrower has given a notice with respect thereof in accordance with Sections 2.4 and 5.2, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of Section 2.5 or 2.6, as applicable, or (c) the mandatory or optional prepayment of LIBOR Loans on a day which is not the last day of an Interest Period. Such indemnification may include an amount equal to the excess, if any of (i) such Affected Party's actual loss and expenses incurred (excluding lost profits) in connection with, or by reason of, any of the foregoing events and (ii) the excess, if any of (A) the amount of interest which would have accrued on the principal amount of Bridge Loans not so made or the principal amount of Loans so prepaid from the 35 date of such proposed issuance or prepayment, as the case may be, in the case of a failure to make Bridge Loans, to the last day of the Interest Period that would have commenced on the proposed date of funding, or in the case of any such prepayment, to the last day of the Interest Period in which such a prepayment occurred, in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Bridge Loan Margin included therein, if any) over (B) the amount of interest (as reasonably determined by such Affected Party) which would have accrued to such Affected Party on such amount by placing such amount on deposit for a period comparable to such Interest Period with leading banks in the interbank Eurodollar market. A certificate as to any amounts payable pursuant to this Section 2.7 submitted to the Borrower by any Affected Party shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Obligations. Section 2.8. Effect of Notice of Prepayment. The Borrower shall notify the Lenders in writing at their addresses shown in the Loan Register of any date set for prepayment (each such day, a "Prepayment Date") of Loans. Once such notice is sent or mailed, the Loans to be prepaid shall become due and payable on the Prepayment Date set forth in such notice. Section 2.9. Method of Payment. (a) Except as provided in Section 2.4(e) with respect to the payment of certain interest by capitalizing it and adding it to the principal of outstanding Loans, the principal of, fees, premium, if any, and interest on each Bridge Note and all other Obligations arising under the Loan Documents shall be payable by wire transfer in immediately available funds (in United States dollars) to the respective accounts of the Lenders set forth on the signature pages hereof below their signatures hereto or otherwise designated in the Loan Register from time to time to the Borrower by any Lender at least three Business Days prior to the due date therefor. (b) If prior to the first day of any Interest Period with respect to a LIBOR Loan, the Lenders shall have determined (which determination shall be conclusive and binding upon the Borrower and Newco) that: (i) by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period, or (ii) the Adjusted LIBO Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders or their Eurodollar Lending Office of maintaining their LIBOR Loans during such Interest Period, then such Lenders shall give facsimile or telephone notice thereof to the Borrower as soon as practicable thereafter. If such notice is given, the interest rate on each Bridge Loan for such Interest Period and for each subsequent Interest Period until such Lenders give notice to the Borrower otherwise shall equal the sum of the Base Rate plus the Applicable Bridge Loan Margin. 36 (c) Notwithstanding any other provision of this Agreement, if any Lender shall notify the Borrower that subsequent to the date hereof the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to make or maintain LIBOR Loans hereunder, (i) the obligation of such Lender to make or maintain LIBOR Loans shall be suspended until such Lender shall notify the Borrower that the circumstances causing such suspension no longer exist and (ii) any LIBOR Loan then outstanding from such Lender shall be converted into a Base Rate Loan at the end of the current Interest Period or at such earlier date as is required by law. Section 2.10. Payments. (a) Payments on Business Days. If any payment to be made hereunder or under any Bridge Note shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day (and such extension of time shall be included in computing interest in connection with such payment); provided, however, that if such succeeding Business Day falls in the next calendar month, such payment shall be made on the next preceding Business Day. (b) Partial Prepayments and Redemptions. All partial prepayments and redemptions of the outstanding principal balance of the Loans shall be made ratably amongst the applicable Lenders in accordance with their respective shares of the aggregate outstanding principal balance of the Loans eligible for prepayment or redemption. (c) No Defense. To the fullest extent permitted by law, the Borrower and Newco shall make all payments hereunder and under the Bridge Notes regardless of any defense or counterclaim. (d) Allocation. Any money paid to, received by, or collected by the Paying Agent or any Lender pursuant to this Agreement or any other Loan Document, shall be applied in the following order, at the date or dates fixed by the Paying Agent: First: to any unpaid fees and reimbursement or unpaid expenses of the Paying Agent hereunder; Second: to the payment of all costs, expenses, other fees, commissions and taxes owing to any Lender hereunder; Third: to the indefeasible payment of all accrued interest to the date of such payment or collection; 37 Fourth: to the indefeasible payment of the amounts then due and unpaid under this Agreement, the Bridge Notes or any other Loan Document for principal, in respect of which or for the benefit of which such money has been paid or collected, ratably, without preference or priority of any kind, according to the amounts due and payable on the Bridge Notes for principal; and Fifth: the balance, if any, to the Person lawfully entitled thereto. Section 2.11. Taxes. (a) Taxes. Any and all payments by the Borrower and each Guarantor hereunder or under the Bridge Notes or any other Loan Document shall be made, in accordance with Section 2.10 or the other applicable provision of the applicable Loan Document, free and clear of and without deduction or withholding for or on account of any and all present or future taxes, levies, imports, deductions, charges or withholdings, additions to tax, interest, penalties and all other liabilities with respect thereto, excluding income, franchise or similar taxes imposed or levied on the Paying Agent or the Lenders as a result of a present or former connection between the Paying Agent or the Lenders and the jurisdiction of the governmental authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Paying Agent or such Lenders having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement) (all such non-excluded taxes, levies, imports, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower or any Guarantor shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder or under the Bridge Notes or any other Loan Document to the Paying Agent or the Lenders or any of their respective Affiliates who may become a Lender: (i) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional sums payable under this Section 2.11) the Paying Agent or the Lenders or any of their respective Affiliates receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Borrower or such Guarantor, as the case may be, shall make such deductions or withholdings; and (iii) the Borrower or such Guarantor, as the case may be, shall pay the full amount deducted to the relevant tax authority or other authority in accordance with applicable law. (b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp, mortgage recording or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under a Bridge Note or other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the other Loan Documents (hereinafter referred to as "Other Taxes") and hold the Paying Agent and each Lender harmless from and against any and all liabilities with respect to or 38 resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such Other Taxes. Each Lender represents that, to the best of its knowledge, except for any such Other Taxes that may be imposed under the federal, state or local laws of the United States and the United Kingdom (or any political subdivision thereof), it is not aware of any such stamp, mortgage recording or documentary taxes or any other excise or property taxes, charges or similar levies. (c) Indemnity. The Borrower and Newco will indemnify the Paying Agent and any Lender for the full amount of Taxes or Other Taxes arising in connection with payments made under this Agreement or any other Loan Document (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by the Paying Agent or any Lender or any of their respective Affiliates and any liability (including penalties, additions to tax interest and expenses) arising therefrom or with respect thereto. Payment under this indemnification shall be made within fifteen (15) days from the date the Paying Agent or any Lender or any of their respective Affiliates makes written demand therefor; provided, however, that the Borrower or Newco (as the case may be) shall not be obligated to make payment to the Lender or the Paying Agent (as the case may be) pursuant to this Section in respect of penalties, interest and other liabilities attributable to any Taxes or Other Taxes, if (i) written demand therefor has not been made by such Lender or the Paying Agent within 60 days from the date on which such Lender or the Paying Agent knew of the imposition of Taxes or Other Taxes by the relevant taxing or governmental authority, but only to the extent such penalties, interest and other similar liabilities are attributable to such failure or delay by the Paying Agent or the Lender in making such written demand, (ii) such penalties, interest and other liabilities have accrued after the Borrower or Newco (as the case may be) had indemnified or paid an additional amount due as of the date of such payment pursuant to this Section or (iii) such penalties, interest and other liabilities are attributable to the gross negligence or willful misconduct of the Lender or the Paying Agent. After the Lender or the Paying Agent (as the case may be) learns of the imposition of the Taxes or Other Taxes which are subject to Section 2.11(c), such Lender and Paying Agent will act in good faith to promptly notify the Borrower or Newco (as the case may be) of its obligations hereunder; provided, however, that the failure to so act shall not, standing alone, affect the rights of the Paying Agent or the Lenders under this Section 2.11(c). (d) Furnish Evidence to Paying Agent. The Borrower will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each taxing authority imposing such Taxes. The Borrower will furnish to the Lenders, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, original or certified copies of tax receipts evidencing such payment by the Borrower or, if such receipts are not obtainable, other evidence of such payments by the Borrower reasonably satisfactory to the Lenders. 39 (e) Survival. Without prejudice to the survival of any other agreement of the Borrower or Newco hereunder, the agreements and obligations of the Borrower and Newco contained in this Section 2.11 shall survive the payment in full of all amounts due hereunder and under the Bridge Notes. (f) Mitigation. If the Borrower or Newco (as the case may be) is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.11 as a result of a change in law or treaty occurring after such Lender first became a party to this Agreement, then such Lender will, at the request of the Borrower or Newco, change the jurisdiction of its Applicable Lending Office if such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is, in such Lender's sole, reasonable discretion, determined not to be materially disadvantageous or cause unreasonable hardship to such Lender, provided that fees, charges, costs or expenses that are related to such change shall be borne by the Borrower or Newco on behalf of a Lender, and the mere existence of such expenses, fees or costs shall not be deemed to be materially disadvantageous or cause undue hardship to the Lender. Each Lender and the Paying Agent agrees that it will (i) take all reasonable actions reasonably requested by the Borrower or Newco in writing that are without risk and material cost to such Lender or the Paying Agent and consistent with the internal policies of such Lender and applicable legal and regulatory restrictions (as the case may be) to maintain all exemptions, if any, available to it from withholding taxes (whether available by treaty or existing administrative waiver), and (ii) to the extent reasonable and without risk and material cost to it, otherwise cooperate with the Borrower or Newco to minimize any amounts payable by the Borrower or Newco under this section; provided, however, that in each case, any cost relating to such action or cooperation requested by the Borrower or Newco shall be borne by the Borrower or Newco, respectively. (g) Tax Benefit. If and to the extent that any Lender is able, in its sole opinion, to apply or otherwise take advantage of any offsetting tax credit or other similar tax benefit arising out of or in conjunction with any deduction or withholding which gives rise to an obligation on the Borrower or Newco to pay any additional amount pursuant to this Section 2.11 then such Lender shall, to the extent that in its sole opinion it can do so without prejudice to the retention of the amount of such credit or benefit and without any other adverse tax consequences for such Lender, reimburse to the Borrower at such time as such tax credit or benefit shall have actually been received by such Lender such amount as such Lender shall, in its sole opinion, have determined to be attributable to the relevant deduction or withholding and as will leave such Lender in no better or worse position than it would have been in if the payment of such additional amount had not been required. 40 Nothing in this Section 2.11 shall oblige any Lender to disclose to the Borrower or any other person any information regarding its tax affairs or tax computations or interfere with the right of any Lender to arrange its tax affairs in whatever manner it thinks fit and, in particular, no Lender shall be under any obligation to claim relief from its corporate profits or similar tax liability in credits or deductions available to it and, if it does claim, the extent, order and manner in which it does so shall be at its absolute discretion. (h) Exceptions. No additional amount will be payable to a Person that is a Lender on or prior to the date that is 365 days after the Closing Date under this Section 2.11 as a result of any deduction or withholding of United Kingdom taxes to the extent that at the time such payment falls due such Lender is not a Qualifying Lender and such payment would not have fallen due had such Lender been a Qualifying Lender, unless the only reason such Lender is not a Qualifying Lender is a change (after the date of this Agreement or in the case of a Lender which became a party to this Agreement after the date of this Agreement on which it became a party) in any law or directive or in the published interpretation or application thereof or in any published practice or concession of the United Kingdom Inland Revenue. For this purpose "Qualifying Lender" means: (i) a bank as defined in Section 840A of the Income and Corporation Taxes Act 1988 for the purposes of Section 349 of that Act which is beneficially entitled to and within the charge to UK corporation tax as regards any interest payable to it under this Agreement; or (ii) in the case of a Lender which has its lending office outside the United Kingdom, an entity or a person which is a resident in a country with which the United Kingdom has an appropriate double taxation treaty (the "Treaty") and the Treaty provides at the date hereof under its terms for zero withholding tax on the United Kingdom source interest paid to residents of such country, and such Lender is a resident of such country within the meaning of the Treaty. Each Person that is a Lender during the period beginning on the Closing Date and ending on the date that is 365 days after the Closing Date is a Qualifying Lender. (i) Cooperation. Each Lender and the Agent shall, at the request of the Borrower or the Guarantor, use reasonable efforts (consistent with applicable legal and regulatory restrictions) relating to the provision of any certificate or document (including Internal Revenue Service Form 1001 or 4224, if applicable) requested by the Borrower or the Guarantor if such certificate or document could avoid the 41 payment of any additional amounts to or for the account of such Lender or the Agent (as the case may be) under this Section 2.11. Section 2.12. Right of Set Off; Sharing of Payments, Etc. (a) Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, the Borrower authorizes each Lender at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, time or demand, provisional or final) in any currency and any other indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to such Lender under this Agreement or under any of the other Loan Documents, including, without limitation, to the extent permitted by applicable law, all interests in or participation in the Obligations purchased by such Lender, and all other claims of any nature or description arising out of or in connection with this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand hereunder and although the Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. A Lender may exercise such rights notwithstanding that the amounts concerned may be expressed in different currencies and each Lender is authorized to effect any necessary conversions at a market rate of exchange selected by it. A Lender exercising its rights under this Section 2.12(a) shall provide prompt notice to the Borrower following such exercise. (b) Sharing. If any Lender shall obtain from the Borrower payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement, a Loan Document or any Bridge Note held by it though the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Paying Agent as provided herein) and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans or such other amounts then due to such Lender by the Borrower than the percentage received by any other Lenders, it shall promptly purchase from such other Lenders participation in (or, if and to the extent specified by such Lender, direct interests in) the Loans or such other amounts, respectively, owing to such other Lenders (or any interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or such other amounts, respectively, owing to each of 42 the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) No Requirement. Nothing in this Agreement shall require any Lender to exercise any such right or shall affect the right of any lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. ARTICLE III REPRESENTATIONS AND WARRANTIES As of the date hereof and as of the Closing Date, in each case, both before and after giving pro forma effect to the Transaction, each of Newco and the Borrower hereby agrees with, and represents and warrants to, the Lenders as follows: Section 3.1. Representations and Warranties in the Credit Facilities. The representations and warranties of Powercor, Recco, Financeco, Bidco, Powercoal and Riki, to the extent each is a party thereto, contained in the Credit Facilities and the Riki Credit Facility are hereby incorporated herein by reference for the benefit of the Lenders (without giving effect to any waivers thereof or amendment thereto subsequent to the date hereof) and are true and correct in all material respects. Section 3.2. Organization; Powers. Newco and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform (or in the case of the U.K. Tax Sharing Agreement, prior to the date of execution thereof, will have the power to execute, deliver and perform) its obligations under each of the Transaction Documents and each other agreement or instrument contemplated hereby to which it is or will be party and, in the case of the Borrower, to borrow hereunder. 43 Section 3.3. Due Authorization and Enforceability. (a) Each of the Transaction Documents: (i) has been duly authorized (or in the case of the U.K. Tax Sharing Agreement, prior to the date of execution thereof, will be duly authorized) by Newco and each of its Subsidiaries (to the extent each is a party thereto and (ii) upon the execution and delivery thereof by Newco and its Subsidiaries (to the extent each is a party thereto) (and, in the case of the U.K. Tax Sharing Agreement, subject to complying with any required procedures set out in Sections 155 to 158 of the Companies Act) will constitute a valid and binding obligation of Newco and each of its Subsidiaries (to the extent each is a party thereto) enforceable against each such Person in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity (whether arising under a proceeding at law or in equity). (b) The Loans and the Bridge Notes have been duly authorized by the Borrower and the Guarantee has been duly authorized by Newco. When the Bridge Notes have been executed and delivered pursuant to the terms of this Agreement, each of the Loans, the Bridge Notes, and the Guarantee will be valid and binding obligations of the Borrower or Newco, as applicable, enforceable against it in accordance with their terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity (whether arising under a proceeding at law or in equity). (c) The Escrowed Shares have been duly authorized and upon delivery to the Escrow Account in accordance with the terms of the Escrow Agreement will be validly issued, and upon release from the Escrow Account in accordance with the terms of the Escrow Agreement will be fully paid and nonassessable. Section 3.4. No Conflicts. (a) Neither the execution and delivery of any of the Transaction Documents nor the consummation of any of the transactions contemplated hereby or thereby nor compliance with the terms and provisions hereof or thereof (i) violates or will violate any material law or regulation or any order or decree of any court or Governmental Entity applicable to Newco or any of its Subsidiaries or by which any of their respective properties or assets may be bound, (ii) constitutes or will constitute a breach or a violation of, any of the terms or provisions of, or a default under, the organizational documents (including any certificate of incorporation or bylaws) or any other corporate restriction of any of Newco or any of its Subsidiaries except where such breach, violation or default would not reasonably be expected to have a Material Adverse Effect, or (iii) conflicts with or will result in the breach of, or constitutes a 44 default under, any material contract, lease, indenture, loan agreement (including, without limitation, the Credit Facilities), mortgage, deed of trust or other agreement or instrument (each, a "Material Contract") to which Newco or the Borrower is a party or by which any of them or any of their respective assets may be bound except where such breach, violation or default would not reasonably be expected to have a Material Adverse Effect. (b) No consent, approval, authorization or order of, or any registration or filing with, any Governmental Entity is or will be required in connection with (i) the execution and delivery of any of the Transaction Documents by Newco or any of its Subsidiaries (to the extent each is a party thereto) or the consummation of the transactions contemplated hereby or thereby, or (ii) the issuance and delivery of the Escrowed Shares by Newco, other than (A) such authorizations, approvals, consents, exemptions, registrations or filings as shall have been made or secured by the date hereof, (B) such actions as may be required under the Registration Rights Agreement after the date hereof in connection with any transfer of the Escrowed Shares, or (C) where the failure to register or file would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.5. No Violations; Material Contracts. (a) There does not currently exist (i) any violation of any law or regulation or any order or decree of any court or Governmental Entity applicable to Newco or the Borrower or (ii) any conflict or violation of any terms or provisions of the organizational documents (including any articles or certificate of incorporation or bylaws) of Newco or the Borrower except where such violation or conflict would not reasonably be expected to have a Material Adverse Effect. (b) Neither Newco nor the Borrower is a party to any agreement or instrument or subject to any corporate or other restriction that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. Each Material Contract to which Newco or the Borrower is a party or by which Newco or the Borrower or any of their respective properties or assets are or may be bound as of the Closing Date is listed on Schedule 3.5 and true and correct copies of all such Material Contracts have been delivered to the Paying Agent. (c) As of the Closing Date: (i) each Material Contract is in all material respects valid, binding and in full force and effect and is enforceable by Newco and the Borrower (to the extent that each is a party thereto) in accordance with its terms, (ii) Newco and the Borrower (to the extent each is a party thereto) has performed in all material respects all obligations required to be performed by it to date under all of its Material Contracts and is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the knowledge of Newco and the Borrower, no other party to any of the Material 45 Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default or in any material respect thereunder, (iii) neither Newco nor the Borrower, nor, to the knowledge of Newco and the Borrower, any other party to any Material Contract, has given notice of termination of, or taken any action inconsistent with the continuation of, any Material Contract, and (iv) none of such other parties has any presently exercisable or future right to terminate any Material Contract, including any right to terminate any Material Contract on account of the execution, delivery or performance of any of the Transaction Documents. Section 3.6. Capital Stock; Subsidiaries. (a) All shares of Capital Stock and other Equity Interests of Newco are duly authorized, validly issued, fully paid and non-assessable and owned by Riki, beneficially and of record, free and clear of any Lien (other than the Escrowed Shares and Liens under the Riki Credit Facility). All shares of Capital Stock and other Equity Interests of the Borrower, Powercoal and the Powercor Members are duly authorized, validly issued, fully paid and non- assessable and owned by Newco beneficially and of record, free and clear of any Lien other than, in the case of Powercoal, Liens under the Powercoal Credit Facility. All shares of Capital Stock and other Equity Interests of each of Recco, Financeco and Bidco are duly authorized, validly issued, fully paid and non-assessable and owned by Energyco, Recco and Financeco, respectively, beneficially and of record, free and clear of any Lien other than under the Recco Credit Facility. Schedule 3.6 sets forth, (i) as of the date hereof (and without giving effect to the Transaction) a list of all direct and indirect Subsidiaries of Newco and the percentage ownership (direct and indirect) of Newco therein and (ii) as of the Closing Date (after giving effect to the Transaction), a list of all direct Subsidiaries of Newco and the Borrower and the percentage ownership interest of Newco or the Borrower, as applicable, therein. All such shares of Capital Stock or other ownership interest are duly authorized, validly issued, fully paid and assessable and owned by Newco or the Borrower, as the case may be, free and clear of all Liens (other than Liens under the Credit Facilities and the Riki Credit Facility, in each case as in effect on June 27, 1997. (b) There are (i) no outstanding subscriptions, warrants, options, calls or commitments of any character related to or entitling any Person to purchase or otherwise acquire any shares of the Capital Stock or other Equity Interests of Riki, Newco, the Borrower, Powercoal, Powercor, Financeco, Recco and Bidco (other than the Escrowed Shares), (ii) no obligations or securities convertible into or exchangeable for shares of any Capital Stock or other Equity Interests of Riki, Newco, the Borrower, Powercoal, Powercor, Financeco, Recco and Bidco or any commitments of any character relating to or entitling any Person to purchase or otherwise acquire any such obligations or securities, other than the Stockholders Agreement and (iii) no preemptive or similar rights to subscribe for or to purchase any Capital Stock or other 46 Equity Interests of Riki, Newco, the Borrower, Powercoal, Powercor, Financeco, Recco and Bidco, except those contemplated by the Stockholders Agreement. Section 3.7. Liens. There are no Liens on any assets of Newco or the Borrower except Permitted Liens. Section 3.8. No Violation of Regulations of Board of Governors of Federal Reserve System. None of the transactions contemplated by this Agreement (including without limitation the use of the proceeds from the Loans and Permanent Securities) will violate or result in a violation of Section 7 of the Exchange Act, or any rule or regulation issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. Section 3.9. Governmental Regulations. Except as set forth on Schedule 3.9, none of Newco or any of its Subsidiaries is or will be subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any other statute, rule or regulation limiting its ability to incur Indebtedness for borrowed money. Section 3.10. Financial Statements; No Undisclosed Liabilities. (a) The Borrower has made available the audited combined balance sheets and the related combined profit and loss accounts of the Target for the fiscal year most recently ended. The consolidated balance sheets of Powercor and its Subsidiaries that have previously been delivered to the Lenders fairly present the consolidated financial position of Powercor and its Subsidiaries as of the dates set forth therein, in accordance with GAAP consistently applied during the periods involved (except as otherwise specifically indicated therein). The consolidated statements of income and cash flows of Powercor and its Subsidiaries that have been previously delivered to the Lenders have been prepared in conformity with GAAP applied on a consistent basis through all the periods involved and fairly present the consolidated financial position and results of operations of Powercor and its Subsidiaries as of the dates and for the periods indicated therein. (b) Newco has heretofore delivered to the Lenders its unaudited pro forma consolidating balance sheet as of December 31, 1996 (the "Pro Forma Financial Statements"), prepared giving effect to the Transaction as if they had occurred on such date and consolidating income statement for the year ended December 31, 1996, assuming the Transaction had actually occurred on January 1, 1996. Such pro forma balance sheets and income statement have been prepared in good faith by Newco based on reasonable assumptions, are based on the best information available to Newco as of the date of delivery thereof, accurately reflect all material adjustments required to be made to give effect to the Transaction and present fairly on a pro 47 forma basis the estimated consolidated financial position of Newco as of December 31, 1996, assuming that the Transaction had actually occurred at December 31, 1996. (c) None of Newco, the Borrower, Recco, Financeco, Bidco or Powercoal (i) has engaged in any business or other activity other than the ownership and voting of the Capital Stock of their respective Subsidiaries and the performance of their respective obligations under the Transaction Documents to which they are party or (ii) has any liability (absolute or contingent) except (i) those shown on the financial statements described in Section 3.10(a) and (ii) those incurred under the Transaction Documents. Section 3.11. Full Disclosure. The information, reports, financial statements and certificates delivered to the Lenders in connection with the Transaction do not and will not, taken as a whole, contain any untrue statement of material fact or omit to state a material fact necessary to make such statements not misleading in light of the circumstances in which such statements were made; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, Newco and the Borrower represent only that they acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. Section 3.12. Private Offering; Rule 144A Matters. (a) Based in part on the accuracy of the representations and warranties of, and compliance with the covenants and agreements by, the Lenders in Section 6.1, the making of the Loans hereunder and the issuance of the Securities are and will be exempt from the registration and prospectus delivery requirements of the Securities Act. Neither Newco nor the Borrower has issued or sold Loans or the Securities or equity securities to anyone other than the Lenders (and in the case of equity securities, Riki and Newco). No securities of the same class as the Loans or the Securities have been issued or sold by Newco or the Borrower within the six-month period immediately prior to the date hereof (other than, in the case of the Escrowed Shares, to Riki). Each of Newco and the Borrower agrees that neither it, nor anyone acting on its behalf, will (i) offer the Loans or the Securities so as to subject the making, issuance and/or sale of the Loans or the Securities, to the registration or prospectus delivery requirements of Section 5 of the Securities Act or (ii) offer any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, or otherwise approach or negotiate with respect to the same with, anyone if the issuance or sale of the Loans, the Securities and any such securities would be integrated as a single offering for the purposes of the Securities Act, including without limitation, Regulation D thereunder, in such a manner as would require registration under the Securities Act thereof. Each Bridge Note and (subject 48 to the terms of the Escrow Agreement) the Escrowed Shares shall have a legend setting forth the restrictions on the transferability thereof imposed by the Securities Act for so long as the Borrower and Newco reasonably determine that such restrictions are applicable thereto. (b) In the case of each offer, sale or issuance of the Loans or the Securities no form of general solicitation or general advertising was or will be used by Newco or the Borrower or their representatives, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (c) The Loans and the Securities will be eligible for resale pursuant to Rule 144A under the Securities Act. When the Loans and Securities are issued and delivered pursuant to the Transaction Documents, they will not be of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as any other security of Newco or the Borrower that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated interdealer quotation system. Neither the issuance of the Bridge Notes nor the execution, delivery and performance of the Transaction Documents will require the qualification of an indenture under the Trust Indenture Act of 1939, as amended. Section 3.13. Absence of Proceedings. Except with respect to the matters disclosed in Schedule 3.13, there is not pending or threatened any action, suit or proceeding to which Newco or the Borrower is a party, before or by any court or other Governmental Entity or body (domestic or foreign), that could reasonably be expected to cause a Material Adverse Effect. Section 3.14. Taxes. Newco and its Subsidiaries have filed or caused to be filed all material tax returns and reports required to have been filed and paid or caused to be paid all taxes due and payable, and all assessments received by it, except where the failure to do any of the foregoing would not reasonably be expected to have a Material Adverse Effect. Section 3.15. No Material Adverse Change. There has been no material adverse change in the consolidated financial condition, business, operations, assets, liabilities, management, or value of any of Newco and its Subsidiaries, taken as a whole (including any event which, in the opinion of the Majority Lenders, is reasonably likely to result in such a material adverse change) from the position reflected in the Pro Forma Financial Statements. 49 ARTICLE IV COVENANTS So long as any Commitment shall remain outstanding or any Obligation shall remain unpaid, each of Newco and the Borrower covenants and agrees with each of the Lenders as follows: Section 4.1. Use of Proceeds. (a) The Borrower shall use the proceeds of the Bridge Loans made pursuant to Section 2.1(a) solely to make a contribution to Recco either pursuant to an equity contribution or pursuant to an intercompany loan, which will be made available to Bidco (directly and/or through Financeco) solely to finance, in part, the Transaction (including the purposes set forth in Section 3.1(a)(i) of the Recco Credit Facility, as in effect on June 27, 1997). (b) The Borrower shall use the proceeds of the Bridge Loans made pursuant to Section 2.1(b) solely to make payments of interest then due and owing on outstanding Bridge Loans. Section 4.2. Notice of Default and Related Matters. Newco shall furnish to the Paying Agent (with copies for each Lender) written notice, promptly upon becoming aware of the existence of: (a) any condition or event that constitutes a Default or an Event of Default, specifying the nature and period of existence thereof and the action taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any Person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Entity, against or affecting Newco or any of its Subsidiaries or any of their respective Affiliates that would reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect; and (c) any development of which a Responsible Officer is aware that has resulted in, or which such Responsible Officer has reasonably concluded will result in, a Material Adverse Effect. 50 Section 4.3. Merger and Sale. (a) Newco and the Borrower shall not: (i) consolidate or merge with or into any other Person, except that so long as immediately before and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing (A) Wholly Owned Subsidiaries of Newco may merge with and into Newco or the Borrower and (B) upon termination of the Riki Credit Facility and payment in full of all amounts due thereunder, Riki may merge with and into Newco, (ii) directly or indirectly (through one or more Subsidiaries) sell, convey or transfer or lease all or substantially all of the assets of Newco or the Borrower (in one or more related transactions), or (iii) assign any of its respective Obligations under the Loan Documents to any other Person. (b) Newco and the Borrower shall not permit any of Powercor, Powercoal or Recco to, directly or indirectly (by way of merger or otherwise), sell or otherwise transfer all or any substantial part of their respective assets to any Affiliate of such Person other than a Subsidiary of such Person. Section 4.4. Information; Special Rights; Compliance Certificates. (a) Each of Newco and the Borrower shall, and shall cause each of its respective Subsidiaries to, promptly provide such information concerning the businesses, properties, liabilities and financial condition of Newco, the Borrower and such Subsidiaries as any Lender may from time to time reasonably request, including, if so requested, any reports or other documents provided to lenders in connection with the Recco Credit Facility, the Powercoal Credit Facility or the Powercor Credit Facility. Each of Newco and the Borrower shall, and shall cause each of their respective Subsidiaries to: (i) keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities, (ii) permit any Lender or its representatives to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective businesses, finances and accounts with their respective executive officers and, subject to the right of the Borrower's representatives to participate in any such discussion, with their independent public 51 accountants, all upon reasonable notice and at such reasonable times and as often as may reasonably be desired, and (iii) permit any Lender or its representatives to consult with Newco and the Borrower with respect to their businesses and make proposals with respect to such businesses, and meet with the respective executive officers of Newco and the Borrower with respect to such proposals. (b) Newco shall furnish to each of the Lenders (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if Newco were required to file such financial information and, with respect to the annual information only, a report thereon by Newco's certified independent public accountants (who shall be a firm of established national reputation) and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if Newco were required to file such reports, in each case within the time periods set forth in the SEC's rules and regulations (beginning with the first fiscal quarter ending after the Closing Date; provided, that prior to such date Newco shall furnish to each Lender any information made publicly available relating thereto); provided, that if the Closing Date occurs prior to September 30, 1997 the quarterly financial statements and other information required by this paragraph shall not be required to be delivered until December 31, 1997. In addition, until such time as the Borrower and Newco are subject to Section 13 or 15(d) of the Exchange Act or exempt from reporting pursuant to Rule 12g3-2(b) thereunder, each of the Borrower and Newco shall furnish to the Lenders, each holder of securities and to prospective investors designated by a Lender or such a holder, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (c) Newco shall deliver to each of the Lenders, within 60 days after the end of each fiscal quarter of Newco (beginning with the first fiscal quarter ending after the Closing Date; provided, that prior to such date Newco shall furnish to each Lender any information made publicly available relating thereto), an Officer's Certificate stating that a review of the activities of Newco and its Subsidiaries during the preceding fiscal quarter have been performed with a view to determining whether Newco and the Borrower and their respective Subsidiaries have kept, observed, performed and fulfilled their respective Obligations under this Agreement, and further stating that (i) Newco and the Borrower and their respective Subsidiaries have kept, observed, performed and fulfilled each and every covenant contained in this Agreement and are not in default in the performance or observance of any of the terms, provisions or conditions hereof or under any other mortgage, indenture or debt instrument (or, if a Default, Event of Default or default under any such mortgage, indenture or instrument shall have occurred, describing all such Defaults, Events of Default or defaults and what action Newco and the Borrower are taking or propose to take with respect thereto) and (ii) setting forth the Net Termination Value as of the 52 last day of the most recently completed fiscal quarter; provided, that if the Closing Date occurs prior to September 30, 1997, such Officers Certificate shall not be required to be delivered prior to January 1, 1998. (d) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the annual financial statements delivered pursuant to paragraph (b) above shall be accompanied by a written statement of Newco's certified independent public accountants (who shall be from a firm of established national reputation) that, solely in making the examination necessary for certification of such financial statements and without independent investigation or inquiry, nothing has come to their attention that would lead them to believe that Newco, the Borrower or any of their respective Subsidiaries has violated any provisions of Article IV of this Agreement or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. Section 4.5. Authorizations and Approvals. Each of Newco and the Borrower shall, and shall cause each of their respective Subsidiaries to, promptly obtain, from time to time, all permits, licenses, franchises, authorizations, consents and approvals (collectively, "Permits") as may be required to enable Newco, the Borrower and each of their respective Subsidiaries to comply with their respective obligations under the Transaction Documents except to the extent the failure to obtain any such permits would not, singly or in the aggregate, be reasonably expected to have a Material Adverse Effect. Section 4.6. Limitation on Incurrence of Additional Indebtedness and Issuance of Additional Preferred Stock. (a) Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable, contingently or otherwise, with respect to (collectively, "incur"), or permit to exist, any Indebtedness (including Acquired Debt) or any shares of preferred stock except for: (i) (x) Indebtedness of Recco and Bidco and their Subsidiaries under the Recco Credit Facility in an aggregate principal amount not to exceed (pound)2,850 million minus the aggregate amount of all principal repayments with respect to term loans made under the Recco Credit Facility since the Closing Date, (y) Indebtedness of Powercoal and its Subsidiaries (and prior to the consummation of the Asset Separation, Recco and Bidco and their Subsidiaries) under the Powercoal Credit Facility in an aggregate principal amount not to exceed $1,625 million minus the aggregate amount of all principal repayments with respect to term loans made under the Powercoal Credit Facility since the 53 Closing Date, and (z) Indebtedness of Powercor and its Subsidiaries under the Powercor Credit Facility in an aggregate principal amount not to exceed AUS $1,275 million minus the aggregate amount of all principal repayments with respect to term loans made under the Powercor Credit Facility since the Closing Date; (ii) the Loans and the Guarantee; (iii) Indebtedness (other than Indebtedness of the Target and its Subsidiaries) outstanding on the date hereof and Indebtedness of the Target and its Subsidiaries outstanding on the Closing Date (other than any such Indebtedness refinanced with the proceeds of borrowings under the Credit Facilities). (iv) the incurrence by Newco or any of its Subsidiaries of intercompany Indebtedness between or among Newco and any of its Subsidiaries; provided, however, that (i) if Newco or the Borrower is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Newco or a Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is neither Newco nor a Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by Newco or such Subsidiary, as the case may be; (v) Indebtedness (including tax exempt financing and Capitalized Lease Obligations) incurred by the Company or any of its Subsidiaries, to finance the purchase, construction, lease, development or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate outstanding principal amount which, when aggregated with the principal amount of all other Indebtedness then outstanding and incurred pursuant to this clause (v) (including all Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (v)), does not exceed $200 million (or the Dollar Equivalent thereof) outstanding at any time; (vi) Indebtedness incurred pursuant to any Permitted Receivables Financing; (vii) Indebtedness in respect of surety and appeal bonds, performance bonds, reclamation bonds and other obligations of a like nature incurred in the ordinary course of business; 54 (viii) Non-Recourse Indebtedness (as the principal amount of such Non-Recourse Indebtedness is calculated in the definition of "Indebtedness" herein) in an aggregate principal amount outstanding not to exceed $200 million (or the Dollar Equivalent thereof) at any time; (ix) extensions, renewals or refinancings of Indebtedness described under paragraphs (iii) and (v), and this paragraph (ix) so long as (A) such Indebtedness ("Refinancing Indebtedness") is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being extended, renewed or refinanced plus the amount of any premiums required to be paid thereon and fees and expenses associated therewith, (B) such Refinancing Indebtedness has a longer or equal weighted average life than the Indebtedness being extended, renewed or refinanced, (C) the interest rate applicable to such Refinancing Indebtedness shall be a market interest rate (as determined in good faith by a Responsible Officer of Newco) as of the time of such extension, renewal or refinancing, (D) if the Indebtedness being extended, renewed or refinanced is subordinated to the obligations, such Refinancing Indebtedness is subordinated to the Obligations to the extent of the Indebtedness being extended, renewed or refinanced, and (E) at the time and after giving effect to such extension, renewal or refinancing, no Default or Event of Default shall have occurred and be continuing; and (x) the incurrence by Newco, the Borrower or any of their respective Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $100 million (or the Dollar Equivalent thereof). (b) For purposes of determining compliance with this Section 4.6, accrual of interest, the accretion of accreted value and the payment of interest by capitalizing the same or issuing additional Indebtedness will not be deemed to be an incurrence of Indebtedness. (c) Newco shall promptly notify the Paying Agent in writing of any refinancing, refunding, replacement or substitution of any Credit Facility or the Riki Credit Facility. Section 4.7. Compliance with Laws. Newco and the Borrower shall, and shall cause each of their respective Subsidiaries to, comply in all respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including Environmental Laws and ERISA and the rules and regulations thereunder), except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where non-compliance therewith would not reasonably be expected to have a Material Adverse Effect. 55 Section 4.8. Anti-Layering. Notwithstanding any other provision hereof, (i) the Borrower will not incur, create, issue, assume, guarantee or otherwise become directly or indirectly liable for any Indebtedness that is (x) subordinate or junior in right of payment to any unsubordinated Indebtedness of the Borrower and (y) pari passu in right of payment with the Loans and (ii) Newco will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is (x) subordinate or junior in right of payment to unsubordinated Indebtedness of Newco and (y) pari passu in right of payment with the Guarantee. Section 4.9. Sale and Leaseback Transactions. Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries to, enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a "Sale and Leaseback Transaction") unless Newco or such Subsidiary could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to Section 4.6 and (b) a Lien to secure such Indebtedness which would not have been prohibited by Section 4.16; provided, that in the event Newco or any of its Subsidiaries extends the term of any lease entered into in connection with a Sale and Leaseback Transaction, such extension shall be deemed to constitute a new Sale and Leaseback Transaction which shall be subject to the restrictions set forth in this Section 4.9. Section 4.10. Restricted Payments. Newco shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of their respective Equity Interests (including, without limitation, any payment in connection with any merger or consolidation) to the direct or indirect holders of any of their respective Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Newco or payable to Newco or a Subsidiary of Newco and other than Permitted Distributions); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation) any Equity Interests of Newco, the Borrower (other than any such Equity Interests owned by Newco or any Subsidiary of Newco); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Loans or the Guarantee, except a payment of interest or principal at its Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"). Section 4.11. Limitation on Restrictions on Distributions from Subsidiaries. Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, create or otherwise cause or suffer 56 to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of Newco to (i)(a) pay dividends or make any other distributions to Newco or any of its Subsidiaries on its Capital Stock or other Equity Interests, or (b) pay any Indebtedness owed to Newco or any of its Subsidiaries, (ii) make loans or advances to Newco or any of its Subsidiaries or (iii) transfer any of its properties or assets to Newco or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the Credit Facilities as in effect on June 27, 1997 and as amended, extended, supplemented, modified, refinanced, replaced or substituted from time to time or Indebtedness incurred subsequent to the date hereof, as the case may be; provided that such amendments, extensions, modifications, supplements, refinancings, replacements, refundings or substitutions and Indebtedness incurred subsequent to the date hereof in accordance with this Agreement are no more restrictive in any respect material to the Lenders than the restrictions contained in the applicable Credit Facility as in effect on June 27, 1997; (b) the Loan Documents; (c) applicable law; (d) restrictions of the nature described in clause (iii) above by reason of customary non-assignment provisions in leases entered into in the ordinary course of business material to the Lenders; (e) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired; (f) Indebtedness existing on the date hereof, and any extensions, refinancing, renewals or replacements of any of such Indebtedness; provided that the encumbrances and restrictions in any such extensions, refinancing, renewals or replacements are no more restrictive in any respect material to the Lenders than those encumbrances or restrictions that are in effect on the date hereof; (g) agreements existing with respect to any Person or the property or assets of such Person acquired by Newco or any of its Subsidiaries and existing at the time of such acquisition and not created in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or property or assets acquired, and any extensions, refinancing, renewals or replacements of any of the foregoing; provided that the encumbrances and restrictions in any such extensions, refinancing, renewals or replacements are no more restrictive in any respect material to the Lenders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (h) encumbrances on any Receivables Subsidiary or any Single Purpose Entity; and (i) any encumbrance or restriction on the transfer of any property or asset in an agreement relating to the acquisition or creation or disposition of such property or asset or any Lien on such property or asset that is otherwise permitted by the terms of this Agreement. Section 4.12. Limitation on Sales of Assets and Subsidiary Stock. Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries to, enter into any agreement with respect to or consummate any Asset Sale, (except for sales or other dispositions of Margin Stock permitted by Section 4.25), unless (i) the consideration received in connection therewith is at least equal 57 to the fair market value of the assets or property sold, transferred or otherwise disposed of (as determined in good faith by a Responsible Officer of Newco), (ii) in the case of an Asset Sale of property having a value of (x) more than $25,000,000 but less than $100,000,000, such Asset Sale shall be for consideration at least 50% of which is cash and (y) $100,000,000 or more, such Asset Sale shall be for consideration at least 80% of which is cash; provided, that (a) if such Asset Sale is made by Newco or the Borrower, the Net Cash Proceeds thereof are applied in accordance with Section 2.5(a) and (b) in the case of all other Asset Sales, the Net Cash Proceeds are applied within 180 days to either (x) the permanent reduction of outstanding Indebtedness of any Subsidiary of Newco (other than the Borrower) or (y) to the acquisition of assets used in the business of Newco and its Subsidiaries; provided, further, that for purposes of this Section 4.12, the right to receive production payments, royalty payments and other similar rights that are contingent on the performance of the assets sold in such Asset Sale shall be deemed not to be consideration for such Asset Sale. Section 4.13. Limitation on Transactions with Affiliates. Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries to, make any material payment to, or sell, lease, transfer or otherwise dispose of any material properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such Person (each of the foregoing, an "Affiliate Transaction"), unless such Affiliate Transaction is on terms that are no less favorable to Newco, the Borrower or the relevant Subsidiary than those that would have been obtained in a comparable transaction by Newco, the Borrower or such Subsidiary with an unrelated Person; provided that the foregoing provisions shall not apply to (w) transactions between or among Newco and its Subsidiaries not otherwise prohibited by this Agreement, (x) Restricted Payments (other than Investments) that are permitted by Section 4.10, (y) any Permitted Receivables Financing and (z) transactions pursuant to agreements entered into or in effect on the Closing Date and set forth in Schedule 4.13. Section 4.14. Line of Business; Limitation on Newco's Activities. (a) Newco and the Borrower shall not, and shall not permit any of their respective Subsidiaries (other than any Receivables Subsidiary) to, directly or indirectly, engage to any material extent in any line of business other than the mining or energy businesses and business activities reasonably incidental or related thereto (collectively, the "Related Businesses"). (b) Newco shall not create or acquire any direct Subsidiary and shall not engage in any activity other than the holding of the stock of the Borrower, Powercoal and the Powercor Members. Newco shall at all times directly own 100% of the issued and outstanding Voting Stock and other Equity Interests of the 58 Borrower, Powercoal and the Powercor Members and the Borrower shall at all times own 100% of the outstanding Capital Stock and other Equity Interests in Recco. (c) Neither Newco nor the Borrower shall make any payments in respect of the Tax Sharing Agreements except to the extent that Newco or the Borrower, as the case may be, shall have previously received payments in respect of the Tax Sharing Agreements from their respective Subsidiaries. Section 4.15. Other Indebtedness and Agreements. (a) Newco and the Borrower shall not, and shall not permit, any of their respective Subsidiaries to, permit any waiver, supplement, modification, amendment, termination or release of any rights under or provisions of any indenture, instrument or agreement pursuant to which any Indebtedness or preferred stock of Newco or the Borrower is outstanding or the Tax Sharing Agreements (or take any action pursuant to Section 7.2 of the U.K. Tax Sharing Agreement), the Riki Note or any other agreement that is material to the conduct and operations of Newco or its Subsidiaries taken as a whole, or modify their respective charter or by- laws, in each case to the extent that any such waiver, supplement, modification, amendment, termination or release (or action pursuant to Section 7.2 of the U.K. Tax Sharing Agreement) would be adverse to the Lenders in any material respect. Within 270 days following the Closing Date, Newco shall cause (x) Target and each of its Subsidiaries organized in the United Kingdom to enter into the U.K. Tax Sharing Agreement and (y) each Subsidiary of Target organized in the United States to enter into the U.S. Tax Sharing Agreement. In addition, neither Newco nor the Borrower shall fail to enforce or waive any of its rights under, or any provisions of, or otherwise forgive any amounts due and payable under, the Riki Note or the Tax Sharing Agreements (to the extent each is a party thereto). (b) The Borrower shall use its reasonable endeavours to ensure that any procedures set out in Section 155 et seq. Companies Act required to be completed to permit Target and its relevant Subsidiaries to enter into the U.K. Tax Sharing Agreement shall be implemented: (i) if the requirements of S.429 Companies Act for the implementation of the procedures set out therein shall be met with respect to the Offer, promptly after the completion of those procedures; or (ii) if such requirements shall not be met within the period specified in S.429(3) Companies Act, promptly after the expiry of such period. Section 4.16. Liens. Newco and the Borrower shall not directly or 59 indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by Newco or the Borrower, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Section 4.17. Existence; Business and Properties. Newco and the Borrower shall, and shall cause each of their respective Subsidiaries to, (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 4.3 hereof, and (b) do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names that are material to the conduct of its business; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted in all material respects at all times, in each case where failure to do so would reasonably be expected to have a Material Adverse Effect. Section 4.18. Insurance. Each of Newco and the Borrower shall, and shall cause their respective Subsidiaries, to keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance (including self insurance), to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. Section 4.19. Stay, Extension and Usury Laws. Newco and the Borrower covenants (to the extent that they may lawfully do so) that they shall not, and shall not permit any of their respective Subsidiaries to, at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants in or the performance of this Agreement; and each of Newco and the Borrower waives, and agrees to cause each of their respective Subsidiaries to waive (to the extent that they may lawfully do so), all benefit or advantage of any such law, and covenant that they shall not, and shall not permit their respective Subsidiaries to, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Lenders, but shall suffer and permit, 60 and shall cause their respective Subsidiaries to suffer and permit, the execution of every such power as though no such law has been enacted. Section 4.20. Change of Control. (a) Upon the occurrence of a Change of Control, each Lender will have the right to require the Borrower to prepay all or any part of such Lender's Loans pursuant to the offer described below (the "Change of Control Offer") at a prepayment price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of prepayment (the "Change of Control Payment"). Within 10 days following any Change of Control, the Borrower will mail a notice to each Lender describing the transaction or transactions that constituted the Change of Control and offer to repay the Loans on the date specified in such notice, which date shall be no earlier than 30 days and no later than 45 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures set forth below. (b) Notice of a Change of Control Offer shall be mailed by the Borrower to the Lenders at their addresses set forth in the Loan Register. The Change of Control Offer shall remain open from the time of mailing until the Change of Control Payment Date. The notice shall be accompanied by a copy of the most recent reports furnished pursuant to Section 4.4(b)(i) and (ii). The notice shall contain all instructions and materials necessary to enable such Lenders to tender Bridge Notes pursuant to the Change of Control Offer. The notice, which shall govern the terms of the Change of Control Offer, shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.20, that Bridge Notes may be surrendered in whole or in part and that all Bridge Notes will be accepted for payment; (2) the purchase price and the Change of Control Payment Date; (3) that any Loan not repaid will continue to accrue interest; (4) that any Loan to be prepared pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Lenders electing to have a Loan repaid pursuant to a Change of Control Offer will be required to surrender the related Bridge Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of such Bridge Note completed, to the Borrower at the address specified in the 61 notice prior to 5:00 p.m., New York City time, on the Change of Control Payment Date; (6) that Lenders will be entitled to withdraw their election if the Borrower receives not later than 5:00 p.m. (New York City time) on the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Lender, the principal amount of Loans such Holder initially elected to have repaid and a statement that such Lender is withdrawing his election to have such Loans repaid; and (7) that Lenders whose Loans are repaid only in part will be issued new Bridge Notes equal in principal amount to the principal amount of the Loan to remain outstanding. (c) On the Change of Control Payment Date, the Borrower shall repay all Loans or portions thereof of all Lenders that properly elected repayment thereof pursuant to the Change of Control Offer, pay the Change of Control Payment for each such Loan (or portion thereof) elected to be prepaid and deliver to each Lender a new Bridge Note equal in principal amount (excluding premiums, if any) to any unpurchased portion of the corresponding Bridge Note surrendered. The Borrower will notify the remaining Lenders of the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The Borrower shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the prepayment of the Loans as a result of a Change of Control. Section 4.21. Obligations and Taxes. Each of Newco and the Borrower shall, and shall cause their respective Subsidiaries to, pay its Indebtedness and other material obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all material lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and Newco or the Borrower (as applicable) shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien. 62 Section 4.22. Leverage Ratio. Newco shall not permit the Leverage Ratio as of any date after the Closing Date to be in excess of 6.25 to 1. Section 4.23. Interest Expense Coverage Ratio. Newco and the Borrower shall not permit the Interest Expense Coverage Ratio as of the end of any fiscal quarter which ends after the Closing Date to be less than 1.85 to 1. Section 4.24. Offer Conditions. (a) Each of Newco and the Borrower undertakes that: (i) without the prior agreement of the Majority Lenders (such agreement being conclusively evidenced by a written notice from the Paying Agent to the Borrower and, in the case of sub-paragraphs (A) and (B), not to be unreasonably withheld or delayed), Newco shall not permit Bidco to and, in respect of sub-paragraph (B) only, Newco shall not, and shall not permit any of its Subsidiaries to: (A) amend or vary in any material respect any material term or condition of the Offer other than by virtue of an extension of the time for acceptance of the Offer; (B) take or permit to be taken any step as a result of which the offer price stated in the Offer is, or may be required to be, increased beyond the level agreed between Newco and the Lenders from time to time; (ii) in all material respects relevant in the context of the Offer, Newco and its Subsidiaries will comply with The City Code of Takeovers and Mergers (subject to any applicable waiver by the Panel), the Financial Services Act 1986, the Companies Act 1985 and all other applicable statutes, laws and regulations; (iii) Newco will keep the Paying Agent informed as to the status and progress of the Offer and, in particular, will from time to time and promptly on request give to the Paying Agent reasonable details as to the current level of acceptances of the Offer (including a copy of every certificate delivered by the receiving agent to Bidco and/or its advisers pursuant to the Code) and such other matters relevant to the Offer as the Paying Agent may reasonably request. (b) Newco shall cause Bidco not to, without the prior agreement of the Majority Lenders, decide, declare or accept that valid acceptances in respect of less than 90 per cent in nominal value of securities of Target to which the Offer 63 relates shall be required for fulfillment of the condition set out in paragraph (a) of Appendix 1 to the Press Release; provided that the Majority Lenders shall not unreasonably withhold or delay giving their agreement if it is shown to their reasonable satisfaction that Bidco will achieve acceptances sufficient to enable it to give notice under section 429 of the Companies Act of 1985 in relation to the shares to which the Offer relates. (c) Newco shall cause Bidco to keep the Paying Agent informed and consult with it as to: (i) the terms of any undertaking or assurance proposed to be given by it, any of its Affiliates or Target or any of its Subsidiaries to the Director General of Electricity Supply, the Director General of Gas Supply or the Secretary of State for Trade and Industry in connection with the Offer; (ii) the terms of any modification to any licenses of Target and its Subsidiaries under the Gas Act or the Act proposed in connection with the Offer; (iii) any terms proposed in connection with any authorization or determination necessary or appropriate in connection with the Offer, including those from the Secretary of State for Trade and Industry and the Foreign Investment Review Board of Australia. If any of such proposed undertakings, assurances, modifications or terms are, where applicable, of a type materially more onerous than those accepted in connection with the acquisition of other regional electricity companies in the UK and the Majority Lenders, acting reasonably, state that in their opinion such proposed undertaking(s), assurance(s), modification(s) and/or term(s), or compliance therewith, would materially and adversely affect the ability of Newco and its Subsidiaries to comply with their material obligations under the Loan Documents, Newco shall cause Bidco to promptly request the Panel to confirm (and shall use its reasonable endeavors to ensure that the Panel does confirm) that the Panel will not object to the lapsing of the Offer as a result of the non-satisfaction of whichever of conditions (b) to (f), (j) and (l) in Appendix 1 to the Press Release is relevant. If the Panel gives a confirmation substantially in those terms, Newco shall cause Bidco to, at the earliest opportunity, declare the Offer lapsed by reason of the non-fulfillment of such condition(s). (d) If Newco or any of its Subsidiaries becomes aware (whether through notice from the Paying Agent or any Lender or otherwise) of a circumstance or event which is or could reasonably be construed to be covered by any condition of the Offer (other than those contained in paragraphs (a) to (j) of Appendix 1 to the Press Release) which, if not waived, would entitle Bidco (with the Panel's consent, if needed) to lapse the Offer, Newco shall cause Bidco to promptly notify the Paying 64 Agent and, if the Majority Lenders, acting reasonably, state that in their opinion such circumstance or event would materially and adversely affect the ability of Newco and its Subsidiaries comply with its material obligations under the Loan Documents, Newco shall cause Bidco to promptly request the Panel to confirm (and shall use its reasonable endeavors to ensure that the Panel does confirm) that the Panel will not object to the lapsing of the Offer as a result of the non-satisfaction of that condition. If the Panel gives a confirmation substantially in those terms, Newco shall cause Bidco to not waive that condition or treat it as fulfilled and shall declare the Offer lapsed at the earliest opportunity. Section 4.25. Margin Stock Limitations. Notwithstanding any other provisions contained in this Agreement or the other Loan Documents, the pledge or sale of Margin Stock owned by Bidco shall be permitted until Target has become a Wholly Owned Subsidiary of Bidco and Bidco ceases to own any Margin Stock; provided that until such time Newco shall not permit Bidco to: (a) incur any Indebtedness other than (i) its obligations under the Offer, (ii) its obligations under or permitted under the Recco Credit Facility (as in effect on June 27, 1997) and the Powercoal/Bidco Loans (as defined in the Powercoal Credit Facility, as in effect on June 27, 1997 and (iii) intercompany loans between or among Newco and its Subsidiaries; (b) engage in any business other than acquiring and holding Equity Interests of Target and engaging in the related activities contemplated by the Offer Documents; or (c) sell or otherwise dispose of Margin Stock unless (x) such Margin Stock is sold for cash, (y) fair value is received for such Margin Stock and (z) the proceeds of such sale are either held as cash or invested in certificates of deposit, U.S. government securities, commercial paper or other money market instruments that are exempted securities under the United States federal securities laws. ARTICLE V CONDITIONS Section 5.1. Effectiveness. This Agreement shall become effective upon the execution and delivery of a counterpart of this Agreement by each of Newco and the Borrower and the satisfaction of each of the following conditions: (a) Opinions; Reliance Letters. The Paying Agent shall have received (i) the legal opinion of each of Stoel Rives LLP, special United States counsel to 65 Newco and the Borrower, Davis Polk & Wardwell, special United States counsel to Newco and the Borrower, and Linklaters and Paines, special United Kingdom counsel to Newco and the Borrower, and addressed to the Lenders and dated as of the date of this Agreement, in the forms attached as Exhibits G-1, G-2 and G-3, respectively, and (ii) reliance letters permitting the Lenders to rely on all of the opinions of counsel rendered in connection with the Transaction. (b) Closing Papers. The Paying Agent shall have received the following, dated as of the date of this Agreement and in form and substance reasonably satisfactory to them and to their special counsel, Latham & Watkins: (i) a certificate of the Secretary or Assistant Secretary of each of Newco and the Borrower certifying as to the attached copy of the resolutions adopted by the board of directors of such Person or their Subsidiaries, as applicable, authorizing, to the extent applicable, the execution, delivery and performance of each of this Agreement and each of the other Transaction Documents; (ii) a certificate of the Secretary or Assistant Secretary of each of Newco and the Borrower certifying as to attached copies of the articles or certificate of incorporation and by-laws of such Person as in effect on the date of this Agreement; and (iii) a certificate of the Secretary or Assistant Secretary of each of Newco and the Borrower, dated the date of this Agreement, as to the incumbency and signatures of the Officers of such Person, authorized, to the extent applicable, to act with respect to this Agreement, the Recco Credit Facility, the Powercoal Credit Facility, the Related Documents and each of the other Transaction Documents. Section 5.2. Closing. Upon satisfaction of the conditions set forth herein, each of the Lenders shall disburse the proceeds of its Bridge Loan made pursuant to Section 2.1(a) by wire transfer of immediately available funds to the account designated by the Borrower in New York, New York or London, England, against delivery to the Lenders of Bridge Notes in the names and denominations specified by the Lenders (the "Closing"). The Borrower shall give the Lenders at least three (3) Business Days' notice of the expected date of such Closing (the "Closing Date"). The Closing shall take place at such place as shall be agreed upon by the Lenders and the Borrower. Section 5.3. Conditions of the Lenders' Obligations. (a) The obligation of each of the Lenders to make its Bridge Loan made pursuant to Section 2.1(a) on the Closing Date in the amount of its Bridge Loan Commitment is several 66 and not joint and is subject to the prior or concurrent satisfaction on the Closing Date of each of the following conditions: (i) Representations and Warranties; Agreements; No Default. The representations and warranties of Newco and the Borrower set forth in or incorporated by reference in Sections 3.2, 3.3 and 3.4(a) of this Agreement in relation to the Borrower or Newco only (excluding references to their Subsidiaries) shall be true and correct at and as if repeated on and as of the Closing Date after giving effect to the Transaction. There shall exist no Event of Default described in Section 7.1(h) in relation to Newco or the Borrower only (excluding references to their Subsidiaries). (ii) Fees. All fees and expenses due to any Lender or their respective affiliates and all actions required to be taken on or before the Closing Date in connection with this Agreement, the Engagement Letter, any of the other Loan Documents or otherwise shall have been paid in full. (iii) The Paying Agent shall have received executed copies of the Registration Rights Agreement, the Stockholders Agreement and the Escrow Agreement. All such documents shall have been duly authorized, executed and delivered by Newco or the Borrower. (iv) The Escrow Agent shall have received, and be holding in escrow for the benefit of the Lenders, executed and delivered Escrowed Shares dated in blank. (v) Concurrent Transactions. All of the outstanding Capital Stock and other Equity Interests of the Powercor Members and their respective Subsidiaries and other assets (as of the date hereof) shall have been transferred to Newco. All conditions precedent to borrowings under the Riki Credit Facility to finance the Offer shall have been satisfied or waived (other than any such condition in such agreement requiring that the borrowings shall have been made under this Agreement, the Powercoal Credit Facility or any other Credit Facility and/or the proceeds of such borrowings have been made available to Bidco). The actions set forth in Clauses (b) (ii) and (iii) of the definition of "Equity Financing" herein shall have been consummated. All conditions precedent to borrowings under the Recco Credit Facility and the Powercoal Credit Facility to finance the Offer shall have been satisfied or waived (other than any condition in any such agreement requiring that Borrowings shall have been made under this Agreement, the Riki Credit Facility or any other Credit Facility and/or the proceeds of such borrowings have been made available to Bidco). 67 (vi) Offer. The Offer shall have become or been declared unconditional in all respects without Bidco having declared the Offer or permitted the Offer to become unconditional in circumstances where any provision of Section 4.24 other than paragraph (a)(ii) or (iii) is breached thereby. (b) The obligation of each of the Lenders to make Bridge Loans made pursuant to Section 2.1(b) is several and not joint and is subject to the prior or concurrent satisfaction on the date of the making of such Loan of each of the following conditions: (i) Representations and Warranties; Agreements; No Default. The representations and warranties of Newco and the Borrower set forth in or incorporated by reference in this Agreement and each other Loan Document shall be true and correct at and as if repeated on and as of the making of such Loan after giving effect to the making of such Loan. Each of Newco and the Borrower shall have performed all agreements on its part to be performed pursuant to this Agreement on or prior to the date of the making of such Loan and there shall exist no Default or Event of Default. (ii) Fees. All fees and expenses due to any Lender or their respective affiliates on or before the date of the making of such Loan in connection with this Agreement, the Engagement Letter, any of the other Loan Documents or otherwise shall have been paid in full. (iii) Change of Control. There shall not have occurred a Change of Control. (iv) The aggregate principal amount of the Bridge Loans to be made on such date by such Lender does not, when taken together with the aggregate principal amount of all Bridge Loans made by such Lender pursuant to Section 2.1(b) on or prior to such date, exceed such Lender's Dedicated Interest Commitment. (v) The Borrower shall have given the Arrangers at least three (3) Business Days' notice of its intention to incur Bridge Loans pursuant to Section 2.1(b) hereof which notice shall include the date of incurrence and the aggregate amount of such Bridge Loans and shall have delivered to the Arrangers Bridge Notes evidencing such Bridge Loans duly completed and executed, in the appropriate amounts. (c) Each borrowing of the Bridge Loans shall constitute a joint and several representation and warranty by each of Newco and the Borrower to the effect that the applicable conditions precedent set forth in this Article V are satisfied on the date of such borrowing. 68 ARTICLE VI TRANSFER OF THE SECURITIES; REPRESENTATIONS OF LENDERS Section 6.1. Transfer of the Securities. Each Lender acknowledges that the Loans have not been registered under the Securities Act and represents and agrees that it is acquiring the Loans and the Securities for its own account and that it will not, directly or indirectly, transfer, sell, assign, pledge or otherwise dispose of its Loans or Securities (or any interest therein) unless such transfer, sale, assignment, pledge or other disposition is made (i) pursuant to an effective registration statement under the Securities Act or (ii) pursuant to an available exemption from registration under, and otherwise in compliance with, the Securities Act. Each Lender represents, warrants, covenants and agrees to and with the Borrower and Newco that it is either (i) a qualified institutional buyer within the meaning of Rule 144A under the Securities Act acting for its own account or the account of one or more other qualified institutional buyers, and is aware that the Borrower and Newco may rely upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A thereunder or (ii) an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. Each of the Lenders acknowledges that the Securities will bear a legend restricting the transfer thereof in accordance with the Securities Act and the rules and regulations thereunder to the extent set forth in Section 3.12. Subject to the provisions of the previous paragraph, each of Newco and the Borrower agrees that each Lender will be free to sell or transfer all or any part of the Loans or the Securities (including, without limitation, participation interest in the Loans) to any third party and to pledge any or all of the Securities to any commercial bank or other institutional lender. Any assignment by any Lender of all or any part of such Lender's rights and obligations hereunder and under the other Loan Documents shall be made pursuant to an Assignment and Acceptance executed by the assigning Lender, the assignee and delivered to the Paying Agent for recording in the Loan Register. Section 6.2. Replacement Securities Upon Transfer or Exchange. Upon surrender of any Securities by any Lender in connection with any permitted transfer or exchange, the Borrower will execute and deliver in exchange therefor a new Security or Securities of the same aggregate tenor and principal amount, payable to the order of such Persons and in such denominations as such Lender may request. The Borrower may require payment by such Lender of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer. Section 6.3. Register. The Paying Agent on behalf of the Borrower shall maintain a register of the principal amount of the Loans held by each Lender and any interest due and payable with respect thereto and a copy of each Assignment and 69 Acceptance delivered to it. The entries in the Loan Register shall be conclusive, in the absence of manifest error, and the Borrower, the Paying Agent and the Lenders shall treat each Person whose name is recorded in the Loan Register as the owner of a Loan or other Obligation hereunder as the owner thereof for all purposes of this Agreement, notwithstanding any notice to the contrary. Any assignment of any Loan or other Obligation shall be effective only upon appropriate entries with respect thereto being made in the Loan Register. The Paying Agent will allow any Lender to inspect and copy such register at the Paying Agent's principal place of business during normal business hours. ARTICLE VII EVENTS OF DEFAULT Section 7.1. Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) any representation or warranty made or deemed made by Newco or the Borrower herein or that is contained in any certificate, document or financial or other statement furnished by either of them at any time under or in connection with any Loan Document or shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (b) the Borrower defaults in the payment of the principal of or premium on any of the Loans, when the same shall become due and payable, whether at stated maturity, upon acceleration, upon redemption, or otherwise; (c) the Borrower defaults in the payment of any interest upon any of the Loans, when the same becomes due and payable and such default continues for five Business Days; (d) the Borrower defaults in the payment of any other amounts payable under this Agreement which, in the aggregate, exceed $1,000,000 (or the Dollar Equivalent thereof) and such default continues for five Business Days; (e) Newco or the Borrower or any of their Subsidiaries fails to observe or perform any of its covenants or agreements contained in Article IV; (f) Newco or the Borrower or any of their Subsidiaries fails to observe or perform any of its covenants or agreements (other than those set forth in clause (e) above) contained in any of the Loan Documents, and such failure continues for a period of 30 days; 70 (g) (x) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Newco or any of its Material Subsidiaries (or the payment of which is guaranteed by Newco or any of its Material Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of the this Agreement, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a default described in clause (a) above or the maturity of which has been so accelerated aggregates $50.0 million (or the Dollar Equivalent thereof) or more or (y) failure to make any payment in respect of any Material Hedging Obligations when due. (h) (i) any order is made or resolution passed or any legal proceedings are initiated or are consented to by Newco, the Borrower or any Material Subsidiary or any petition shall be presented or legal proceeding commenced by any Person (and not, where that Person is unconnected with Newco, the Borrower or such Material Subsidiary save for being a creditor thereof, discharged or stayed within twenty-one days in the case of both legal proceedings and such petition) for the suspension of payments generally or for any process giving protection against creditors or for the dissolution, termination of existence, liquidation, winding up, bankruptcy or other like process, in each case with respect to Newco, the Borrower or any Material Subsidiary (other than a solvent liquidation, dissolution or winding up of a Material Subsidiary (other than the Borrower or Newco) in a transaction not otherwise prohibited by this Agreement); (ii) a moratorium in respect of all or any debts of Newco, the Borrower or any Material Subsidiary or a composition or an arrangement with creditors generally of Newco, the Borrower or any Material Subsidiary or any other arrangement whereby their respective affairs and/or assets are submitted to the control of or are protected from their respective creditors is applied for, ordered or declared, save where the relevant company is, in good faith, contesting such application, moratorium, composition or arrangement by appropriate proceedings diligently pursued and such application, moratorium, composition or arrangement is discharged within 21 days; (iii) an application is made for the appointment of an administrator (as such term is used in the Insolvency Act 1986) or similar official in relation to Newco, the Borrower or any Material Subsidiary or an administrator or administrative receiver is appointed in respect of Newco, the Borrower or any Material Subsidiary save where the relevant company is, in good faith, contesting such application or appointment by appropriate proceedings diligently pursued and such 71 application is not discharged or appointment rescinded within 21 days or an effective resolution is passed by the directors or shareholders of Newco, the Borrower or any Material Subsidiary for such an application to be made; (iv) a liquidator or provisional liquidator (save as excepted in paragraph (i) of this Section 7.1(h)) or, a trustee, receiver, administrative receiver, manager (being a person acting on behalf of all or any creditors) or similar officer is appointed in respect of Newco, the Borrower or any Material Subsidiary or in respect of (or takes possession of) all or any part of its assets with a value in excess of $50.0 million (or the Dollar Equivalent thereof); (v) Newco, the Borrower or any Material Subsidiary is declared or deemed pursuant to any applicable legislation to be insolvent or is deemed pursuant to any applicable legislation to be unable, or admits in writing its inability, to pay its debts as they fall due or stops or threatens to stop payment of its debts generally or becomes insolvent within the terms or any applicable law excluding Section 123(1)(a) of the Insolvency Act of 1986; (vi) any distress, execution, attachment, sequestration or other like process affects Newco, the Borrower or any Material Subsidiary save where (i)(A) the relevant Person is, in good faith, contesting the distress, execution, attachment, sequestration or other like process by appropriate proceedings diligently pursued or (B) such process is discharged within 21 days or (C) such process is being pursued in respect of an amount due not exceeding (pound)30,000,000 and (ii) the ability of Newco or the Borrower to comply with its obligations under the Loan Documents will not be materially and adversely affected while such distress, execution, attachment, sequestration or other process is being so contested; (vii) there occurs, in relation to Newco, the Borrower or any Material Subsidiary in any country or territory in which it is incorporated or carries on business or to the jurisdiction of whose courts it or any part of its assets is subject, any event which, in the reasonable opinion of the Majority Lenders, corresponds in that country or territory with any of the events mentioned in Section 7.1(h) or Newco, the Borrower or any Material Subsidiary otherwise becomes subject, in any of those countries or territories, to any law or proceedings relating to insolvency, bankruptcy, liquidation, reorganization or dissolution having a similar effect to the events mentioned in Section 7.1(h); (i) all or any material part of the assets of Riki, Newco, the Borrower or any of their Material Subsidiaries is seized, nationalized, expropriated or compulsorily acquired by, or by the order of, any Governmental Entity; (j) (i) any License (or any replacement License as contemplated in paragraph (a) below) is: 72 (a) Revoked or surrendered other than in circumstances which permit Target or any of its Subsidiaries to carry on the electricity distribution generation and supply business of Target substantially as is engaged in or the date of this Agreement either without a License (as a result of a change to the Act) or with a new License whose terms are not materially less favorable than those of the License in force prior to such revocation or surrender; or (b) Any amendment is made to the terms and conditions of a License and the amendment has a Material Adverse Effect and, if the amendment is required pursuant to a law or regulation applying to the electricity industry as a whole, within 30 days Newco and the Paying Agent (on behalf of the Lenders) have not agreed new terms for this --- Agreement acceptable to the Majority Lenders; or (ii) Target or any of its Subsidiaries fails to comply with a final order (within the meaning of Section 25 of the Act) or with a provisional order (within the meaning of that section) which has been confirmed under that section (and not since been revoked); (k) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against Newco or any of its Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, if the aggregate of all such undischarged judgments exceeds $50.0 million (or the Dollar Equivalent thereof); (l) Newco's Obligations under its Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or Newco, or any Person acting on behalf of Newco, shall deny or disaffirm its Obligations under its Guarantee; or (m) an Erisa Event shall have occurred that, in the opinion of the Majority Lenders, when taken together with all other ERISA Events, could reasonably be expected to have a Material Adverse Effect; or (n) a Change of Control shall have occurred on or prior to the Closing Date. Section 7.2. Acceleration. If any Event of Default (other than an Event of Default specified in Section 7.1(h) applicable to Newco, the Borrower or any Material Subsidiary other than the Target and its Subsidiaries) occurs and is 73 continuing, the Lenders holding at least a majority in aggregate principal amount of the then outstanding Loans may, by written notice to the Borrower, declare the unpaid principal of and any accrued and unpaid interest and fees on all of the Loans to be immediately due and payable; provided, that during the period commencing with the date hereof and ending on the Termination Date, the Lenders shall not be entitled to terminate or rescind this Agreement or the Commitments without the consent of the Borrower or seek to enjoin the use of proceeds in any manner permitted hereby. Upon such declaration, all Obligations in respect of the Loans shall become immediately due and payable. If an Event of Default specified in Section 7.1(h) applicable to Newco, the Borrower or any Material Subsidiary other than the Target and its Subsidiaries occurs, all Obligations in respect of the Loans shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of any Lender; provided, that during the period commencing with the date hereof and ending on the Termination Date, the Lenders shall not be entitled to terminate or rescind this Agreement or the Commitments without the consent of the Borrower or seek to enjoin the use of proceeds in any manner permitted hereby. Notwithstanding anything to the contrary in the preceding paragraph, during the Cleanup Period, none of the Paying Agent or any Lender may declare that an Event of Default has occurred, or declare the Loans to be due and payable, as a result solely of one or more Defaults described in Section 7.1(a) or (e) (except for a Default in respect of Section 4.1, 4.22, 4.23 or 4.25) or paragraph (f) or clause (x)(b) of paragraph (g) of Section 7.1 insofar as it involves Indebtedness of the Target or any of its subsidiaries to the extent such Indebtedness is refinanced in connection with the Offer; provided that, the event or circumstance giving rise to such Default (i) directly relates to the Target or any of its subsidiaries (or any of their businesses, assets or liabilities), (ii) is capable of being cured or remedied during the Cleanup Period and (iii) except to the extent it involves Indebtedness of the Target or any of its subsidiaries to the extent such Indebtedness is refinanced in connection with the Offer, the Responsible Officers of Newco or the Borrower were not aware of such event of circumstance prior to the Closing Date; provided, further, that the Paying Agent and the Lenders shall be entitled to exercise any and all rights and remedies granted to them hereunder and under the Loan Documents with respect to an occurrence or continuation of any such Event of Default after the Cleanup Period. Section 7.3. No Avoidance of Premium. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Newco or any of its Subsidiaries with the intention of avoiding payment of the premium that the Borrower would have had to pay upon prepayment of the Loans pursuant to this Agreement, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Loans in accordance with Section 7.2. 74 Section 7.4. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Lenders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy. Section 7.5. Delay or Omission Not Waiver. No delay or omission by any Lender to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Lenders may be exercised from time to time, and as often as may be deemed expedient, by the Lenders. Section 7.6. Waiver of Past Defaults. Subject to Section 11.3, the Majority Lenders by written notice to the Borrower may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. Section 7.7. Rights of Lenders To Receive Payment. Notwithstanding anything to the contrary contained in this Agreement, the right of any Lender to receive payment of principal of and interest on the Loans and Bridge Notes held by such Lender, on or after the respective due dates expressed in this Agreement or the Bridge Notes, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Lender. ARTICLE VIII PERMANENT SECURITIES Section 8.1. Permanent Securities. Newco and the Borrower shall use their best efforts to do all things required in the reasonable opinion of the Investment Banks in connection with the sale of the Permanent Securities, including, but not limited to (i) no later than three days following the Closing Date, commencing the preparation of a Rule 144A offering memorandum or registration statement under the Securities Act with respect to the Permanent Securities, and other documentation (including an indenture), all as deemed reasonably necessary by the Investment Banks, to effect the offering of Permanent Securities, (ii) no later than 90 days following the Closing Date, delivering to the Investment Banks such unaudited 75 consolidated and pro forma financial information, projections as to future operations and such other financial information relating to Newco and its Subsidiaries and their respective businesses and any probable or recently completed acquisition as may be reasonably requested by the Investment Banks, (iii) no later than 90 days following the Closing Date, finalizing the Offering Documents in form and substance reasonably satisfactory to the Investment Banks, Newco, and the Borrower, including, if applicable, filings of a registration statement under the Securities Act, (iv) no later than 90 days following the Closing Date, making appropriate Officers of Newco and its Subsidiaries available to the Investment Banks for meetings with prospective purchasers of the Permanent Securities and preparing and presenting to potential investors road show material in a manner consistent with other new issuances of high yield debt securities and (v) executing an underwriting or purchase agreement substantially in the form of Goldman's standard underwriting or purchase agreement, as the case may be, modified as appropriate to reflect the terms of the transactions contemplated thereby and containing such terms, covenants, conditions, representations, warranties and indemnities as are customary in similar transactions and providing for the delivery of legal opinions, comfort letters, and Officer's Certificates, all in form and substance reasonably satisfactory to the Investment Banks and their counsel, as well as such other terms and conditions as the Investment Banks and their counsel may in their reasonable discretion consider appropriate in light of then prevailing market conditions applicable to similar financings or in light of any aspect of the transactions contemplated hereby that requires such other terms or conditions. The proceeds from the issuance of the Permanent Securities shall be used to prepay the Loans pursuant to Section 2.5. ARTICLE IX TERMINATION Section 9.1. Termination. (a) The Lenders, by notice to the Borrower, may terminate the Commitments under this Agreement at any time after the earlier of (i) the date that is 200 days after the Announcement Date, (ii) the date that is the later of (A) three months after the Unconditional Date and (B) the date that is 49 days after the first date on which Bidco first becomes entitled to implement the procedures set out in Section 429 of the Companies Act 1985 of England and Wales and (iii) the date that is 200 days from the date hereof (such earlier date, the "Termination Date"). (b) The Dedicated Interest Commitment shall terminate at the close of business (New York City time) on the date that is 365 days after the Closing Date. 76 Section 9.2. Liability. If this Agreement is terminated pursuant to this Article IX, such termination shall be without liability of any party to any other party, except that, whether or not the transactions contemplated by this Agreement are consummated, (i) the Borrower and Newco shall reimburse the Lenders for all their reasonable out-of-pocket expenses pursuant to Section 13.1 and the Engagement Letter and (ii) the indemnity provisions contained in Article XI shall remain operative and in full force and effect. ARTICLE X GUARANTEE Section 10.1. The Guarantee. (a) Newco hereby absolutely, unconditionally and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest, fees and premium (if any) on the Loans and the Bridge Notes, and the full and punctual payment of all other Obligations of the Borrower under this Agreement, the Bridge Notes and the other Loan Documents, including all reasonable costs of collection and enforcement thereof and interest thereon which would be owing by the Borrower but for the effect of any Bankruptcy Law (collectively, the "Guaranteed Obligations"). Newco understands, agrees and confirms that each of the Lenders may enforce this Guarantee up to the full amount guaranteed by Newco hereunder against Newco without proceeding against any other obligor, against any security for the Guaranteed Obligations. All payments made by Newco under this Guarantee shall be paid at the place and in the manner specified in Section 2.10. Newco agrees that this is a continuing Guarantee of payment and not merely a Guarantee of collection. (b) The obligations of Newco hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any Obligation of the Borrower under this Agreement, the Bridge Notes or any other Loan Document, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement, the Bridge Notes or any of the other Loan Documents; (iii) any release, non-perfection or invalidity of any direct or indirect security for, or any other Person's guarantee of, any of the Guaranteed Obligations; 77 (iv) any change in the corporate existence, structure or ownership of the Borrower or any other guarantor of the Borrower's Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or any obligor or any of their respective assets or any resulting release or discharge of any Obligation of the Borrower contained in the Loan Documents; (v) the existence of any claim, set-off or other rights which any obligor may have at any time against the Borrower or any other Person, whether in connection herewith or with any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against the Borrower for any reason of this Agreement, the Bridge Notes or any other Loan Document, or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower of the principal of, interest, premium or fees on the Loans or any other amount payable by the Borrower under this Agreement, the Bridge Notes or any of the other Loan Documents; or (vii) any other act or omission to act or delay of any kind by the Borrower or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of Guaranteed Obligations hereunder. (c) Newco hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Borrower, any right to require a proceeding first against the Borrower or obligor, protest, notice and all demands whatsoever and covenants that, subject to this Article X, this Guarantee shall not be discharged except by complete payment and performance of all Guaranteed Obligations. (d) If any Lender is required by any court or otherwise to return to the Borrower or Newco, or any Custodian for the Borrower or any of the other obligor or their respective assets, any amount paid to any Lender, this Guarantee, to the extent of the amount so returned, shall be reinstated in full force and effect. (e) Newco agrees that it shall not be entitled to any right of subrogation in relation to the Lenders in respect of any Guaranteed Obligations until payment in full of all Guaranteed Obligations. Newco further agrees that (i) the maturity of the Guaranteed Obligations may be accelerated as provided in Section 7.2 notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Section 7.2, such 78 Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by Newco for the purpose of this Guarantee. Section 10.2. Limitation on Liability. Newco and, by its acceptance of any Bridge Note, each Lender, hereby confirms that it is the intention of all such parties that this Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar law to the extent applicable to this Guarantee. To effectuate the foregoing intention, the Lenders and Newco hereby irrevocably agree that the Obligations of Newco under this Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of Newco that are relevant under such laws, result in the Obligations of Newco under the Guarantee not constituting a fraudulent transfer or conveyance. Section 10.3. Stay of Acceleration. In the event that acceleration of the time for payment of any Guaranteed Obligation is stayed upon insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement and the Bridge Notes shall nonetheless by payable by Newco forthwith on demand by any Lender. ARTICLE XI INDEMNITY Section 11.1. Indemnification. The Borrower and Newco (each, an "Indemnifying Party" and, collectively, the "Indemnifying Parties") jointly and severally agree to indemnify and hold harmless each Lender and their respective controlling Persons and Affected Parties and each director, officer, employee, affiliate and agent thereof (each, an "Indemnified Party") from and against any and all losses, claims, damages and liabilities, joint or several, to which any Indemnified Party may become subject relating to or arising out of or in connection with the transactions contemplated by this Agreement (including the use of the proceeds of the Loans) or any related transaction, and to reimburse each Indemnified Party, promptly upon demand, for expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened loss, claim, damage or liability, or any litigation, proceeding or other action in respect thereof, including any amount paid in settlement of any litigation, proceeding or other action (commenced or threatened) to which the Indemnifying Parties shall have consented in writing (such consent not to be unreasonably withheld) whether or not any Indemnified Party is a party and whether or not liability resulted; provided, however, that the indemnity contained in this Section 11.1 will not apply to any Indemnified Party with respect to losses, claims, 79 damages, liabilities or related expenses arising from the willful misconduct or gross negligence of such Indemnified Party. Section 11.2. Indemnity not Available. If indemnification were for reason of public policy not to be available, the Indemnifying Party, on the one hand, and the Lenders, on the other hand, agree to contribute (in proportion to their respective Commitments in the case of the Lenders) to the losses, claims, damages, liabilities or expenses (or any investigation, claim, litigation, proceeding or other action (collectively, an "Action") in respect thereof) for which such indemnification is held unavailable in such proportion as is appropriate to reflect the relative benefits to the Indemnifying Party, on the one hand, and the Lenders, on the other hand, in connection with the matter giving rise to such losses, claims, damages, liabilities or expenses (or actions in respect thereof). Newco and the Borrower agree that for the purposes of this Section 11.2 the relative benefits to Newco and its Subsidiaries on the one hand, and the Indemnified Parties on the other hand, of the transactions contemplated by this Agreement, including, without limitation, the Loans and the other transactions contemplated by any of their document in any way relating to any Loan, including the use of the proceeds of the Loans shall be deemed to be in the same proportion that the proceeds of all Loans made or to be made to the Borrower bears to the interest and fees paid or to be paid to the Lenders in connection with the Loans; provided, however, that, to the extent permitted by applicable law, in no event shall the Indemnified Parties be required to contribute an aggregate amount in excess of the aggregate interest and fees actually paid to the Lenders in connection with the Loans. The foregoing contribution agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise. No investigation or failure to investigate by any Indemnified Party shall impair the foregoing indemnification and contribution agreement or any right an Indemnified Party may have. Section 11.3. Settlement of Claims. Newco and the Borrower agree that, neither it nor any of its Subsidiaries will settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification or contribution could be sought under Section 11.1 or 11.2 (whether or not any Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes any unconditional release of each Indemnified Party from all liability arising out of such claim, action or proceeding. Section 11.4. Appearance Expenses. If an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against Newco or any Affiliate thereof in which such Indemnified party is not named as a defendant, the Borrower agrees to reimburse such Indemnified Party for all reasonable expenses incurred by it in connection with such Indemnified Party's 80 appearing and preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel. Section 11.5. Indemnity for Taxes, Reserves and Expenses. If, after the date hereof, the adoption of any law or guideline or any amendment or change in the administration, interpretation or application of any existing or future law or guideline by any Governmental Entity charged with the administration, interpretation or application thereof, or the compliance with any request or directive of any Governmental Entity (whether or not having the force of law made or issued after the date hereof): (a) subjects any Affected Party to any tax of any kind with respect to this Agreement or the Bridge Notes or changes the basis of taxation of payments of amounts due hereunder or thereunder or with respect to this Agreement or the Related Documents, (including, without limitation, any sales, gross receipts, general corporate, personal property, privilege or license taxes, and including claims, losses and liabilities arising from any failure to pay or delay in paying any such tax (unless such failure or delay results solely from such Affected Party's negligence or willful misconduct), but excluding (i) federal, state or local taxes based on net income incurred by such Affected Party arising out of or as a result of this Agreement, the Notes or the Related Documents and (ii) Taxes, Other Taxes and any taxes, levies, imposts, deductions, charges or withholding that are excluded under Section 2.11(a)); (b) imposes, modifies or deems applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets held by, credit extended by, deposits with or for the account of, or other acquisition of funds by, any Affected Party; (c) shall change the amount of capital maintained or requested or directed to be maintained by an Affected Party; or (d) imposes upon an Affected Party any other condition or expense (including, without limitation, (i) loss of margin and (ii) attorneys' fees and expenses, expenses incurred by officers or employees of an Affected Party (or any successor thereto) and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to this Agreement or the Related Documents or the purchase, maintenance or funding of the Loans by an Affected Party, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, reduce the rate of return on capital of, or impose any expense (including loss of margin) upon, an Affected Party with respect to this Agreement, the 81 obligations hereunder, the Related Documents or the funding of the Loans hereunder, the Affected Party may notify the Indemnifying Party of the amount of such increase, reduction, or imposition, and the Indemnifying Parties shall pay to the Affected Party the amount the Affected Party deems necessary to compensate the Affected Party for such increase, reduction or imposition which determination shall be conclusive. Such amounts shall be due and payable by the Indemnifying Parties 15 days after such notice is given. Section 11.6. Survival of Indemnification. The provisions contained in this Article XI shall remain in full force and effect whether or not any of the transactions contemplated hereby are consummated and notwithstanding the termination of this Agreement or the payment in full of all Obligations hereunder. The amounts payable by any Indemnifying Party under this Article XI shall be payable whether or not any of the transactions contemplated under this Agreement are consummated. Section 11.7. Liability Not Exclusive; Payments. The agreements of each Indemnifying Party in this Article XI shall be in addition to any liability that each may otherwise have. All amounts due under this Article XI shall be payable as incurred upon written demand therefor. ARTICLE XII THE AGENT; THE ARRANGERS Section 12.1. Appointment. Each Lender hereby irrevocably designates and appoints the Paying Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Paying Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Paying Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Paying Agent shall have no duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Paying Agent. Section 12.2. Delegation of Duties. The Paying Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to the advice of counsel concerning all matters pertaining to such duties. The Paying Agent shall be responsible for the 82 negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. Section 12.3. Exculpatory Provisions. Neither the Paying Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Documents (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by Newco or the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Paying Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of Newco or the Borrower to perform its obligations hereunder or thereunder. The Paying Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Newco or the Borrower. Section 12.4. Reliance by Agent. The Paying Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Newco or the Borrower), independent accountants and other experts selected by the Paying Agent. The Paying Agent may deem and treat the payee of the Bridge Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Paying Agent. The Paying Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Paying Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. Section 12.5. Notice of Default. The Paying Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Paying Agent has received notice from a Lender, Newco 83 or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a 'notice of default'. In the event that the Paying Agent receives such a notice, the Paying Agent shall give notice thereof to the Lenders. The Paying Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided that unless and until the Paying Agent shall have received such directions, the Paying Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. Section 12.6. Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Paying Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by any of the Paying Agent hereafter taken, including any review of the affairs of Newco or the Borrower, shall be deemed to constitute any representation or warranty by the Paying Agent to any Lender. Each Lender represents to the Paying Agent that it has, independently and without reliance upon the Paying Agent or any other Lenders, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and credit worthiness of Newco and the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Paying Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and credit worthiness of Newco and the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Paying Agent hereunder, the Paying Agent shall have no any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or credit worthiness of Newco or the Borrower which may come into the possession of the Paying Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 12.7. Indemnification. The Lenders agree to indemnify the Paying Agent in its capacity as such (to the extent not reimbursed by the Borrower or Newco and without limiting the obligation of the Borrower and Newco to do so), ratably according to their respective Commitments in effect on the date on which indemnification is sought, from and against any and all liabilities, obligations,. losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (include, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against 84 the Paying Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Paying Agent under or in connection with any of the foregoing, provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Paying Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Loans and all other amounts payable hereunder. Section 12.8. Agent, in Its Individual Capacities. The Paying Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Paying Agent was not acting in such capacities hereunder and under the other Loan Documents. With respect to the Loans made or renewed by it and the Bridge Note issued to it the Paying Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Paying Agent, and the terms "Lender" and "Lenders" shall include the Paying Agent in its individual capacity. Section 12.9. Successor Paying Agent. The Paying Agent, may resign as Paying Agent upon 30 days' notice to the Lenders. If the Paying Agent shall resign as Paying Agent under this Agreement and the other Loan Documents then the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent (provided that it shall have been approved by the Borrower), shall succeed to the rights, powers and duties of the Paying Agent, hereunder. Effective upon such appointment and approval, the term "Paying Agent" shall mean and include such successor agent, and the former Paying Agent's rights, powers and duties as Paying Agent shall be terminated, without any other or further act or deed on the part of such former Paying Agent any of the parties to this Agreement or any holders of the Loans. After any retiring Paying Agent's resignation as Paying Agent the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Paying Agent under this Agreement and the other Loan Documents. Section 12.10. Successor Paying Agent. Except as expressly set forth herein, the Arrangers, in their capacity as such, shall have no duties or responsibilities, and shall incur no liabilities, under this Agreement or the other Loan Documents. 85 ARTICLE XIII MISCELLANEOUS Section 13.1. Expenses; Documentary Taxes. Newco and the Borrower agree to pay all reasonable out-of-pocket expenses (including, without limitation, expenses incurred in connection with due diligence of the Lenders) associated with the preparation, execution and delivery, administration, waiver, enforcement or modification and enforcement of the documentation contemplated hereby; provided that, except with respect to any such enforcement, Newco and the Borrower shall not be obligated to reimburse any Lender, other than the Paying Agent, with respect to the fees and expenses of their counsel. Newco and the Borrower agree to indemnify the Lenders against any transfer taxes, documentary taxes, assessments or charges made by any Governmental Entity by reason of the execution and delivery, or the terms, of this Agreement, the Bridge Notes or the other Loan Documents. Section 13.2. Notices. All notices and other communications pertaining to this Agreement or any Bridge Note shall be in writing and shall be delivered (a) in Person (with receipt acknowledged), (b) by facsimile (confirmed immediately in writing by a copy mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as hereafter set forth), or (c) mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (i) If to the Paying Agent, to it at: 399 Park Avenue New York, New York 10043 Attention: Ray Cubero Facsimile No.: (212) 559-0292 with a copy to: Latham & Watkins 885 Third Avenue, Suite 1000 New York, New York 10022 Attention: Kirk A. Davenport, Esq. Facsimile No.: (212) 751-4864 (ii) If to any Lender, to it at its address set forth on the signature pages hereto: 86 (iii) If to Newco or the Borrower, to it at: 700 NE Multnomah Suite 1600 Portland, Oregon 97232 Attention: William E. Peressini Vice President and Treasurer Facsimile No.: (503) 731-2017 with a copy to: Stoel Rives LLP 700 NE Multnomah Suite 950 Portland, Oregon 97232 Attention: John M. Schweitzer, Esq. Facsimile No.: (503) 230-1907 or to such other Person or address as shall be furnished in writing delivered to the other parties in compliance with this Section. Section 13.3. Consent to Amendments and Waivers. (a) Except as provided in Section 13.3(b), this Agreement and the Bridge Notes may be amended or supplemented with the consent of Newco, the Borrower and the Majority Lenders and any existing default or compliance with any provision of this Agreement or the Bridge Notes may be waived with the consent of the Majority Lenders. Bridge Notes held by the Borrower or any of its Affiliates will not be deemed to be outstanding for purposes of this Section 13.3. (b) Without the consent of Newco, the Borrower and each Lender affected, an amendment or waiver may not: (i) reduce the principal amount of any Loan, (ii) change the fixed maturity of any Loan, (iii) reduce the rate of or change the time for payment of interest on any Loan, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or premium on the Loans or an other amounts payable under any of the Loan Documents, (v) make any Loan payable in money other than that stated in the applicable Loan, (vi) make any change in the provisions of this Agreement relating to the rights of Lenders to receive payments of principal of, premium, if any, or fees, interest on the Loans, provided that the Majority Lenders may waive any mandatory prepayment of Loans required by Section 2.5 other than a mandatory prepayment with the proceeds of the Permanent Securities, (vii) make any change to the provisions of Article VIII which would adversely affect the rights of any Lender, (viii) release Newco from its Guarantee or (ix) make any change in the foregoing amendment and waiver 87 provisions. Notwithstanding the foregoing: (A) any amendment to the provisions of Section 4.20 shall require the consent of the Lenders holding at least 75% in aggregate principal amount of the Loans then outstanding if such amendment would adversely affect the rights of any Lender, (B) without the consent of Newco, the Borrower and each Lender affected thereby, an amendment or waiver may not change or extend any Commitment of any Lender or decrease or extend the date for payment of the fees of any Lender under any Loan Document and, (C) no amendment or waiver shall amend, modify or otherwise affect the duties of the Paying Agent or any Arranger hereunder or under any other Loan Documents without the prior written consent of the Paying Agent or such Arranger, as the case may be. In addition to the foregoing, no amendment, modification, termination, or waiver of any provision of this Agreement or any other Loan Document which has the effect of changing any scheduled payments, voluntary or mandatory prepayments (or the applications thereof), conditions to making Bridge Loans hereunder, Commitment reductions or the termination of Commitments applicable to any Class (an "Affected Class") in a manner that disproportionately disadvantages such Class relative to the other Class shall be effective without the written concurrence of the Requisite Class Lenders of the Affected Class. Notwithstanding the foregoing, any waiver or change in any of the provisions of Section 4.24 may only be effected with the consent of each of the Arrangers as well as the consent of the Majority Lenders. (c) Newco shall not and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Lender for or as an inducement to any consent, waiver or amendment permitted by Section 13.3(a) or (b) unless such consideration is offered to be paid or is paid to all Lenders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 13.4. Parties. This Agreement shall inure to the benefit of and be binding upon Newco and the Borrower, the Affected Parties and each of their respective successors and assigns. Except as expressly in this Agreement, nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other Person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. Except as expressly provided in this Agreement, this Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Affected Parties and their respective successors and assigns, and for the benefit of no other Person. Section 13.5. New York Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT AND THE BRIDGE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH OF NEWCO, THE BORROWER AND EACH OF THE LENDERS HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES 88 DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY (EACH, A "NEW YORK COURT") FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE BRIDGE NOTES, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF NEWCO, THE BORROWER AND THE LENDERS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF NEWCO, THE BORROWER AND THE LENDERS IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE BRIDGE NOTES, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 13.6. Replacement Notes. If any Bridge Note becomes mutilated and is surrendered by the applicable Lender to the Borrower, or if any Lender claims that any of its Bridge Notes has been lost, destroyed or wrongfully taken, the Borrower shall execute and deliver to such Lender a replacement Bridge Note, upon the delivery by such Lender of an indemnity to the Borrower to save it and any agent of it harmless in respect of such loss, destruction or wrongful taking with respect to such Bridge Note. Section 13.7. Marshalling; Recapture. Neither the Paying Agent nor any Lender shall be under any obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent any Lender receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of Borrower to such Lender as of the date such initial payment, reduction or satisfaction occurred. Section 13.8. Limitation of Liability. No claim may be made by the Borrower, Newco or any other Person against the Paying Agent or any Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any of their theory of liability arising out of or related to the transactions contemplated by this Agreement or the other Loan Documents, or any act, omission or event occurring in connection therewith; and to the fullest extent permitted by law, the Borrower and Newco hereby waive, release and agree not to 89 sue and shall cause each of its respective Subsidiaries to waive, release or agree not to sue (if required), upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Section 13.9. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. Section 13.10. Currency Indemnity. The Borrower acknowledges and agrees that this is a credit transaction which specification of dollars is of the essence and dollars shall be the currency of account and payment in all events. If, pursuant to a judgment or for any other reason, payment shall be made in another currency and such payment, after prompt conversion to dollars and transfer to New York City in accordance with normal banking procedures, falls short of the sum due the Lenders in dollars, the Borrower shall pay the Lender such shortfall and the Lenders shall have a separate cause of action for such amount. Section 13.11. Waiver of Immunity. To the extent that the Borrower or Newco has or hereafter may acquire any immunity from: (a) the jurisdiction of any court of (i) any jurisdiction in which the Borrower or Newco owns or leases property or assets or (ii) the United States, the State of New York or any political subdivision thereof; or (b) from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property and assets, this Agreement, any Loan Document or actions to enforce judgments in respect of any thereof, it hereby irrevocably waives, to the fullest extent permitted by law, such immunity in respect of its obligations under the above-referenced document. Section 13.12. Freedom of Choice. The submission to the jurisdiction of the courts referred to in this Article XIII shall not (and shall not be construed so as to) limit the right of any Lender to take proceedings against the Borrower in the courts of any country in which the Borrower has assets or in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable law. 90 Section 13.13. Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants and agreements of the Newco and the Borrower in this Agreement shall bind their respective successors and permitted assigns. Neither Newco nor the Borrower may assign or transfer any of its rights or obligations hereunder (by operation of law or otherwise) without the prior written consent of the Majority Lenders. Section 13.14. Severability Clause. In case any provision in this Agreement or any Bridge Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective in such jurisdiction only to the extent of such invalidity, illegality or unenforceability. Section 13.15. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in or incorporated into this Agreement, or contained in Officer's Certificates submitted pursuant hereto, shall remain operative and in full force and effect as of the dates on which they are made until all Obligations in respect of the Loans have been repaid in full, regardless of any investigation made by or on behalf of the Lenders or any controlling Person of the Lenders, or by or on behalf of the Borrower or any controlling Person of the Borrower, and shall survive delivery of the Bridge Notes. Section 13.16. Appointment of Agent. The Borrower designates and appoints Newco and such other Persons as may irrevocably agree in writing to serve as their respective agent to receive on their behalf service of all process in any proceedings in any New York Court, such service being hereby acknowledged by the Borrower to be effective and binding in every respect. If any agent appointed by the Borrower refuses to receive and forward such service, the Borrower hereby agrees that service upon it by mail shall constitute sufficient service. [signature pages follow] 91 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. PACIFICORP ENERGYCO By:/s/ W.E. PERESSINI ---------------------------------------- Name: W.E. Peressini Title: Deputy Chief Finance Officer PACIFICORP GROUP HOLDINGS COMPANY By:/S/ W.E. PERESSINI ---------------------------------------- Name: W.E. PERESSINI Title: Treasurer 92 Bridge Loan Commitment: $631,000,000 Dedicated Interest Commitment: $31,500,000 CITIBANK N.A. By:/s/ THOMAS W. NG ----------------------------------- Name: Thomas W. Ng Title: Attorney-in-Fact Wire Transfer Instructions Name of Bank: Address: ABA#: Account Name: Account No.: Attention: Telephone: 93 Bridge Loan Commitment: $631,000,000 Dedicated Interest Commitment: $31,500,000 GOLDMAN SACHS CREDIT PARTNERS L.P. By:/s/ EDWARD C. FORST ------------------------------ Name: Edward C. Forst Title: Authorized Signatory Wire Transfer Instructions Name of Bank: Address: ABA#: Account Name: Account No.: Attention: Telephone: 94 Bridge Loan Commitment: $238,000,000 Dedicated Interest Commitment: $12,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/ KATHRYN SAYKO-YANES ---------------------------------- Name: Kathryn Sayko-Yanes Title: Vice-President Wire Transfer Instructions Name of Bank: Address: ABA#: Account Name: Account No.: Attention: Telephone: 95 EX-99.B.3 15 CREDIT AGREEMENT AMONG PACIFICORP POWERCOAL, LLC. CONFORMED COPY ====================================================================== CREDIT AGREEMENT Dated as of June 12, 1997, as amended and restated as of June 27, 1997 among PACIFICORP POWERCOAL LLC, THE LENDERS NAMED HEREIN and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Paying Agent, Collateral Agent, Issuing Bank and Swingline Lender -------------------- CITICORP SECURITIES, INC., GOLDMAN SACHS CREDIT PARTNERS L.P. and J.P. MORGAN SECURITIES INC., as Arrangers ====================================================================== [CS&M Ref. No. 4020-271] TABLE OF CONTENTS
Page ---- ARTICLE I Definitions SECTION 1.01. Defined Terms 2 SECTION 1.02. Terms Generally 28 ARTICLE II The Credits SECTION 2.01. Commitments 28 SECTION 2.02. Loans 29 SECTION 2.03. Borrowing Procedure 30 SECTION 2.04. Evidence of Debt; Repayment of Loans 31 SECTION 2.05. Fees 31 SECTION 2.06. Interest on Loans 32 SECTION 2.07. Default Interest 33 SECTION 2.08. Alternate Rate of Interest 33 SECTION 2.09. Termination and Reduction of Commitments 33 SECTION 2.10. Conversion and Continuation of Borrowings 34 SECTION 2.11. Repayment of Term Borrowings 35 SECTION 2.12. Optional Prepayments 38 SECTION 2.13. Mandatory Prepayments 38 SECTION 2.14. Reserve Requirements; Change in Circumstances 40 SECTION 2.15. Change in Legality 41 SECTION 2.16. Indemnity 42 SECTION 2.17. Pro Rata Treatment 42 SECTION 2.18. Sharing of Setoffs 43 SECTION 2.19. Payments 43 SECTION 2.20. Taxes 44 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate 46 SECTION 2.22. Swingline Loans 47 SECTION 2.23. Letters of Credit 48 ARTICLE III Representations and Warranties SECTION 3.01. Organization 52 SECTION 3.02. Corporate and Governmental Authorization; No Contravention 52 SECTION 3.03. Enforceability 52 SECTION 3.04. Financial Statements 53 SECTION 3.05. No Material Adverse Change 53 SECTION 3.06. Title to Properties; Possession Under Leases 53 SECTION 3.07. Subsidiaries 54 SECTION 3.08. Litigation; Compliance with Laws; Reserves 54
Contents, p.2 SECTION 3.09. Agreements................................................... 54 SECTION 3.10. Federal Reserve Regulations.................................. 55 SECTION 3.11. Investment Company Act; Public Utility Holding Company Act... 55 SECTION 3.12. Use of Proceeds.............................................. 55 SECTION 3.13. Tax Returns.................................................. 55 SECTION 3.14. No Material Misstatements.................................... 55 SECTION 3.15. Employee Benefit Plans....................................... 55 SECTION 3.16. Environmental Matters........................................ 56 SECTION 3.17. Insurance.................................................... 56 SECTION 3.18. Security Documents........................................... 56 SECTION 3.19. Location of Real Property and Leased Premises................ 57 SECTION 3.20. Labor Matters................................................ 57 SECTION 3.21. Solvency..................................................... 58 ARTICLE IV Conditions SECTION 4.01. Effective Date............................................... 58 SECTION 4.02. Borrowings................................................... 59 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties......................... 61 SECTION 5.02. Insurance.................................................... 61 SECTION 5.03. Obligations and Taxes........................................ 61 SECTION 5.04. Financial Statements, Reports, etc........................... 62 SECTION 5.05. Litigation and Other Notices................................. 63 SECTION 5.06. Maintaining Records; Access to Properties and Inspections.... 63 SECTION 5.07. Use of Proceeds.............................................. 63 SECTION 5.08. Compliance with Laws......................................... 63 SECTION 5.09. Preparation of Environmental Reports......................... 64 SECTION 5.10. Further Assurances........................................... 64 SECTION 5.11. Interest Rate Protection Agreements.......................... 65 SECTION 5.12. Concentration and Disbursement Accounts...................... 65 SECTION 5.13. Pedro Subsidiaries; PPM Contribution......................... 65 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness................................................. 65 SECTION 6.02. Liens........................................................ 67 SECTION 6.03. Sale and Lease-Back Transactions............................. 68 SECTION 6.04. Investments, Loans and Advances.............................. 68 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions.... 70 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends.............................. 70 SECTION 6.07. Transactions with Affiliates................................. 71 SECTION 6.08. Business of Borrower and Subsidiaries........................ 72
Contents, p.3 SECTION 6.09. Other Indebtedness and Agreements............................ 72 SECTION 6.10. Capital Expenditures......................................... 72 SECTION 6.11. Leverage Ratio............................................... 73 SECTION 6.12. Interest Expense Coverage Ratio.............................. 73 SECTION 6.13. Net Worth.................................................... 73 SECTION 6.14. Current Ratio................................................ 73 SECTION 6.15. Fiscal Year.................................................. 74 ARTICLE VII Events of Default ARTICLE VIII The Paying Agent and the Collateral Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices...................................................... 79 SECTION 9.02. Survival of Agreement........................................ 80 SECTION 9.03. Binding Effect............................................... 80 SECTION 9.04. Successors and Assigns....................................... 80 SECTION 9.05. Expenses; Indemnity.......................................... 83 SECTION 9.06. Right of Setoff.............................................. 84 SECTION 9.07. APPLICABLE LAW............................................... 84 SECTION 9.08. Waivers; Amendment........................................... 84 SECTION 9.09. Interest Rate Limitation..................................... 85 SECTION 9.10. Entire Agreement............................................. 85 SECTION 9.11. WAIVER OF JURY TRIAL......................................... 86 SECTION 9.12. Severability................................................. 86 SECTION 9.13. Counterparts................................................. 86 SECTION 9.14. Headings..................................................... 86 SECTION 9.15. Jurisdiction; Consent to Service of Process.................. 86 SECTION 9.16. Judgment Currency............................................ 87 SECTION 9.17. Confidentiality.............................................. 87 SECTION 9.18. Intercreditor Agreement...................................... 88 SECTION 9.19. Additional Borrowers......................................... 88 SECTION 9.20. Margin Regulations........................................... 88
Exhibits and Schedules Exhibit A Administrative Questionnaire Exhibit B Assignment and Acceptance Exhibit C Bidco Note Exhibit D Borrowing Request Exhibit E Collateral Assignment Exhibit F Intercreditor Agreement Exhibit G Guarantee Agreement Exhibit H Indemnity, Subrogation and Contribution Agreement Contents, p.4 Exhibit I Pledge Agreement Exhibit J Security Agreement Exhibit K-1 Opinion of Stoel Rives LLP Exhibit K-2 Opinion of Davis Polk & Wardwell Schedule 1.01(a) Offer Conditions Precedent Schedule 1.01(b) Pedro Indebtedness Schedule 1.01(c) Pedro Subsidiaries Schedule 2.01 Commitments Schedule 3.06(b) Leases Schedule 3.07(a) Subsidiaries Schedule 3.08 Litigation Schedule 3.16 Environmental Matters Schedule 3.17 Insurance Schedule 3.19(a) Owned Real Property Schedule 3.19(b) Leased Real Property Schedule 6.01(a) Indebtedness Schedule 6.04(c) Investments, Loans and Advances Schedule 6.05(a) Certain Subsidiaries CREDIT AGREEMENT dated as of June 12, 1997, as amended and restated as of June 27, 1997, among PACIFICORP POWERCOAL LLC, an Oregon limited liability company (the "Borrower"), the Lenders (as defined in Article I), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation ("Morgan"), as swingline lender (in such capacity, the "Swingline Lender"), as issuing bank (in such capacity, the "Issuing Bank"), as paying agent (in such capacity, the "Paying Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders. The parties hereto are parties to a Credit Agreement dated as of June 12, 1997 (the "Original Credit Agreement"). Pursuant to the Offer (such term and each other capitalized term used but not defined herein having the meaning given it in Article I), Bidco has offered or will offer to purchase each outstanding Share (including Shares represented by Depositary Shares) at a purchase price of 695.5 pence net per share in cash to the holder thereof (which includes a net dividend of 5.5 pence per share to be paid by the Target on July 4, 1997). In connection therewith and to provide a portion of the financing therefor, (a) Bidco has entered into the Bidco Facility Agreement, (b) Energyco has entered into the Energyco Bridge Loan Agreement and (c) PHI has entered into the PHI Credit Agreement. The Borrower has requested the Lenders to extend credit in the form of (a) Tranche A Term Loans at any time during the Term Loan Availability Period, in an aggregate principal amount not in excess of $250,000,000, (b) Tranche B Term Loans at any time during the Term Loan Availability Period, in an aggregate principal amount not in excess of $800,000,000, and (c) Revolving Loans at any time and from time to time prior to the Revolving Credit Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $575,000,000. The Borrower has requested the Swingline Lender to extend credit, at any time and from time to time prior to the Revolving Credit Maturity Date, in the form of Swingline Loans. The Borrower has requested the Issuing Bank to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $400,000,000, to support payment obligations incurred in the ordinary course of business by the Borrower and the Subsidiaries (including PPM before it becomes a Subsidiary if it shall have become a Guarantor) and Citizens. The proceeds of the Term Loans, together with not less than $600,000,000 in net cash proceeds of the equity contribution received by Powercoal from Newco (the "Newco Equity Contribution"), are to be used solely to fund loans (the "Powercoal/Bidco Loans") to Bidco in exchange for the Bidco Note, and to pay fees and expenses related to the Offer. The proceeds of the Revolving Loans (including Letters of Credit) and the Swingline Loans are to be used (a) to refinance the Pedro Refinanced Indebtedness and (b) for general corporate purposes of the Borrower and the Subsidiaries (including PPM before it becomes a Subsidiary if it shall have become a Guarantor) and Citizens. . Bidco will use (a) the proceeds of the Powercoal/Bidco Loans, (b) certain proceeds from borrowings under the Bidco Facility Agreement and (c) certain proceeds that Bidco will receive as a result of borrowings by Energyco and PHI under the Energyco Bridge Loan Agreement and the PHI Credit Agreement, respectively, to (i) finance the Offer and for the purposes specified in 2 Clause 3.1(a)(i) of the Bidco Facility Agreement, as in effect on the Restatement Date, and (ii) refinance certain existing Indebtedness of the Target and its subsidiaries. The Borrower has requested that the Original Credit Agreement be amended and restated in the form hereof. The Lenders and the Issuing Bank are willing so to amend and restate the Original Credit Agreement and to extend such credit to the Borrower, on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "Acquisition Borrowing" shall mean any Term Borrowing, the proceeds of which are loaned to Bidco and used by Bidco to finance a portion of the Offer and/or for the purposes specified in Clause 3.1(a)(i) of the Bidco Facility Agreement, as in effect on the Restatement Date. "Adjustment Amount" shall mean the cumulative amount (during the period from the initial Borrowing hereunder to the end of the period relating to the relevant determination) by which the cash expenditures of the Borrower and its subsidiaries for reclamation and related liabilities, workers compensation liabilities, postretirement benefit costs, industry fund obligations and similar items exceed the sum of: (a) the cumulative expense during such period recognized in Consolidated Net Income of the Borrower and its subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) for reclamation and related liabilities, workers compensation liabilities, postretirement benefit costs, industry fund obligations and similar items and (b) $50,000,000. "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A or such other form as shall be approved by the Paying Agent. "Affiliate" shall mean, when used with respect to a specified person, any other person that directly or indirectly, through one or more intermediaries, Controls or is Controlled by or is under direct or indirect common Control with such specified person; provided that, for purposes of Section 6.07 only, beneficial ownership of 10% or more of the voting securities of a person shall be deemed to be Control for purposes of the definition of "Affiliate". Neither the Lenders nor any of their Affiliates will be treated as an Affiliate of the Borrower or any of its Subsidiaries for purposes of this Agreement. "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. 3 "Applicable Percentage" shall mean, for any day, with respect to any Eurodollar Loan or Base Rate Loan that is a Tranche A Term Loan or a Revolving Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread", "Base Rate Spread" or "Fee Percentage", as the case may be, based upon the Leverage Ratio as of the relevant date of determination:
Eurodollar Base Rate Fee Spread Spread Percentage ----------- ---------- ----------- Category 1 - ---------- Greater than or equal to 4.50 to 2.50% 1.50% .50% 1.00 Category 2 - ---------- Less than 4.50 to 1.00 but greater 1.75% .75% .50% than or equal to 4.00 to 1.00 Category 3 - ---------- Less than 4.00 to 1.00 but greater 1.50% .50% .45% than or equal to 3.50 to 1.00 Category 4 - ---------- Less than 3.50 to 1.00 but greater 1.25% .25% .375% than or equal to 3.00 to 1.00 Category 5 - ---------- Less than 3.00 to 1.00 but greater 1.00% .00% .30% than or equal to 2.50 to 1.00 Category 6 - ---------- Less than 2.50 to 1.00 .75% .00% .25%
Notwithstanding the foregoing, until the Borrower has delivered the financial statements for the fiscal quarter ending June 30, 1998, in accordance with Section 5.04(b), the Leverage Ratio shall be deemed to be in Category 2 for purposes of determining the Applicable Percentage; provided, however that, in the event that any financial statements delivered in accordance with Section 5.04(a) or (b) prior thereto indicate that the Leverage Ratio is greater than or equal to 4.50 to 1.00, the Applicable Percentage shall be as set forth in Category 1. Each change in the Applicable Percentage resulting from a change in the Leverage Ratio shall be effective with respect to all Tranche A Term Loans, Revolving Loans, Commitments and Letters of Credit outstanding on and after the date of delivery to the Paying Agent of the financial statements and certificates required by Section 5.04(a) or (b) indicating such change until the date immediately preceding the next date of delivery of such 4 financial statements and certificates indicating another such change. Notwithstanding the foregoing, (i) at any time during which the Borrower has failed to deliver the financial statements and certificates required by Section 5.04(a) or (b), or (ii) at any time after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. "Applicable Tranche B Percentage" shall mean, for any day, with respect to any Eurodollar Loan or Base Rate Loan that is a Tranche B Term Loan, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread" or "Base Rate Spread", as the case may be, based upon the Leverage Ratio as of the relevant date of determination:
Eurodollar Base Rate Spread Spread ----------- ---------- Category 1 - ---------- Greater than or equal to 4.50 to 3.00% 2.00% 1.00 Category 2 - ---------- Less than 4.50 to 1.00 but greater 2.25% 1.25% than or equal to 3.50 to 1.00 Category 3 - ---------- Less than 3.50 to 1.00 2.00% 1.00%
Notwithstanding the foregoing, until the Borrower has delivered the financial statements for the fiscal quarter ending June 30, 1998, in accordance with Section 5.04(b), the Leverage Ratio shall be deemed to be in Category 2 for purposes of determining the Applicable Tranche B Percentage; provided, however that, in the event that any financial statements delivered in accordance with Section 5.04(a) or (b) prior thereto indicate that the Leverage Ratio is greater than or equal to 4.50 to 1.00, the Applicable Tranche B Percentage shall be as set forth in Category 1. Each change in the Applicable Tranche B Percentage resulting from a change in the Leverage Ratio shall be effective with respect to all Tranche B Term Loans outstanding on and after the date of delivery to the Paying Agent of the financial statements and certificates required by Section 5.04(a) or (b) indicating such change until the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change. Notwithstanding the foregoing, (i) at any time during which the Borrower has failed to deliver the financial statements and certificates required by Section 5.04(a) or (b), or (ii) at any time after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Tranche B Percentage. "Assessment Rate" shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Paying Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Paying Agent to the 5 Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Paying Agent's domestic offices. "Asset Sale" shall mean the sale, lease, transfer or other disposition (by way of merger or otherwise, including as a result of a Condemnation Event or a Casualty Event) by the Borrower or any of the Subsidiaries to any person other than the Borrower or any wholly owned Subsidiary of (a) any capital stock of any of the Subsidiaries or (b) any other assets of the Borrower or any of the Subsidiaries (other than inventory, obsolete or worn-out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business), except for (i) any sale, lease, transfer or other disposition in one transaction or a series of related transactions having a value of $25,000,000 or less, (ii) any sale of accounts receivable (or any related assets) under any Permitted Receivables Financing, (iii) transfers of assets permitted by Section 6.05(a)(i), (iv) transfers of assets as part of a sale and lease-back transaction permitted by Section 6.03, (v) payment of a cash dividend permitted by Section 6.06(a), (vi) any disposition or cancelation of the Bidco Note in connection with the transfer of the Pedro Subsidiaries to the Borrower and (vii) any substantially contemporaneous exchange (including by way of a substantially contemporaneous purchase and sale) of discrete energy-related assets of the Borrower or any Subsidiary for one or more other energy-related assets used for similar purposes, in each case to the extent that no net cash proceeds are received by the Borrower or any Subsidiary as consideration in connection with such exchange (the cash portion of such transaction, if any, being subject to clause (i) above), provided that the Borrower or such Subsidiary complies with Section 5.10 with respect to the property received by the Borrower or such Subsidiary pursuant to such exchange. Notwithstanding anything to the contrary with respect to the foregoing, all arrangements or transactions resulting in the prepayment in respect of a coal supply contract of $25,000,000 or more in any fiscal year (excluding, to the extent included in Consolidated Net Income, the portion due to be paid within one year of any such arrangement or transaction in accordance with the terms of such coal supply contract prior to any amendment thereof relating to such transaction or arrangement) shall be deemed an Asset Sale for purposes of Section 2.13(b). "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Paying Agent, in the form of Exhibit B or such other form as shall be approved by the Paying Agent. "Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Paying Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Paying Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Paying Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Base CD Rate" shall mean the sum of (a) the product of 6 (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Paying Agent from three Federal funds brokers of recognized standing selected by it. "Base Rate Borrowing" shall mean a Borrowing comprised of Base Rate Loans. "Base Rate Loan" shall mean any Base Rate Term Loan or Base Rate Revolving Loan. "Base Rate Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II. "Base Rate Term Borrowing" shall mean a Borrowing comprised of Base Rate Term Loans. "Base Rate Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II. "Bidco" shall mean PacifiCorp Acquisitions, an unlimited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by FinanceCo. "Bidco Agent" shall mean Citibank International plc, in its capacity as facility agent for the Bidco Lenders under the Bidco Facility Agreement, and any successor or assign in such capacity. "Bidco Facility Agreement" shall mean the facility agreement dated June 13, 1997, among Bidco, Recco, FinanceCo, the Bidco Lenders, the Bidco Agent and the Arrangers, the Security Agent and the LC Bank named therein. "Bidco Lenders" shall mean the financial institutions that are parties from time to time to the Bidco Facility Agreement as lenders thereunder. "Bidco Note" shall mean the note in the form of Exhibit C, which shall be issued to the Borrower to evidence the Powercoal/ Bidco Loans. "Bidco Note Payment Default" shall mean the failure by Bidco to pay any amount that it is obligated to pay under the Bidco Note to the Borrower at the time such amount is due in accordance with the terms of the Bidco Note. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. 7 "Borrowing Request" shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit D or such other form as shall be approved by the Paying Agent. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" shall mean, for any period, the sum of the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by the Borrower and the Subsidiaries during such period that, in accordance with GAAP, are or should be included in additions to property, plant or equipment or similar items reflected in the consolidated statement of cash flows of the Borrower and the Subsidiaries for such period, except that (notwithstanding GAAP) bonuses relating to Federal coal leases contemplated in the Confidential Information Memorandum and the information previously provided to the Initial Lenders prior to the Closing Date shall be deemed "Capital Expenditures" only to the extent cash payments are made; provided, however, that "Capital Expenditures" shall not include (a) acquisitions of property that are investments permitted by Section 6.04 (other than investments permitted by Section 6.04(d)) and (b) any acquisition of or investment in property in connection with an exchange contemplated by clause (vii) of the definition of "Asset Sale" or in connection with a reinvestment contemplated by clause (y) of the proviso to the definition of "Net Cash Proceeds". "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Casualty Event" shall mean an event pursuant to which the Borrower or any of the Subsidiaries has the right to collect insurance proceeds under any insurance policies with respect to any insured casualty or other insured damage to any property of the Borrower or any of the Subsidiaries. A "Change in Control" shall be deemed to have occurred if (a) any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the Closing Date) shall own directly or indirectly, beneficially or of record, shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of PacifiCorp; (b) a majority of the seats (other than vacant seats) on the board of directors of PacifiCorp shall at any time be occupied by persons who were neither (i) nominated by the board of directors of PacifiCorp, nor (ii) appointed by directors so nominated; (c) any change in control (or similar event, however denominated) with respect to PacifiCorp shall occur under and as defined in any indenture or agreement in respect of Indebtedness to which the Borrower, any person directly or indirectly Controlling the Borrower or any Subsidiary is a party; (d) PacifiCorp consolidates with, or merges with or into, any person, or any person consolidates with or merges with or into PacifiCorp in any such event pursuant to a transaction in which any of the issued and outstanding capital stock of PacifiCorp is converted into or exchanged for cash, securities or other property, other than any such 8 transaction where the capital stock of PacifiCorp outstanding immediately prior to such transaction is converted into or exchanged for capital stock of the surviving or transferee person constituting a majority of the issued and outstanding shares of such capital stock of such surviving or transferee person (immediately after giving effect to such conversion or exchange); (e) PacifiCorp shall own, directly or indirectly, beneficially and of record, less than 80% of the outstanding capital stock of Newco, free and clear of all Liens (other than Liens permitted under the Transaction Loan Documents); or (f) Newco shall cease to own, directly or indirectly, beneficially and of record, 100% of the outstanding capital stock of the Borrower, free and clear of all Liens (other than Liens permitted under the Transaction Loan Documents). "Citibank" shall mean Citibank, N.A., a national banking association. "Citizens" shall mean Citizens Power LLC and its subsidiaries. "Clean-up Period" shall mean the period commencing on the Closing Date and ending on the date that is 90 days after the date of the initial Borrowing hereunder. "Closing Date" shall mean June 12, 1997. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral" as defined in any Security Document. "Collateral Assignment" shall mean the Collateral Assignment, substantially in the form of Exhibit E, made by the Borrower in favor of the Collateral Agent for the benefit of the Secured Parties. "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment. "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). "Condemnation Event" shall mean an event pursuant to which the Borrower or any of the Subsidiaries has the right to collect and receive proceeds as a result of any action or proceeding for the taking of any property of the Borrower or any Subsidiary, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner. "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower to be used by the Initial Lenders and their Affiliates in connection with the syndication of the Commitments following the Closing Date. "Consolidated Current Assets" shall mean, at any date of determination, all assets (other than cash and cash-equivalents) that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and its subsidiaries as current assets at such date of determination. 9 "Consolidated Current Liabilities" shall mean, at any date of determination, all liabilities (other than, without duplication (x) the current portion of long-term Indebtedness and (y) outstanding Swingline Loans and Revolving Loans) that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and its subsidiaries as current liabilities at such date of determination. "Consolidated EBITDA" shall mean, for any period, Consolidated Net Income for such period, plus, without duplication and to the extent deducted from revenues in determining Consolidated Net Income, the sum of (a) the aggregate amount of Consolidated Interest Expense for such period, (b) the aggregate amount of income tax expense for such period, (c) all amounts attributable to depreciation, depletion and amortization for such period and (d) all noncash nonrecurring charges during such period, and minus, without duplication, (i) to the extent included in determining Consolidated Net Income, all nonrecurring gains during such period (including any gains attributable to commodities to be delivered in subsequent periods under Prepaid Forward Sales Agreements) and (ii) the Net Adjustment Amount, all as determined on a consolidated basis with respect to the Borrower or its subsidiaries in accordance with GAAP. "Consolidated Interest Expense" shall mean, for any period, the gross interest expense (including the interest component in respect of Capital Lease Obligations), accrued or, without duplication, paid (unless accrued in a previous period) by the Borrower and its subsidiaries during such period (all as determined on a consolidated basis with respect to the Borrower or its subsidiaries in accordance with GAAP), plus, without duplication, interest- equivalent costs associated with any Permitted Receivables Financing, whether accounted for as an interest expense or loss on the sale of receivables. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by the Borrower or its subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) with respect to the Interest Rate Protection Agreements. "Consolidated Net Income" shall mean, for any period, net income or loss of the Borrower and its subsidiaries for such period determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded (a) the income of any person in which any other person (other than the Borrower or any of such subsidiaries or any director holding qualifying shares in compliance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of such subsidiaries by such person during such period and (b) the income (or loss) of any person accrued prior to the date it becomes a subsidiary (other than the Pedro Subsidiaries) or is merged into or consolidated with the Borrower or any of its subsidiaries or the date that person's assets are acquired by the Borrower or any of its subsidiaries. "Consolidated Net Worth" shall mean, as at any date of determination, the consolidated stockholders' equity of the Borrower and its consolidated subsidiaries, as determined on a consolidated basis in accordance with GAAP, plus Permitted Junior Indebtedness. "Consolidated Working Capital" shall mean, at any date of determination, Consolidated Current Assets at such date of determination minus Consolidated Current Liabilities at such date of determination. 10 "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "Depositary Shares" shall mean the American Depositary Shares, evidenced by American Depositary Receipts, each such American Depositary Share representing four Shares. "dollars" or "$" shall mean lawful money of the United States of America. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Energyco" shall mean PacifiCorp EnergyCo, an unlimited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by Newco. "Energyco Bridge Loan Agreement" shall mean the bridge loan agreement dated as of June 12, 1997, among Energyco, Newco, the lenders from time to time party thereto, the Arrangers named therein, and Citibank, as administrative agent thereunder. "Energyco Senior Notes" shall mean the Senior Notes issued by Energyco after the Closing Date, the proceeds of which shall be used to repay all amounts outstanding under the Energyco Bridge Loan Agreement. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way 10 11 to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Contribution" shall mean any equity contribution made by PacifiCorp, Newco or PHI to the Borrower. "Equity Issuance" shall mean any issuance or sale by the Borrower or any Subsidiary of any shares of capital stock or other equity securities of the Borrower or any Subsidiary or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such securities or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to PacifiCorp, PHI, Newco, the Borrower or any wholly owned Subsidiary, (b) any issuance of directors' qualifying shares, (c) any issuance or sale to officers and employees under employee benefit or compensation plans, (d) any Equity Contribution and (e) any issuance or sale of an interest in a Single Purpose Entity. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan, except a reportable event for which the requirement of notice to the PBGC has been waived; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability in excess of $1,000,000 under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of a Multiemployer Plan of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability in excess of $1,000,000 or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect to which the Borrower or any of its Subsidiaries is a party to the prohibited transaction and is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which the Borrower or any such Subsidiary could otherwise be liable; and (i) any other event or condition with respect to a 12 Plan or Multiemployer Plan that could reasonably be expected to result in liability of the Borrower in excess of $1,000,000. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar Term Loan. "Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Eurodollar Term Borrowing" shall mean a Borrowing comprised of Eurodollar Term Loans. "Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Excess Cash Flow" shall mean, for any fiscal year, the excess of (a) the sum, without duplication, of (i) Consolidated EBITDA, (ii) the Net Cash Proceeds received by the Borrower and its consolidated subsidiaries in connection with the issuance of debt or equity securities, the sale or other disposition of assets or Casualty or Condemnation Events to the extent not included in Consolidated EBITDA and to the extent used for mandatory prepayments of the principal of the Loans in accordance with Section 2.13 (other than Section 2.13(d)), (iii) extraordinary cash gains of the Borrower and its subsidiaries to the extent not included in Consolidated EBITDA, (iv) interest income of the Borrower and its subsidiaries to the extent not included in Consolidated EBITDA, (v) an amount equal to any decrease in Consolidated Working Capital during such fiscal year and (vi) an amount equal to any increase in provisions for reclamation and related liabilities, workers compensation liabilities, postretirement benefit costs, industry fund obligations and similar items over (b) the sum, without duplication, of (i) taxes paid or payable (including payments in respect of taxes under the Tax Sharing Arrangement) in cash by the Borrower and its subsidiaries on a consolidated basis during such fiscal year, (ii) Consolidated Interest Expense paid in cash by the Borrower and its subsidiaries during such fiscal year, (iii) Capital Expenditures made in cash (excluding any Capital Expenditures made from amounts that are carried- forward from the prior year) and in accordance with Section 6.10 during such fiscal year and carry-forwards to the following year of Capital Expenditures permitted by the proviso to Section 6.10, (iv) scheduled and mandatory principal repayments of Indebtedness made by the Borrower and its subsidiaries during such fiscal year, (v) optional and mandatory prepayments of the principal of Loans (other than mandatory prepayments pursuant to Section 2.13(d)) during such fiscal year, but only to the extent that such prepayments cannot by their terms be reborrowed or redrawn and do not occur in connection with a refinancing of all or any portion of such Loans, (vi) an amount equal to any increase in Consolidated Working Capital during such fiscal year, (vii) dividends or other distributions made by the Borrower in cash that are permitted by Section 6.06(a)(ii), (viii) extraordinary cash expenses paid, if any, by the Borrower and its subsidiaries and not included in Consolidated EBITDA, (ix) an amount equal to any decrease in provisions for reclamation and related liabilities, workers compensation liabilities, postretirement benefit costs, industry fund obligations and similar items and (x) non-cash revenues used in determining Consolidated EBITDA. 13 "Exchange Rate Protection Agreement" shall mean any Hedging Agreement that is (a) entered into by the Borrower with a counterparty that as of the date of such Hedging Agreement is a Lender (or an affiliate of a Lender) and (b) is designed to protect the Borrower against fluctuations in currency exchange rates and not for speculation. "Fees" shall mean the Commitment Fees, the L/C Participation Fees and the Issuing Bank Fees. "FinanceCo" shall mean PacifiCorp Finance (UK) Limited, a limited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is beneficially owned by Recco. "Financial Definitions" shall mean Adjustment Amount, Capital Expenditures, Consolidated Current Amount, Consolidated Current Liabilities, Consolidated EBITDA, Consolidated Interest Expense, Consolidated Net Income, Net Adjustment Amount and Total Debt. "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation. "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "Funding Exchange Rate Protection Agreement" shall mean any Exchange Rate Protection Agreement that is designed to ensure that the applicable borrowings under this Agreement, the Energyco Bridge Loan Agreement and the PHI Credit Agreement will provide a sufficient amount in pounds sterling (together with borrowings under the Bidco Facility Agreement and certain other sources of funds) to pay for the Shares. "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis. "Goldman" shall mean Goldman Sachs Credit Partners L.P., a Bermuda limited partnership. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. 14 "Guarantee Agreement" shall mean the Guarantee Agreement, substantially in the form of Exhibit G, made by the Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties. "Guarantors" shall mean each person that becomes party to a Guarantee Agreement as a Guarantor, and the permitted successors and assigns of each such person. "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Inactive Subsidiaries" shall mean any subsidiary of the Borrower that has (a) total assets not in excess of $10,000, (b) has not in the last six months conducted any business activity and (c) is not the obligor (whether primary or by virtue of any Guarantee) in respect of any Indebtedness other than Indebtedness held by the Borrower or any Guarantor. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed (provided that, for purposes hereof, the amount of such Indebtedness shall be limited to the lesser of (x) the principal amount thereof and (y) the fair market value of such property), (f) all Guarantees by such person of Indebtedness of others, (g) all Capital Lease Obligations of such person, (h) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances and (i) all obligations of such person for Production Payments from property operated by or on behalf of such person; provided that, for purposes of the definition of "Total Debt" as used in Section 6.11, "Indebtedness" shall also include all obligations of such person in respect of Hedging Agreements (other than any Interest Rate Protection Agreement and any Exchange Rate Protection Agreement) to the extent the Net Termination Value of such Hedging Agreements at any time exceeds $100,000,000. For purposes of this Agreement, the amount of Non-Recourse Indebtedness of the Borrower and its subsidiaries included in the calculation of Indebtedness of the Borrower and its subsidiaries at any time shall equal the lesser of (i) the aggregate principal amount of such Indebtedness and (ii) the equity of the Borrower and its subsidiaries in the asset or Single Purpose Entity, as the case may be, relating to such 15 Non-Recourse Indebtedness. For the purposes of this Agreement, the amount of Indebtedness (other than Non-Recourse Indebtedness) of any partnership, limited liability company or similar pass-through entity (as used in this definition, a "partnership") in which the Borrower or a subsidiary is a general partner or other member or equity holder with unlimited liability (as used on this definition, a "general partner") and in which there are one or more Qualified General Partners shall only be included in the calculation of Indebtedness of the Borrower and its subsidiaries at any time (a) to the extent of the Borrower's or such subsidiary's pro rata share of the interest of the general partners in the partnership at such time, or (b) if the applicable governing or other relevant agreement specifies that the Borrower or any of its subsidiaries is liable to the partnership or its creditors for a specific percentage of such partnership's liabilities, to the extent of such specified percentage. For purposes hereof, "Qualified General Partner" shall mean a general partner of a partnership that (a) is a person that was not created solely for the purpose of investing in such partnership, and (b) at the time of the investment in such partnership, the Borrower reasonably believes that (i) such person has a credit quality (or credit support) approximately equal to that of the Borrower or the applicable Subsidiary, and (ii) such person will be able to perform its share of the obligations under such Indebtedness when due. "Indemnity, Subrogation and Contribution Agreement" shall mean the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit H, among the Borrower, the Guarantors and the Collateral Agent. "Initial Lenders" shall mean Citibank, Goldman and Morgan. "Intercreditor Agreement" shall mean the Intercreditor Agreement dated 27 June, 1997, among the Borrower, Bidco, the Paying Agent on behalf of itself and the Lenders and the Bidco Agent on behalf of itself and the Bidco Lenders, substantially in the form of Exhibit F. "Interest Expense Coverage Ratio" shall mean, as of the last day of any fiscal quarter, the ratio of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on such day to (b) Consolidated Interest Expense for the period of four consecutive fiscal quarters ended on such date, with the pro forma results as set forth on the Pro Forma Financial Statements, or the pro forma financial statements provided by the Borrower pursuant to Section 5.04(c), used for the periods prior to the Separation Date. "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of such Borrowing or conversion of such Borrowing to a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect and (b) as to any Base Rate Borrowing, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving Credit Maturity Date, the Tranche A Maturity Date 16 or the Tranche B Maturity Date, as applicable, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.10 or repaid or prepaid in accordance with Section 2.11, 2.12 or 2.13; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Protection Agreement" shall mean any Hedging Agreement that is (a) entered into by the Borrower with a counterparty that as of the date of such Hedging Agreement is a Lender (or an affiliate of a Lender) and (b) is designed to protect the Borrower against fluctuations in interest rates and not for speculation. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(b). "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.23. "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(b). "Lenders" shall mean (a) the Initial Lenders (other than any such Initial Lender that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. Unless the context clearly indicates otherwise, the term "Lenders" shall include the Swingline Lender. "Letter of Credit" shall mean any letter of credit issued pursuant to Section 2.23. "Leverage Ratio" shall mean, as of the last day of any fiscal quarter, the ratio of (a) Total Debt as of such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on such date, with the pro forma results as set forth on the Pro Forma Financial Statements, or the pro forma financial statements provided by the Borrower pursuant to Section 5.04(c), used for the periods prior to the Separation Date. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Paying Agent from time 17 to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Paying Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) any other preferential arrangement that has substantially the same practical effect as a security interest. "Loan Documents" shall mean this Agreement, the Guarantee Agreement, the Security Documents, the Intercreditor Agreement and the Indemnity, Subrogation and Contribution Agreement. "Loan Parties" shall mean the Borrower and the Guarantors. "Loans" shall mean the Revolving Loans, the Term Loans and the Swingline Loans. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Matching Amount" shall have the meaning assigned to such term in the Bidco Facility Agreement, as in effect on the Restatement Date. "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, liabilities, operations or condition, financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole, (b) material impairment of the ability of the Loan Parties to perform their obligations under the Loan Documents to which they are or will be a party or (c) material impairment of the rights of or benefits available to the Lenders under the Loan Documents. "Material Hedging Obligations" shall mean payment obligations in respect of one or more Hedging Agreements with a single counterparty (or its Affiliates) that have Negative Termination Values exceeding $50,000,000 in the aggregate amount. "Morgan" shall have the meaning assigned to such term in the preamble to this Agreement. "Mortgages" shall have the meaning assigned to such term in Section 5.10. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 18 "Negative Termination Value" shall mean, with respect to any Hedging Agreement, the amount (if any) that would be required to be paid by the Borrower or any Subsidiary if such Hedging Agreement were terminated by reason of a default by or other termination event relating to the Borrower or any Subsidiary. The Negative Termination Value of any Hedging Agreement at any date shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter; provided, however, that if an agreement between the Borrower or any Subsidiary and the relevant counterparty provides that, upon any such termination by such counterparty, one or more other Hedging Agreements (if any then exist) between the Borrower or any Subsidiary and such counterparty would also terminate and the amount (if any) payable by the Borrower or any Subsidiary would be a net amount reflecting the termination of all Hedging Agreements so terminated, then the Negative Termination Value of all the Hedging Agreements subject to such netting shall be, at any date, a single amount equal to such net amount (if any) payable by the Borrower or any Subsidiary determined as of the later of (a) the end of the most recently ended fiscal quarter or (b) the date on which the most recent Hedging Agreement subject to such netting was entered into. "Net Adjustment Amount" shall mean, for any period, the Adjustment Amount less the aggregate Adjustment Amounts applied to reduce Consolidated EBITDA in prior periods. "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the cash proceeds thereof received by the Borrower or the Subsidiaries (including cash and cash equivalents and cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received), net of (i) costs of sale (including payment of the outstanding principal amount of, premium or penalty, if any, interest and other amounts on any Indebtedness (other than Loans) secured by a Lien permitted pursuant to Section 6.02 on such assets and required to be repaid under the terms thereof as a result of such Asset Sale), (ii) taxes paid or payable in the year such Asset Sale occurs or in the following year as a result thereof and (iii) amounts provided as a reserve against any liabilities under any indemnification obligations associated with such Asset Sale (except that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds); provided, however, that (x) in the event the Asset Sale is a result of a Casualty Event or Condemnation Event, the cash proceeds thereof for purposes of this definition shall not include proceeds thereof to the extent they are used (or committed to be used) to replace or repair the damaged or condemned property, as applicable, within 180 days of receipt of such proceeds, in each case so long as no Default or Event of Default shall have occurred and be continuing, and (y) with respect to any Asset Sale of energy-related assets, if the Borrower shall deliver a certificate of a Financial Officer to the Paying Agent at the time of any Asset Sale setting forth the Borrower's intent to reinvest (or commit to reinvest) the proceeds of such Asset Sale in other energy-related assets within 180 days of receipt of such proceeds and no Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Cash Proceeds, except to the extent not so used or committed within such 180-day period (or if committed within such 180 days, not used within 270 days of the receipt thereof), at which time such proceeds shall be deemed Net Cash Proceeds, and (b) with respect to any Equity Issuance, any issuance or other disposition of Indebtedness for borrowed money or any Permitted Receivables Financing, the cash proceeds thereof net of underwriting commissions or placement fees and expenses directly incurred in connection therewith. 19 "Newco" shall mean PacifiCorp Group Holdings Company, a corporation organized under the laws of Oregon, all the outstanding capital stock of which on the Restatement Date is directly owned by PHI. "Newco Equity Contribution" shall have the meaning assigned to such term in the preamble to this Agreement. "Net Termination Value" shall mean with respect to all Hedging Agreements (other than any Interest Rate Protection Agreement and any Exchange Rate Protection Agreement), the difference between (a) the aggregate amounts (if any) that would be required to be paid by the Borrower or any subsidiary if such Hedging Agreements were terminated by reason of a default relating to the Borrower or any subsidiary, and (b) the aggregate amounts (if any) that the Borrower or any subsidiary would be entitled to receive if such Hedging Agreements were terminated by reason of a default relating to the Borrower or any subsidiary. The Net Termination Value shall be determined (a) as of the end of the most recent fiscal quarter ended on or prior to such date if such Hedging Agreement was then outstanding or (b) as of the date such Hedging Agreement is entered into if it is entered into after the end of such fiscal quarter. "Non-Recourse Indebtedness" of any person shall mean at any time Indebtedness secured by a Lien in or upon one or more assets of such person where the rights and remedies of the holder of such Indebtedness in respect of such Indebtedness do not extend to any other assets of such person. Notwithstanding the foregoing, Indebtedness of any person shall not fail to constitute Non-Recourse Indebtedness by reason of the inclusion in any document evidencing, governing, securing or otherwise relating to such Indebtedness of provisions to the effect that such person shall be liable, beyond the assets securing such Indebtedness, for (a) misapplied moneys, including insurance and condemnation proceeds and security deposits, (b) indemnification by such person in favor of holders of such Indebtedness and their affiliates in respect of liabilities to third parties, including environmental liabilities, (c) breaches of customary representations and warranties given to the holders of such Indebtedness and (d) such other similar obligations as are customarily excluded from the provisions that otherwise limit the recourse of commercial lenders making so-called "non-recourse" loans to institutional borrowers. Indebtedness of a Single Purpose Entity shall constitute Non-Recourse Indebtedness of such Single Purpose Entity. "Obligation Currency" shall have the meaning assigned to such term in Section 9.16. "Obligations" shall mean all obligations defined as "Obligations" in the Guarantee Agreement and the Security Documents. "Offer" shall mean the offer by Goldman Sachs International on behalf of Bidco to acquire all the outstanding Shares (including the Shares represented by Depositary Shares), substantially on the terms and conditions referred to in the Press Release, as amended, supplemented or otherwise modified. "Offer Account" shall mean the account in the name of Bidco opened with the Bidco Agent on or before the Unconditional Date for the purposes of effecting the acquisition of the Shares. 20 "Offer Conditions Precedent" shall mean the conditions precedent set forth on Schedule 1.01(a). "Offer Document" shall mean the document to be delivered to the shareholders of the Target containing the formal Offer. "PacifiCorp" shall mean PacifiCorp, a corporation organized under the laws of Oregon. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Pedro Group" shall mean Peabody Holding Company, Inc. and its consolidated subsidiaries. "Pedro Indebtedness" shall mean the Indebtedness of the Pedro Subsidiaries set forth on Schedule 1.01(b). "Pedro Refinanced Indebtedness" shall mean the Pedro Indebtedness designated as "Pedro Refinanced Indebtedness" on Schedule 1.01(b). "Pedro Subsidiaries" shall mean the persons set forth on Schedule 1.01(c). "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Annex 1 to the Security Agreement. "Permitted Capital Expenditures" shall mean Capital Expenditures not in excess of: (a) for the fiscal year ending December 31, 1998, $175,000,000; and (b) for each fiscal year thereafter, the greater of (i) $150,000,000 and (ii) the amount equal to 50% of Consolidated EBITDA for the fiscal year immediately preceding such fiscal year. "Permitted Dividend Amount" shall mean, (a) with respect to the period prior to December 31, 1997, $5,000,000, and (b) with respect to any fiscal year ending after December 31, 1997, the greater of (i) $20,000,000 and (ii) 40% of the lesser of (A) cumulative Consolidated Net Income and (B) cumulative Excess Cash Flow, in each case, (x) measured from the Closing Date through and including the last day of the fiscal quarter for which financial statements have been delivered to the Paying Agent immediately prior to the date of the applicable dividend and (y) less cumulative dividend payments made during such period (such greater amount referred to as the "Base Dividend Amount"). Notwithstanding the foregoing, if and during any time that the Leverage Ratio as of the last day of the fiscal quarter for which financial statements have been delivered to the Paying Agent immediately prior to any dividend payment is less than 2.75 to 1.00, the Borrower may make dividend payments in addition to the Base Dividend Amount so long as the total amount of dividends on a cumulative basis made during the term of this Agreement pursuant to this proviso shall not exceed $40,000,000, plus 60% of cumulative Consolidated Net Income measured from the Closing Date through and including the last day of the fiscal quarter for which financial statements have been delivered to the Paying Agent immediately prior to the date of the applicable dividend. 21 "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper (or money market funds substantially all the assets of which are invested in such commercial paper) maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from Standard & Poor's Ratings Group or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000; and (d) obligations issued by any state or political subdivision thereof, having a rating of A or better by Standard & Poor's Ratings Group, or similar rating by any other nationally recognized rating agency with maturities of not more than one year. "Permitted Junior Indebtedness" shall mean subordinated Indebtedness of the Borrower that has (i) no principal payments due on a date that is earlier than twenty-four months after the Tranche B Maturity Date, (ii) subordination and intercreditor provisions that are reasonably satisfactory to the Required Lenders and (iii) a fixed interest rate, which rate shall be, in the good faith judgment of the a Financial Officer of the Borrower, consistent with the market at the time of issuance for similar subordinated Indebtedness. "Permitted Receivables Financing" shall mean the sale, nonrecourse borrowing against or similar financing (a "Sale") of receivables (and related assets) originated by the Borrower or any Subsidiary, provided that (i) any such receivables financing involves Sales of receivables to secure not more than $100,000,000 of Indebtedness outstanding at any time, (ii) Sales of receivables are made at fair market value for the sales of receivables in comparable receivables financings, (iii) the interest rate applicable to such receivables financing shall be a market interest rate (as determined in good faith by a Financial Officer of the Borrower) as of the time such financing is entered into, (iv) such financing is non-recourse to the Borrower and the Subsidiaries (other than a Receivables Subsidiary), except to a limited extent customary for such financings, and (v) the covenants, events of default and other provisions thereof, collectively, shall be market terms (as determined in good faith by a Financial Officer of the Borrower). "person" shall mean any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. 22 "PHI" shall mean PacifiCorp Holdings, Inc., a corporation organized under the laws of Delaware, all the capital stock of which is directly owned by PacifiCorp. "PHI Credit Agreement" shall mean the credit agreement dated as of June 12, 1997, among PHI, the lenders from time to time party thereto, and Citibank, as paying agent and issuing bank and Citicorp USA, Inc., as collateral agent. "PHI Equity Contribution" shall mean the cash contribution from PHI to Newco from the proceeds of borrowings under the PHI Credit Agreement, a portion of which such contribution shall be immediately contributed by Newco to the Borrower. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Pledge Agreement, substantially in the form of Exhibit I, among Newco, the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "pounds sterling" or "pence" shall mean the lawful currency for the time being of the United Kingdom. "Powercoal/Bidco Loans" shall have the meaning assigned to such term in the preamble to this Agreement. "PPM" shall mean PacifiCorp Power Marketing, Inc., a corporation organized under the laws of Oregon. "PPM Contribution" shall mean the indirect contribution of all the capital stock of PPM by PHI to the Borrower. "Prepaid Forward Sales Agreements" shall mean physical delivery contracts for which the Borrower or any Subsidiary has received or has the right to receive a cash payment in advance of physical delivery of the applicable commodity and that would be reflected as a liability or a contingent liability in the financial statements or notes thereto of such person in accordance with GAAP. "Prepayment Account" shall have the meaning assigned to such term in Section 2.13(j). "Press Release" shall have the meaning assigned to such term in the Bidco Facility Agreement. "Production Payments", with respect to any person, shall mean all production payment obligations and other similar obligations with respect to natural resources of such person that are 23 recorded as a liability or deferred revenue on the financial statements of such person in accordance with GAAP. "Pro Forma Financial Statements" shall have the meaning assigned to such term in Section 3.04(b). "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment. "Properties" shall have the meaning assigned to such term in Section 3.16(a). "Receivables Subsidiary" shall mean a bankruptcy-remote, special- purpose wholly owned Subsidiary formed solely for purposes of engaging in any Permitted Receivables Financing. "Recco" shall mean PacifiCorp Services Limited, a limited company incorporated in England and Wales, all the outstanding share capital of which on the Restatement Date is directly owned by Energyco. "Refinancing Indebtedness" shall have the meaning assigned to such term in Section 6.01(k). "Register" shall have the meaning given to such term in Section 9.04(d). "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. 24 "Required Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments representing at least a majority of the sum of all Loans outstanding (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such time; provided, however, with respect to any waivers of the conditions set forth in Section 4.02(a)(iv), the term "Required Lenders" shall also include each Initial Lender. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restatement Date" shall mean June 27, 1997. "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure, plus the aggregate amount at such time of such Lender's Swingline Exposure. "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment. "Revolving Credit Maturity Date" shall mean June 12, 2003. "Revolving Loans" shall mean the revolving loans made by the Lenders to the Borrower pursuant to Section 2.01(c). Each Revolving Loan shall be a Eurodollar Revolving Loan or a Base Rate Revolving Loan. "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. "Security Agreement" shall mean the Security Agreement, substantially in the form of Exhibit J, between the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Security Documents" shall mean the Mortgages, the Security Agreement, the Pledge Agreement, the Collateral Assignment and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.10. 25 "Separation Date" shall mean the first date upon which each Pedro Subsidiary is a wholly owned Subsidiary of the Borrower. "Shares" shall mean the ordinary shares of the Target (par value 10 pence per share). "Significant Subsidiary" shall mean, on any date, any Subsidiary that (a) has total assets, determined on a consolidated basis with its subsidiaries, as of the end of the fiscal quarter preceding such date equal to or greater than 2.5% of the total assets of the Borrower and its Subsidiaries on a consolidated basis as of the end of such fiscal quarter or (b) has income from continuing operations before income taxes, extraordinary items and the cumulative effect of a change in accounting principles ("Adjusted Income"), determined on a consolidated basis with its subsidiaries, for the four fiscal quarter period preceding such date equal to or greater than 2.5% of the Adjusted Income of the Borrower and its Subsidiaries on a consolidated basis for such period, in all cases as determined in accordance with GAAP. "Single Purpose Entity" shall mean a person, other than an individual, that (a) is organized solely for the purpose of holding, directly or indirectly, an ownership interest in one entity or property that is acquired, purchased or constructed, or in the case of previously undeveloped, non-income generating property of the Borrower or a Subsidiary, developed by the Borrower or its Subsidiaries, (b) does not engage in any business unrelated to such entity or property or the financing thereof and (c) does not have any assets or Indebtedness other than those related to its interest in such entity or property or the financing thereof. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent. "Subsidiary" shall mean any subsidiary of the Borrower, other than any Inactive Subsidiary. 26 "Swingline Commitment" shall mean the commitment of the Swingline Lender to make loans pursuant to Section 2.22, as the same may be reduced from time to time pursuant to Section 2.09. "Swingline Exposure" shall mean at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time. "Swingline Loan" shall mean any loan made by the Swingline Lender pursuant to Section 2.22. "Target" shall mean The Energy Group PLC, a public limited company incorporated in England and Wales. "Tax Sharing Arrangement" shall mean the Income Tax Allocation Policy dated as of January 1, 1997 of Newco relating to Newco and its subsidiaries (including the Borrower and its subsidiaries). "Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans or Tranche B Term Loans. "Termination Date" shall mean the earlier of (a) December 30, 1997 and (b) the later of (i) the date that is three months after the Unconditional Date and (ii) the date that is 49 days after the first date on which Bidco acquires 90% of the outstanding Shares to which the Offer relates. "Term Loan Availability Period" shall mean the period from and including the Closing Date to and including the Termination Date. "Term Loan Commitments" shall mean the Tranche A Commitments and the Tranche B Commitments. "Term Loan Repayment Dates" shall mean the Tranche A Term Loan Repayment Dates and the Tranche B Term Loan Repayment Dates. "Term Loans" shall mean the Tranche A Term Loans and the Tranche B Term Loans. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Paying Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. 27 "Total Debt" shall mean, as of any date of determination, without duplication, the aggregate principal amount of Indebtedness of the Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) outstanding as of such date, determined on a consolidated basis (other than (a) Indebtedness of the type referred to in clause (h) of the definition of the term "Indebtedness", except to the extent of any unreimbursed drawings thereunder, and (b) Permitted Junior Indebtedness). "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. "TPC" shall mean TPC Corporation, a corporation organized under the laws of Delaware. "TPC Contribution" shall mean the indirect contribution of all the capital stock of TPC by PHI to the Borrower. "Tranche A Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Tranche A Term Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Tranche A Maturity Date" shall mean June 12, 2003. "Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans. "Tranche A Term Loan Repayment Date" shall have the meaning assigned to such term in Section 2.11(a)(i). "Tranche A Term Loans" shall mean the term loans made by the Lenders to the Borrower pursuant to clause (a) of Section 2.01. Each Tranche A Term Loan shall be either a Eurodollar Term Loan or a Base Rate Term Loan. "Tranche B Commitment" shall mean with respect to each Lender, the commitment of such Lender to make Tranche B Term Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Tranche B Maturity Date" shall mean June 12, 2005. "Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche B Term Loans. 28 "Tranche B Term Loan Repayment Date" shall have the meaning assigned to such term in Section 2.11(a)(ii). "Tranche B Term Loans" shall mean the term loans made by the Lenders to the Borrower pursuant to clause (b) of Section 2.01. Each Tranche B Term Loan shall be either a Eurodollar Term Loan or a Base Rate Term Loan. "Transaction Loan Documents" shall mean (a) the Loan Documents, (b) the Bidco Facility Agreement and the security documents and guarantees related thereto, (c) the Energyco Bridge Loan Agreement and the guarantees related thereto and (d) the PHI Credit Agreement and the security documents related thereto. "Transactions" shall mean the Offer, the transactions contemplated thereby and the transactions contemplated by the Transaction Loan Documents. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Base Rate. "Unconditional Date" shall have the meaning assigned to such term in the Bidco Facility Agreement, as in effect on the Restatement Date. "wholly owned Subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power (other than directors' qualifying shares) or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Transaction Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrower notifies the Paying Agent that the Borrower wishes to amend any covenant in Article VI or any related definition (including as such definitions relate to the definition of "Excess Cash Flow") to eliminate the effect of any change in GAAP occurring 29 after the date of this Agreement on the operation of such covenant (or if the Paying Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant or definition is amended in a manner satisfactory to the Borrower and the Required Lenders. Notwithstanding anything to the contrary, for purposes of each Financial Definition as used in Sections 6.10, 6.11, 6.12, 6.13 and 6.14 and the definition of "Excess Cash Flow", as applicable, prior to the Separation Date, each reference to subsidiaries of the Borrower shall include the Pedro Subsidiaries as if the Pedro Subsidiaries are in fact subsidiaries of the Borrower and the Bidco Note has been satisfied. ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (a) to make Tranche A Term Loans to the Borrower at any time and from time to time on or after the Closing Date and until the earlier of the expiration of the Term Loan Availability Period and the termination of the Tranche A Commitment of such Lender in accordance with the terms hereof, in a principal amount not to exceed its Tranche A Term Commitment, (b) to make Tranche B Term Loans to the Borrower at any time and from time to time on or after the Closing Date and until the earlier of the expiration of the Term Loan Availability Period and the termination of the Tranche B Term Commitment of such Lender in accordance with the terms hereof, in a principal amount not to exceed its Tranche B Commitment, and (c) to make Revolving Loans to the Borrower, at any time and from time to time on or after the Closing Date, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding such Lender's Revolving Credit Commitment. Within the limits set forth in clause (c) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their Tranche A Commitment, Tranche B Commitment or Revolving Credit Commitment, as applicable; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f) and except as provided in the immediately succeeding sentence, the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 (except in the case of Acquisition Borrowings) and not less than $10,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. Subject to the other terms and conditions provided for herein, the aggregate principal amount of the Loans comprising each Acquisition Borrowing shall be an amount sufficient, when added to the amount of the Newco Equity Contribution as yet unused for such purpose (and to pay fees and 30 expenses related to the Offer), to enable the Borrower to fund to Bidco under the Bidco Note the relevant Matching Amount (it being understood and agreed that substantially the entire Newco Equity Contribution shall be used for such purpose prior to or simultaneously with the making of any Loan for such purpose or the payment of fees and expenses related to the Offer). (b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised entirely of Base Rate Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not (i) affect the obligation of the Borrower to repay such Loan or (ii) increase the costs of the Borrower that would otherwise be payable under Section 2.14 or 2.20 with respect thereto, in each case in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 15 Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made or deemed made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Paying Agent may designate not later than 11:00 a.m., New York City time, and the Paying Agent shall by 12:00 (noon), New York City time, credit the amounts so received (i) with respect to any Acquisition Borrowing, to the Offer Account, and (ii) with respect to any other Borrowing, to an account in the name of the Borrower, maintained with the Paying Agent and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Paying Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Paying Agent such Lender's portion of such Borrowing, the Paying Agent may assume that such Lender has made such portion available to the Paying Agent on the date of such Borrowing in accordance with paragraph (c) above and the Paying Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Paying Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Paying Agent, such Lender and the Borrower severally agree to repay to the Paying Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Paying Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Paying Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Paying Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Interest Period with respect to a Revolving Credit Borrowing, Tranche A Term Borrowing or Tranche B Term Borrowing that would end after the Revolving Credit Maturity Date, the Tranche A Maturity Date or the Tranche B Maturity Date, respectively. 31 (f) If the Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.23(e) within the time specified in such Section, the Issuing Bank will promptly notify the Paying Agent of the L/C Disbursement and the Paying Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Paying Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Paying Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Paying Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.23(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Paying Agent thereafter will be promptly remitted by the Paying Agent to the Revolving Credit Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Paying Agent as provided above, such Lender and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Paying Agent for the account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f), as to which this Section 2.03 shall not apply), the Borrower shall hand deliver or telecopy to the Paying Agent a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of a Base Rate Borrowing, not later than 11:00 a.m., New York City time, on the Business Day of a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing or a Revolving Credit Borrowing, whether such Borrowing is to be a Eurodollar Borrowing or a Base Rate Borrowing and whether such Borrowing is to be an Acquisition Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. Any request for a Term Borrowing by the Borrower shall be allocated between the Tranche A Commitments and the Tranche B Commitments pro rata in accordance with the aggregate unused amounts of such Commitments. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Paying Agent shall promptly advise the 32 applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender's portion of the requested Borrowing. SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby unconditionally promises to pay to the Paying Agent for the account of each Lender the then unpaid principal amount of each Swingline Loan, on the last day of the Interest Period applicable to such Loan or, if earlier, on the Revolving Credit Maturity Date , the principal amount of each Term Loan of such Lender as provided in Section 2.11 and the then unpaid principal amount of each Revolving Loan on the Revolving Credit Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Paying Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Paying Agent hereunder from the Borrower or any Guarantor and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Paying Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive a promissory note payable to such Lender and its registered assigns, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through the Paying Agent, on the last day of March, June, September and December in each year and on each date on which any Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage per annum in effect from time to time on the average daily unused amount of the Commitments of such Lender (other than the Swingline Commitment) during the preceding quarter (or other period commencing with the Closing Date or ending with the Revolving Credit Maturity Date or the date on which the Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the Commitment of such Lender shall expire or be terminated as provided herein. For purposes of calculating Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed utilized under Section 2.17 as a result of outstanding Swingline Loans. 33 (b) The Borrower agrees to pay (i) to each Revolving Credit Lender, through the Paying Agent, on the last day of March, June, September and December of each year and on the date on which the Revolving Credit Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to the Applicable Percentage from time to time used to determine the interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (c) All Fees shall be paid on the dates due, in immediately available funds, to the Paying Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances, absent manifest error. SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each Base Rate Borrowing, including each Swingline Loan, shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to (i) in the case of Revolving Credit Borrowings and Tranche A Term Borrowings, the Base Rate plus the Applicable Percentage in effect from time to time and (ii) in the case of Tranche B Term Borrowings, the Base Rate plus the Applicable Tranche B Percentage in effect from time to time. (b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of Revolving Credit Borrowings and Tranche A Term Borrowings, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect from time to time and (ii) in the case of Tranche B Term Borrowings, the Adjusted LIBO Rate for the Interest Period then in effect for such Borrowing plus the Applicable Tranche B Percentage in effect from time to time. (c) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Base Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Paying Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) (a) in the case of overdue principal, at the rate otherwise applicable 34 to such Loan pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the sum of the Base Rate plus 2.00%. SECTION 2.08. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Paying Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Lender or Lenders holding a majority of the Eurodollar Loans comprising such Eurodollar Borrowing of making or maintaining such Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Paying Agent shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Paying Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for a Base Rate Borrowing. Each determination by the Paying Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on the Termination Date. The Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date. Notwithstanding the foregoing, the Revolving Credit Commitment, the Swingline Commitment and the L/C Commitment shall automatically terminate at 5:00 p.m., New York City time, on the Termination Date if the initial Borrowing hereunder shall not have occurred by such time. (b) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Paying Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and in a minimum amount of $10,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the Aggregate Revolving Credit Exposure at the time. (c) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrower shall pay to the Paying Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall have the right at any time upon prior irrevocable notice to the Paying Agent (a) not later than 12:00 (noon), New York City time, one Business Day prior to conversion, to convert any Eurodollar Borrowing into a Base Rate Borrowing, (b) not later than 11:00 a.m., New York City time, three Business Days prior 35 to conversion or continuation, to convert any Base Rate Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Lender and the Paying Agent by recording for the account of such Lender the new Loan of such Lender resulting from such conversion and reducing the Loan (or portion thereof) of such Lender being converted by an equivalent principal amount; accrued interest on any Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into a Base Rate Borrowing; (vii) no Interest Period may be selected for any Eurodollar Term Borrowing that would end later than a Term Loan Repayment Date occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (A) the Eurodollar Term Borrowings with Interest Periods ending on or prior to such Term Loan Repayment Date and (B) the Base Rate Term Borrowings would not be at least equal to the principal amount of Term Borrowings to be paid on such Term Loan Repayment Date; and (viii) upon notice to the Borrower from the Paying Agent given at the request of the Required Lenders, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan. Each notice pursuant to this Section 2.10 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be 36 converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or a Base Rate Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Paying Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.10 to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as a Base Rate Borrowing. SECTION 2.11. Repayment of Term Borrowings. (a) (i) The Borrower shall pay to the Paying Agent, for the account of the Lenders, on the dates set forth below under Category 1 if the initial Tranche A Term Borrowing hereunder occurs on or after September 30, 1997, or under Category 2 if the initial Tranche A Term Borrowing hereunder occurs prior to September 30, 1997, or if any such applicable date is not a Business Day, on the next succeeding Business Day (each such applicable date being a "Tranche A Term Loan Repayment Date"), a principal amount of the Tranche A Term Loans (as adjusted from time to time pursuant to Sections 2.11(b), 2.12 and 2.13(h)) equal to the amount set forth below for such applicable date, together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the applicable date of such payment: 37
Category 1 Category 2 ---------- ---------- Date Amount Date Amount ---- ------ ---- ------ December 31, 1997 $ 5,000,000 March 31, 1998 $ 6,250,000 March 31, 1998 $ 5,000,000 June 30, 1998 $ 6,250,000 June 30, 1998 $ 5,000,000 September 30, 1998 $ 6,250,000 September 30, 1998 $ 5,000,000 December 31, 1998 $ 6,250,000 December 31, 1998 $ 5,000,000 March 31, 1999 $12,500,000 March 31, 1999 $12,500,000 June 30, 1999 $12,500,000 June 30, 1999 $12,500,000 September 30, 1999 $12,500,000 September 30, 1999 $12,500,000 December 31, 1999 $12,500,000 December 31, 1999 $12,500,000 March 31, 2000 $12,500,000 March 31, 2000 $12,500,000 June 30, 2000 $12,500,000 June 30, 2000 $12,500,000 September 30, 2000 $12,500,000 September 30, 2000 $12,500,000 December 31, 2000 $12,500,000 December 31, 2000 $12,500,000 March 31, 2001 $12,500,000 March 31, 2001 $12,500,000 June 30, 2001 $12,500,000 June 30, 2001 $12,500,000 September 30, 2001 $12,500,000 September 30, 2001 $12,500,000 December 31, 2001 $12,500,000 December 31, 2001 $12,500,000 March 31, 2002 $12,500,000 March 31, 2002 $12,500,000 June 30, 2002 $12,500,000 June 30, 2002 $12,500,000 September 30, 2002 $12,500,000 September 30, 2002 $12,500,000 December 31, 2002 $12,500,000 December 31, 2002 $12,500,000 March 31, 2003 $12,500,000 March 31, 2003 $12,500,000 Tranche A Maturity $12,500,000 Tranche A $12,500,000 Date Maturity Date
(ii) The Borrower shall pay to the Paying Agent, for the account of the Lenders, on the dates set forth below under Category 1 if the initial Tranche B Term Borrowing hereunder occurs on or after September 30, 1997, or under Category 2 if the initial Tranche B Term Borrowing hereunder occurs prior to September 30, 1997, or if any such applicable date is not a Business Day, on the next succeeding Business Day (each such applicable date being a "Tranche B Term Loan Repayment Date"), a principal amount of the Tranche B Term Loans (as adjusted from time to time pursuant to Sections 2.11(b), 2.12 and 2.13(h)) equal to the amount set forth below for such applicable date, together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the date of such payment:
Category 1 Category 2 ---------- ---------- Date Amount Date Amount ---- ------ ---- ------ December 31, 1997 $ 2,000,000 March 31, 1998 $ 2,000,000 March 31, 1998 $ 2,000,000
38 June 30, 1998 $ 2,000,000 June 30, 1998 $ 2,000,000 September 30, 1998 $ 2,000,000 September 30, 1998 $ 2,000,000 December 31, 1998 $ 2,000,000 December 31, 1998 $ 2,000,000 March 31, 1999 $ 2,000,000 March 31, 1999 $ 2,000,000 June 30, 1999 $ 2,000,000 June 30, 1999 $ 2,000,000 September 30, 1999 $ 2,000,000 September 30, 1999 $ 2,000,000 December 31, 1999 $ 2,000,000 December 31, 1999 $ 2,000,000 March 31, 2000 $ 2,000,000 March 31, 2000 $ 2,000,000 June 30, 2000 $ 2,000,000 June 30, 2000 $ 2,000,000 September 30, 2000 $ 2,000,000 September 30, 2000 $ 2,000,000 December 31, 2000 $ 2,000,000 December 31, 2000 $ 2,000,000 March 31, 2001 $ 2,000,000 March 31, 2001 $ 2,000,000 June 30, 2001 $ 2,000,000 June 30, 2001 $ 2,000,000 September 30, 2001 $ 2,000,000 September 30, 2001 $ 2,000,000 December 31, 2001 $ 2,000,000 December 31, 2001 $ 2,000,000 March 31, 2002 $ 2,000,000 March 31, 2002 $ 2,000,000 June 30, 2002 $ 2,000,000 June 30, 2002 $ 2,000,000 September 30, 2002 $ 2,000,000 September 30, 2002 $ 2,000,000 December 31, 2002 $ 2,000,000 December 31, 2002 $ 2,000,000 March 31, 2003 $ 2,000,000 March 31, 2003 $ 2,000,000 June 30, 2003 $ 2,000,000 June 30, 2003 $ 2,000,000 September 30, 2003 $ 2,000,000 September 30, 2003 $ 2,000,000 December 31, 2003 $ 2,000,000 December 31, 2003 $ 2,000,000 March 31, 2004 $ 27,000,000 March 31, 2004 $ 27,000,000 June 30, 2004 $ 27,000,000 June 30, 2004 $ 27,000,000 September 30, 2004 $ 27,000,000 September 30, 2004 $ 27,000,000 December 31, 2004 $ 27,000,000 December 31, 2004 $ 27,000,000 March 31, 2005 $322,000,000 March 31, 2005 $321,000,000 Tranche B Maturity $322,000,000 Tranche B $321,000,000 Date Maturity Date
(b) In the event and on each occasion that any Term Loan Commitments shall be reduced or shall expire or terminate other than as a result of the making of a Term Loan, the installments payable on each Term Loan Repayment Date shall be reduced pro rata by an aggregate amount equal to the amount of such reduction, expiration or termination. (c) To the extent not previously paid, all Tranche A Term Loans and Tranche B Term Loans shall be due and payable on the Tranche A Maturity Date and Tranche B Maturity Date, respectively, together with accrued and unpaid interest on the principal amount to be paid to but excluding the date of payment. 39 (d) All repayments pursuant to this Section 2.11 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. SECTION 2.12. Optional Prepayments. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Paying Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000. (b) Optional prepayments of Term Loans shall be allocated pro rata between the then-outstanding Tranche A Term Loans and Tranche B Term Loans and applied pro rata against the remaining scheduled installments of principal due in respect of the Tranche A Term Loans and Tranche B Term Loans under Sections 2.11(a)(i) and (ii), respectively. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall repay or prepay all its outstanding Revolving Credit Borrowings and all outstanding Swingline Loans on the date of such termination. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the effective date of such reduction, the Paying Agent shall notify the Borrower and the Revolving Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) in an amount sufficient to eliminate such excess. (b) Not later than the fourth Business Day following the receipt of Net Cash Proceeds from any Asset Sale (except to the extent the Borrower has notified the Paying Agent of its intention to reinvest the proceeds thereof in accordance with the definition of the term "Net Cash Proceeds" and such proceeds are in fact so reinvested or committed to be reinvested within the 180-day or 270-day period referred to in such definition), the Borrower shall apply 100% of such Net Cash Proceeds received with respect thereto to prepay outstanding Term Loans in accordance with Section 2.13(h). (c) In the event and on each occasion that an Equity Issuance occurs, the Borrower shall, substantially simultaneously with (and in any event not later than the fourth Business Day next following) the receipt of Net Cash Proceeds from any such Equity Issuance, apply 100% of such Net Cash Proceeds to prepay outstanding Term Loans in accordance with Section 2.13(h). (d) No later than (i) in the case of the fiscal year ending December 31, 1997, the later of (x) 15 days after the Separation Date and (y) April 30, 1998, and (ii) in the case of each fiscal year 40 thereafter, 120 days after the end of such fiscal year, the Borrower shall prepay outstanding Term Loans in accordance with Section 2.13(h) in an aggregate principal amount equal to 50% of Excess Cash Flow for the fiscal year then ended. (e) In the event that any Loan Party or any subsidiary of a Loan Party shall receive Net Cash Proceeds from the issuance or other disposition of Indebtedness for money borrowed of any Loan Party or any subsidiary of a Loan Party (other than Indebtedness permitted by Section 6.01 (other than subparagraph (i) thereof)), the Borrower shall, substantially simultaneously with (and in any event not later than the fourth Business Day next following) the receipt of such Net Cash Proceeds by such Loan Party or such subsidiary, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans in accordance with Section 2.13(h). (f) Not later than the fourth Business Day following the completion of a Permitted Receivables Financing, the Borrower or the applicable Subsidiary shall apply 100% of the Net Cash Proceeds therefrom to prepay outstanding Term Loans in accordance with Section 2.13(h). (g) Not later than the fourth Business Day following the receipt of any net cash proceeds attributable to any Prepaid Forward Sales Agreement, the Borrower or the applicable Subsidiary shall apply 100% of such net cash proceeds to prepay outstanding Term Loans in accordance with Section 2.13(h). (h) Mandatory prepayments of outstanding Term Loans under this Agreement shall be allocated pro rata between the then-outstanding Tranche A Term Loans and Tranche B Term Loans, and applied pro rata against the remaining scheduled installments of principal due in respect of Tranche A Term Loans and Tranche B Term Loans under Sections 2.11(a)(i) and (ii), respectively. (i) The Borrower shall deliver to the Paying Agent, at the time of each prepayment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least four days' prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. (j) Amounts to be applied pursuant to this Section 2.13 to the prepayment of Term Loans and Revolving Loans shall be applied, as applicable, first to reduce outstanding Base Rate Term Loans and Base Rate Revolving Loans. Any amounts remaining after each such application shall, at the option of the Borrower, be applied to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as the case may be, immediately and/or shall be deposited in the Prepayment Account (as defined below). The Paying Agent shall apply any cash deposited in the Prepayment Account (i) allocable to Term Loans to prepay Eurodollar Term Loans and (ii) allocable to Revolving Loans to prepay Eurodollar Revolving Loans, in each case on the last day of their respective Interest Periods (or, at the direction of the Borrower, on any earlier date) until all outstanding Term Loans or Revolving Loans, as the case may be, have been prepaid or until all the allocable cash on deposit with respect to such Loans has been exhausted. For purposes of this Agreement, the term "Prepayment Account" shall mean an account established by the Borrower with the Paying Agent and over which the Paying Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for 41 application in accordance with this paragraph (j). The Paying Agent will, at the request of the Borrower, invest amounts on deposit in the Prepayment Account in Permitted Investments that mature prior to the last day of the applicable Interest Periods of the Eurodollar Term Borrowings or Euro dollar Revolving Borrowings to be prepaid, as the case may be; provided, however, that (i) the Paying Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Paying Agent to be in, or would result in any, violation of any law, statute, rule or regulation and (ii) the Paying Agent shall have no obligation to invest amounts on deposit in the Prepayment Account if an Event of Default shall have occurred and be continuing. The Borrower shall indemnify the Paying Agent for any losses relating to the investments so that the amount available to prepay Eurodollar Borrowings on the last day of the applicable Interest Period is not less than the amount that would have been available had no investments been made pursuant thereto. Other than any interest earned on such investments, the Prepayment Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited in the Prepayment Account and reinvested and disbursed as specified above. If the maturity of the Loans has been accelerated pursuant to Article VII, the Paying Agent may, in its sole discretion, apply all amounts on deposit in the Prepayment Account to satisfy any of the Obligations. The Borrower hereby grants to the Paying Agent, for its benefit and the benefit of the Issuing Bank, the Swingline Lender and the Lenders, a security interest in the Prepayment Account to secure the Obligations. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or the Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender or the Issuing Bank to be material, then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, upon demand such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that the adoption after the Closing Date of any law, rule, regulation, agreement or guideline regarding capital adequacy, or any change after the Closing Date in any such law, rule, regulation, agreement or guideline (whether or not having the force of law) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or the Issuing Bank or any Lender's or the Issuing Bank's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or 42 the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be material, then from time to time the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its respective holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that neither any Lender nor the Issuing Bank shall be entitled to compensation under this Section 2.14 for any increased costs or reductions incurred or suffered with respect to any date unless such Lender or the Issuing Bank, as the case may be, shall have notified the Borrower under paragraph (c) above, not more than 90 days after the later of (i) such date and (ii) the date on which such Lender or Issuing Bank, as applicable, shall have become aware of such costs or reductions. The protection of this Section shall be available to each Lender and the Issuing Bank regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, agreement, guideline or other change or condition that shall have occurred or been imposed. SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the Closing Date, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Paying Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and Base Rate Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or to convert a Base Rate Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for a Base Rate Loan (or a request to continue a Base Rate Loan as such for an additional Interest Period or to convert a Eurodollar Loan into a Base Rate Loan, as the case may be), unless such declaration shall be subsequently withdrawn; and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to Base Rate Loans, in which event all such Eurodollar Loans shall be 43 automatically converted to Base Rate Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the Base Rate Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against any loss or expense that such Lender may sustain or incur as a consequence of any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (a) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (b) the conversion of any Eurodollar Loan to a Base Rate Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (c) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this sentence being called a "Breakage Event"). In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan (excluding loss of margin) that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.17. Pro Rata Treatment. Except as provided below in this Section 2.17 with respect to Swingline Loans and as required under Section 2.15, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). For purposes of determining the available Revolving Credit Commitments of the Lenders at any time, each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Lenders (including those Lenders which shall not have made Swingline Loans) pro rata in accordance with such respective Revolving Credit Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Paying Agent may, in 44 its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid principal portion of its Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and participations in L/C Disbursements shall be proportionately less than the unpaid principal portion of the Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and participations in L/C Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure, as the case may be of such other Lender, so that the aggregate unpaid principal amount of the Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure and participations in Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure then outstanding as the principal amount of its Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Term Loan or Revolving Loan or L/C Disbursement deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.19. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim. Each such payment (other than (i) Issuing Bank Fees, which shall be paid directly to the Issuing Bank, and (ii) principal of and interest on Swingline Loans, which shall be paid directly to the Swingline Lender except as otherwise provided in Section 2.21(e)) shall be made to the Paying Agent at its offices at 60 Wall Street, New York, New York. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Busi- 45 ness Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by or on behalf of the Borrower or any Loan Party hereunder and under any other Loan Document shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings imposed by the United Kingdom, the United States or any political subdivision thereof, and all liabilities with respect thereto, excluding all taxes, levies, imposts, deductions, charges or withholdings imposed by reason of the Paying Agent or Lender or Issuing Bank (or any transferee or assignee thereof including a participation holder (any such entity, a "Transferee")), as the case may be, doing business or being regulated, organized, managed, controlled or having a lending office in the jurisdiction imposing such tax, other than solely as a result of this Agreement or any other Loan Document or any transaction contemplated hereby (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, being called "Taxes"). If the Borrower or any Loan Party shall be required to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to the Paying Agent, any Lender or the Issuing Bank (or any Transferee), (i) the sum payable shall be increased by the amount (an "additional amount") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) the Paying Agent, such Lender or the Issuing Bank (or Transferee), as the case may be, shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Loan Party shall make such deductions and (iii) the Borrower or such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay to the relevant Governmental Authority of the United Kingdom, the United States or any political subdivision thereof in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (including, without limitation, mortgage recording taxes and similar fees) that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document ("Other Taxes"). (c) The Borrower will indemnify the Paying Agent, each Lender and the Issuing Bank (or Transferee) for the full amount of Taxes and Other Taxes paid by the Paying Agent, such Lender or the Issuing Bank (or Transferee), as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared by the Paying Agent, a Lender or the Issuing Bank (or Transferee), or the Paying Agent on its behalf, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Paying Agent, any Lender or the Issuing Bank (or Transferee), as the case may be, makes written demand therefor. (d) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Borrower or any other Loan Party to the relevant Governmental Authority, the Borrower or such other Loan Party will deliver to the Paying Agent, at its address referred to in Section 9.01 to the extent 46 legally available, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (e) Each Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Paying Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.20(e), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.20(e) that such Non-U.S. Lender is not legally able to deliver. (f) The Borrower shall not be required to indemnify any Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, however, that this paragraph (f) shall not apply (x) to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of the Borrower and (y) to the extent the indemnity payment or additional amounts any Transferee, or any Lender (or Transferee), acting through a New Lending Office, would be entitled to receive (without regard to this paragraph (f)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of paragraph (e) above. (g) Nothing contained in this Section 2.20 shall require any Lender or the Issuing Bank (or any Transferee) or the Paying Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). 47 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.20, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Paying Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Paying Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, and (z) the Borrower or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including any amounts under Section 2.14 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer. 48 SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Swingline Lender agrees to make loans to the Borrower at any time and from time to time on and after the Closing Date and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitments in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of all Swingline Loans exceeding $50,000,000 in the aggregate or (ii) the Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan, exceeding the Total Revolving Credit Commitment. Each Swingline Loan shall be in a principal amount that is an integral multiple of $250,000. The Swingline Commitment may be terminated or reduced from time to time as provided herein. Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. (b) Swingline Loans. The Borrower shall notify the Paying Agent by telecopy, or by telephone (confirmed by telecopy), not later than 11:00 a.m., New York City time, on the day of a proposed Swingline Loan. Such notice shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan. The Paying Agent will promptly advise the Swingline Lender of any notice received from the Borrower pursuant to this paragraph (b). The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender by 3:00 p.m. on the date such Swingline Loan is so requested. (c) Prepayment. The Borrower shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, upon giving written or telecopy notice (or telephone notice promptly confirmed by written, or telecopy notice) to the Swingline Lender and to the Paying Agent before 12:00 (noon), New York City time on the date of prepayment at the Swingline Lender's address for notices specified on Schedule 2.01. All principal payments of Swingline Loans shall be accompanied by accrued interest on the principal amount being repaid to the date of payment. (d) Interest. Each Swingline Loan shall be a Base Rate Loan and, subject to the provisions of Section 2.07, shall bear interest as provided in Section 2.06(a). (e) Participations. The Swingline Lender may by written notice given to the Paying Agent not later than 10:00 a.m., New York City time, on any Business Day require the Revolving Credit Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Credit Lenders will participate. The Paying Agent will, promptly upon receipt of such notice, give notice to each Revolving Credit Lender, specifying in such notice such Lender's Pro Rata Percentage of such Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Paying Agent, for the account of the Swingline Lender, such Revolving Credit Lender's Pro Rata Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its 49 obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Lenders) and the Paying Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Paying Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph and thereafter payments in respect of such Swingline Loan shall be made to the Paying Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Paying Agent; any such amounts received by the Paying Agent shall be promptly remitted by the Paying Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower (or other party liable for obligations of the Borrower) of any default in the payment thereof. SECTION 2.23. Letters of Credit. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account or the account of any Subsidiary (including PPM before it becomes a Subsidiary if it shall have become a Guarantor) (provided that the Borrower shall be a co-applicant and co- obligor with respect to each Letter of Credit issued for the account of or in favor of any such Subsidiary), in a form reasonably acceptable to the Paying Agent and the Issuing Bank, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or telecopy to the Issuing Bank and the Paying Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $250,000,000 and (B) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance, renewal or extension, as applicable, of such Letter of Credit and the date that is five Business Days prior to the Revolving Credit Maturity Date, unless such Letter of Credit expires by its terms on an earlier date. Each Letter of Credit may, upon the request of the Borrower, include a provision whereby such Letter of Credit shall be renewed automatically for additional consecutive periods of 12 months or less (but not beyond the date that is five Business Days prior to the Revolving Credit Maturity Date) unless the Issuing Bank notifies the beneficiary thereof at least 30 days prior to the then-applicable expiration date that such Letter of Credit will not be renewed. 50 (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Paying Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to the Paying Agent an amount equal to such L/C Disbursement not later than 2:00 p.m. on the day that the Borrower shall have received notice from the Issuing Bank of such L/C Disbursement, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Paying Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction ; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and 51 (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Paying Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Issuing Bank. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Paying Agent and the Borrower of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement in accordance with paragraph (e) above. The Paying Agent shall promptly give each Revolving Credit Lender notice thereof. (h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. 52 (i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 180 days' prior written notice to the Paying Agent, the Lenders and the Borrower, and may be removed at any time by the Borrower by notice to the Issuing Bank, the Paying Agent and the Lenders. Upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(b)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Paying Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If (i) any Event of Default shall occur and be continuing or (ii) to the extent and so long as the L/C Exposure exceeds the Total Revolving Credit Commitments, the Borrower shall, on the Business Day it receives notice from the Paying Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C Exposure (or in the case of clause (ii) of this sentence, the excess of the L/C Exposure over the Total Revolving Credit Commitment) as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made as selected by the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Paying Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrower is required to provide an amount of cash collateral pursuant to clause (i) of the first sentence of this paragraph (j), such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. If the Borrower is required to provide an amount of cash collateral pursuant to clause (ii) of the first sentence of this paragraph (j), such amount shall be returned to the Borrower from time to time to the extent that the amount of such cash collateral held by the Collateral Agent exceeds the excess, if any, of the 53 L/C Exposure over the Total Revolving Credit Commitment so long as no Event of Default shall have occurred and be continuing. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Paying Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that: SECTION 3.01. Organization. Each of the Borrower and the Subsidiaries is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be, and has all organizational powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except, in each case, where the failure to satisfy any of the above could not be reasonably expected to result in a Material Adverse Effect. SECTION 3.02. Corporate and Governmental Authorization; No Contravention. The execution and delivery by the Borrower of this Agreement and by the Borrower and each other Loan Party of the other Loan Documents to which it is or will be a party and the performance by each Loan Party of its obligations under each Loan Document to which it is or will be a party are within such Loan Party's organizational powers and have been duly authorized by all necessary organizational action. This Agreement has been duly executed and delivered by the Borrower, and each other Loan Document has (as of the date of execution thereof by the relevant Loan Party) been duly executed and delivered by the Loan Parties party thereto. No registration, recordation or filing with or consent, approval or other action by any regulatory or other governmental body, agency or official is required in connection with the execution or delivery of this Agreement and the other Loan Documents by the Borrower and the other Loan Parties party thereto, except where the failure to register, record or file could not reasonably be expected to result in a Material Adverse Effect, or is necessary for the validity or enforceability hereof or thereof, and the Transactions and the execution, delivery, performance and enforcement of this Agreement and the other Loan Documents do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, or of the certificate of incorporation or by-laws of the Borrower or any of the Subsidiaries, except where such contravention or default could not be reasonably expected to result in a Material Adverse Effect, or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any material Lien upon any asset of the Borrower or any of the Subsidiaries (other than any Lien created under the Loan Documents). SECTION 3.03. Enforceability. This Agreement constitutes (and, upon execution and delivery thereof as contemplated thereby, the other Loan Documents will constitute) a valid and binding agreement of the Borrower and each Loan Party thereto, in each case enforceable in accordance with its terms, except as the foregoing may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, or other similar laws affecting the rights of creditors generally and by general principles of equity, including those limiting the availability of specific performance, injunctive relief, and other equitable remedies and those providing for defenses based on fairness and reasonableness, regardless of whether considered in a proceeding in equity or at law. 54 SECTION 3.04. Financial Statements. (a) The Borrower has heretofore furnished to the Lenders the consolidated balance sheet and statements of income and retained earnings and cash flows of (i) the Pedro Group and (ii) TPC and its subsidiaries, in each case as of and for the fiscal year most recently ended, as applicable. Such financial statements present fairly the financial condition and results of operations and cash flows of the Pedro Subsidiaries and TPC and its subsidiaries as of such dates and for such periods. The Borrower has also heretofore delivered to the Lenders an unaudited balance sheet for PPM. The balance sheets (and, in the case of the Pedro Group and TPC, the notes thereto) disclose all material liabilities, direct or contingent, of the Pedro Group, TPC and its subsidiaries and PPM as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis (except for the absence of footnote disclosure). (b) The Borrower has heretofore delivered to the Lenders its unaudited pro forma consolidating balance sheet as of December 31, 1996 (the "Pro Forma Financial Statements"), prepared giving effect to the Transactions (including the transfer of the Pedro Subsidiaries) as if they had occurred on such date and consolidating income statement for the year ended December 31, 1996, assuming the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred on January 1, 1996. Such pro forma balance sheet and income statement have been prepared in good faith by the Borrower based on reasonable assumptions, are based on the best information available to the Borrower as of the date of delivery thereof, accurately reflect all material adjustments required to be made to give effect to the Transactions (including the transfer of the Pedro Subsidiaries) and present fairly on a pro forma basis the estimated consolidated financial position of the Borrower as of December 31, 1996, assuming that the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred at December 31, 1996, and present fairly on a pro forma basis the estimated consolidated results of operations of the Borrower for the year ended December 31, 1996, assuming that the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred on January 1, 1996. SECTION 3.05. No Material Adverse Change. (a) Prior to the Separation Date, there has been no material adverse change in the business, assets, operations, condition, financial or otherwise, or material agreements of (i) the Borrower, since December 31, 1996, or (ii) the Pedro Subsidiaries, taken as a whole, from the position reflected in the Pro Forma Financial Statements. (b) On and after the Separation Date, there has been no material adverse change in the business, assets, operations, condition, financial or otherwise, or material agreements of the Borrower and the Subsidiaries, taken as a whole, from the position reflected in the Pro Forma Financial Statements. SECTION 3.06. Title to Properties; Possession Under Leases. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets, except for defects that could not reasonably be expected to result in a Material Adverse Effect. All such material properties and assets are free and clear of Liens, other than Liens permitted by Section 6.02. (b) Except as set forth in Schedule 3.06(b), each of the Borrower and the Subsidiaries has complied with all obligations under all material leases to which it is a party and all such leases are in full force and effect, except where such noncompliance or failure to be in full force and effect, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse 55 Effect. Each of the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such leases, other than Liens permitted by Section 6.02. SECTION 3.07. Subsidiaries. (a) Schedule 3.07(a) sets forth as of the Closing Date a list of all Subsidiaries and the percentage ownership interest of the Borrower therein. The shares of capital stock or other ownership interests so indicated in Schedule 3.07(a) are fully paid and non-assessable and are owned by the Borrower, directly or indirectly, free and clear of all Liens, except for Liens permitted by Section 6.02. (b) Schedule 1.01(c) sets forth as of the Closing Date a list of all Pedro Subsidiaries and the percentage ownership interest of the Borrower therein, after giving effect to the transfer of the Pedro Subsidiaries to the Borrower. On and after the Separation Date, the shares of capital stock or other ownership interests so indicated in Schedule 1.01(c) of the Pedro Subsidiaries will be fully paid and non-assessable and will be owned by the Borrower, directly or indirectly, free and clear of all Liens, except for Liens permitted by Section 6.02. SECTION 3.08. Litigation; Compliance with Laws; Reserves. (a) Except as set forth in Schedule 3.08, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) or any business, property or rights of any such person (i) that expressly involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, in either case could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) The Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) maintain adequate reserves for (i) future costs associated with any lung disease claim alleging pneumococcosis or silicosis or arising out of exposure or alleged exposure to coal dust or the coal mining environment and (ii) future costs associated with reclamation costs of disturbed acreage, removal of facilities and other closing costs in connection with its mining operations. Such reserves are not materially less than is required by GAAP. (c) None of the Borrower or any of the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower and taking into account reserves reflected in the Pro Forma Financial Statements or the financial statements delivered by the Borrower and its Subsidiaries pursuant to Section 5.04) or any of its respective material properties or assets is in violation of, nor will the continued operation of its material properties and assets as currently conducted violate, any law, rule or regulation (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits), or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.09. Agreements. (a) Neither the Borrower nor any of the Subsidiaries is a party to any agreement or instrument or subject to any corporate or other organizational restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. 56 (b) Neither the Borrower nor any of the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. Federal Reserve Regulations. No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation G, T, U or X. SECTION 3.11. Investment Company Act; Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.12. Use of Proceeds. The Borrower will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 3.13. Tax Returns. Each of the Borrower and the Subsidiaries, and any other affiliate with joint and several liability for taxes (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower), has filed or caused to be filed all Federal, state, local and other material tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it pursuant thereto and all assessments received by it, except where the failure to do any of the foregoing could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.14. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement (including forecasts and projections), exhibit or schedule furnished by or on behalf of the Borrower to the Paying Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, when taken as a whole, contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.15. Employee Benefit Plans. Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder, except where the failure to comply could not be reasonably expected to result in a Material Adverse Effect. None of the Borrower or any ERISA Affiliate has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or made any amendment to any Plan which has resulted or could result in the imposition of a Lien or 57 the posting of a bond or other security under ERISA or the Code or (iii) incurred any material liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 3.16. Environmental Matters. Except as set forth in Schedule 3.16: (a) The properties (the "Properties") owned or operated by the Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) do not contain any Hazardous Materials in amounts or concentrations which (i) constitute a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) are in compliance with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not result in a Material Adverse Effect; (c) There have been no Releases or threatened Releases at, from, or under the Properties or otherwise in connection with the operations of the Borrower or the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower), which Releases or threatened Releases, in the aggregate, could result in a Material Adverse Effect; (d) Neither the Borrower nor any of the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or such Subsidiaries or with regard to any person whose liabilities for environmental matters the Borrower or such Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could result in a Material Adverse Effect, nor do the Borrower or such Subsidiaries have reason to believe that any such notice will be received or is being threatened; and (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Borrower or the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could result in a Material Adverse Effect. SECTION 3.17. Insurance. Schedule 3.17 sets forth a true, complete and correct description of all material insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Closing Date and the Separation Date. As of each such date, such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) have (or will have, as the case may be) insurance 58 in such amounts and covering such risks and liabilities as are in accordance with normal industry practice. SECTION 3.18. Security Documents. (a) The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Pledge Agreement) and, when the Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute a duly perfected first priority Lien on, and security interest in, all right, title and interest of the pledgors thereunder in such Collateral, in each case prior and superior in right to any other person. (b) The Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and, when financing statements in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate, the Security Agreement shall constitute (to the extent such security interest can be perfected under applicable uniform commercial codes) a duly perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral, in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02. (c) The Collateral Assignment is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Collateral Assignment) and, when the Bidco Note is delivered to the Collateral Agent and financing statements in appropriate form are filed in appropriate filing offices, the Collateral Assignment shall constitute (to the extent such security interest can be perfected by filing under applicable uniform commercial codes) a duly perfected Lien on, and security interest in, all right, title and interest of the Borrower in such Collateral, in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02. SECTION 3.19. Location of Real Property and Leased Premises. (a) Schedule 3.19(a) lists completely and correctly as of the Closing Date all material real property owned by the Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiaries own in fee all the real property set forth on Schedule 3.19(a) not designated therein as "Pedro Owned Property". As of the Separation Date, the Borrower and the Subsidiaries own in fee all the real property designated as "Pedro Owned Property" on Schedule 3.19(a). (b) Schedule 3.19(b) lists completely and correctly as of the Closing Date all material real property leased by the Borrower and the Subsidiaries (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiaries have valid leases in all the real property set forth on Schedule 3.19(b) not designated therein as "Pedro Leased Property". As of the Separation Date, the Borrower and the Subsidiaries have valid leases in all real property designated as "Pedro Leased Property" on Schedule 3.19(b). SECTION 3.20. Labor Matters. As of the Closing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary (after giving effect to the transfer of the Pedro Subsidiaries to the Borrower) pending or, to the knowledge of the Borrower, threatened, except where any such strike, lockout or slowdown could not reasonably be expected to result in a Material Adverse 59 Effect. The hours worked by and payments made to employees of the Borrower and such Subsidiaries have not been in material violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any such Subsidiary, or for which any claim may be made against the Borrower or any such Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any such Subsidiary is bound. SECTION 3.21. Solvency. Immediately after the consummation of the Transactions and immediately following the making of each Loan and after giving effect to the application of the proceeds of such Loans, and taking into account all rights of indemnity, subrogation and contribution of the Loan Parties under applicable law and the Indemnity, Subrogation and Contribution Agreement, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Closing Date. ARTICLE IV Conditions SECTION 4.01. Effective Date. The effectiveness of this Agreement shall be subject to the satisfaction of each of the following conditions: (a) The Paying Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of Stoel Rives LLP, counsel for the Borrower, substantially to the effect set forth in Exhibit K-1, and a favorable written opinion of Davis Polk & Wardwell, special counsel for the Borrower, substantially to the effect set forth in Exhibit K-2. (b) The Paying Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing 60 the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. (c) The Paying Agent shall have received a certificate, signed by a Financial Officer of the Borrower, dated the Closing Date and confirming that the representations and warranties set forth in Article III hereof are true and correct in all material respects, except to the extent such representation and warranty relates to a later date. (d) The Paying Agent and the Initial Lenders shall have received all fees and other amounts due and payable on the Closing Date in connection with the Offer. (e) The Pledge Agreement shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect. (f) The Security Agreement shall have been duly executed by the Loan Parties party thereto and shall have been delivered to the Collateral Agent and shall be in full force and effect. (g) The Collateral Assignment shall have been duly executed by the parties thereto and shall have been delivered to the Collateral Agent and shall be in full force and effect. SECTION 4.02. Borrowings. (a) The obligation of any Lender to make a Loan or of the Issuing Bank to issue a Letter of Credit (each, a "Credit Event") on the occasion of any Credit Event, the proceeds of which are to be used, directly or indirectly (i) in the case of a Loan, to finance the Offer or to pay costs and expenses related thereto or for any other purpose set forth in Clause 3.1(a)(i) of the Bidco Facility Agreement, as in effect on the Restatement Date, or (ii) in the case of a Letter of Credit, to replace a letter of credit issued for the account of a Pedro Subsidiary and included as Pedro Refinanced Indebtedness, is subject to the satisfaction of the following conditions: (i) The Paying Agent shall have received a notice of such Credit Event as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance of a Letter of Credit, the Issuing Bank and the Paying Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.23(b). (ii) At the time of and immediately after such Credit Event, no Event of Default described in clause (g), (h) or (o) of Article VII shall have occurred and be continuing with respect to the Borrower. 61 (iii) The representations and warranties set forth in Sections 3.01, 3.02 and 3.03, as they relate to the Borrower, shall be true and correct in all material respects on the date of any such Credit Event with the same effect as though made on such date. (iv) Each of the Offer Conditions Precedent, unless waived in writing by the Required Lenders (such waiver being conclusively evidenced by written notice from the Paying Agent to the Borrower and, in the case of paragraph 1 of such Offer Conditions Precedent, not to be unreasonably withheld or delayed), shall have been satisfied. (v) Each of the TPC Contribution, the PHI Equity Contribution and the Newco Equity Contribution shall have been completed. (vi) Each of the applicable conditions precedent with respect to a borrowing to finance the Offer set forth in the PHI Credit Agreement, the Energyco Bridge Loan Agreement and the Bidco Facility Agreement (other than any condition in any such agreement requiring that borrowings shall have been made under this or any other such agreement and/or the proceeds of such borrowings have been made available directly or indirectly to Bidco) shall have been satisfied or waived in accordance with the terms thereof, and each of such agreements shall be in full force and effect. Each Credit Event hereunder of the type described in this Section 4.02(a) shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Event as to the facts specified in clauses (ii), (iii), (iv), (v) and (vi) of this Section 4.02(a). (b) The obligation of any Lender or of the Issuing Bank on the occasion of any Credit Event other than (i) a Credit Event of the type described in Section 4.02(a) or (ii) a continuation or conversion of a Borrowing of the type described in Section 2.10 is subject to the satisfaction of the following conditions: (i) The Paying Agent shall have received a notice of such Credit Event as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance of a Letter of Credit, the Issuing Bank and the Paying Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.23(b) or, in the case of the Borrowing of a Swingline Loan, the Swingline Lender and the Paying Agent shall have received a notice requesting such Swingline Loan as required by Section 2.22(b). (ii) The representations and warranties set forth in Article III hereof shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (iii) At the time of and immediately after such Credit Event, no Event of Default or Default shall have occurred and be continuing. 62 Each Credit Event hereunder of the type described in this Section 4.02(b) shall be deemed to constitute a representation and warranty by the Borrower on the date of such Credit Event as to the matters specified in paragraphs (i) and (ii) of this Section 4.02(b). ARTICLE V Affirmative Covenants The Borrower covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts then due and payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect the legal existence of the Borrower and each Significant Subsidiary, except as otherwise expressly permitted under Section 6.05. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; except as contemplated by this Agreement, maintain and operate such business in substantially the manner in which it is presently conducted and operated; at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted in all material respects at all times, in each case, where the failure to do so could reasonably be expected to have a Material Adverse Effect. (c) Without limiting the generality of the foregoing, operate in all material respects, and cause each of its Subsidiaries to operate in all material respects, its mines in accordance with sound coal mining practices and all applicable Federal, state and local laws, rules and regulations, including, without limitation, laws and regulations relating to land reclamation, pollution control and mine safety, and maintain and develop the coal reserves included in the mining plans of the Borrower and the Subsidiaries made available to the Lenders pursuant to Section 5.06. SECTION 5.02. Insurance. (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance (including self insurance), to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. 63 (b) Notify the Paying Agent and the Collateral Agent immediately whenever any material separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.02 is taken out by the Borrower; and promptly deliver to the Paying Agent and the Collateral Agent a duplicate original copy of such policy or policies. SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other material obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all material lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien. SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Paying Agent and each Lender: (a) within 120 days after the end of each fiscal year, its consolidated balance sheets and related statement of income and retained earnings and cash flows showing the financial condition of (i) the Borrower and its consolidated subsidiaries and (ii) prior to the transfer of the Pedro Subsidiaries to the Borrower, the Pedro Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such subsidiaries during such year, in each case audited by independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower and its consolidated subsidiaries and the Pedro Subsidiaries, as applicable, on a consolidated basis in accordance with GAAP consistently applied (except as otherwise provided in the notes thereto); (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year beginning with the first fiscal quarter ending after the initial Acquisition Borrowing (provided that prior to such date, the Borrower shall furnish to the Paying Agent and each Lender any information made publicly available relating thereto), its consolidated balance sheets and related statements of income and retained earnings and cash flows showing the financial condition of (i) the Borrower and its consolidated subsidiaries and (ii) prior to the transfer of the Pedro Subsidiaries to the Borrower, the Pedro Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, in each case certified by a Financial Officer or independent public accountant as fairly presenting the financial condition and results of operations of the Borrower and its consolidated subsidiaries and the Pedro Subsidiaries, as applicable, on a consolidated basis in accordance with GAAP consis tently applied (except for the absence of footnote disclosure), subject to normal year-end audit adjustments; 64 (c) within 60 days after the end of each of the first three fiscal quarters of each fiscal year beginning with January 1, 1997 and ending on the Separation Date, its unaudited pro forma consolidating balance sheet as of the close of such fiscal quarter, and as of December 31, 1997, as the case may be, prepared giving effect to the Transactions (including the transfer of the Pedro Subsidiaries) as if they had occurred on such date, and consolidating income statement for the applicable period, assuming the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred at the beginning of each such period. Such pro forma balance sheets and income statements will be prepared in good faith by the Borrower based on reasonable assumptions, will be based on the best information available to the Borrower as of the date of delivery thereof, will accurately reflect all material adjustments required to be made to give effect to the Transactions (including the transfer of the Pedro Subsidiaries) and will present fairly on a pro forma basis the estimated consolidated financial position of the Borrower as of the end of the applicable period, assuming that the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred at such date, and will present fairly on a pro forma basis the estimated consolidated results of operations of the Borrower for such period, assuming that the Transactions (including the transfer of the Pedro Subsidiaries) had actually occurred on the first day of such period; (d) concurrently with any delivery of financial statements under paragraph (a) or (b) above, (i) a certificate of the applicable accounting firm or Financial Officer opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) and certifying that no Event of Default has occurred and that no Default has occurred and is continuing or, if such an Event of Default has occurred or Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) a certificate of a Financial Officer of the Borrower setting forth the Net Termination Value as of the date of such financial statements; (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to public shareholders, as the case may be; (f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Paying Agent or any Lender may reasonably request; and (g) as soon as available but in any event no later than 60 days after the beginning of each fiscal year, a copy of the annual business plan of the Borrower and the Subsidiaries and forecasts (prepared by management of the Borrower) of the Borrower's consolidated balance sheets and related statements of operations and cash flows on a monthly basis for such fiscal year and on an annual basis for each of the following four fiscal years. 65 SECTION 5.05. Litigation and Other Notices. Furnish to the Paying Agent, the Issuing Bank and each Lender prompt written notice of the following: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; and (c) any development of which a Responsible Officer is aware that has resulted in, or which such Responsible Officer has reasonably concluded will result in, a Material Adverse Effect. SECTION 5.06. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Paying Agent or any Lender to visit and inspect the financial records (including any mining plans with respect to any material mines owned or operated by the Borrower or any Subsidiary) and the properties of the Borrower or any Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Paying Agent or any Lender to discuss (in the presence of the Borrower, unless a Default or Event of Default shall have occurred and is continuing) the affairs, finances and condition of the Borrower or any Subsidiary with the officers thereof and independent accountants therefor. SECTION 5.07. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 5.08. Compliance with Laws. Comply in all respects with all applicable laws, ordinances, rules, regulations and requirements of Governmental Authorities (including Environmental Laws and ERISA and the rules and regulations thereunder), except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where noncompliance therewith could not reasonably be expected to have a Material Adverse Effect. SECTION 5.09. Preparation of Environmental Reports. If a Default caused by reason of a breach of Section 3.16 or 5.08 (with respect to compliance with Environmental Laws) shall have occurred and be continuing, at the request of the Required Lenders through the Paying Agent, provide to the Lenders within 45 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties which are the subject of such default prepared by an environmental consulting firm reasonably acceptable to the Paying Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. 66 SECTION 5.10. Further Assurances. Upon the reasonable request of the Required Lenders or the Paying Agent, from time to time, execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust) in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the Security Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary (including the Pedro Subsidiaries, but excluding any Receivables Subsidiary and any Single Purpose Entity) to execute a Guarantee Agreement, Indemnity, Subrogation and Contribution Agreement and each applicable Security Document in favor of the Collateral Agent. Upon the reasonable request of the Required Lenders or the Paying Agent, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as the Paying Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by, among other things, substantially all the assets of the Borrower (including real and other properties acquired subsequent to the Closing Date, including the assets of the Pedro Subsidiaries, but excluding any Receivables Subsidiary and any Single Purpose Entity)). Such security interests and Liens will be created under the Security Documents and other security agreements, mortgages, deeds of trust and other instruments and documents in form and substance satisfactory to the Collateral Agent, and the Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section. The Borrower agrees to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. Without limiting the generality of the foregoing, (a) upon the reasonable request of the Paying Agent or the Required Lenders, the Borrower shall execute, or cause the appropriate Subsidiary to execute, a mortgage (collectively, the "Mortgages") in form reasonably satisfactory to the Collateral Agent and deliver other instruments and documents (including legal opinions, title insurance policies and lien searches) reasonably requested by the Paying Agent or the Required Lenders in connection with creating a security interest in favor of the Collateral Agent for the benefit of the Secured Parties with respect to any real property interest of the Borrower or any Subsidiary and (b) the Borrower shall use its reasonable efforts to ensure that the applicable security interests created under this Section 5.10 with respect to property acquired in connection with an exchange contemplated by clause (vii) of the definition of "Asset Sale" or in connection with a reinvestment contemplated by clause (y) to the proviso of the definition of "Net Cash Proceeds" shall be substantially similar as the applicable security interests with respect to the property that is transferred or sold. SECTION 5.11. Interest Rate Protection Agreements. As promptly as practicable and in any event within 180 days after the date of the initial Borrowing hereunder, enter into, and thereafter maintain in full force and effect through the third anniversary of the date of such initial Borrowing, one or more Interest Rate Protection Agreements in form reasonably satisfactory to the Paying Agent, the effect of which shall be to set at fixed rates the interest cost to the Borrower and its Subsidiaries with respect to at least 50% of the aggregate average outstanding principal amount of Term Loans and deliver evidence of the execution and delivery thereof to the Paying Agent. SECTION 5.12. Concentration and Disbursement Accounts. As promptly as practicable and in any event within (i) 180 days after the date of the initial Borrowing hereunder with respect to the 67 Borrower and its Subsidiaries other than the Pedro Subsidiaries and (ii) 30 days after the Separation Date with respect to the Pedro Subsidiaries (if later than 180 days after the date of the initial Acquisition Borrowing), maintain their material concentration and disbursement accounts with one or more financial institutions that are Lenders. SECTION 5.13. Pedro Subsidiaries; PPM Contribution. As soon as practicable, but in any event not later than 270 days after the initial Acquisition Borrowing, use its best efforts to (a) (i) cause each Pedro Subsidiary to be transferred to the Borrower and (ii) cause each Pedro Subsidiary to comply with Section 5.10 after completion of such transfer and (b) cause the PPM Contribution to be effected. ARTICLE VI Negative Covenants The Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts due and payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not cause or permit any of the Subsidiaries (other than any Receivables Subsidiary, except in the case of Sections 6.01, 6.02 and 6.08) to: SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness outstanding on the Closing Date, or available under debt instruments existing on the Closing Date, and set forth in Schedule 6.01(a); (b) Indebtedness created hereunder and under the other Loan Documents; (c) the Pedro Indebtedness; (d) Guarantees in respect of Indebtedness permitted pursuant to this Section 6.01; (provided that any Guarantees in respect of Indebtedness that is subordinated to the Obligations shall be subordinated to the Obligations to the same extent as such Indebtedness is subordinated to the Obligations); (e) Indebtedness of the Borrower or any wholly owned Subsidiary to any other wholly owned Subsidiary or the Borrower, so long as, with respect to any Indebtedness, the obligee of which is not a Loan Party, such Indebtedness is subordinated to all Indebtedness incurred pursuant hereto and pursuant to the Guarantee Agreement; (f) Indebtedness of the Borrower or the Subsidiaries (including tax exempt financings and Capital Lease Obligations) to purchase, construct, develop or improve assets in the 68 ordinary course of business after the Closing Date or incurred in the ordinary course of business after the Closing Date to finance Capital Expenditures permitted under Section 6.10; (g) Indebtedness incurred pursuant to any Permitted Receivables Financing; (h) Indebtedness in respect of surety and appeal bonds, performance bonds, reclamation bonds and other obligations of a like nature incurred in the ordinary course of business; (i) Permitted Junior Indebtedness; (j) Indebtedness of a Subsidiary (other than any Pedro Subsidiary) acquired after the Closing Date and Indebtedness of a corporation (other than any Pedro Subsidiary) merged or consolidated with or into the Borrower or a Subsidiary after the Closing Date, which Indebtedness in each case exists at the time of such acquisition, merger, consolidation or conversion into a Subsidiary and is not created in contemplation of such event and where such acquisition, merger or consolidation is permitted by this Agreement; provided that the Borrower and the Subsidiaries shall comply with the provisions of Section 5.10 with respect to such acquired or newly formed Subsidiary; (k) extensions, renewals or refinancings of Indebtedness under paragraphs (a), (c), (d), (f), (g), (i) and (j) so long as (i) such Indebtedness (the "Refinancing Indebtedness") is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being extended, renewed or refinanced plus the amount of any premiums required to be paid thereon and fees and expenses associated therewith, (ii) such Refinancing Indebtedness has a later or equal final maturity and a longer or equal weighted average life than the Indebtedness being extended, renewed or refinanced, (iii) the interest rate applicable to such Refinancing Indebtedness shall be a market interest rate (as determined in good faith by the Board of Directors of the Borrower) as of the time of such extension, renewal or refinancing, (iv) if the Indebtedness being extended, renewed or refinanced is subordinated to the Obligations, such Refinancing Indebtedness is subordinated to the Obligations to the extent of the Indebtedness being extended, renewed or refinanced, (v) the covenants, events of default and other provisions thereof (including any Guarantees thereof), taken as a whole, shall be no less favorable to the Lenders than those contained in the Indebtedness being refinanced and (vi) at the time and after giving effect to such extension, renewal or refinancing, no Default or Event of Default shall have occurred and be continuing; and (l) unsecured Indebtedness in addition to that permitted by paragraphs (a) through (k) above in an aggregate principal amount outstanding not to exceed at any time $50,000,000. 69 SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the Closing Date; provided that such Liens shall secure only those obligations which they secure on the Closing Date; (b) any Lien created under the Loan Documents; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any other property or assets of the Borrower or any Subsidiary; (d) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; (e) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03; (f) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations; (g) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds, reclamation bonds and other obligations of a like nature incurred in the ordinary course of business; (h) Liens created by or relating to any legal proceeding which at the time is being contested in good faith by appropriate proceedings; provided that, in the case of a Lien consisting of an attachment or judgment Lien, the judgment it secures shall, within 60 days of entry thereof, have been discharged or execution thereof stayed pending appeal, or discharged within 60 days after the expiration of any such stay; (i) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (j) purchase money security interests in real property, improvements thereto, equipment or other fixed assets hereafter acquired (or, in the case of improvements, equipment or other fixed assets, constructed) by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such 70 security interests are incurred, and the Indebtedness secured thereby is created, no later than 90 days after such acquisition (or completion of such construction), (iii) the Indebtedness secured thereby does not exceed the cost of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrower or any Subsidiary (other than the proceeds of the real property, improvements, equipment or other fixed assets subject to such Lien); (k) Liens securing Refinancing Indebtedness, to the extent that the Indebtedness being refinanced was originally secured in accordance with this Section 6.02; provided that such Lien does not apply to any additional property or assets of the Borrower or any Subsidiary (other than the proceeds of the property or asset subject to such Lien); (l) Liens on accounts receivables and related assets financed in connection with any Permitted Receivables Financing; (m) Liens arising out of Indebtedness permitted under Section 6.01(f), so long as such Liens (i) attach only to the property subject to such Indebtedness and (ii) do not interfere with the business of the Borrower or any of the Subsidiaries in any material respect; (n) Production Payments, royalties, dedication of reserves under supply agreements or similar rights or interests granted, taken subject to, or otherwise imposed on properties consistent with normal practices in the mining industry; (o) Liens on cash and cash equivalents securing obligations under Hedging Agreements; provided that the aggregate amount of cash and cash equivalents subject to such Liens shall not exceed at any time $10,000,000; and (p) Liens in addition to those permitted by paragraphs (a) through (o); provided, however, that the aggregate principal amount of the Indebtedness and amount of other liabilities that is secured by such Liens do not exceed at any time $50,000,000. SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred; provided that the Borrower and the Subsidiaries may enter into any such transaction to the extent the Capital Lease Obligation and Liens associated therewith would be permitted by Sections 6.01(f) and 6.02(m), respectively. SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire any capital stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances from the Borrower or any Subsidiary to, or make or permit to exist any investment or any other interest in, any other person, except: (a) investments by the Borrower and the Subsidiaries in the capital stock of the Subsidiaries (including after the Separation Date, the Pedro Subsidiaries); 71 (b) Permitted Investments; (c) investments existing on the Closing Date and set forth on Schedule 6.04(c) or pursuant to commitments set forth in Schedule 6.04(c); (d) investments constituting Capital Expenditures permitted under Section 6.10; (e) investments constituting non-cash consideration received in connection with a sale of assets not prohibited by Section 6.05; (f) loans or advances by the Borrower or any wholly owned Subsidiary to the Borrower or any wholly owned Subsidiary that are permitted under Section 6.01(e); (g) investments in Hedging Agreements that are permitted under this Agreement; (h) the Borrower or any Subsidiary may transfer accounts receivable and related assets to a Receivables Subsidiary pursuant to any Permitted Receivables Financing; (i) investments that are sale and lease-back transactions permitted by Section 6.03; (j) investments, loans or advances made from the proceeds of equity contributions to the Borrower from its parents; (k) investments of the type contemplated in clause (vii) of the definition of "Asset Sale"; (l) the Powercoal/Bidco Loans; (m) investments in the nature of production payments, royalties, dedications of reserves under supply agreements or similar rights or interests granted, taken subject to, or otherwise imposed on properties consistent with normal practices in the mining industry; (n) investments, loans or advances in an amount not to exceed the portion of Excess Cash Flow from the preceding fiscal year not required to be used to prepay Term Loans in accordance with Section 2.13(d); (o) investments that do not constitute Capital Expenditures and that are made in connection with the purchase, construction, development or improvement of assets in the ordinary course of business after the Closing Date; and (p) investments, loans or advances in addition to those permitted by paragraphs (a) through (o) not exceeding in the aggregate $50,000,000 at any time outstanding; provided, however, that to the extent any investment permitted by this Section 6.04 results in the acquisition of a Subsidiary, the Borrower shall, and shall cause such Subsidiary to, comply with the applicable provisions of Section 5.10. 72 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of the assets of the Borrower and its Subsidiaries (taken as a whole) (whether now owned or hereafter acquired) or any capital stock of any Subsidiary, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of related transactions) all or substantially all of the assets or capital stock of any Subsidiary set forth in Schedule 6.05(a), or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except: (i) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (A) any wholly owned Subsidiary may merge into or consolidate with, or sell or transfer all or substantially all its assets to, the Borrower in a transaction in which, in the case of a merger or consolidation, the Borrower is the surviving corporation and (B) any wholly owned Subsidiary may merge into or consolidate with, or sell or transfer all or substantially all its assets to, any other wholly owned Subsidiary in a transaction in which, in the case of a merger or consolidation, the surviving entity is a wholly owned Subsidiary and no person other than the Borrower or a wholly owned Subsidiary receives any consideration; (ii) the Borrower may acquire the Pedro Subsidiaries; (iii) acquisitions constituting Capital Expenditures permitted by Section 6.10; and (iv) acquisitions constituting investments permitted by Section 6.04. (b) Notwithstanding Section 6.05(a), no Asset Sale shall be permitted under this Agreement unless (i) the consideration received in connection therewith is at least equal to the fair market value of the assets or property sold, transferred or otherwise disposed of (as determined in good faith by a Financial Officer of the Borrower), (ii) except with respect to any Asset Sale that results in an investment permitted by Section 6.04(p), in the case of an Asset Sale of property having a value of (x) more than $25,000,000 but less than $100,000,000, such Asset Sale shall be for consideration at least 50% of which is cash and (y) $100,000,000 or more, such Asset Sale shall be for consideration at least 80% of which is cash, and (iii) to the extent required, the Net Cash Proceeds thereof are applied in accordance with Section 2.13(b); provided, however, that for purposes of this Section 6.05(b), the right to receive Production Payments, royalty payments and other similar rights that are contingent on the performance of the assets sold in such Asset Sale shall be deemed not to be consideration for such Asset Sale. SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any shares of any class of its capital stock or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions to the Borrower or another Subsidiary and (ii) if no Event of Default shall have occurred and be continuing or would occur as a consequence 73 thereof, (A) the Borrower and its Subsidiaries may make payments required to be made under the Tax Sharing Arrangement so long as the payment thereunder by the Borrower and its Subsidiaries shall not exceed the amount the Borrower and its Subsidiaries would be required to pay under such arrangement as in effect on the Closing Date and (B) the Borrower may pay dividends to Newco not in excess of the Permitted Dividend Amount. (b) Permit its subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such subsidiary to (i) pay any dividends or make any other distributions on its capital stock or any other interest or (ii) make or repay any loans or advances to the Borrower or the parent of such subsidiary (subclauses (i) and (ii) are collectively referred to as an "Upstream Payment"); provided, however, that the foregoing shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date under Indebtedness set forth on Schedule 6.01(a); (ii) contained in any debt instrument relating to a person acquired after the Closing Date; provided that (A) such encumbrances and restrictions are not applicable to any person other than such person or property or assets acquired, (B) such instrument was in existence at the time of such acquisition and was not created in contemplation of or in connection with such acquisition, and (C) the Borrower reasonably believes at the time of such acquisition that the terms of such instrument will not encumber or restrict the ability of such acquired person to make an Upstream Payment in a manner that would adversely affect the Borrower's ability to perform its obligations under the Loan Documents when due; (iii) incurred in connection with any Indebtedness permitted pursuant to Section 6.01 (including any extension, refinancing, renewal or replacement of Indebtedness contemplated by clauses (i) and (ii) above); provided that, (A) the Borrower reasonably believes at the time such Indebtedness is incurred that the terms of such Indebtedness will not restrict the ability of the person incurring such Indebtedness to make an Upstream Payment in a manner that would adversely affect the Borrower's ability to perform its obligations under the Loan Documents when due and (B) such Indebtedness contains no express encumbrances or restrictions on the ability of such person to make an Upstream Payment; (iv) imposed on any Receivables Subsidiary or Single Purpose Entity; (v) existing under, or by reason of, applicable law; and (vi) any encumbrance or restriction on the transfer of any property or asset in an agreement relating to the acquisition or creation or disposition of such property or asset or any Lien on such property or asset that is otherwise permitted by the terms of this Agreement. SECTION 6.07. Transactions with Affiliates. Make any material payment to, or sell, lease, transfer or otherwise dispose of any material properties or assets to, or purchase any material property or assets from, or enter into or make or amend any material transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless such Affiliate Transaction is on terms that are not less favorable to the Borrower or the relevant Subsidiary than those that would have been obtained in a 74 comparable transaction by the Borrower or such Subsidiary with an unrelated person; provided, however, that (a) payments that are permitted by Section 6.01, 6.04 or 6.06(a) shall not be deemed to be Affiliate Transactions and (b) the foregoing restriction shall not apply to (i) any Permitted Receivables Financing and (ii) transactions among the Loan Parties or any other Subsidiary that the Required Lenders have agreed is not to be a Loan Party. SECTION 6.08. Business of Borrower and Subsidiaries. (a) In the case of the Borrower and the Subsidiaries (other than any Receivables Subsidiary), engage to any material extent in any business or business activity other than the mining or energy business and business activities reasonably incidental or related thereto and (b) in the case of each Receivables Subsidiary, engage to any material extent in any business or business activity other than the purpose for which such Subsidiary was formed and business activities reasonably incidental or related thereto. SECTION 6.09. Other Indebtedness and Agreements. (a) Except to the extent permitted by Section 6.06(b), permit any waiver, supplement, modification, amendment, termination or release of any indenture, instrument or agreement pursuant to which any Indebtedness or preferred stock of the Borrower or any Subsidiary is outstanding or any other agreement (including the Tax Sharing Arrangement) that is material to the conduct and operations of the Borrower or any Subsidiary, or modify its charter or by-laws, in each case to the extent that any such waiver, supplement, modification, amendment, termination or release would be adverse to the Lenders in any material respect. (b) Make any payment, whether in cash, property, securities or a combination thereof, other than scheduled (or with respect to senior indebtedness held by a person that is not an Affiliate of the obligor, mandatory) payments of principal and interest as and when due (to the extent not prohibited by applicable subordination provisions), in respect of, or pay, or offer or commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise acquire for consideration, or set apart any sum for the aforesaid purposes, any Indebtedness for borrowed money of the Borrower or any Subsidiary, except for (i) the Loans; (ii) the Pedro Refinanced Indebtedness; (iii) Indebtedness that is refinanced by Refinancing Indebtedness; and (iv) any other Indebtedness that is not subordinated to the Obligations, provided that the amount that may be prepaid in respect of such other senior Indebtedness shall not exceed $25,000,000 in any fiscal year. SECTION 6.10. Capital Expenditures. Incur or make Capital Expenditures (a) during the period from the date of the initial Borrowing hereunder through December 31, 1997, in excess of $50,000,000 and (b) during any fiscal year thereafter in excess of the amount of Permitted Capital Expenditures for such fiscal year; provided, however, that the amount of Permitted Capital Expenditures in any fiscal year ending after December 31, 1997, shall be increased by the total amount of unused Permitted Capital Expenditures for the immediately preceding year (less an amount equal to any unused Permitted Capital Expenditures carried forward to such preceding year pursuant to this proviso) (it being understood that such increased amount that is carried forward shall be deemed to be expended for purposes of this Agreement only after the amount of Permitted Capital Expenditures, without giving effect such increase, are expended). 75 SECTION 6.11. Leverage Ratio. Permit the Leverage Ratio as of the end of any fiscal quarter falling in any period set forth below to be in excess of the ratio set forth below for such quarter.
Period Ratio ------ ----- From and including the Closing Date through 5.00 to 1.00 and including December 30, 1998 From and including December 31, 1998 4.25 to 1.00 through and including December 30, 1999 From and including December 31, 1999 4.00 to 1.00 through and including December 30, 2000 From and including December 31, 2000 3.75 to 1.00 through and including December 30, 2002 Thereafter 3.50 to 1.00
SECTION 6.12. Interest Expense Coverage Ratio. Permit the Interest Expense Coverage Ratio as of the end of any fiscal quarter falling in any period set forth below to be less than the ratio set forth below for such quarter.
Period Ratio ------ ----- From and including the Closing Date 2.75 to 1.00 through and including December 30, 1998 From and including December 31, 1998 3.00 to 1.00 through and including December 30, 1999 From and including December 31, 1999 3.25 to 1.00 through and including December 30, 2001 From and including December 31, 2001 3.50 to 1.00 through and including December 30, 2002 Thereafter 3.75 to 1.00
SECTION 6.13. Net Worth. Permit Consolidated Net Worth at any date following the date of initial Borrowing hereunder to be less than the sum of (a) $675,000,000, plus (b) 50% of Consolidated Net Income for each fiscal quarter with positive Consolidated Net Income ending on or after the Closing Date and on or prior to the date as to which compliance with this Section 6.13 is being determined, plus (c) 75% of Net Cash Proceeds in respect of Equity Issuances received on or after the Closing Date and on or prior to the date as to which compliance with this Section 6.13 is being determined. SECTION 6.14. Current Ratio. Permit the ratio of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities as of the end of any fiscal quarter to be less than 1.00 to 1.00; 76 provided, however, that for purposes of this Section 6.14, Consolidated Current Assets shall include cash and cash equivalents and the unused remaining available balance of the Total Revolving Credit Commitment as of the end of such fiscal quarter. SECTION 6.15. Fiscal Year. In the case of the Borrower, change the end of its fiscal year from December 31 to any other date. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Fee or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days; (d) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.01(a), 5.05(a) or 5.07 or in Article VI; (e) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from the Paying Agent or any Lender to the Borrower; (f) the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than Non-Recourse Indebtedness) in a principal amount in excess of $50,000,000, when and as the same shall become due and payable, (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such 77 Indebtedness to become due prior to its stated maturity or (iii) fail to make any payment in respect of any Material Hedging Obligations when due; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary), or of a substantial part of the property or assets of the Borrower, such Significant Subsidiary or such group of subsidiaries of the Borrower, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary) or for a substantial part of the property or assets of the Borrower a Significant Subsidiary or such group of subsidiaries of the Borrower or (iii) the winding-up or liquidation of the Borrower or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Borrower or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Significant Subsidiary (or any group of subsidiaries of the Borrower which, if considered in the aggregate as a single subsidiary, would constitute a Significant Subsidiary) or for a substantial part of the property or assets of the Borrower, any Significant Subsidiary or any such group of subsidiaries of the Borrower, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) a Bidco Note Payment Default shall have occurred; (j) one or more judgments for the payment of money in an aggregate amount in excess of $50,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Subsidiary to enforce any such judgment; 78 (k) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to have a Material Adverse Effect. (l) any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Borrower or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby with respect to a material portion of the Collateral, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Pledge Agreement; (m) any Loan Document shall not for any reason, or shall be asserted by any Loan Party not to be, in full force and effect and enforceable in accordance with its terms; or (n) the Pedro Subsidiaries shall not have become Subsidiaries of the Borrower on or prior to the 270th day following the date of the initial Acquisition Borrowing; (o) there shall have occurred a Change in Control; then, at any time during the continuance of such event (other than an event with respect to the Borrower described in paragraph (g) or (h) above), the Paying Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then out standing to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; provided that, (A) in any event with respect to the Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding and (B) except as described in the immediately preceding clause (A), during the period commencing with the Closing Date and ending on the Termination Date the Paying Agent and the Lenders shall not be entitled to terminate the Commitments, rescind this Agreement or seek to enjoin any use of proceeds of the Loans permitted hereby without the consent of the Borrower. Notwithstanding anything to the contrary in the preceding paragraph, during the Clean-up Period, none of the Paying Agent, the Collateral Agent or any Lender may declare that an Event of Default has occurred, or terminate the Commitments or declare the Loans to be due and payable as a result solely of one or more Defaults described in paragraph (a), (d) (except for a Default in respect of Section 5.07, 6.11, 6.12, 6.13 or 6.14) or (e) of this Article VII, or paragraph (f)(ii) of this Article VII insofar as it involves Indebtedness of the Pedro Subsidiaries to the extent such 79 Indebtedness is refinanced as part of the Offer; provided that the event or circumstance giving rise to such Default, or the result of such Default, (i) directly relates to the Pedro Subsidiaries (or any of their businesses, assets or liabilities), (ii) is capable of being cured or remedied during the Clean-up Period and (iii) except to the extent it involves Indebtedness of the Pedro Subsidiaries to the extent such Indebtedness is refinanced as part of the Offer, was not known by a Responsible Officer of PHI, Newco or the Borrower prior to the Closing Date; provided, further, that the Paying Agent, the Collateral Agent and the Lenders shall be entitled to exercise any and all rights and remedies granted to them hereunder and under the Loan Documents with respect to an occurrence or continuation of an Event of Default after the Clean-up Period. ARTICLE VIII The Paying Agent and the Collateral Agent In order to expedite the transactions contemplated by this Agreement, Morgan is hereby appointed to act as Paying Agent and Collateral Agent on behalf of the Lenders and the Issuing Bank (for purposes of this Article VIII, the Paying Agent and the Collateral Agent are referred to collectively as the "Agents"). Each of the Lenders and each assignee of any such Lender, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Paying Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Paying Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Paying Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized (a) to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents and (b) to execute the Intercreditor Agreement on behalf of the Lenders and the Issuing Bank, and each of the Lenders and the Issuing bank agrees to be bound thereby as if it were a signatory thereto. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall in all cases be fully protected in acting, or refraining from acting, in 80 accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower or any other Loan Party on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of its obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by any other Lender or the Issuing Bank or the Borrower or any other Loan Party of any of its obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor, subject to the prior consent of the Borrower (not to be unreasonably withheld). If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, subject to the prior consent of the Borrower (not to be unreasonably withheld), which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article VIII and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on its Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements 81 of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower or any other Loan Party, provided that no Lender shall be liable to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent or any of its directors, officers, employees or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and its directors, employees and agents, in each case, to the same extent and subject to the same limitations as provided above for the Agents. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the Intercreditor Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at 700 NE Multnomah, Suite 1600, Portland, Oregon 97232, Attention of William E. Peressini--Vice President and Treasurer (Telecopy No. (503) 731-2017), with a copy to Stoel Rives LLP at 700 NE Multnomah, Suite 950, Portland, Oregon 97232, Attention of John M. Schweitzer, Esq. (Telecopy No. (503) 230- 1907); (b) if to the Paying Agent, to Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York 10005, Attention of James S. Finch (Telecopy No. (212) 648-5014, with a copy to Morgan Guaranty Trust Company of New York, c/o J.P. Morgan Services Inc., 500 Stanton Christiana Road, Newark, DE 19713, Attention of Sandra Doherty (Telecopy No. (302) 634-1092); and (c) if to a Lender, to it at its address (or telecopy number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. 82 All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Paying Agent, the Collateral Agent, any Lender or the Issuing Bank. SECTION 9.03. Binding Effect. This Agreement shall become effective (a) when it shall have been executed by the Borrower and the Paying Agent and when the Paying Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and (b) when each of the conditions set forth in Section 4.01 shall have been satisfied or waived in writing, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. By its execution and delivery of the amendment and restatement of this Agreement, the Borrower hereby confirms that the representations and warranties set forth in Article III are true and correct in all material respects on the date of this amendment and restatement with the same effect as though made on such date. SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, the Paying Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate of such Lender, (x) the Borrower (unless an Event of Default shall have occurred and is continuing) and the Paying Agent (and, in the case of any assignment of a Revolving Credit Commitment, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld) and (y) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the 83 Assignment and Acceptance with respect to such assignment is delivered to the Paying Agent) shall not be less than $5,000,000 (or, if less, the entire remaining amount of such Lender's Commitment), (ii) the parties to each such assignment shall execute and deliver to the Paying Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (except for assignments by any Initial Lender or as otherwise agreed to by the Paying Agent) and (iii) the assignee, if it shall not be a Lender, shall deliver to the Paying Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance; (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement and the Intercreditor Agreement (unless the Intercreditor Agreement is no longer in effect), together with copies of the most recent financial statements or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Paying Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Paying Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement (and as are delegated to the Paying Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. 84 (d) The Paying Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrower, the Paying Agent, the Issuing Bank, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower, the Swingline Lender, the Issuing Bank and the Paying Agent to such assignment, the Paying Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders, the Issuing Bank and the Swingline Lender. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). (f) Each Lender may without the consent of the Borrower, the Swingline Lender, the Issuing Bank or the Paying Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders (provided that a participant shall not be entitled to receive any greater payment under Sections 2.14, 2.16 and 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of such participation is made with the Borrower's prior written consent) and (iv) the Borrower, the Paying Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans or increasing or extending the Commitments). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree 85 (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.17. (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. (i) The Borrower shall not assign or delegate any of its rights or duties hereunder without the prior written consent of the Paying Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void. (j) In the event that Standard & Poor's Ratings Group, Moody's Investors Service, Inc., and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender becomes a Revolving Credit Lender, downgrade the long-term certificate deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have the right (subject to the Borrower's consent not to be unreasonably withheld), but not the obligation, at its own expense, upon notice to such Lender and the Paying Agent, to replace (or to request the Borrower to use its reasonable efforts to replace) such Lender with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Revolving Credit Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all out-of-pocket expenses incurred by the Initial Lenders, the Paying Agent, the Collateral Agent, the Issuing Bank and the Swingline Lender in connection with the arrangement of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Initial Lenders, the Paying Agent, the Collateral Agent or (after the occurrence and during the continuance of an Event of Default) any other Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Paying Agent and the 86 Collateral Agent, and, in connection with any such enforcement, the reasonable fees, charges and disbursements of any other counsel for the Paying Agent, the Collateral Agent or any Lender. (b) The Borrower agrees to indemnify the Initial Lenders, the Paying Agent, the Collateral Agent, each other Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, partners, officers, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of any claim, litigation, investigation or proceeding (whether or not an Indemnitee is a party thereto) relating to (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, the use of the proceeds of the Loans or issuance of Letters of Credit, whether or not any Indemnitee is a party thereto, or (ii) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Paying Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor. SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. Promptly after exercising its rights under this Section 9.06, the applicable Lender shall notify the Paying Agent and the Borrower of the exercise of such rights. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE 87 LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Paying Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Paying Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement, without the prior written consent of each Lender affected thereby, (ii) change or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender, (iii) amend or modify the pro rata requirements of the provisions of Section 2.17, amend or modify the provisions of Section 9.04(i), the provisions of this Section 9.08, the definition of the term "Required Lenders" or release any Guarantor or all or any substantial part of the Collateral (except for any release expressly permitted by the Loan Documents), without the prior written consent of each Lender or (iv) change the allocation between Tranche A Term Loans and Tranche B Term Loans of any prepayment pursuant to Section 2.12 or 2.13 without the prior written consent of (A) Lenders holding a majority of the aggregate outstanding principal amount of the Tranche A Term Loans and (B) Lenders holding a majority of the aggregate outstanding principal amount of the Tranche B Term Loans; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Paying Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender hereunder or under any other Loan Document without the prior written consent of the Paying Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable 88 law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. 89 SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Judgment Currency. (a) The obligations of the Borrower and the other Loan Parties hereunder and under the other Loan Documents to make payments in dollars (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Paying Agent or a Lender or the Issuing Bank of the full amount of the Obligation Currency expressed to be payable to the Paying Agent or such Lender or the Issuing Bank under this Agreement or the other Loan Documents. If, for the purpose of obtaining or enforcing judgment against the Borrower or any other Loan Party or in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made at the rate of exchange (as quoted by the Paying Agent or if the Paying Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Paying Agent) determined, in each case, as of the date immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrower covenants and agrees to pay, or cause to be paid, as a separate obligation and notwithstanding any judgment, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been 90 purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the rate of exchange for this Section 9.16, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. SECTION 9.17. Confidentiality. The Paying Agent, the Collateral Agent, the Issuing Bank and each of the Lenders agree to keep confidential (and to use its best efforts to cause its respective (agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to the extent requested by any regulatory authority, (c) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (d) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (e) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.17 or (ii) becomes available to the Paying Agent, the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) that are received from the Borrower and related to the Borrower, any shareholder of the Borrower or any employee, customer or supplier of the Borrower, other than any of the foregoing that were available to the Paying Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrower, and which are in the case of Information provided after the Closing Date, clearly identified at the time of delivery as confidential. The provisions of this Section 9.17 shall remain operative and in full force and effect regardless of the expiration of this Agreement. SECTION 9.18. Intercreditor Agreement. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, prior to the Separation Date, to the extent the terms of this Agreement conflict with the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall be controlling as if such terms of the Intercreditor Agreement replaced the conflicting terms of this Agreement mutatis mutandis. SECTION 9.19. Additional Borrowers. The Borrower may designate any Pedro Subsidiary reasonably satisfactory to the Initial Lenders as an additional borrower (an "Additional Borrower") under this Agreement by delivering a written notice to the Initial Lenders to such effect; provided that on or prior to the initial borrowing by such Additional Borrower, (a) such Additional Borrower will enter into an agreement in writing in form and substance satisfactory to the Initial Lenders pursuant 91 to which it will agree to be bound by (and will be entitled to the benefits of) this Agreement, (b) the Borrower shall execute a guarantee agreement in form and substance reasonably satisfactory to the Initial Lenders guaranteeing the obligations of such Additional Borrower and (c) the subsidiaries of such Additional Borrower shall execute security and guarantee agreements in form and substance reasonably satisfactory to the Initial Lenders securing and guaranteeing the obligations of such Additional Borrower. The parties hereto agree that upon such designation, this Agreement shall be modified as appropriate to account for such designation in a manner to be agreed upon by the Initial Lenders and the Borrower. Notwithstanding anything to the contrary, this Section 9.19 shall not, nor shall it be construed as providing for any, increase in the Total Commitments. SECTION 9.20. Margin Regulations. Notwithstanding any other provision contained in this Agreement or the other Loan Documents, including Section 2.13(b), Section 6.02 and Section 6.05, the pledge or sale of the Shares by Bidco shall be permitted hereunder until the Depositary Shares have been delisted from the New York Stock Exchange (and the Shares shall not otherwise be "margin stock" as defined in Regulations G and U of the Board); provided that until such time the Borrower shall use its reasonable efforts to cause Bidco not to: (i) incur any Indebtedness other than (A) its obligations under the Offer, (B) its obligations under the Powercoal/Bidco Loans and (C) its obligations under or permitted under the Bidco Facility Agreement; (ii) engage in any business other than (A) acquiring and holding the Shares and (B) engaging in activities reasonably related to the Offer; or (iii) sell or otherwise dispose of the Shares, unless (A) such Shares are sold for cash, (B) fair value is received for such Shares and (C) the proceeds of such sale are either held as cash or invested in certificates of deposit, U.S. government securities, commercial paper, other money market instruments that are exempted securities under the United States federal securities laws or Cash Investment Equivalents (as defined in the Bidco Facility Agreement). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. PACIFICORP POWERCOAL LLC, by PacifiCorp Group Holdings Company, its Member, by /s/ W. E. Peressini --------------------------------- Name: William E. Peressini Title: Treasurer 92 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually as an Initial Lender and as Paying Agent, Collateral Agent, Swingline Lender and Issuing Bank, by /s/ Kathryn Sayko-Yanes ----------------------------- Name: Kathryn Sayko-Yanes Title: Vice President CITIBANK N.A., individually as an Initial Lender, by /s/ Sandip Sen ---------------------------------------- Name: Sandip Sen Title: Managing Director/Attorney-in/Fact GOLDMAN SACHS CREDIT PARTNERS L.P., individually as an Initial Lender, by /s/ Edward C. Forst ------------------------------------ Name: Edward C. Forst Title: Authorized Signatory EX-99.B.4 16 FACILITIES AGREEMENT AMONG PACIFICORP SERVICES LTD FACILITY AGREEMENT Dated 13th June, 1997 (Pounds)2,250,000,000 TERM LOAN FACILITY (Pounds)600,000,000 REVOLVING CREDIT FACILITY Between PACIFICORP SERVICES LIMITED PACIFICORP FINANCE (UK) LIMITED PACIFICORP ACQUISITIONS as Guarantors PACIFICORP ACQUISITIONS as Borrower CITIBANK, N.A. GOLDMAN SACHS INTERNATIONAL J.P. MORGAN SECURITIES LTD as Arrangers CITIBANK, N.A. GOLDMAN SACHS CREDIT PARTNERS L.P. MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Original Banks CITIBANK INTERNATIONAL PLC as Facility Agent CITIBANK, N.A. as Security Agent CITIBANK, N.A. as LC Bank THIS FACILITY AGREEMENT IS ENTERED INTO WITH THE BENEFIT AND SUBJECT TO THE TERMS OF AN INTERCREDITOR AGREEMENT AS REFERRED TO HEREIN ALLEN & OVERY London B3:95992.2 CONTENTS
CLAUSE PAGE 1. Interpretation............................................................1 2. Facilities and Related Matters...........................................29 3. Purpose and Responsibility...............................................33 4. Conditions Precedent.....................................................34 5. Advances and Documentary Credits.........................................36 6. Optional Currencies......................................................40 7. Cancellation of Commitments..............................................41 8. Repayment................................................................42 9. Prepayment...............................................................42 10. Interest Periods.........................................................45 11. Interest.................................................................47 12. Payments.................................................................48 13. Taxes....................................................................50 14. Market Disruption........................................................52 15. Increased Costs..........................................................54 16. Illegality...............................................................56 17. Mitigation...............................................................57 18. Guarantee................................................................58 19. Additional Borrowers, Guarantors and Security............................61 20. Representations and Warranties...........................................63 21. Undertakings.............................................................69 22. The Offer................................................................87 23. Financial Ratios.........................................................89 24. Default..................................................................91 25. Indemnities..............................................................99 26. Agents, Arrangers and Banks.............................................101 27. Fees, Expenses and Stamp Taxes..........................................107 28. Waivers, Remedies Cumulative............................................109 29. Notices.................................................................110 30. Assignments, Transfers and Substitutions................................110 31. Set-Off and Redistribution..............................................115 32. Governing Law and Jurisdiction..........................................116 33. Confidentiality.........................................................117 34. Miscellaneous...........................................................118
SCHEDULES PAGE A. Notice Details for Borrower and Agents..................................119 B. Banks' Commitments and Notice Details...................................122 C. Forms of Request........................................................123 D. Substitution Certificate................................................124 E. Calculation of Additional Cost..........................................126 F. Accession Agreement.....................................................128 G. Documentary Conditions Precedent........................................134 H. Terms of Banks' Indemnity to LC Bank....................................138 I. Reservations............................................................140 SIGNATORIES..................................................................142
THIS FACILITY AGREEMENT is dated the 13th June, 1997 and made BETWEEN:- (1) PACIFICORP SERVICES LIMITED a company incorporated in England and Wales (No. 3366016) ( the "COMPANY"); (2) PACIFICORP ACQUISITIONS a company incorporated in England and Wales (No. 3386442) ("BIDCO"); (3) PACIFICORP FINANCE (UK) LIMITED a company incorporated in England and Wales (No. 3365681) ("FINANCE"); (4) CITIBANK, N.A., GOLDMAN SACHS INTERNATIONAL and J.P. MORGAN SECURITIES LTD as Arrangers (in this capacity the "ARRANGERS"); (5) CITIBANK, N.A., GOLDMAN SACHS CREDIT PARTNERS L.P. and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as original lenders (in this capacity the "ORIGINAL BANKS"); (6) CITIBANK INTERNATIONAL PLC as facility agent for the Banks (in this capacity the "FACILITY AGENT"); (7) CITIBANK, N.A. as security agent and trustee for the Banks (in this capacity the "SECURITY AGENT"); and (8) CITIBANK, N.A. as LC Bank (as defined below). WHEREAS pursuant to arrangements made by the Arrangers and upon and subject to the terms of this Agreement, the Original Banks (as defined above) have agreed to make available a term loan facility aggregating (Pounds)2,250,000,000 to Bidco and, upon their accession hereto as Additional Borrowers, the Target and certain of its Subsidiaries and a revolving credit facility of (Pounds)600,000,000 to the Borrowers. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINED TERMS In this Agreement:- "ACCOUNTING DATE" means each 30th June, 30th September, 31st December and 31st March, falling after the date of this Agreement, save as any such date may be adjusted with the agreement of the Facility Agent to avoid an Accounting Date falling on a day which is not a Business Day and/or to ensure that all Accounting Dates fall on the same day of the relevant weeks. "ACCOUNTING PERIOD" means any period of approximately three months or one year ending on an Accounting Date for which Accounts are required to be prepared for the purposes of this Agreement. 2 "ACCOUNTS" means from time to time:- (a) the latest audited consolidated annual accounts of the Bidco Group together with a Reconciliation Statement in relation thereto; (b) the latest unaudited consolidated quarterly accounts of the Bidco Group together with a Reconciliation Statement in relation thereto; (c) the consolidated unaudited accounts of the Bidco Group prepared on a pro forma basis which are referred to in Clause 21.2(a)(vi); (d) any other audited or unaudited consolidated or unconsolidated accounts (if any) of the Bidco Group or any Material Subsidiary, delivered or required to be delivered to the Facility Agent pursuant to this Agreement, or such of the foregoing as the context requires. "ACT" means the Electricity Act 1989 and, unless the context otherwise requires, all subordinate legislation made pursuant thereto. "ADDITIONAL BORROWER" means the Target and any wholly owned subsidiary of the Target, in each case upon it becoming, and any other entity which becomes, party to this Agreement as a Borrower pursuant to a Borrower Accession Agreement. "ADDITIONAL COST" in relation to each Advance or overdue amount means, for the Interest Period relating to that Advance or overdue amount: (i) where such Advance or amount is denominated in Sterling, the cost as calculated by the Facility Agent in accordance with Schedule E imputed to each Bank participating in such Advance or overdue amount of compliance with the Mandatory Liquid Assets requirements of the Bank of England during that Interest Period, expressed as a percentage rate per annum; and (ii) where such Advance or amount is denominated in a currency other than Sterling, the rate per annum notified by any Bank to the Facility Agent to be the cost to that Bank of compliance with all reserve assets, liquidity or cash margin or other requirements of any applicable monetary or other authority in relation to that Advance or overdue amount. "ADDITIONAL GUARANTOR" means any member of the Bidco Group which becomes party to this Agreement as a Guarantor pursuant to a Guarantor Accession Agreement. "ADJUSTED CAPITAL AND RESERVES" means the amount (including any share premium) for the time being paid up or credited as paid up on the issued share capital of Bidco, PLUS the outstanding principal amount of any Subordinated Debt other than the Subordinated Debt arising pursuant to the Pedro Global Subordinated Loan Note; PLUS the amount standing to the credit (or, as the case may be, MINUS the amount standing to the debit) of the capital and revenue reserves of the Bidco Group; 3 PLUS any amount standing to the credit or MINUS any amount standing to the debit of the consolidated profit and loss account of the Bidco Group; PLUS the amount of goodwill arising upon and in respect of the acquisition of the Shares and/or Offer Costs; MINUS any Distributions or other distribution declared or made by Bidco or any of its Subsidiaries (other than to another member of the Bidco Group), to the extent only that those reserves have not been reduced on account thereof and PLUS any repayment or refund of any Distribution or other distribution effectively deducted (whether by reason of the preceding minus item or by reduction in reserves), to the extent only that reserves have not been increased on account of such repayment or refund; MINUS amounts attributable to the interests (if any) of outside holders of issued share capital in any member of the Bidco Group other than Bidco itself; and for the purposes of the foregoing, no item shall be effectively deducted or added more than once, all items shall be calculated on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles and, where the calculation is being made as at the end of any Accounting Period, shall be determined from the balance sheet forming part of the Accounts for that Accounting Period. "ADJUSTED NET INCOME" for any quarterly Accounting Period of Bidco means the sum of (i) the net profit (after tax) of the Bidco Group for such period, determined on a consolidated basis and in accordance with the Applicable Accounting Principles and as determined from the consolidated Accounts of the Bidco Group for such quarterly Accounting Period and (ii) any interest in respect of Subordinated Debt taken into account in the net profit (after tax) of the Bidco Group for such quarterly Accounting Period adjusted for the amount by which the tax payable by the Bidco Group has been reduced by virtue of such interest. "ADVANCE" means the principal amount of each borrowing under this Agreement from the Tranche 1 Commitments (a "TRANCHE 1 ADVANCE") and if from the Tranche 1A Commitments, (a "TRANCHE 1A ADVANCE") and if from the Tranche 1B Commitments, (a "TRANCHE 1B ADVANCE") or the Tranche 2 Commitments (a "TRANCHE 2 ADVANCE") and any amount resulting from the splitting thereof pursuant to Clause 10.2 or, in each case, the principal amount of such borrowing outstanding from time to time. "AFFILIATE" for the purposes of this Agreement:- (a) means a Subsidiary or a holding company (as defined in Section 736 of the Companies Act 1985) of a person and any other Subsidiary of that holding company; and (b) Goldman Sachs International Bank and Goldman Sachs Credit Partners L.P. will be treated as Affiliates of each other. 4 "AGENT" means:- (a) when designated "FACILITY", Citibank International plc or any of its successors pursuant to Clause 26.14; (b) when designated "SECURITY", Citibank N.A. or any of its successors pursuant to Clause 26.14 and any corresponding provision of any Security Document; and (c) without any such designation, the Facility Agent or the Security Agent, as the context requires. "AGENT'S SPOT RATE OF EXCHANGE" with respect to any Optional Currency on any day means the spot rate of exchange of the Facility Agent (as determined by the Facility Agent) for the purchase of the appropriate amount of such Optional Currency with Sterling in the London Foreign Exchange Market in the ordinary course of business at or about 10.00 a.m. on the day in question for delivery three Business Days thereafter. "AMAZON ELECTRICITY" means Eastern Electricity plc. "AMAZON GAS" means Eastern Natural Gas Limited. "ANNOUNCEMENT DATE" means the date on which the Press Release is issued. "APPLICABLE ACCOUNTING PRINCIPLES" means accounting principles and practices, which at the date hereof are generally accepted in the United States of America and consistently applied and consistent in all material respects (other than the absence from the Model of notes) with the accounting principles and practices applied in the preparation of the Model, and any variation to such accounting principles and practices which is not material or, if material, has been agreed in writing by the Majority Banks. "APPLICABLE TAXES" has the meaning given to it in Clause 13.1. "ASSET SPLIT" means together: (i) the transfer by Pedro Global to Bidco of 100% of the issued share capital of Pedro Holdings and the issuance by Bidco in favour of Pedro Global of the Pedro Global Subordinated Loan Note; (ii) the transfer by Bidco to Coalco of 100% of the issued share capital of Pedro Holdings in satisfaction of the Coalco Loan and all obligations and liabilities arising pursuant to and the cancellation of the Coalco/Bidco Loan Agreement; and (iii) the accession by Pedro Global as Subordinated Creditor to the Intercreditor Agreement with respect to the Pedro Global Subordinated Loan Note, as contemplated by the Structure Memorandum. "AUDITORS" means such firm of independent public accountants of international standing recognised and authorised by the Institute of Chartered Accountants of England and Wales which is appointed by Bidco to audit the consolidated annual accounts of Bidco. 5 "AUSTRALIAN DOLLARS" means the lawful currency for the time being of Australia. "AUTHORISED SIGNATORY" in relation to any Obligor and any communication to be made or document to be executed or certified by that Obligor means, at any time, any person:- (a) who is at such time duly authorised by a resolution of the board of directors of that Obligor or a committee thereof or by virtue of his appointment by that Obligor to a particular office to make that communication or to execute or certify that document on behalf of that Obligor and in respect of whom the Facility Agent has received a certificate of a director or the secretary or an assistant secretary of that Obligor setting out the name and signature of that person and confirming that person's authority so to act; and (b) in respect of whom no notice has been received by the Facility Agent from that Obligor to the effect that that person is no longer an Authorised Signatory for that Obligor. "AVAILABLE FACILITY AMOUNT" means, at any time, the amount of the Tranche 2 Commitments, less the Original Sterling Amount of the outstanding Tranche 2 Utilisations at such time taking into account any Tranche 2 Utilisations scheduled to be made, repaid or prepaid by assuming that the same occurs when due. "AVAILABILITY PERIOD" means the period from opening of business in London on the date of this Agreement to:- (a) when designated "TRANCHE 1", close of business in London on whichever is the earlier of (i) the date 200 days after the Announcement Date, (ii) the later of (A) the date three months after the Unconditional Date and (B) the date falling forty nine days after the date on which Bidco is obliged pursuant to Clause 21.10(o) to implement the procedures referred to therein, and (iii) the date 200 days after the date hereof; (b) when designated "TRANCHE 2", close of business in London on whichever is the earlier of (i) (if no Tranche 1 Advance is drawn at all) the expiry of the Tranche 1 Availability Period, and (ii) the fifth anniversary of the date hereof; or in either case such later date as all the Banks may agree in writing on or after the date hereof, provided that the Tranche 1 Availability Period and the Tranche 2 Availability Period, if not already terminated, shall terminate on the date on which the Offer lapses or is withdrawn. "BANK" means each of the following:- (a) each party whose name is set out in Schedule B; (b) each bank to which rights and/or obligations under this Agreement are assigned or transferred pursuant to Clause 30 or which assumes rights and obligations pursuant to a Substitution Certificate; and (c) any successor or successors in title to any of the foregoing, 6 provided that upon (i) termination in full of all the Commitments of any Bank, and (ii) irrevocable payment in full of all amounts of principal, interest, fees and all amounts arising pursuant to Clauses 5.5 and 25.2(c) which may be or become payable to such Bank under the Finance Documents, such Bank shall not be regarded as being a Bank for the purposes of determining whether any provision of any of the Finance Documents requiring consultation with or the consent or approval of or instructions from the Banks or any of them or the Majority Banks has been complied with unless the Commitments of all other Banks have been terminated in full on the date on which such Bank's Commitments terminated. "BASE FINANCIAL STATEMENTS" means the audited annual consolidated accounts of the Target for and as at the end of the financial year of the Target ended 30th September, 1996. "BORROWER" means Bidco and each Additional Borrower. "BORROWER ACCESSION AGREEMENT" means an agreement substantially in the form of Schedule F Part I made pursuant to Clause 19.1. "BORROWING" means any indebtedness for, or for interest or other charges relating to, or otherwise in respect of or pursuant to:- (a) moneys borrowed or raised, including, without limitation, monies raised by the sale of receivables or other financial assets on terms (and to the extent) that recourse may be had to the vendor (or any other member of the Group) in the event of non-payment of such receivables or financial assets when due and monies raised under acceptance credit facilities and through the issue of bonds, notes, debentures, bills, loan stocks and other debt securities (including any debt security convertible, but not at the relevant time converted, into share capital); (b) the outstanding acquisition cost of assets or services to the extent payable on deferred payment terms after the time of acquisition or possession thereof by the party liable (whether or not evidenced by any bond, note, debenture, loan stock or other debt security), excluding retentions or trade credit (whether in respect of assets or services) which are customary in the trade concerned carried on in the normal course and not entered into primarily as a means of raising finance, and which do not involve any deferral of payment of any sum for more than six months; (c) moneys received in consideration for the supply of goods and/or services to the extent received more than six months before the due date for such supply (but excluding any liability in respect of bona fide advance payments and deposits received from customers in the ordinary course of business carried on in the normal course); (d) leases, agreements or instruments which are treated as finance leases in accordance with the Applicable Accounting Principles other than the variable amounts payable in respect of the generation lease arrangements in force as at the date hereof between National Power plc and any member of the Target Group and Powergen plc and any member of the Target Group; (e) (i) any guarantee, indemnity, letter of credit or other similar legally binding instrument to assure payment of, or against loss in respect of non-payment of, 7 any of the indebtedness specified in this definition and any counter-indemnity in respect of any thereof; and/or (ii) any legally binding agreement or other instrument not falling within paragraph (i) above entered into in connection with any of the indebtedness specified in this definition requiring, or giving any person the right (contingently or otherwise) to require, that any other person invest in, make advances to, purchase assets of or maintain the solvency or financial condition of any other person; (f) for the purpose of Clause 24.1(e), any Derivative Transaction; (g) transactions which involve or have the commercial effect of the borrowing of commodities as part of an arrangement for or in substitution for the raising of finance, the value of indebtedness concerned for this purpose being the sum which must be paid and/or the value in money terms of the commodities which must be delivered by the "borrower" to, or to the order of, the "lender"; provided that in computing an amount of Borrowings of any person or persons for the purposes of the definition of Consolidated Net Total Borrowings in Clause 1.1 or for the purposes of Clause 21.4(a) double counting shall be avoided and:- (i) any interest, dividends, commission, fees or other like financing charges, and any item falling within paragraph (g), shall be excluded, save in each case to the extent capitalised; (ii) the outstanding amount of any Subordinated Debt and any Project Finance Borrowings shall be excluded; (iii) (in the case of paragraph (d)) only the capitalised value (as determined in accordance with the Applicable Accounting Principles) of any items falling thereunder shall be included; (iv) any item falling within paragraph (e) which is in respect of any sum excluded by item (i) of this proviso shall be excluded; (v) any item falling within paragraph (e)(ii) shall be included only to the extent that the same has been or (in accordance with the Applicable Accounting Principles) ought to be given a value in the latest or next Accounts, or in any notes to those Accounts; and (vi) all obligations and liabilities in respect of Derivative Transactions (other than any Hedging Documents) shall be included to the extent the Net Termination Value of such Derivative Transactions at any time exceeds (Pounds)100,000,000. "BORROWINGS LIST" means a list delivered to the Facility Agent on or about 25th June, 1997 and initialled on behalf of the Company and the Facility Agent for the purposes of identification, identifying (a) all facilities (whether committed or uncommitted and whether or not utilised by the company or companies entitled so to do) as at 30th May, 1997 and in respect of which any utilisation thereunder constitutes or would constitute a Borrowing of any member of the Target Group, (b) which of those facilities were utilised as at 30th May, 1997 and the 8 approximate extent of such utilisation and indicating any such Borrowings which, to the extent outstanding on the Unconditional Date would be in default on the Unconditional Date or thereafter as a result of the consummation of those matters and things contemplated by the Transaction Documents (or any of them), (c) the Refinancing Debt, and (d) the member of the Group which (or, where more than one member is identified in respect of any particular Refinancing Debt, whichever of those members is selected by Bidco to be the member which), subject to becoming a Borrower hereunder, is to be the Borrower of any funds borrowed for the refinancing of the Refinancing Debt. "BUSINESS DAY" means:- (a) a day (other than a Saturday or Sunday) on which banks are open for business in London; and (b) (in respect of a day on which a payment or other transaction in an Optional Currency is required under this Agreement) a day (not being a Saturday or Sunday) on which banks and foreign exchange markets are open for business in: (i) London; (ii) the principal financial centre of the country of that currency, or, if there is more than one relevant country, the countries designated by the Facility Agent; and (iii) the principal financial centre of the country of the place of payment of the transaction of that Optional Currency, or, if more than one relevant country, the countries designated by the Facility Agent. "CASH" means any credit balances on any deposit, savings, current or other account and any cash in hand. "CASH EQUIVALENT INVESTMENTS" means:- (a) debt securities denominated in Sterling or US Dollars or Australian Dollars issued by the Government of the United Kingdom or the United States of America or Australia (as the case may be) where such debt securities have not more than 12 months to final maturity and are not convertible into any other form of security; (b) debt securities denominated in Sterling or US Dollars or Australian Dollars which have not more than 12 months to final maturity, are not convertible into any other form of security, are rated P2 or higher by Moody's Investor Services Inc. or A2 or higher by Standard & Poor's Ratings Group and are not issued or guaranteed by any member of the Group; (c) certificates of deposit denominated in Sterling or US Dollars or Australian Dollars having not more than 12 months to final maturity issued by a bank incorporated in or having a branch in the United Kingdom or the United States of America or Australia (as the case may be) and rated P2 or higher by Moody's Investor Services Inc. or A2 or higher by Standard & Poor's Ratings Group. 9 "CHIEF FINANCIAL OFFICER" means the finance director or chief financial officer of Bidco from time to time or in his absence his deputy (being an Authorised Signatory of Bidco). "CITIZENS" means Citizens Power LLC and each of its subsidiaries. "COALCO" means Pacificorp Powercoal LLC, a limited liability company organised on June 10, 1997 under the laws of Oregon. "COALCO/BIDCO LOAN" bears the meaning given to that term in Clause 4.1(b)(iv). "COALCO/BIDCO LOAN AGREEMENT" means the agreement, note or other instrument pursuant to which the Coalco/Bidco Loan is outstanding or by which it is evidenced or, as the case may be, the intercompany loan arrangement pursuant to which the Coalco/Bidco Loan is to be made. "COALCO FACILITY AGREEMENT" means a credit agreement dated on or around the date hereof between Coalco, the Lenders (as defined therein), and Morgan Guaranty Trust Company of New York as swingline lender, issuing bank, paying agent and collateral agent for the Lenders (as defined therein). "COALCO INTERCREDITOR AGREEMENT" means an agreement dated on or about the 25th June,1997 and entered into by certain of the parties hereto and certain of the parties to the Coalco Facility Agreement. "COALCO LENDERS" means the Lenders (as defined in the Coalco Facility Agreement) from time to time. "COALCO LOAN" means, at any time, all amounts outstanding at that time upon and subject to the terms of the Coalco Facility Agreement. "CODE" means The City Code on Takeovers and Mergers. "COMMITMENT" in relation to a Bank means an amount appearing and designated as such against that Bank's name in Schedule B or in the Substitution Certificate or other document by which it became party to or acquired rights under this Agreement (being a "TRANCHE 1 COMMITMENT" or a "TRANCHE 2 COMMITMENT" as therein indicated and, if designated "1A" the amount so designated and, if designated "1B", the amount so designated), in each case as reduced or increased by substitution or transfer pursuant to Clause 30 and any Substitution Certificates to which such Bank is party, and to the extent not cancelled, reduced or terminated under this Agreement. "COMPANY/BIDCO LOAN AGREEMENT" means the loan arrangements entered into or to be entered into between the Company and Bidco pursuant to which the Company shall lend to Bidco Subordinated Debt as more fully referred to in the Structure Memorandum. "CONSOLIDATED EBITDA" for any period comprising an annual Accounting Period or four (taking into account the provisions of Clause 23.2) consecutive quarterly Accounting Periods of Bidco (taken together as one period) means the profit of the Bidco Group for such period:- BEFORE DEDUCTING all depreciation and other amortisation (including, without limitation, amortisation of goodwill arising from and upon the acquisition of the Shares and amortisation 10 of Offer Costs and amortisation of any prepayment made prior to the date hereof of lease rentals arising pursuant to the generation lease arrangements in force as at the date hereof between National Power plc and a member of the Target Group and between Powergen Plc and a member of the Target Group); BEFORE TAKING INTO ACCOUNT all extraordinary items (whether positive or negative) but AFTER TAKING INTO ACCOUNT all exceptional items (whether positive or negative); BEFORE DEDUCTING advance corporation tax, mainstream corporation tax, windfall, occasional or non-recurring or recurring taxes and taxes imposed on the income, gains or turnover of a company by virtue of it being a company which falls within a specified class and their equivalents in any relevant jurisdiction; BEFORE TAKING INTO ACCOUNT Consolidated Total Net Interest Payable for such period; BEFORE DEDUCTING any Offer Costs; AFTER DEDUCTING any gain over and ADDING back any loss by reference to book value arising of the Bidco Group on the sale, lease or other disposal of any asset (other than on the sale of trading stock) during such period and any gain or loss arising on revaluation of any asset during such period, in each case to the extent that it would otherwise be taken into account; and for the purposes of the foregoing no item shall be effectively deducted credited or otherwise taken into account more than once in this calculation, all items shall be determined on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles and as determined from the consolidated Accounts of the Bidco Group for such annual Accounting Period or for the relevant Accounting Periods falling within such period. "CONSOLIDATED NET TOTAL BORROWINGS" at any time means the aggregate at that time of the Borrowings of the members of the Bidco Group from sources external to the Bidco Group (giving effect to the proviso to the definition of Borrowings in Clause 1.1.), LESS the Bidco Group's Cash (excluding moneys received by Amazon Electricity in consideration of the supply of goods and/or services prior to the date of such supply) and Cash Equivalent Investments except to the extent that such Cash or Cash Equivalent Investments cannot be legally remitted at that time to a member of the Bidco Group in the United Kingdom, the United States of America or Australia; calculated on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified herein and/or in the definition of Borrowings in Clause 1.1) in accordance with the Applicable Accounting Principles and, where the calculation is being made as at the end of any Accounting Period for which a consolidated balance sheet of the Bidco Group has been delivered to the Facility Agent, as determined from that balance sheet together with a Reconciliation Statement in relation thereto. "CONSOLIDATED TOTAL NET INTEREST PAYABLE" for any period comprising an annual Accounting Period or four (taking into account the provisions of Clause 23.2) consecutive quarterly Accounting Periods (taken together as one period) of Bidco means the Interest accrued during 11 such period as an obligation of any member or members of the Bidco Group (whether or not paid during or deferred for payment after such period but excluding interest capitalised in accordance with the Applicable Accounting Principles) adjusted to take account of any amount constituting Interest receivable by any member or members of the Bidco Group under interest rate and/or currency hedging agreements or instruments, LESS Interest (other than Interest under interest rate and/or currency hedging agreements or instruments already taken into account as aforesaid) accrued during such period in favour of members of the Bidco Group from external sources, all determined on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles and as shown in the consolidated Accounts of the Bidco Group for such annual Accounting Period or for the Accounting Periods falling within such period. "DANGEROUS SUBSTANCE" means any radioactive emissions, noise, any natural or artificial substance (whether in the form of a solid, liquid, gas or vapour) the generation, transportation, storage, treatment, use or disposal of which (whether alone or in combination with any other substance) including (without limitation) any controlled, special, hazardous, toxic, radioactive or dangerous substance or waste, gives rise to a risk of causing harm to man or any other living organism or damaging the Environment or public health or welfare. "DEBENTURE" means the mortgage debenture of even date herewith made between the Company, Finance, Bidco and the Security Agent as supplemented by any deeds of accession or other instrument supplemental thereto. "DEFAULT" means (a) any Event of Default or (b) any event which, with the giving of notice and/or the expiry of any grace or cure period stated in any Finance Document would be or become an Event of Default, provided that any such event which by reason of express provisions in any Finance Document requires the satisfaction of a condition as to materiality (including, without limitation, the existence or absence of an opinion or determination as to materiality) before it may become an Event of Default shall not be a Default unless that condition is satisfied. "DERIVATIVE TRANSACTIONS" means any rate swap transactions, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DIRECTOR-GENERAL" means the person appointed from time to time by the Secretary of State to hold office as the Director General of Electricity Supply for the purpose of the Act. "DIRECTOR GENERAL OF GAS SUPPLY" means the person appointed from time to time by the Secretary of State to hold office as the Director General of Gas Supply for the purpose of the Gas Act. "DISTRIBUTIONS" bears the meaning given to that term in Clause 21.6. "DISTRIBUTION BUSINESS" means the business of Amazon Electricity, or any successor undertaking to that business within the Bidco Group, in or ancillary to the distribution (whether 12 for its own account or that of any other party) of electricity through the distribution system of Amazon Electricity or, as the case may be, such successor and includes any business providing connections to such distribution system. "DOCUMENTARY CREDIT" means any letter of credit, guarantee or bond issued or to be issued pursuant to Clause 5.4, in each case as varied from time to time. "ENCUMBRANCE" means any mortgage, pledge, lien, charge, assignment for the purpose of providing security, hypothecation, security interest or other arrangement having the effect of providing security (including, without limitation, the deposit of monies or property with a person with the primary intention of affording such person a right of set-off or lien as a form of security). "ENERGYCO" means PacifiCorp Energyco an unlimited company incorporated under the laws of England and Wales (No. 3335442). "ENERGYCO/COMPANY LOAN AGREEMENT" means the loan arrangements entered into or to be entered into between the Company and Energyco pursuant to which Energyco shall lend to the Company an amount as more fully described in the Structure Memorandum. "ENVIRONMENT" means all, or any of, the following media, the air (including, without limitation, the air within buildings and the air within other natural or man-made structures above or below ground), water (including, without limitation, ground and surface water) and land (including, without limitation, surface and sub-surface soil). "ENVIRONMENTAL CLAIM" means any claim by any person:- (a) in respect of any loss or liability suffered or incurred by that person as a result of or in connection with any violation of Environmental Law; or (b) that arises as a result of or in connection with Environmental Contamination and that could give rise to any remedy or penalty (whether interim or final) that may be enforced or assessed by private or public legal action or administrative order or proceedings, including without limitation, any such claim arising from injury to persons, property or natural resources. "ENVIRONMENTAL CONTAMINATION" means each of the following and their consequences:- (a) any release, emission, leakage or spillage of any Dangerous Substance at or from any site owned, occupied or used by any member of the Company Group into any part of the Environment; or (b) any accident, fire, explosion or sudden event at any site owned, occupied or used by any member of the Company Group which is directly or indirectly caused by or attributable to any Dangerous Substance; or (c) any other pollution of the Environment. "ENVIRONMENTAL LAW" means all applicable laws (including, without limitation, common law), regulations, directing codes of practice, circulars, guidance notices and the like having legal 13 effect (whether in the United Kingdom or elsewhere) concerning pollution or the protection of human health, the Environment, the conditions of the work place or the generation, transportation, storage, treatment or disposal of Dangerous Substances. "ENVIRONMENTAL LICENCE" means any permit, licence, authorisation, consent or other approval required by any Environmental Law. "EVENT OF DEFAULT" means, subject to Clause 24.3, any of the events specified in Clause 24.1. "FACILITY" means:- (a) when designated "TRANCHE 1", the term loan facilities referred to in Clauses 2.1(a) and (b), being divided into the Tranche 1A Facility (referred in Clause 2.1(a)) and the Tranche 1B Facility (referred in Clause 2.1(b)), as indicated therein; (b) when designated "TRANCHE 2", the revolving credit facility referred to in Clause 2.1(c); (c) without any such designation, the Tranche 1 Facility or the Tranche 2 Facility, as the context requires. "FACILITY OFFICE" in relation to a Bank means:- (a) the office of that Bank whose address appears under its name in Schedule B or is specified for this purpose in the schedule to the Substitution Certificate or in any other document by which such Bank became party to or acquired rights under this Agreement; and/or (b) any (and each) other office notified by that Bank to the Facility Agent in accordance with Clause 30.6 as the office through which that Bank will participate in the Facilities or any of them. "FEE LETTERS" means the letters referred to in Clause 27.2. "FINAL REPAYMENT DATE" means the fifth anniversary of the date hereof. "FINANCE DOCUMENTS" means this Agreement and any Documentary Credit issued hereunder, the Fee Letters, the Substitution Certificates, the Borrower Accession Agreements, the Guarantor Accession Agreements, the Security Documents, the Hedging Documents, the Intercreditor Agreement, the Coalco/Bidco Loan Agreement, the Pedro Global Subordinated Loan Note, the Energyco/Company Loan Agreement, the Company/Bidco Loan Agreement, the Coalco Intercreditor Agreement and any other document designated as such by the Facility Agent and the Company. "FINANCE PARTY" means each Arranger, each Bank, the LC Bank, the Security Agent and the Facility Agent (together the "FINANCE PARTIES"). "FIXED DOLLAR EQUIVALENT" in relation to any amount denominated in Sterling means the equivalent thereof in Dollars at an exchange rate of (Pounds)1: $1.64. 14 "FIXED STERLING EQUIVALENT" in relation to any amount denominated in Dollars means the equivalent thereof in Sterling at an exchange rate of $1.64: (Pounds)1. "GAS ACT" means the Gas Act 1986 (as amended by the Gas Act 1995). "GAS FRAMEWORK AGREEMENT" means an agreement dated 1st March, 1996 and entered into between British Gas Transco and Eastern Natural Gas (Retail) Limited. "GAS LICENCE" means a licence for the transportation, shipping or supply of gas held by a member of the Bidco Group, as issued pursuant to Section 7 or 7A of the Gas Act. "GENERATION BUSINESS" means the business of Target and its Subsidiaries in or ancillary to the generation (whether for its own account or that of any other party) of electricity. "GROUP" means: (i) when designated "COMPANY", the Company and its Subsidiaries (excluding Pedro Group) from time to time; (ii) when designated "BIDCO", Bidco and its Subsidiaries (excluding Pedro Group) from time to time, and without such designation the Bidco Group or the Company Group as the context so requires. "GUARANTOR" means each of the Company, Finance, Bidco and each Additional Guarantor. "GUARANTOR ACCESSION AGREEMENT" means an agreement substantially in the form of Schedule F Part II made pursuant to Clause 19.2. "HEDGING DOCUMENTS" means any and all interest rate swap and/or interest rate cap and/or other interest rate hedging agreements entered into or committed to be entered into by any member of the Bidco Group in relation to the risk management of Bidco Group's floating rate interest exposure as have been heretofore (and/or as may hereafter be) agreed in writing between the Company and the Facility Agent to constitute the Hedging Documents, including without limitation, and whether or not so further agreed in writing those contemplated by Clause 4.1(d). "HIGH YIELD BRIDGE FACILITY AGREEMENT" means a bridge loan agreement dated on or around the date hereof between Energyco as borrower, Newco as guarantor, Citibank N.A., Goldman Sachs Credit Partners LP and Morgan Guaranty Trust Company of New York as arrangers. "HIGH YIELD LOAN" means loans of up to US$1,575,000,000 made or to be made to Energyco, upon and subject to the terms of the High Yield Bridge Facility Agreement. "HOLDING COMPANY" means, in relation to a body corporate, any other body corporate of which it is a Subsidiary. 15 "INFORMATION MEMORANDUM" means an information memorandum relating to the Company Group as, when and if agreed between the Company and the Arrangers for use in the syndication of the Facility. "INTRA GROUP LOAN AGREEMENT" means a loan agreement, in the agreed form to be entered into by members of the Company Group. "INTERCREDITOR AGREEMENT" means an agreement in the agreed form made or to be made between the Company, Finance, Bidco, the Subordinated Creditors, the Senior Creditors, the Hedging Banks, the Facility Agent and the Security Agent (in each case as defined therein). "INTEREST" means:- (a) interest and amounts in the nature of interest accrued (including, without limitation, the interest elements of finance leases); (b) prepayment penalties or premiums incurred in repaying or prepaying any Borrowing; (c) discount fees and acceptance fees payable or deducted in respect of any Borrowing (including all fees payable in connection with any letter of credit, guarantee or acceptance); and (d) any other costs, expenses and deductions of the like effect and any net payment (or, if appropriate in the context, minus any net receipt) under any interest rate hedging agreement or instrument, taking into account any premiums payable for the same and the interest element of any net payment (or, if appropriate in the context, minus the interest element of any receipt) under any currency hedging instrument or arrangement (plus or minus any accrued exchange gains or losses with respect to such interest element). For the avoidance of doubt, "INTEREST" includes commitment, utilisation and non-utilisation fees (including, without limitation, those payable hereunder) but excludes agent's and front-end, management, arrangement and participation fees with respect to any Borrowing (including, without limitation, those payable hereunder) and includes any up-front premium or front-end fee payable pursuant to any interest rate hedging agreement or instrument. "INTEREST DATE" means, in relation to any Advance or any overdue amount, the last day of an Interest Period relating thereto. "INTEREST PERIOD" means, in relation to any Advance, each (or the) period determined in accordance with Clause 10 or Clause 5.2(f) respectively, and, in relation to any overdue amount, each period determined in accordance with Clause 11.3. "INTERIM PAYMENT" means any Distribution paid in respect of, or by reference to, the first two consecutive quarterly Accounting Periods in any annual Accounting Period of Bidco. "LC BANK" means Citibank, N.A. and/or any other bank which becomes an LC Bank pursuant to Clause 5.8. 16 "LIBOR" in relation to any Advance or overdue amount for any Interest Period relative thereto, means: (i) the annual rate of interest which appears on Telerate page 3750 or any equivalent successor to such page, as appropriate (as determined by the Facility Agent) (the "TELERATE SCREEN") at or about 11.00 a.m. (London time) on (in the case of an Advance in Sterling) the first Business Day of or (in the case of an Advance in an Optional Currency) the second Business Day prior to the commencement of, such Interest Period, as being the interest rate offered in the London Interbank Market (in the case of Sterling) or London Interbank Eurocurrency Market (in the case of an Optional Currency) for Sterling or such Optional Currency (as appropriate) deposits for delivery on the first day of such Interest Period and for a period comparable to such Interest Period; and (ii) (if the relevant rate does not appear on the Telerate Screen for the purposes of paragraph (i) or the Facility Agent determines that no rate for a period of comparable duration to the relevant Interest Period appears on the Telerate Screen), the arithmetic mean (rounded upward, if necessary, to four decimal places) of the respective rates, as supplied to the Facility Agent at its request, quoted by the Reference Banks (or if there is then only one Reference Bank, the rate quoted by that Reference Bank) to leading banks in the ordinary course of business in the London Interbank Market (in the case of an Advance denominated in Sterling) or London Interbank Eurocurrency Market (in the case of an Advance denominated in an Optional Currency) at or about 11.00 a.m. on (in the case of Sterling) the first Business Day of or (in the case of an Advance denominated in an Optional Currency) the second Business Day prior to the commencement of, such Interest Period for the offering of deposits in Sterling or such Optional Currency (as applicable) for a period comparable to its Interest Period and in an amount comparable to the amount of such Advance, provided that if any of the Reference Banks shall be unable or otherwise fails so to supply such offered rate by 1.00 p.m. on the required date, "LIBOR" for the relevant Interest Period shall be determined on the basis of the quotations of the remaining Reference Banks. "LICENCE" means a licence for the generation, transmission or supply of electricity held by a member of the Company Group and issued pursuant to Section 6(1) of the Act and any Gas Licence, in each case as modified or supplemented from time to time. "LICENCEHOLDER" means at any time a member of the Company Group which then holds a Licence. "LICENCE UNDERTAKING" means any and each written undertaking or assurance given in connection with the Offer by any one or more of the Company, Bidco or the Target or any Affiliate of any of them to the Director General or the Director General of Gas Supply or the Secretary of State concerning the management and/or ownership of and/or other matters concerning the Target or any other member of the Target Group once it has become a Subsidiary of the Company. 17 "MAJORITY BANKS" means at any time: (a) whilst no Utilisation is outstanding, a Bank or Banks the aggregate amount of whose Commitments at the relevant time represents by value more than sixty-six and two-thirds per cent. (66 2/3%) of the aggregate Commitments at such time; (b) if a Utilisation is then outstanding, a Bank or Banks the aggregate of whose participations in the Utilisations and aggregate potential liability under Utilisations outstanding at such time represents by value more than sixty-six and two-thirds per cent. (66 2/3%) of the aggregate of all the Utilisations and all the Outstanding Liability Amounts of all Utilisations outstanding at such time; provided that whilst the Original Banks are the only Banks, the term "MAJORITY BANKS" shall mean all of the Banks together. "MAJORITY OFFER BANKS" means at any time Banks the aggregate amount of whose Commitments at the relevant time represents by value more than fifty per cent. (50%) of the aggregate Commitments at such time, provided that such Banks include all of the Original Banks. "MARGIN" means one point three zero per cent. (1.30%) per annum, provided that if at any time after the expiry of the Accounting Period ending 31st March, 1998 any consolidated Accounts of the Group delivered to the Facility Agent pursuant to Clauses 21.2(a)(i) or 21.2(a)(ii) as the case may be, and the reports and certificates relating thereto delivered pursuant to Clause 21.2(a)(iii) or 21.2(a)(iv) (as the case may be) disclose that the percentage of Consolidated Net Total Borrowings to the sum of Adjusted Capital and Reserves and Consolidated Net Total Borrowings of the Group as at the last day of the Accounting Period in respect of which such Accounts were delivered is within the ratios set out in column 1 below:
(1) (2) (3) % Margin (p.a) Margin (p.a.) (a) Greater than 75% 1.30% 1.15% (b) Equal to or less than 75% but greater 1.10% 0.95% than 70% (c) Equal to or less than 70% but greater than 0.90% 0.75% 65% (d) Equal to or less than 65% but greater than 0.70% 0.55% 60% (e) Equal to or less than 60% 0.50% 0.35%
then (subject as mentioned below) the Margin shall be the percentage per annum set out in Column 2 above opposite such ratio, or, in the case of determining any rate of interest or fees to apply hereunder to any Utilisation made by Amazon Electricity, the percentage per annum set out in Column 3 above, in each case during (but only during) the period from (and including) the date on which the Facility Agent has received the relevant Accounts pursuant to Clause 21.2(a)(i) and the reports and certificates relating thereto pursuant to Clause 21.2(a)(iii) or has received Accounts pursuant to Clause 21.2(a)(ii) and the certificates relating thereto pursuant to Clause 21.2(a)(iv), as the case may be, until (but excluding) the earlier of the following dates: 18 (a) the date on which the Facility Agent next receives the relevant Accounts for an annual Accounting Period pursuant to Clause 21.2(a)(i) and a report and certificates relating thereto pursuant to Clause 21.2(a)(iii); (b) the date on which the Facility Agent receives the relevant Accounts for the next succeeding quarterly Accounting Period of the Bidco Group pursuant to Clause 21.2(a)(ii) and a certificate relating thereto pursuant to Clause 21.2(a)(iv); (c) the latest date (the "LATEST DATE") by which the Facility Agent should have received any such Accounts and certificates in accordance with the terms of such Clauses where the Facility Agent has not received the same by such date; and (d) the date (falling on or after the first day of such period) on which the Facility Agent gives notice pursuant to Clause 24.2 declaring that an Event of Default has occurred, PROVIDED THAT: (i) if the Margin has been reduced in reliance on unaudited Accounts (and corresponding certificate) for the quarterly Accounting Periods in any annual Accounting Period and the audited Accounts (and corresponding report and certificate) do not justify that reduction, such reduction shall be reversed with retrospective effect so that subject as provided in this definition the Margin shall be that justified by the audited Accounts and amounts calculated by reference to the reduced Margin (whether or not already paid) shall be recalculated by reference to the Margin justified by such audited Account; and (ii) if the Margin has been increased as a result of the occurrence of (c) or (d) above then upon the Facility Agent confirming in writing to the Banks and the Company that such Event of Default has been cured to the satisfaction of the Banks (acting reasonably) then as at the date of such confirmation the Margin shall be recalculated by reference to the Accounts and certificate received in respect of the last quarterly Accounting Period pursuant to Clauses 21.2(a)(ii) and 21.2(a)(iv), but such recalculation shall not have any retrospective effect. "MATCHING AMOUNT" means, with respect to any Tranche 1A Advance requested to be made hereunder pursuant to a Request, an amount in cash to be lent by Coalco to Bidco on the terms of the Coalco/Bidco Loan Agreement equal to the Fixed Dollar Equivalent of 61.666'% (or such other percentage as the Company and the Facility Agent after consultation with the Banks may agree in writing, provided that the Facility Agent shall not without the prior consent of the Majority Banks agree any percentage which differs from that specified in figures in this definition by more than 0.5) of the Requested Amount for that Tranche 1A Advance. "MATERIAL ADVERSE EFFECT" means any effect which is or is reasonably likely to have: (a) a material adverse effect on the ability of any Obligor which is also a Material Subsidiary to perform its obligations under the Finance Documents (taken as a whole); and/or 19 (b) (where the context so admits) a material impairment of the ability of the Obligors to perform their obligations under the Finance Documents to which they are a party or a material impairment of the rights of or benefits available to the Finance Parties under the Finance Documents. "MATERIAL SUBSIDIARY" means, at any time, each Obligor (other than the Company) and, on and from the Unconditional Date, each Licenceholder, together with: (i) on and from the Unconditional Date until the date from which paragraph (ii) below applies: (a) Target; (b) Amazon Electricity; (c) Eastern Merchant Property Limited; (d) Eastern Power and Energy Trading Limited; (e) Eastern Merchant Generation Limited; or (ii) (from the date on which the Facility Agent first receives Accounts pursuant to Clause 21.2(a)(ii) and (vi)), any Subsidiary of Bidco (other than any Project Finance Subsidiary): (I) (A) whose profit before tax (on a consolidated basis if it has Subsidiaries and for the latest period comprising an annual Accounting Period of Bidco or four consecutive quarterly Accounting Periods of Bidco (taken together as one period) for which consolidated Accounts of the Bidco Group have been delivered to the Facility Agent) on ordinary activities or (B) whose gross assets (excluding goodwill) represent 5% or more of the consolidated profits before tax on ordinary activities of the Bidco Group for such period or, as the case may be, consolidated gross assets (excluding goodwill) of the Bidco Group, in each case as calculated by reference to the latest consolidated Accounts of the Bidco Group delivered to the Facility Agent adjusted in such manner as the auditors of Bidco may determine (which determination shall be conclusive in the absence of manifest error) to reflect the profits (or losses) before tax on ordinary activities and consolidated gross assets (excluding goodwill) of any person which has become or ceased to be a member of the Bidco Group since the end of the financial period to which the latest financial statements of the Bidco Group relate; or (II) to which is transferred (after the end of the financial period to which the latest consolidated financial statements of the Bidco Group relate) all or substantially all of the business, undertaking or assets of a Subsidiary which immediately prior to such transfer is a Material Subsidiary whereupon the transferor Subsidiary shall cease to be a Material Subsidiary under this sub-Clause (ii) upon the completion of such transfer. 20 "MODEL" means the economic projections and base assumptions concerning the Bidco Group prepared by Ricardo in the agreed form. "NEGATIVE TERMINATION AMOUNT" means, with respect to any arrangement falling within paragraph (f) of the definition of Borrowing in Clause 1.1, the amount (if any) that would be required to be paid by the relevant member of the Bidco Group if such arrangement were terminated by reason of a default by it or other termination event relating to the arrangement. The Negative Termination Amount of any such arrangement at any date shall be determined (a) as of the end of the most recent quarterly Accounting Period ended on or prior to such date if such arrangement was then outstanding or (b) as at the date such arrangement is entered into if it is entered into after the end of such quarterly Accounting Period; provided, however, that if an agreement between the member of the Bidco Group and the relevant counterparty provides that, upon any such termination by such counterparty, one or more other arrangements falling within paragraph (f) of the definition of Borrowing in Clause 1.1 (if any then exist) between such member of the Bidco Group and such counterparty would also terminate and the amount (if any) payable by such member of the Bidco Group would be a net amount reflecting the termination of all arrangements falling within paragraph (f) of the definition of Borrowing in Clause 1.1 so terminated, then the Negative Termination Amount of all such arrangements subject to such netting shall be, at any date, a single amount equal to such net amount (if any) payable by the member of the Bidco Group determined as of the later of (a) the end of the most recently ended quarterly Accounting Period or (b) the date on which the most recent arrangement subject to such netting was entered into. "NET PROCEEDS" means: (a) the consideration received by any member of the Company Group in respect of the disposal to any person who is not a member of the Company Group of all or any part of its business, undertaking or assets (including the amount of any intercompany debt repaid to continuing members of the Group), net of all Taxes applicable on, or to any gain resulting from, the disposal and of all reasonable costs, fees and expenses incurred by members of the Company Group in arranging and effecting that disposal; (b) the proceeds of any equity subscription in the capital of the Company made after the date hereof and not otherwise contemplated in the Structure Memorandum (other than any equity subscription made by Energyco to the extent permitted by Clause 21.6(f)); and/or (c) the proceeds of any claim for loss or destruction of or damage to the property of a member of the Company Group made by a member of the Company Group under any insurance policy save where the Company notifies the Facility Agent in writing that such proceeds are to be applied in reinstating the property concerned or purchasing like replacement property, provided that to the extent such consideration is received by the relevant member of the Company Group other than in cash, the Net Proceeds in respect of such consideration shall be deemed to arise on the date on which that consideration is converted into cash. "NET TERMINATION VALUE" shall mean with respect to all Derivative Transactions (other than any Hedging Documents and electricity forward contracts and contracts for differences), the difference between (a) the aggregate amounts (if any) that would be required to be paid by any 21 member of the Bidco Group if such Derivative Transactions were terminated by reason of a default relating to any member of the Bidco Group, and (b) the aggregate amounts (if any) that any member of the Bidco Group would be entitled to receive if such Derivative Transactions were terminated by reason of a default relating to any member of the Bidco Group. The Net Termination Value shall be determined (a) as of the end of the most recent quarterly Accounting Period ended on or prior to such date if such Derivative Transaction was then outstanding or (b) as of the date such Derivative Transaction is entered into if it is entered into after the end of such fiscal quarter. "NETWORK CODE" means the Network Code Principal Document dated 1st March, 1996 (as modified from time to time). "NEWCO" means Pacificorp Group Holdings Company, an Oregon corporation incorporated on June, 10 1997. "OBLIGOR" means each Borrower and each Guarantor. "OFFER" means the offer for the Shares to be made by Goldman Sachs International on behalf of Bidco substantially on the terms and conditions referred to in the Press Release, as the same may be amended, varied, renewed or waived in compliance with Clause 22 (other than Clause 22(a)(i)(C), (ii) or (iii)). "OFFER ACCOUNT" means the account in the name of Bidco opened with the Facility Agent on or before the Unconditional Date for the purposes of effecting the acquisition of the Shares. "OFFER COSTS" means all banking, brokerage, foreign exchange hedging, accounting, legal, public relations and other fees and commissions, out-of- pocket costs and expenses and stamp, registration, transfer and similar taxes incurred by or on behalf of the Company or any Subsidiary thereof (including any member of the Target Group which becomes such a Subsidiary pursuant to the Offer) in connection with the negotiation, preparation, execution and implementation of the Transaction Documents or otherwise in connection with the Offer (including any refinancing referred to in Clause 3.1(a)(ii)). "OFFER DOCUMENT" means the document to be delivered to the shareholders of the Target containing the formal Offer. "OFFER TERMINATION DATE" means the earliest date (as notified by Bidco to the Facility Agent in writing) on which all of the following have occurred: (a) all payments in respect of acceptances of the cash alternative in the Offer have been made in full, (b) no further such acceptances are possible, and (c) all procedures pursuant to section 428 et seq. Companies Act 1985 which are capable of being implemented have been completed and all payments pursuant thereto to shareholders in the Target have been made in full. "OPEN MARKET SHARES" means the shares in the capital of Target purchased by Riki (or any Affiliate thereof) prior to the Unconditional Date (including any such shares represented by Target's American Depositary Shares). "OPTIONAL CURRENCY" means any freely available and transferable eurocurrency. 22 "OPTION SCHEMES" means any employee share save or share option scheme, long term incentive plan, employee benefit trust, savings plan or other employee share scheme of the Target or any of its Subsidiaries as in effect at the Unconditional Date. "OPTIONHOLDERS" means holders for the time being of options issued under or participants in or beneficiaries under any of the Option Schemes. "ORIGINAL STERLING AMOUNT" means in relation to any amount: (a) (if denominated in Sterling) the principal amount which is, or is to be outstanding, drawn or issued; or (b) (if denominated in an Optional Currency) the Sterling Equivalent of the principal amount which is, or is to be outstanding, drawn or issued, calculated, in the case of an Advance, three Business Days prior to the Utilisation Date for that Utilisation and in the case of a Documentary Credit, on the Utilisation Date for that Utilisation. "OUTSTANDING LIABILITY AMOUNT" in relation to any Documentary Credit at any time means the maximum amount for which the LC Bank or the Banks, as the case may be, could be actually and/or contingently liable thereunder LESS the aggregate of (i) all amounts thereof repaid or prepaid hereunder and (ii) all amounts (if any) paid out by the LC Bank (or the Banks) thereunder for which the LC Bank and/or the Banks have been reimbursed by the Obligors (whether or not out of the proceeds of a Tranche 2 Advance). "PANEL" means The Panel on Takeovers and Mergers. "PEDRO GLOBAL" means Peabody Global Investments, Inc. "PEDRO GLOBAL SUBORDINATED LOAN NOTE" means the subordinated loan note issued or to be issued by Bidco to Pedro Global as contemplated by the Structure Memorandum. "PEDRO GROUP" means Citizens and Pedro Holdings. "PEDRO HOLDINGS" means Peabody Holding Company Inc. and each of its subsidiaries. "PEDRO INVESTMENTS" means Peabody Investments Inc. "POOLING AND SETTLEMENT AGREEMENT" means an agreement dated 30th March, 1990 made by the Target with the National Grid Company plc and others setting out the rules and procedures for the operation of an electricity trading pool and of a settlement system (and, while the same has effect, the "INITIAL SETTLEMENT AGREEMENT" also dated 30th March, 1990 and made between the same parties), as amended from time to time. "PRESS RELEASE" means the agreed form of press release by which the Offer is announced. "PROJECT FINANCE BORROWINGS" means any indebtedness of a type referred to in any of paragraphs (a)-(g) of the definition of "Borrowings" in this Clause 1.1 which finances or otherwise relates to the acquisition, development, ownership and/or operation of an asset: (a) which is incurred by a Project Finance Subsidiary; or 23 (b) in respect of which the person or persons to whom such Borrowing is or may be owed by the relevant debtor (whether or not a member of the Bidco Group) has or have no recourse whatsoever to any member of the Bidco Group (other than to a Project Finance Subsidiary) for the repayment thereof other than: (i) recourse to such debtor for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from such asset; and/or (ii) recourse to such debtor for the purpose only of enabling amounts to be claimed in respect to such Borrowing in an enforcement of any Encumbrance given by such debtor over such asset or the income, cash flow or other proceeds deriving therefrom (or given by any shareholder or the like in the debtor over its shares or like interest in the capital of the debtor) to secure such Borrowing or to secure any recourse referred to in (iii) below, provided that (I) the extent of such recourse to such debtor is limited solely to the amount of any recoveries made on any such enforcement, and (II) such person or persons are not entitled, by virtue of any right or claim arising out of or in connection with such Borrowing, to commence proceedings for the winding up or dissolution of the debtor or to appoint or procure the appointment of any receiver, trustee or similar person or officer in respect of the debtor or any of its assets (save only for the assets the subject of such Encumbrance); and/or (iii) recourse to such debtor generally, or directly or indirectly to a member of the Bidco Group, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specific way) for breach of an obligation (not being a payment obligation or an obligation to procure payment by another or an indemnity in respect thereof or any obligation to comply or procure compliance by another with any financial ratios or other tests of financial condition) by the person against whom such recourse is available. "PROJECT FINANCE SUBSIDIARY" means any Subsidiary of Bidco: (a) which is a company whose principal assets and business are constituted by the ownership, acquisition, development and/or operation of an asset whether directly or indirectly; (b) none of whose Borrowings in respect of the financing of the ownership, acquisition, development and/or operation of an asset benefits from any recourse whatsoever to any member of the Company Group (other than the Subsidiary itself or another Project Finance Subsidiary) in respect of the repayment thereof, except as expressly referred to in paragraph (b)(iii) of the definition of "Project Finance Borrowings" in this Clause 1.1; and (c) which has been designated as such by the Company by written notice to the Facility Agent provided that the Company may give written notice to the Facility Agent at any time that any Project Finance Subsidiary is no longer a Project Finance Subsidiary, whereupon it shall cease to be a Project Finance Subsidiary. 24 "RECOGNISED BANK" means at any time a bank or other entity which: (a) is a bank as defined in Section 840A of the Income and Corporation Taxes Act 1988 (or any statutory re-enactment or modification thereof, in substantially the same form and content as at the date hereof) which is beneficially entitled to and within the charge to corporation tax as regards any interest received by it under this Agreement; or (b) if at any time Section 349 or Section 840A of the Income and Corporation Taxes Act 1988 (or a statutory re-enactment or modification thereof, in substantially the same form and context as at the date hereof) shall not be in full force and effect, is either (where no amendment to this definition is agreed with the intention of restoring the economic position of the parties hereunder as regards the applicability of UK withholding taxes) a bank carrying on through its Facility Office a bona fide banking business in the United Kingdom which is beneficially entitled to and is within the charge to United Kingdom corporation tax as regards any interest payable or paid to it under this Agreement or (if such an amendment is agreed) a bank qualifying for the purposes of any replacement tax legislation so that interest hereunder may be paid to it without deduction of United Kingdom income tax; or (c) is acting from outside the United Kingdom if, at the time it becomes a party to this Agreement, it is resident (as defined in the appropriate double taxation treaty) in a country with which the United Kingdom has an appropriate double taxation treaty and such treaty provides at the date hereof (or in the case of a transferee under Clause 30, at the date of transfer) under its terms for exemption from United Kingdom income Tax on United Kingdom source interest for an entity such as itself when acting through the branch through which it is acting for the purposes of this Agreement, and such entity has made the appropriate application to the appropriate tax authority under such treaty for such exemption. "RECONCILIATION STATEMENT" in respect of any Accounts, means a statement signed (in respect of audited consolidated Annual Accounts) by the Auditors or, (in respect of unaudited consolidated quarterly Accounts) the Chief Financial Officer describing (a) any changes which would be required to be made to such Accounts and the treatment of any item therein (including, without limitation any necessary change in the treatment of goodwill) to conform such Accounts to the Applicable Accounting Principles and setting out the effects of such changes (if any) on the items therein, and (b) any departure from the Applicable Accounting Principles in the preparation of such Accounts and either stating that such departure has not altered any of the numerical information required for the purpose of establishing whether or not Bidco is in compliance with its obligations under Clause 23.1 or (if it has altered such information) setting out the effects of such alteration in reasonable detail. "REFERENCE BANKS" means the principal London offices of Citibank, N.A., and Morgan Guaranty Trust Company of New York and/or of such other Banks (if any) as may become Reference Banks pursuant to Clause 30.5. "REFINANCING DEBT" means all Borrowings set out in the Borrowings List which are indicated on that list as being likely to be in default as at the Unconditional Date or thereafter as a result of the consummation of those matters and things contemplated by the Transaction Documents (or any of them) occurring or which Bidco has indicated on that list may be refinanced in accordance with the provisions of Clause 21.9. 25 "REQUEST" means a request, substantially in the form of Schedule C (as appropriate), made by a Borrower to the Facility Agent for a Utilisation. "RESERVATIONS" means the qualifications and reservations set out in Schedule I. "RICARDO" means PacifiCorp, an Oregon corporation incorporated on August 11, 1987. "RIKI" means PacifiCorp Holdings, Inc, a Delaware corporation incorporated on July 3, 1994. "SECRETARY OF STATE" means the Secretary of State as referred to in the Act and the Secretary of State as referred to in the Gas Act. "SECURITY DOCUMENTS" means the Debenture of even date herewith executed by both the Company and Bidco and any other security documents identified in Schedule G Part IV, together with such other documents (if any) as may be required to be entered into by any Obligor pursuant to the terms of any Finance Documents. "SHARES" means existing unconditionally allotted or issued and fully paid shares in the Target and any further shares in the Target which are unconditionally allotted or issued before the date on which the Offer ceases to be open for acceptances (or such earlier date as the Company and the Banks may, subject to the Code, agree) upon the exercise of any options granted under the Option Schemes or otherwise including any such shares represented by the Target's American Depositary Shares. "STERLING" and "(Pounds)" means the lawful currency for the time being of the United Kingdom. "STERLING EQUIVALENT" means, in relation to an amount expressed or denominated in an Optional Currency, the equivalent thereof in Sterling converted at the Agent's Spot Rate of Exchange on the date of the relevant calculation (and if used in relation to an amount expressed or denominated in Sterling, such amount). "STRUCTURE MEMORANDUM" means the memorandum and charts entitled "Financing the Acquisition of The Energy Group plc" dated June 1997 delivered to the Facility Agent on or about 25th June, 1997 and initialled on behalf of the Company and the Facility Agent for the purposes of identification. "SUBORDINATED CREDITOR" bears the meaning given to that term in the Intercreditor Agreement. "SUBORDINATED DEBT" means: (i) the outstanding principal amount from time to time under the Company/Bidco Loan Agreement; (ii) the outstanding principal amount from time to time owing by Bidco to Finance; (iii) the Pedro Global Subordinated Loan Note; and (iv) any separate unsecured loans to the Company or by the Company to Bidco which in each case (a) have a maturity falling after the Final Repayment Date, (b) are not 26 capable of acceleration whilst any amount of principal, interest, fees or breakage costs may be or become payable by any member of the Bidco Group hereunder or any of the Commitments remain in effect and (c) are subordinated (as regards priority of payment, ranking, rights of enforcement and all other rights) as to principal, interest and all other amounts payable on or in respect thereof and any and all claims (including for damages) related thereto, to all amounts which may be or become payable by the member of the Bidco Group under the Finance Documents on the terms set out in the Intercreditor Agreement; and (v) any subordinated Borrowing by the Company or Finance or by Bidco from the Company or Finance that (i) has no principal payments due on a date that is earlier than twenty-four months after the Final Repayment Date, (ii) is subordinated and the subject of intercreditor provisions which are reasonably satisfactory to the Majority Banks and (iii) has a fixed interest rate, which rate shall be, in the good faith judgment of the Chief Financial Officer, consistent with the market at the time of issuance for similar subordinated Borrowings. "SUBSIDIARY" means: (a) a subsidiary as defined in Section 736 of the Companies Act 1985, as amended (and "WHOLLY OWNED SUBSIDIARY" shall have the meaning ascribed thereto in such Section); and (b) a subsidiary undertaking as defined in Section 258 of the Companies Act 1985, as amended or, in either case, any statutory re-enactment or replacement thereof, but, in each case, shall exclude any member of the Pedro Group. "SUBSTITUTION CERTIFICATE" has the meaning ascribed to it in Clause 30.4 (together the "SUBSTITUTION CERTIFICATES"), and references to "SUBSTITUTES" shall be construed as references to persons becoming party to this Agreement pursuant to Substitution Certificates. "TARGET" means The Energy Group plc a company incorporated under the laws of England and Wales. "TARGET GROUP" means Target and its Subsidiaries. "TAXES" means all income and other taxes and levies, imposts, duties, charges, deductions and withholdings in the nature or on account of tax together with interest thereon and penalties with respect thereto, if any, and any payments made on or in respect thereof, and "TAX" and "TAXATION" shall be construed accordingly. "TAX SHARING AGREEMENT" means an Agreement in agreed form made or to be made between Energyco and members of the Bidco Group relating to the surrender of UK Corporation tax for group relief purposes. "TRANSACTION DOCUMENTS" means the Finance Documents, the Coalco Facility Agreement, the Coalco/Bidco Loan Agreement, the High Yield Bridge Facility Agreement, any Intra Group Loan Agreement and the Tax Sharing Agreement. 27 "UNCONDITIONAL DATE" means the date upon which the Offer becomes or is declared unconditional in all respects without any breach of Clause 22 (other than Clause 22(a)(i)(C), (ii) or (iii)). "US DOLLARS" and "$" means the lawful currency for the time being of the United States of America. "UTILISATION" means a utilisation of a Facility under this Agreement, being, when designated "TRANCHE 1", a utilisation of the Tranche 1 Facility and when designated "TRANCHE 2", a utilisation of the Tranche 2 Facility. "UTILISATION DATE" means in relation to each Utilisation, the date specified as such in the relative Request therefor or, on and after the making and/or issue thereof pursuant to such Request, the date on which it was made and/or issued. "WAIVER LETTER" means any letter or other document setting out the terms (if any) upon which (a) compliance with any provision of any Finance Document is waived, or (b) any amendment to or variation of or departure from the terms of any Finance Document is approved, or (c) any consent or approval required or requested to be given is given, in each case by the Facility Agent with the agreement of the Majority Banks or if so required by the terms of this Agreement or any other Finance Document, the Majority Offer Banks or all of the Banks. 1.2 CONSTRUCTION In this Agreement, save where the context otherwise requires:- (a) references to documents being in the "AGREED FORM" means documents either (i) in a form previously agreed in writing by or on behalf of the Facility Agent and the Company, or (ii) in form and substance satisfactory to the Original Banks and initialled by or on behalf of the Company and the Facility Agent on or prior to the date hereof for the purposes of identification, or (iii) in a form substantially as set out in any Schedule to any Finance Document, or (iv) with respect only to the Offer Document, in a form which reflects and is consistent with the terms of the Press Release, or (v) (if not falling within (i) to (iv) above) in form and substance satisfactory to the Original Banks acting reasonably provided that a reference to the Press Release being in the "AGREED FORM" shall mean the Press Release in form and substance satisfactory to the Original Banks; (b) references to "ASSETS" shall include revenues and the right thereto and property and rights of every kind, present, future and contingent and whether tangible or intangible (including uncalled share capital) references to "SHARES" shall include stock; (c) the expressions "HEREOF", "HEREIN", "HEREUNDER" and similar expressions shall be construed as references to this Agreement as a whole (including all Schedules) and shall not be limited to the particular Clause or provision in which the relevant expression appears, and references to "THIS AGREEMENT" and all like indications shall include references to this Agreement as supplemented by the Borrower Accession Agreements, Guarantor Accession Agreements, the Substitution Certificates, the Waiver Letters and any other agreement or instrument supplementing or amending this Agreement; 28 (d) references to "INDEBTEDNESS" shall be construed so as to include any obligation or liability (whether present or future, actual or contingent) for the payment, repayment or redemption of any obligation expressed by reference to monetary value or quantity or value of commodities (whether such obligation is performable by the payment of money or in some other way); (e) references to a "PERSON" shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; (f) references to any of the Transaction Documents and any other agreement or instrument shall be construed as a reference to the same as amended, varied, supplemented or novated from time to time (including, where relevant, by any Borrower Accession Agreement and/or Guarantor Accession Agreement and/or Substitution Certificate); (g) unless otherwise specified, references to Clauses and Schedules are references to, respectively, Clauses of and schedules to this Agreement; (h) words importing the singular shall include the plural and vice versa; (i) references (by whatever term, including by name) to the Company, Bidco, the Target, each Obligor, the Arrangers, each Bank, the LC Bank, each Reference Bank, the Facility Agent, the Security Agent, or any other person referred to in this Agreement shall, where relevant and subject as otherwise provided in this Agreement, be deemed to be references to or to include, as appropriate, their respective successors, replacements and assigns, transferees and substitutes permitted by the terms of the relevant Finance Documents; (j) reference to a time of day is, unless otherwise stated, a reference to London time and references to a "MONTH" are references to a period starting on a particular day in a calendar month and ending on the numerically corresponding day in the next calendar month provided that if a period starts on the last day in a calendar month or if there is no numerically corresponding day in the month in which the relevant period ends, that period shall, save as otherwise provided in this Agreement, end on the last day in such later month (and references to "MONTHS" shall be construed accordingly); (k) the contents page of, and headings in, this Agreement are for convenience only and shall be ignored in construing this Agreement; (l) all references to statutes and other legislation include all re- enactments and amendments of those statutes and that legislation; (m) an outstanding Documentary Credit is "REPAID" or "PREPAID" by providing (in accordance with the terms hereof) cash cover therefor in the same currency as that in which such Documentary Credit is denominated or expressed to be payable, by reducing (in accordance with the terms hereof) the Outstanding Liability Amount of such Documentary Credit or by cancelling such Documentary Credit and returning the original to the LC Bank or the Facility Agent on behalf of the Banks or providing other 29 evidence (in form and substance satisfactory to the LC Bank or, as the case may be, Facility Agent) that no further liability exists thereunder; references to Utilisations being repaid or prepaid are to be construed accordingly insofar as those Utilisations involve Documentary Credits; (n) an amount "OUTSTANDING" at any time under or in respect of a Documentary Credit (or the "PRINCIPAL AMOUNT" thereof at any time) is the Outstanding Liability Amount of such a Documentary Credit and a "DRAWING" under the Tranche 2 Facility includes the issue of a Documentary Credit and each provision of this Agreement which contains reference to the concepts contained in this paragraph (n) shall be construed accordingly; (o) any reference to "CERTIFICATE", "CERTIFICATION" (or any like term) in relation to an amount shall be a reference to a certificate containing such detail as is reasonably necessary in order to determine how such amount was calculated; and (p) any reference to a document being "CERTIFIED" means a document certified by an Authorised Signatory of the party providing the document, or by lawyers acting on his behalf, as being genuine and in full force and effect and, if a copy, a true and complete copy of the original. 2. FACILITIES AND RELATED MATTERS 2.1 FACILITIES Subject to the terms of this Agreement, and in reliance upon the representations and warranties set out in Clause 20.1 as repeated from time to time pursuant to Clause 20.2, the Banks grant to the relevant Borrowers the following facilities: (a) TRANCHE 1A FACILITY: a term loan facility whereby, subject as aforesaid, the Banks, when requested by Bidco and/or (after becoming a Borrower hereunder pursuant to a Borrower Accession Agreement) the Target or any of the Target's Subsidiaries pursuant to a Request, will make Tranche 1A Advances denominated in Sterling to Bidco, the Target or any of the Target's Subsidiaries (as the case may be) during the Tranche 1 Availability Period in an aggregate principal amount not exceeding the aggregate Tranche 1A Commitments; (b) TRANCHE 1B FACILITY: a term loan facility whereby, subject as aforesaid, the Banks, when requested by Bidco and/or (after becoming a Borrower hereunder pursuant to a Borrower Accession Agreement) the Target or any of the Target's Subsidiaries pursuant to a Request will make Tranche 1B Advances denominated in Sterling to Bidco, the Target or any of the Target's Subsidiaries (as the case may be) during the Tranche 1 Availability Period in an aggregate principal amount not exceeding the aggregate Tranche 1B Commitments; and (c) TRANCHE 2 FACILITY: a revolving credit facility whereby, subject as aforesaid, the Banks, when requested by a Borrower pursuant to a Request, during the Tranche 2 Availability Period will make to the Borrower specified in or giving such Request Tranche 2 Advances or issue, or procure the LC Bank to issue for the account of such Borrower, Documentary Credits denominated in Sterling and/or an Optional Currency 30 or Optional Currencies up to an aggregate principal amount not exceeding at any one time the Original Sterling Amount equal to the aggregate Tranche 2 Commitments at such time. 2.2 LIMITATIONS Subject to the terms of this Agreement unless otherwise agreed by the Facility Agent and the Banks: (a) no Utilisation of any Facility may be made before the Unconditional Date; (b) Tranche 1A Utilisations may be made only by Bidco and/or (upon it becoming a Borrower pursuant to a Borrower Accession Agreement) the Target or any Subsidiary of the Target; (c) Tranche 1B Utilisations may be made only by Bidco and/or (upon it becoming a Borrower pursuant to a Borrower Accession Agreement) the Target or any Subsidiary of the Target; (d) without prejudice to the provisions of Clause 10.4(d), Bidco will use its reasonable endeavours to ensure that the number of additional Utilisations shall be controlled and that no more than 20 Tranche 1A and five Tranche 1B Utilisations are made; (e) the aggregate Original Sterling Amount of the outstanding Tranche 2 Utilisations at any time may not exceed the Tranche 2 Commitments then in effect; (f) no Tranche 2 Utilisation may be made before there has been (or unless there is on the same day occurring) a drawing of the Tranche 1 Commitments and no more than 10 Tranche 2 Advances may be outstanding at any time; (g) (Pounds)200,000,000 of the Tranche 2 Commitments shall not be capable of being drawn other than (i) by way of Documentary Credit in favour of lessors (or by way of Documentary Credit as a counter indemnity to banks with outstanding guarantees, indemnities or letters of credit in favour of lessors) in relation to the lease and/or cross-border lease facilities in favour of Peterborough Power, Ltd referred to in the Borrowings List, and/or (ii) by way of Advance the proceeds of which are applied to cash collateralise obligations to such lessors in respect of such leases and/or to such banks in respect of such outstanding guarantees, indemnities or letters of credit in favour of such lessors (and accordingly unless and until such amount is drawn for that purpose or cancelled it shall remain undrawn but available for drawing upon and subject to the terms of this Agreement); (h) prior to the Asset Split occurring Bidco shall not make any Tranche 1B Utilisation unless the entire proceeds are applied for the purpose specified in Clause 3.1(a)(ii)(B); and (i) prior to the Asset Split occurring, Bidco shall not itself make Tranche 2 Utilisations outstanding at any time of an aggregate Original Sterling Amount in excess of (Pounds)50,000,000. 31 2.3 NATURE OF THE BANKS' RIGHTS AND OBLIGATIONS HEREUNDER (a) BANKS' COMMITMENTS: No Bank is obliged to participate in the making of any Utilisation (i) in the case of a Tranche 1 Advance, in an amount exceeding its undrawn Tranche 1 Commitment, and (ii) in the case of a Tranche 2 Utilisation, if to do so would cause the aggregate of the Original Sterling Amounts of its participations in the Tranche 2 Utilisations outstanding under this Agreement to exceed its Tranche 2 Commitment (provided that for the purpose of this Clause 2.3(a) its participation in an outstanding Documentary Credit issued by the LC Bank shall be its maximum potential liability under Clause 5.6 in respect of such Documentary Credit). (b) OBLIGATIONS SEVERAL: The obligations of each Finance Party under the Finance Documents are several. The failure of a Finance Party to carry out its obligations under this Agreement shall not relieve any other party of its obligations under any Finance Document. No Finance Party shall be responsible for the obligations of any other Finance Party under the Finance Documents. (c) AGENTS NOT RESPONSIBLE: The Facility Agent and the Security Agent, in their capacities as such, shall not be responsible for the non-performance by any Bank of its obligations under this Agreement. (d) RIGHTS SEVERAL: The obligations of each Obligor to the Finance Parties under the Finance Documents are owed to each of them as separate and independent obligations. Each Finance Party may, except as otherwise stated herein, separately enforce its rights hereunder without joining in any other Finance Party. 2.4 NATURE OF BORROWERS' RIGHTS AND OBLIGATIONS HEREUNDER (a) RIGHTS AND OBLIGATIONS: The obligations of the Borrowers under this Agreement in their capacities as such shall be separate and independent and not joint and several, and the Company and not the other Borrowers (save in their capacities as Guarantors) shall be liable for:- (i) payment of all amounts becoming due under Clause 15 to the extent that such amounts are not referable to Utilisations made by or to monies received or receivable from a particular Borrower or are not otherwise in the reasonable opinion of the Facility Agent referable to a particular Borrower; and (ii) payment of all amounts due under Clause 25, to the extent that in the reasonable opinion of the Facility Agent such amounts are not referable to a particular Borrower. (b) FACILITY AGENT'S DETERMINATION: The written determination of the Facility Agent acting reasonably with regard to any matter which, according to Clause 2.4(a), is to be determined according to its reasonable opinion shall be conclusive save in the case of manifest error. No person shall have any recourse to the Facility Agent in relation to any such determination if it proves to be the case that its opinion was incorrect unless the Facility Agent was grossly negligent or fraudulent in making any such determination. (c) COMPANY AS OBLIGORS' AGENT: Any and each Obligor (other than the Company) by and upon its execution of this Agreement or a Borrower Accession 32 Agreement or a Guarantor Accession Agreement, irrevocably appoints the Company to act on its behalf as its agent in relation to the Finance Documents and irrevocably authorises the Company on its behalf to give all notices and instructions (including Requests) to execute on its behalf any Borrower Accession Agreement or Guarantor Accession Agreement and to make such agreements capable of being given or made by such Obligor notwithstanding that they may affect such Obligor, without further reference to or the consent of such Obligor and such Obligor shall be bound thereby as though such Obligor itself had given such notices and instructions (including, without limitation, any Requests) or executed or made such agreements. (d) COMPANY'S ACTS BINDING: Every act, omission, agreement, undertaking, settlement, waiver, notice or other communication given or made by the Company under this Agreement, or in connection with this Agreement (whether or not known to any other Obligor and whether occurring before or after such other Obligor became an Obligor under this Agreement) shall be binding for all purposes on all the Obligors as if the Obligors had expressly concurred with the same. In the event of any conflict between any notices or other communications of the Company and any other Obligor, those of the Company shall prevail. 2.5 CHANGE OF CURRENCY (a) If more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then: (i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents, in the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Facility Agent acting reasonably; and (ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Facility Agent acting reasonably. (b) If a change in any currency of a country occurs, this Agreement will be amended to the extent the Facility Agent specifies (after consultation with the Company), to be necessary to reflect the change in currency and to put the Banks and the Obligors in the same position, so far as possible, that they would have been in if no change in currency had occurred provided that if, in the reasonable opinion of the Facility Agent it is possible only to put one or the other (but not both) of the Banks and the Obligors into such position, the Facility Agent shall be entitled to that extent to give priority to putting the Banks into that position. 2.6 MARGIN STOCK (a) Clauses 9.3, 21.3(a) and 21.3(c)(i) shall each be disapplied with respect to the Shares or the Target's American Depositary Shares (or any of them) and any proceeds arising from a disposal thereof until the delisting from The New York Stock Exchange of the Target's American Depositary Shares. (b) Upon the occurrence of the event set out in paragraphs (a) above this Clause shall be of no effect and the provisions of Clauses 9.3, 21.3(a) and 21.3(c)(i) shall apply to its fullest extent with respect to the Shares. 33 (c) Whilst Clause 2.6(a) applies to the terms of this Agreement: (i) Bidco shall not be permitted to dispose of the Shares or the Target's American Depositary Shares (or any of them) other than: (A) on arm's length terms, for fair market value; and (B) for cash consideration payable to it on the date of such disposal; and (ii) the proceeds arising from any disposal of the Shares or the Target's American Depositary Shares (or any of them) shall be held by Bidco in Cash or Cash Equivalent Investments. 3. PURPOSE AND RESPONSIBILITY 3.1 PURPOSE (a) The proceeds of each Utilisation shall be applied only in or towards financing the following: (i) in the case of Tranche 1A Advances to finance: (A) the acquisition by Bidco of Shares (I) pursuant to the Offer and (II) by way of open market purchases after the Unconditional Date and whilst the Offer is continuing; (B) payments by Bidco, the Target or any of its Subsidiaries to the Optionholders under proposals with respect to the Option Schemes put to them in connection with the Offer; (C) the consideration payable pursuant to the operation by Bidco with respect to the Shares of the procedures contained in Sections 428-430 of the Companies Act, 1985; and (D) to the extent (if at all) permitted pursuant to Clause 3.2, any of the purposes to which the proceeds of Tranche 1B Advances may be applied in accordance with Clause 3.1(a)(ii). (ii) in the case of Tranche 1B Advances, to finance (A) the refinancing of the Refinancing Debt by the Target and its Subsidiaries in accordance with Clause 21.9 and (B) the payment of Offer Costs; (iii) in the case of Tranche 2 Utilisations, (A) the general working capital requirements of the Borrowers and their Subsidiaries (subject always to the other terms of this Agreement), and (B) other general corporate purposes of the Borrowers and their Subsidiaries permitted under the terms of this Agreement and (C) the refinancing of the Refinancing Debt by Bidco, the Target and its Subsidiaries in accordance with Clause 21.9. 34 (b) Each Borrower undertakes that the proceeds of each Utilisation by it shall be used only for the purposes permitted for such Utilisations by Clause 3.1, and that no Utilisation in any event shall be used in any way which would be illegal under, or would cause the invalidity or unenforceability (in each case in whole or in part) of any Finance Document under, any applicable law (including, without limitation, section 151 of the Companies Act 1985). 3.2 ADDITIONAL PURPOSE - TRANCHE 1A ADVANCES If at any time after the Unconditional Date the Company gives written notice to the Facility Agent requesting that this Clause 3.2 should come into operation and demonstrating to the reasonable satisfaction of the Majority Banks that, after 100% of the Shares have been acquired by Bidco and the consideration therefor has been paid in full and all payments to be made to the Optionholders have been made in full, an amount (the "SURPLUS") of the Tranche 1A Commitments will remain undrawn, then from and after the date of such notice the proceeds of Tranche 1A Advances in an aggregate amount not at any time exceeding the Surplus may be applied as provided for in Clause 3.1(a)(i)(D). 3.3 RESPONSIBILITY Without prejudice to the foregoing and the remaining provisions of this Agreement, none of the Finance Parties shall be bound to enquire as to the use or application of the proceeds of any Utilisation, nor shall any of them be responsible for or for the consequences of such use or application. 4. CONDITIONS PRECEDENT 4.1 CONDITIONS PRECEDENT TO FIRST UTILISATION The obligations of each Finance Party to the Company and each Borrower under this Agreement with respect to the making of any Utilisations hereunder are subject to the conditions precedent that on or before the date of the first Utilisation hereunder: (a) DOCUMENTS: the Facility Agent shall have received all of the documents listed in Schedule G Part I in the agreed form and each of the documents referred to in Schedule G Part I as being certified shall be certified by or on behalf of the relevant Obligor as being a true and complete copy, and in full force and effect as at the date such document is required to be delivered; (b) EQUITY: (i) all those matters (including, without limitation, capitalisations, reorganisations, transfers and debt repayments and receipts) described in the Structure Memorandum and required to have been completed on or before the Unconditional Date have been completed substantially in accordance with the Structure Memorandum; (ii) the Open Market Shares have been transferred to and are unconditionally owned by Bidco; (iii) an aggregate amount of at least (Pounds)980,000,000 (or the Fixed Dollar Equivalent of such amount to the extent not deposited in Sterling) has been deposited into 35 the Offer Account and (save to the extent already so applied) is standing to the credit of the Offer Account and available for application in financing the acquisition of Shares pursuant to the Offer and by way of open market purchase after the Unconditional Date, and whilst the Offer is continuing; and (iv) Coalco has entered into the Coalco Facility Agreement and the obligations of all the parties to the Coalco Facility Agreement are unconditional as regards the loans to be made to Coalco to be applied by Coalco in funding its loans to Bidco contemplated by the Structure Memorandum save to the extent that any of those obligations are conditional upon the making of a Utilisation or Utilisations under this Agreement, and Coalco has entered into an intercompany loan arrangement with Bidco to the effect that proceeds of certain drawings made pursuant to the Coalco Facility Agreement will be lent to Bidco (such loan being referred to herein as the "COALCO/BIDCO LOAN"), and has instructed the Coalco Lenders to remit directly (or through their agent) the proceeds of any such drawing under the Coalco Facility Agreement to the Offer Account. As to satisfaction of the conditions in paragraphs (i), (ii) and (iv) above, the certificate of an Authorised Signatory of the Company shall be prima facie evidence; (c) OFFER: the Offer shall have become or been declared unconditional in all respects without Bidco having declared the Offer or permitted the Offer to become so unconditional in circumstances where any provision of Clause 22 is breached thereby; (d) HEDGING: the Company and the Facility Agent shall have agreed in writing the extent and type of the interest rate hedging arrangements the terms of which are to be documented by the Hedging Documents. 4.2 FURTHER CONDITIONS PRECEDENT The obligations of each Finance Party with respect to the making of any Utilisation the proceeds of which are to be applied for any of the purposes set out in: (A) Clause 3.1(a)(i) (other than 3.1(a)(i)(A)(II)); and (B) 3.1(a)(ii)(A) and 3.1(a)(iii)(C), are subject to the further conditions precedent that both at the date of the Request for and at the Utilisation Date for such Utilisation: (a) (i) no breach of Clause 22 (other than Clause 22(a)(i)(C), (ii) or (iii)) shall have occurred and be continuing which has not been waived by a Waiver Letter; and (ii) all of the representations and warranties in Clause 20.1(a), (b), (c), (d)(i) and (ii), (n) and (p) of this Agreement are correct in all material respects (as if then made) ignoring any references to Subsidiaries (other than Bidco), the Target, its Subsidiaries and their respective businesses and assets; and 36 (iii) no Event of Default falling within any of paragraphs (f) to (l) inclusive of Clause 24.1 has occurred with respect to the Company, Finance or Bidco; and (b) the Facility Agent (acting reasonably) is satisfied that with respect to the making of a Tranche 1A Advance an advance in an amount at least equal to the Matching Amount with respect thereto has been or will be advanced by Coalco to Bidco on the terms of the Coalco/Bidco Loan Agreement on or prior to the making of such Tranche 1A Advance. 4.3 FURTHER CONDITIONS PRECEDENT The obligations of the Finance Parties in respect of each Utilisation (other than one to which the conditions in Clause 4.2 apply) are subject to the further conditions precedent that both at the date of the Request for and at the Utilisation Date for such Utilisation: (a) in respect of each Utilisation by the drawing of one or more Tranche 2 Advances by a Borrower to the extent that the Original Sterling Amount thereof does not exceed the Original Sterling Amount of one or more Tranche 2 Advances made in the same currency to such Borrower which is or are repaid on such Utilisation Date by such Borrower (a "ROLLOVER ADVANCE"), no Event of Default shall have occurred and be continuing which has been declared pursuant to Clause 24.2 and not been waived; and (b) (other than in respect of a Rollover Advance) (i) no Default shall have occurred and be continuing or would result from the making of such Utilisation which has not been waived pursuant to a Waiver Letter, and (ii) the representations and warranties in Clause 20.1 of this Agreement to be repeated on those dates are correct in all material respects and will be correct in all material respects immediately after the making of such Utilisation. 5. ADVANCES AND DOCUMENTARY CREDITS 5.1 DELIVERY OF REQUEST (a) Subject to the terms of this Agreement, Bidco or (upon its accession as a Borrower pursuant to a Borrower Accession Agreement) any Borrower may request a Utilisation by delivering to the Facility Agent by facsimile transmission (provided that the original is sent to the Facility Agent) or letter, (in the case of a Documentary Credit or an Advance to be denominated in Sterling) prior to 10.00 a.m. on the Business Day before the proposed Utilisation Date or (in the case of a Documentary Credit or an Advance to be denominated in an Optional Currency) prior to 10.00 a.m. on the third Business Day before the proposed Utilisation Date (or in any such case at such later time and/or date as may be agreed by the Facility Agent in writing), a duly completed Request. (b) No Request for the issuance of a Documentary Credit may be delivered to the Facility Agent until the form of that Documentary Credit has been agreed by the Facility Agent, the Company, the beneficiary and either the LC Bank or (in the case of a Documentary Credit to be issued severally by the Banks) the Banks. No request for the issuance of a Documentary Credit without a fixed tenor and fixed amount may be made. Documentary Credits shall only be issued subject to and in accordance with all applicable laws and regulations and the Uniform Customs and Practice as referred to in Clause 5.5(b), as in force from time to time 37 5.2 FORM OF REQUEST Each Request shall specify: (a) the Borrower in relation thereto (being, in the case of a Tranche 1A Advance to be applied in financing the acquisition of Shares, Bidco and, in the case of any other Tranche 1 Advance, Bidco, the Target or any of the Targets' Subsidiaries (upon (in the case of the Target or any of its Subsidiaries) it becoming a Borrower pursuant to a Borrower Accession Agreement) or, in the case of any Tranche 2 Utilisation, any Borrower); (b) whether the Utilisation is a Tranche 1A Advance, a Tranche 1B Advance, a Tranche 2 Advance or a Tranche 2 Utilisation by way of Documentary Credit (and, if in the case of a Utilisation by way of Documentary Credit, the type of Documentary Credit to be issued); (c) the proposed Utilisation Date, which shall be a Business Day falling during the applicable Availability Period and complying with any other applicable provisions of this Agreement; (d) in the case of a Tranche 2 Utilisation, the currency of the Advance or Documentary Credit requested (being, in each case, Sterling or an Optional Currency); (e) the principal amount of the Utilisation (the "REQUESTED AMOUNT") being, in the case of a Tranche 1 Advance or a Tranche 2 Advance to be denominated in Sterling an amount of not less than (Pounds)10,000,000 in the case of a Tranche 1 Advance or (Pounds)20,000,000 in the case of a Tranche 2 Advance to be denominated in Sterling and in the case of a Tranche 2 Utilisation to be denominated in an Optional Currency, an amount equal to not less than the Sterling Equivalent of (Pounds)20,000,000, and in the case of a Tranche 2 Utilisation by way of Letter of Credit, a Sterling Equivalent of at least (Pounds)2,000,000, provided always that no Requested Amount for a Tranche 2 Utilisation may exceed the then Available Facility Amount; (f) the duration of its (or, in the case of a Tranche 1 Advance, its first) Interest Period, in the manner required by and subject to the terms of Clause 10; (g) in the case of a Documentary Credit, the name and address of the beneficiary, the beneficiary's receiving bank account and reasonable details of the liabilities payment of which is to be assured by the Documentary Credit, as well as the expiry date of the Documentary Credit (which shall be less than one year from the Utilisation Date therefor unless the Facility Agent shall otherwise agree); and (h) in the case of an Advance, unless previously notified to the Facility Agent in writing and not revoked, the details of the bank and account to which the proceeds of the proposed Advance are to be made available. Subject to the terms of this Agreement, each Request shall be irrevocable and the Borrower named in the same shall be bound to borrow an Advance in accordance with such Request. The Facility Agent shall promptly notify each Bank of each Request. 38 5.3 PARTICIPATIONS IN ADVANCES Subject to the terms of this Agreement each Bank shall, on the date specified in any Request for an Advance, make available to the Facility Agent for the account of the relevant Borrower the amount of its participation in that Advance in the proportion (applied to the Requested Amount) which its Commitment bearing the same Tranche designation as such Advance bears to the aggregate amount of the Commitments having such designation. All such amounts shall be made available to the Facility Agent in accordance with Clause 12.1 for disbursement to or to the order of the relevant Borrower in accordance with the provisions of this Agreement. 5.4 ISSUE OF DOCUMENTARY CREDITS (a) Subject to the terms of this Agreement, on the proposed Utilisation Date, either the LC Bank or the Facility Agent (on behalf of all the Banks severally in proportion to their Tranche 2 Commitments) will issue, in the form approved (in accordance with Clause 5.1(b)), a Documentary Credit as specified in the relevant Request by delivering the same to or to the order of the beneficiary. (b) The LC Bank shall not be obliged to issue a Documentary Credit if it has not approved the identity of any assignee or transferee of or substitute for any Bank with respect to its Tranche 2 Commitment or any part thereof, in which case such Documentary Credit will be issued by the Facility Agent on behalf of the Banks severally in proportion to their Tranche 2 Commitments. 5.5 COUNTER-INDEMNITY FROM ACCOUNT PARTY (a) Without prejudice to Clause 5.6, the Borrower for whose account any Documentary Credit is opened or issued (the "ACCOUNT PARTY") will indemnify and hold harmless and keep each Finance Party indemnified and held harmless from and against all liabilities, losses, damages, claims and costs which such Finance Party may suffer or incur in connection with such Documentary Credit and any payment made pursuant to it, except to the extent that any such liability, loss, damage, claim or cost results from such Finance Party's negligence or wilful misconduct. (b) Each Account Party irrevocably directs each Finance Party to pay without further confirmation or investigation from or by it any demand appearing or purporting to be validly made pursuant to any Documentary Credit. Where any Documentary Credit calls for certificates or other documents each Finance Party may assume, without investigation, that the certificates or documents tendered are duly signed by the person by whom they appear to be signed and are genuine and correct. Without prejudice to the rights under the Uniform Customs and Practice for Documentary Credits (1993 Revision) (ICC Publication No. 500) (which shall apply in relation to all Documentary Credits issued under this Agreement), the relevant Account Party agrees to reimburse each Finance Party forthwith on written demand for any amounts paid by such Finance Party pursuant to any such demand in the currency paid by such Finance Party, together with interest on such amounts at a rate determined in accordance with Clause 11.3 from the date such amounts are paid by such Finance Party until reimbursement as aforesaid. (c) The obligations of each Account Party under this Clause 5.5 shall not be impaired by (a) any waiver or time granted to or by any Finance Party, (b) any release or dealings with any rights or security by any Finance Party (including, without limitation, under the Finance Documents), 39 (c) any invalidity of any Documentary Credit, or (d) any other circumstances which might impair such obligations. (d) So long as any amount is or is capable of becoming outstanding by any Obligor to any of the Finance Parties under any of the Finance Documents or any Commitment is in force, no Account Party shall by virtue of any payment made by it pursuant to this Clause 5.5 or by virtue of any realisation of security made in respect of its obligations under this Clause 5.5, claim or exercise any right of subrogation, contribution or indemnity against any member of the Company Group in competition with any Finance Party. 5.6 BANKS' COUNTER-GUARANTEE (a) Each Bank as primary obligor guarantees to the LC Bank, on demand by the LC Bank from time to time, the due performance by each Account Party in relation to each Documentary Credit issued by the LC Bank, of its obligations under Clause 5.5, provided that the liability of each Bank in relation to any particular default in performance of such obligations by such Account Party shall not exceed such Bank's pro rata share (being the proportion which its Tranche 2 Commitment bears to the aggregate of the Tranche 2 Commitments at the date the Documentary Credit was issued) of the amount in default. (b) The LC Bank shall promptly notify the Facility Agent and the Company of any demand served on it under any Documentary Credit and each payment made pursuant thereto and of any failure by any Account Party in performing its obligations under Clause 5.5. (c) The guarantees of each of the Banks contained in this Clause 5.6 shall be as supplemented by the terms set out in Schedule H. The provisions of Clauses 12.1, 13.2 and 13.3 shall apply, mutatis mutandis, in relation to payments to be made by each Bank to the LC Bank pursuant to this Clause. (d) Each Obligor agrees that, to the extent that any Bank makes any payment to the LC Bank pursuant to this Clause 5.6, that Bank will thereupon be subrogated to any rights the LC Bank may then have against any Obligor in respect of the amount so paid by that Bank, and each Account Party will indemnify such Bank in respect of the amount so paid by that Bank. Each Account Party shall also indemnify that Bank against all costs and expenses incurred by that Bank in recovering or attempting to recover any amount pursuant to its rights of subrogation referred to above. 5.7 LC BANK'S POSITION To the extent not inconsistent with the LC Bank acting as principal and not as agent in issuing and agreeing to issue any Documentary Credit under this Agreement, the provisions of Clause 26 excluding or restricting liability and responsibility shall apply mutatis mutandis for the benefit of the LC Bank in its relations with the Banks and each Account Party. 5.8 CHANGE OF LC BANK (a) The Facility Agent, with the prior approval of the Company and the Majority Banks, may designate any Bank as a replacement LC Bank, but not with respect to Documentary Credits already issued by an existing LC Bank. 40 (b) The LC Bank may resign at any time on giving not less than 3 months' prior written notice to the Facility Agent and the Company to expire on or after the first anniversary of the Unconditional Date if (i) the Company and the Majority Banks consent, or (ii) there is in the reasonable opinion of the LC Bank an actual or potential conflict of interest in it continuing to act as LC Bank, or (iii) it ceases to have a Commitment in effect. (c) If the LC Bank does so resign and no replacement is so appointed, any Documentary Credit to be issued in accordance with the terms of this Agreement will be issued by the Facility Agent on behalf of the Banks severally in proportion to their respective Tranche 2 Commitments as in effect at the date of issue. 6. OPTIONAL CURRENCIES 6.1 SELECTION OF OPTIONAL CURRENCY The relevant Borrower shall, in relation to any Tranche 2 Advance or Documentary Credit in the Request therefor, specify an Optional Currency in which it wishes that Advance or Documentary Credit to be denominated and the Facility Agent shall promptly notify the Banks of that notice. 6.2 NOTIFICATION OF AGENT'S SPOT RATE OF EXCHANGE If a Tranche 2 Advance or Documentary Credit is to be denominated or issued in an Optional Currency, the Facility Agent shall promptly notify the relevant Borrower and the Banks of the applicable Agent's Spot Rate of Exchange, the Optional Currency amount and the Sterling Equivalent of such Tranche 2 Advance as soon as practicable after they are ascertained. 6.3 DETERMINATION OF CURRENCY If a Bank (the "DETERMINING BANK") gives notice to the Agent (which shall promptly notify the relevant Borrower) before 10.00 a.m. at least two Business Days prior to the Utilisation Date relative to any Tranche 2 Advance to be denominated in an Optional Currency certifying in that notice that by reason of circumstances affecting the London interbank eurocurrency market deposits in the currency specified in the relevant Request of an amount of not less than its participation in such Advance will not be readily available to it in the London interbank eurocurrency market for the (or the first) Interest Period relative to such Advance, such certification being conclusive against the relevant Borrower, then the relevant Borrower may by notice to the Facility Agent before 11.00 a.m. on the second Business Day prior to the proposed Utilisation Date specify that the Determining Bank's portion of such Tranche 2 Advance shall be denominated in Sterling (if not initially requested) or another Optional Currency, and in the absence of such notice from the relevant Borrower by such time the Determining Bank's portion of such Advance shall be denominated in Sterling. Such changes shall be deemed to be made to the definition of LIBOR as the Facility Agent may reasonably determine to be necessary for the purpose of determining LIBOR to apply to the Determining Bank's portion of such Advance and notify to the relevant Borrower and the Banks. 6.4 REVOCATION OF CURRENCY If prior to 10.30 a.m. on the second Business Day prior to the proposed Utilisation Date there shall occur any changes in national or international, financial, political or economic conditions, currency availability, currency exchange rates or exchange controls which, in the reasonable 41 opinion (which shall be conclusive) of the Facility Agent after consultation with the Reference Banks, render it impracticable for any Advance to be denominated in the Optional Currency concerned, the Facility Agent shall give notice to the relevant Borrower to that effect before 11.00 a.m. two Business Days prior to the Utilisation Date for the making of that Advance. In that event the relevant Advance shall be denominated in Sterling unless the relevant Borrower, the Facility Agent and the Banks agree that it shall be denominated in another Optional Currency (in which case, for the purpose only of determining LIBOR to apply to that Advance, such changes shall be deemed to be made to the definition of LIBOR as the Facility Agent may reasonably determine and notify to the relevant Borrower and the Banks). 6.5 AMOUNT Subject as otherwise provided in this Agreement if a Tranche 2 Advance is to be made in an Optional Currency, each Bank will make available to the Facility Agent an amount in that Optional Currency equal to its participation in such Requested Amount in the proportion which its Commitment bears to the Total Commitments. 7. CANCELLATION OF COMMITMENTS 7.1 TRANCHE 1 COMMITMENTS Any part of the Tranche 1 Commitments not borrowed hereunder shall be cancelled automatically at the close of business in London on the expiry of the Tranche 1 Availability Period. 7.2 TRANCHE 2 COMMITMENTS The Tranche 2 Commitments shall be cancelled at close of business in London on the last day of the Tranche 2 Availability Period. 7.3 VOLUNTARY CANCELLATION The Company may, on giving not less than three Business Days' prior written notice to the Facility Agent (which shall promptly give notice of the same to the Banks) at any time cancel or reduce the Tranche 1 Commitments or the Tranche 2 Commitments in whole or in part (but, if in part, by a minimum of (Pounds)20,000,000 and in whole multiples of (Pounds)2,500,000 in each case) without incurring any penalty or other cost, provided that such cancellation or reduction may only be effected to the extent of the amount of the Tranche 1 Commitments or Tranche 2 Commitments (as the case may be) undrawn on the date therefor taking into account any repayment or prepayment of any Utilisation due to be made on that date. Any such notice by the Company shall be irrevocable and shall specify the date upon which the reduction is to become effective and the amount of the reduction. 7.4 REDUCTION CONSEQUENT ON REPAYMENT OR PREPAYMENT (a) Subject to Clause 7.4(b), the Tranche 1 Commitments shall be reduced and cancelled (such reduction being applied pro rata as between the Tranche 1 Commitments of all of the Banks), by the amount of any repayment or prepayment of any Tranche 1 Advance made pursuant to any provision of this Agreement. 42 (b) Each Bank's Tranche 1 Commitment shall be reduced and cancelled by the amount of any prepayment of that Bank's participation in any Tranche 1 Advance made pursuant to any of Clauses 13.6, 14.5, 15.2 or 16. 7.5 LIMITATIONS Save as expressly provided in this Agreement any amount of the Commitments cancelled or otherwise extinguished under this Agreement may not be reinstated. Save as expressly provided in this Agreement none of the Commitments may be reduced or cancelled under this Agreement. 8. REPAYMENT 8.1 REPAYMENT OF THE TRANCHE 1 ADVANCES Each Borrower, subject to the application of Clause 9, shall repay the Tranche 1 Advances made to it in full on the Final Repayment Date. 8.2 REPAYMENT OF THE TRANCHE 2 UTILISATIONS Each Borrower shall repay the full amount of each Tranche 2 Advance made to it on the last day of the Interest Period relating to that Tranche 2 Advance, provided always that each Tranche 2 Utilisation then outstanding shall be repaid in full on the Final Repayment Date. 9. PREPAYMENT 9.1 PROHIBITION No Borrower may prepay all or any part of any Utilisation except as expressly provided in this Agreement. 9.2 VOLUNTARY PREPAYMENT (a) Subject to Clause 9.2(b), the Company, on giving not less than five Business Days' prior written notice to the Facility Agent (which shall promptly give notice of the same to the Banks) specifying, inter alia, the amount and date for prepayment and identifying the Utilisation concerned, may procure that any Utilisation is prepaid at any time in whole or in part by the Borrower by which it was made, provided that any prepayment shall be (if in part) in the case of a Tranche 1 Advance or a Tranche 2 Utilisation of an amount which is at least (Pounds)20,000,000 (or its equivalent in other currencies, in the case of a Tranche 2 Utilisation) (and, if more, a whole multiple of (Pounds)2,500,000). (b) Any such prepayment and any prepayment pursuant to Clause 9.3 shall be applied pro rata against the participations of the Banks in the Utilisation prepaid. 9.3 MANDATORY PREPAYMENT FROM NET PROCEEDS Subject to Clause 9.4 below, if: (a) any of the assets, business or undertaking of any member of the Company Group are disposed of; or 43 (b) any funds are received by the Company which represent the proceeds of an equity subscription in it (other than any equity subscription made by Energyco to the extent permitted by Clause 21.6(f)); or (c) any insurance proceeds are recovered by a member of the Group which represent Net Proceeds, the Company, unless the Majority Banks shall otherwise consent in writing, shall apply, or shall procure that (subject to the proviso set out below) there shall be applied, promptly an amount equal to the Net Proceeds arising from the disposal or recovery or subscription in or towards prepayment of the Utilisations in accordance with this Clause 9, provided that the foregoing shall not apply: (i) to Net Proceeds arising from a disposal of trading stock in the ordinary course of trading; or (ii) to Net Proceeds arising from a disposal of assets not constituting trading stock which are to be replaced by other assets being acquired for use for like purposes and are so replaced within three months of the date of such disposal (save to the extent the Net Proceeds exceed the acquisition cost of those other assets); or (iii) to Net Proceeds arising from any disposal permitted by Clause 21.3(c)(ii)(A), (D), (E), (G), (I) or (J); or (iv) to Net Proceeds arising from any insurance recovery where Net Proceeds arising out of the same or related claims do not exceed (Pounds)25,000,000 in the aggregate and/or (with respect only to any excess the Company confirms that such excess Net Proceeds are to be applied in the reinstatement of the asset in respect of which such recovery was made or purchasing a like replacement asset; or (v) (other than in respect of the disposal or sale of assets permitted pursuant to Clause 21.3(c)(ii)(F)) to Net Proceeds arising from disposals (other than those falling within paragraphs (i) to (iv) above) made during any annual Accounting Period the aggregate consideration for which (taken together) does not exceed an amount equal to ten per cent. (10%) of the consolidated gross assets of the Bidco Group shown in the audited Accounts of the Bidco Group most recently delivered to the Facility Agent pursuant to Clause 21.2(a)(i)(I) (or, at any time prior to the delivery of such Accounts, the Base Financial Statements) provided and to the extent that such consideration is applied within one year of receipt in acquiring other assets to be used in the course of the Bidco Group's business without any breach of Clause 21.10(a); or (vi) 50% of the Net Proceeds arising from any other disposals (other than in respect of the disposal or sale of assets permitted pursuant to Clause 21.3(c)(ii)(F)) which do not fall to be dealt with under paragraphs (i) to (v) above provided and to the extent that such 50% portion of the Net Proceeds is applied within one year of receipt in acquiring other assets to be used in the course of the Bidco Group's business carried on without breaching Clause 21.10(a); or 44 (vii) to Net Proceeds arising as a result of any disposal referred to in the Structure Memorandum and carried out as contemplated therein. 9.4 AVAILABILITY OF NET PROCEEDS Where: (i) the terms of a Licence restrict the ability of a member of the Bidco Group to make Net Proceeds available; (ii) a member of the Bidco Group is prohibited by section 151 et seq. Companies Act 1985 from applying Net Proceeds; or (ii) Net Proceeds cannot be remitted to any of Australia, USA or United Kingdom, in each case for the purpose of funding any prepayment required pursuant to Clause 9.3 consequent on the receipt of those Net Proceeds, then such prepayment shall only be required to be made when and to the extent that those Net Proceeds can be made available for such purpose without breaking the terms of such Licence or such law. The Company will and will procure that the relevant member of the Bidco Group will use all reasonable endeavours to obtain as soon as reasonably practicable any consent or complete any procedure which may be required under the terms of such Licence or such law (as the case may be) in order for such Net Proceeds to be so made available. 9.5 GENERAL PROVISIONS RELATING TO PREPAYMENT (a) Any notice of prepayment given under this Agreement shall be irrevocable, and the Company or the Borrower named in such notice shall be bound to prepay (or, in the case of the Company, to procure prepayment) in accordance with such notice. (b) Amounts repaid and prepaid in respect of any Tranche 1 Advance under any provision of this Agreement may not be reborrowed hereunder. (c) Amounts repaid or prepaid pursuant to Clause 8.2 or 9.2 in respect of Tranche 2 Utilisations may, prior to the Final Repayment Date but subject to the terms of this Agreement, be redrawn as Tranche 2 Utilisations. Any amounts repaid or prepaid in respect of Tranche 2 Utilisations under any other provision of this Agreement may not be redrawn. (d) Any prepayment of any Advance under any provision of this Agreement shall be made together with interest accrued on the amount prepaid, but (subject to Clause 25.2(c)), without premium or penalty. 9.6 ORDER OF APPLICATION The amount required to be applied in prepayment pursuant to Clauses 9.3 and 9.4 shall be applied as follows: (a) first, in prepayment of the Tranche 1 Utilisations until repaid or prepaid in full; (b) second, against the Tranche 2 Advances (pro rata) in prepayment thereof (and cancellation of the corresponding amount of the Tranche 2 Commitments); and 45 (c) third, against the Tranche 2 Utilisations not otherwise prepaid in accordance with (b) above, in prepayment thereof (and cancellation of the corresponding amount of the Tranche 2 Commitments). 9.7 DATE OF PREPAYMENT (a) If any Obligor becomes obliged to prepay or procure the prepayment of any amount under Clauses 9.3 or 9.4 the prepayment shall be made on the next Interest Date relating to the Advance to be repaid (or forthwith in the case of an outstanding Documentary Credit) and pending such application shall be deposited in an interest bearing blocked account (the "BLOCKED ACCOUNT") in the name of the relevant Borrower held with the Facility Agent, unless the Company by not less than 5 Business Days' written notice to the Facility Agent has specified that an immediate prepayment is to be made in which case the prepayment shall be made on or within 5 Business Days after the date of such recovery, disposal, claim, sale or subscription, as the case may be. (b) So long as any Utilisation remains outstanding or any of the Commitments are available for utilisation (whether or not subject to conditions precedent), no amount shall be withdrawn from any Blocked Account except for immediate application in making any required prepayment or accelerated repayment or as provided in (c) below. (c) The Facility Agent or the relevant Obligor shall be entitled (but not obliged) to apply the whole or any part of the sums standing to the credit of any Blocked Account in the name of any Obligor in or towards payment of any unpaid sums at any time due from the Obligor under this Agreement. 10. INTEREST PERIODS 10.1 SELECTION AND AGREEMENT The relevant Borrower shall give notice to the Facility Agent not later than (in the case of any Advance denominated in Sterling) 10.00 a.m. on the Business Day prior to, or (in the case of any Advance denominated in an Optional Currency) three Business Days prior to the commencement of each (or the) Interest Period relative to any Advance made hereunder (or in the Request therefor in the case of the first Interest Period relative to any Tranche 1 Advance or the Interest Period in the case of any Tranche 2 Advance) specifying the duration of such Interest Period, which in the case of any Tranche 1 Advance or Tranche 2 Advance shall be of one, two, three or six months, or in each case such other duration as may be agreed (or deemed agreed in accordance with Clause 10.4(c)) by the Facility Agent after consultation with the Reference Banks or as may be required in order to comply with Clause 10.3 (provided that if such duration is over six months then the Facility Agent may only agree with the unanimous consent of the Banks participating in such Advance and provided further that with respect to any Interest Period commencing prior to the earlier of (i) the date on which the Facility Agent notifies the Company that the general syndication of the Facilities has been completed (which the Facility Agent shall do promptly upon it being so completed) and (ii) six months of the --- Unconditional Date, such Interest Periods shall, subject to Clause 10.4(c) be of one month's duration unless the Facility Agent otherwise agrees). If the relevant Borrower fails to specify the duration of an Interest Period for any Advance the duration of that Interest Period shall be 46 three months subject as otherwise required in order to comply with any other provision of this Agreement. 10.2 SPLITTING Subject to Clause 10.4(d), the relevant Borrower may, in any notice given pursuant to Clause 10.1 (or in any Request therefor) split any Tranche 1 Advance into any number of separate Tranche 1 Advances (each having an Interest Period of a different duration, separately designated in such notice or Request), provided that each such separate Advance must be of a minimum amount of (Pounds)20,000,000. Each Advance resulting from any such splitting shall continue as a separate Advance unless and until consolidated with another Advance having the same Tranche designation. 10.3 RESTRICTIONS ON SELECTION (a) Each Borrower shall use its reasonable endeavours to ensure the selection by it of the duration of Interest Periods pursuant to Clause 10.1 so that the Final Repayment Date will also be an Interest Date relative to all outstanding Advances. (b) If it appears to the Facility Agent in good faith that the requirements of paragraph (a) above will not be met by a Borrower's selection of any Interest Period, the Facility Agent, on behalf of and after consultation with that Borrower, may (but shall not be obliged to) select a different duration for such Interest Period (which shall prevail over that selected by that Borrower) in order to facilitate the meeting of such requirements. 10.4 DURATION AND CONSOLIDATION (a) The first (or the) Interest Period relative to each Advance shall commence on its Utilisation Date and end on the last day of the period selected or provided for in accordance with this Clause. Any subsequent Interest Periods in relation to a Tranche 1 Advance shall commence on the expiry of the immediately preceding Interest Period relating thereto and end on the last day of the period so selected or provided therefor. If any Interest Period for any Advance would otherwise end on a day which is not a Business Day, such Interest Period shall end instead on the next Business Day. (b) If any Interest Period relating to any Tranche 1 Advance expires on an Interest Date relative to (respectively) another Tranche 1 Advance then, with effect from such Interest Date, such Tranche 1 Advances, subject to Clauses 10.1, 10.2 and 10.3, shall be aggregated and consolidated to form (respectively) a single Tranche 1 Advance. (c) Any Borrower in its Request for a Tranche 1 Advance shall be entitled to specify that the first Interest Period in respect of such Tranche 1 Advance shall be of a period (the "SHORT PERIOD") other than one, two, three or six months (but in any event a period greater than 14 days but not exceeding six months) and where the last day of the period selected is an Interest Date relative to another Tranche 1 Advance then the Facility Agent and the Reference Banks shall be deemed to have agreed that the first Interest Period in respect of such Advance shall be the Short Period. (d) Bidco shall use its reasonable endeavours to procure (i) that the Tranche 1 Advances shall be aggregated and consolidated to form not more than 20 Tranche 1A Advances and five Tranche 47 1B Advances outstanding at any one time; and (ii) that until the earlier of the date 6 months after the date of the first Utilisation and the conclusion of general syndication, Interest Periods for all Advances shall be selected so as to facilitate so far as possible syndication and the effecting of all transfers pursuant thereto on Interest Dates relative to the outstanding Advances. 10.5 NOTIFICATION The Facility Agent will notify the relevant Banks and the Company and (if different) the relevant Borrower of the duration of each Interest Period relating to each Advance promptly after ascertaining the same. 11. INTEREST 11.1 RATE The rate of interest applicable to each Advance for each (or the) Interest Period relative to it shall be the rate per annum determined by the Facility Agent to be the aggregate of:- (a) the Margin; (b) LIBOR relative to such Advance for such Interest Period; and (c) the Additional Cost, if any, relative to such Advance from time to time during such Interest Period. 11.2 DUE DATES Save as otherwise provided herein, interest accrued on each Advance for each Interest Period relative thereto shall be paid by the Borrower in respect of such Advance in the currency of the Advance relative thereto in arrear on the last day of such Interest Period and also, in the case of an Interest Period of a duration exceeding six months, on the last day of each consecutive period of six months from the first day of such Interest Period. 11.3 DEFAULT INTEREST If any Obligor fails to pay any amount payable by it under this Agreement on the due date therefor, such Obligor, on demand by the Facility Agent from time to time, shall pay interest on such overdue amount (including overdue default interest) in the currency in which such overdue amount is for the time being denominated from the due date up to the date of actual payment, both before and after judgement, at a rate determined by the Facility Agent to be one per cent. (1%) per annum above that which would be payable if such overdue amount constituted, during the period of non- payment thereof, an Advance made to such Obligor in the same currency as the overdue amount for successive Interest Periods of such duration of up to three months as the Facility Agent, after consultation with the Company to the extent practicable in the circumstances, may designate from time to time. Such rate shall be determined or redetermined on the first Business Day of each such Interest Period. In calculating the amount of default interest due from the Guarantor in respect of any overdue amount due from any Borrower, the amount of default interest accrued due from such Borrower and the amount of overdue default interest accrued due from the Guarantor shall not be double counted. 48 11.4 BANK BASIS Interest shall accrue from day to day, and be computed on the basis of a year of 365 days (or, where customary in the relevant financial market, 360 days in respect of interest on Advances made in an Optional Currency) for the actual number of days elapsed. 11.5 DETERMINATION CONCLUSIVE; NOTIFICATION Each determination of a rate of interest by the Facility Agent under this Agreement shall, in the absence of manifest error, be conclusive and shall be promptly notified to the Company, the relevant Borrower and the Banks. 12. PAYMENTS 12.1 FUNDS, PLACE AND CURRENCY Payments under this Agreement to the Facility Agent shall be made in freely transferable funds for same day value on the due date at such times and in such manner as the Facility Agent may specify to the party concerned as being customary at the time for the settlement of transactions in the currency in which the amount concerned is denominated to such account of the Facility Agent at such bank or office as the Facility Agent shall designate by at least three Business Days' notice to the party liable. 12.2 APPLICATION Each payment received by the Facility Agent for the account of another person pursuant to Clause 12.1 shall:- (a) in the case of a payment received for the account of any Borrower, be made available by the Facility Agent to that Borrower by application, on the date and in the funds of receipt:- (i) first, in or towards payment of any amounts then due and payable (and unpaid) by that Borrower under this Agreement; and (ii) second, in payment to such account as that Borrower shall have properly designated for the purpose in the relevant Request or otherwise in writing; and (b) in the case of any other payment, be made available by the Facility Agent to the person for whose account the payment was received (in the case of a Bank, for the account of its Facility Office) on the date and in the currency and funds of receipt to such account of the person with the office or bank in the country of the currency concerned as that person shall have previously notified to the Facility Agent for the purposes of this Agreement. The Facility Agent (or the Security Agent in the case of monies received pursuant to the Security Documents) shall promptly distribute monies received for the account of the Banks among the Banks pro rata to their respective entitlements and in the funds and currency of receipt, provided that the Facility Agent or Security Agent (as the case may be) may deduct therefrom any amount due to the Facility Agent pursuant to Clause 12.4 or 31.2. 49 12.3 CURRENCY (a) Interest accrued under this Agreement shall be payable in the currency in which the relevant amount in respect of which it has accrued was denominated during the period of accrual. (b) The principal of each Advance shall be repaid or prepaid in the currency in which it is denominated. 12.4 RECOVERY OF PAYMENTS Unless the Facility Agent shall have received notice from a Bank or Borrower not later than (in the case of any Sterling amount) 3p.m. on the Business Day prior to, or (in the case of any amount denominated in an Option Currency) 11.00 a.m. on the second Business Day prior to the date upon which such Bank or Borrower (the "PARTY LIABLE") is to pay an amount to the Facility Agent for transfer to any Borrower or any Bank respectively (the "PAYEE") that the Party Liable does not intend to make that amount available to the Facility Agent on the due date, the Facility Agent may assume that the Party Liable has paid that amount to the Facility Agent on that date in accordance with this Agreement. In reliance upon that assumption, the Facility Agent may (but shall not be obliged to) make available to the Payee(s) a corresponding sum. If that amount is not in fact so made available to the Facility Agent, the Payee(s) shall forthwith on demand repay that sum to the Facility Agent together with interest on such sum until its repayment at a rate determined by the Facility Agent to reflect its cost of funds incurred in making available the corresponding amount to that Payee(s) (any such determination to be conclusive in the absence of manifest error). The Facility Agent may make a demand on a Borrower as Payee only if and to the extent that the Facility Agent has demanded the appropriate funds from the relevant Bank and those funds have not been paid by that Bank forthwith after the demand. The provisions of this Clause are without prejudice to any rights the Facility Agent and the Payee may have against the Party Liable. 12.5 NON-BUSINESS DAYS Whenever any payment under any Finance Document shall become due on a day which is not a Business Day, the due date for that payment shall be extended to the next Business Day. During any such extension of the due date for payment of any principal, interest shall be payable on such principal at the rate payable on the original due date. 12.6 APPROPRIATIONS Other than in the case of prepayment to a specific Bank permitted by the terms of this Agreement, in the case of a partial payment by any Obligor of amounts due and payable under any Finance Document, the Facility Agent or, as the case may be, the Security Agent may appropriate such payment towards such of the amounts due and payable by such Obligor under this Agreement as the Facility Agent or, as the case may be, the Security Agent may with the approval of the Majority Banks decide (subject to the requirement that such payment shall be appropriated first towards those overdue amounts which attract the higher Margin), and each part of any payment so appropriated towards a particular amount due and payable under any Finance Document shall be treated as received by the Facility Agent or, as the case may be, the Security Agent for the account of the Banks to whom such particular amount is due, in each case pro rata to the respective amounts thereof due to each of them from such Obligor. Any such appropriation shall override any appropriation made by any Obligor. 50 12.7 CERTIFICATIONS Save as otherwise provided herein, any certification or determination of a rate or amount or other matter as referred to herein and made by the Facility Agent or a Bank, as the case may be, shall be prima facie evidence of the same. 13. TAXES 13.1 APPLICABLE TAXES As used in this Agreement, "APPLICABLE TAXES" means all Taxes imposed by or in the jurisdiction in which the relevant Obligor is resident or any other country through or out of which the relevant payment is made or by any federation or organisation of which that country may be a member or by or through any taxation authority of that country, federation or organisation on any payment by any Obligor or any Finance Party to any Finance Party, under any Finance Document, other than Taxes imposed on that payment which would not have been imposed on that payment if the Finance Party to which or for whose account that payment was made was a Recognised Bank. 13.2 NO SET-OFF OR DEDUCTIONS All payments to be made by any Obligor to any Finance Party under any of the Finance Documents shall be made:- (a) without set-off or counterclaim; and (b) free and clear of all and without deduction for or on account of any Applicable Taxes, except to the extent that such Obligor is compelled by law to make payment subject to the Applicable Taxes. 13.3 GROSS-UP If any Applicable Taxes or amounts in respect thereof must be deducted from any payment by an Obligor to any Finance Party under any Finance Document or any other deductions must be made from any amounts so paid by any Obligor (or from any corresponding payment by any Finance Party to any other Finance Party under or pursuant to the terms of any Finance Document), or any such payment shall otherwise be required to be made subject to any Applicable Tax, such Obligor shall pay such additional amounts as may be necessary to ensure that each Finance Party receives a net amount after deduction for and payment of all Applicable Taxes equal to the full amount which it would have received had payment not been made subject to the Applicable Tax. All Applicable Taxes required to be deducted from any payment by any Obligor to any Finance Party under any Finance Document shall be deducted and paid when due by such Obligor to the applicable Tax authorities. Each Finance Party shall notify each Obligor through the Facility Agent of the application of this Clause 13.3 to any payment then due or to become due to it under any Finance Document promptly upon its becoming aware of the same. 13.4 TAX RECEIPTS As soon as reasonably practicable after each payment by any Obligor of any Applicable Tax (or any Tax which would be an Applicable Tax save for the exception contained in Clause 51 13.1) on any payment by it to any Finance Party under any Finance Document, such Obligor shall deliver to the Facility Agent for the relevant payee Finance Party evidence reasonably satisfactory to the payee (including copies of relevant Tax receipts received by such Obligor, which such Obligor shall use its reasonable endeavours to obtain) that the relevant Tax has been duly remitted to the appropriate authority. 13.5 TAX SAVING (a) In the event that, following the imposition of any Applicable Tax on any payment by any Obligor (or any corresponding payment by any Finance Party to any other Finance Party under this Agreement) in consequence of which such Obligor is required under Clause 13.3 to pay such Applicable Tax or to pay any additional amount in respect of it, any Finance Party shall in its sole opinion and based on its own interpretation of any relevant laws or regulations (but acting in good faith) receive or be granted a credit against or remission for or deduction from or in respect of any Applicable Tax payable by it or for its account (or on its behalf) or shall obtain any other relief in respect of Applicable Tax on its profits or income, which in such Finance Party's opinion in good faith is both reasonably identifiable and quantifiable by it without requiring such Finance Party or its professional advisers to expend a material amount of time or incur a material cost in so identifying or quantifying (any of the foregoing, to the extent so reasonably identifiable and quantifiable, being referred to as a "SAVING"), such Finance Party shall, to the extent that it can do so without prejudice to the retention of the relevant saving and subject to such Obligor's obligation to repay the amount to such Finance Party if the relevant saving is subsequently disallowed or cancelled (which repayment shall be made promptly on receipt of notice by such Obligor from such Finance Party of such disallowance or cancellation), reimburse such Obligor promptly after receipt of such saving by such Finance Party with such amount as such Finance Party shall in its sole opinion (but acting in good faith) have concluded to be the amount or value of the relevant saving. (b) Nothing contained in this Agreement shall interfere with the right of any Finance Party to arrange its Tax and other affairs in whatever manner it thinks fit and, in particular, no Finance Party shall be under any obligation to claim relief from Tax on its corporate profits, or from any similar Tax liability, in respect of the Applicable Tax, or to claim relief in priority to any other claims, reliefs, credits or deductions available to it or to disclose details of its Tax affairs. No Finance Party shall be required to disclose any confidential information relating to the organisation of its affairs. (c) Each Finance Party will notify the relevant Obligor through the Facility Agent promptly of the receipt by such Finance Party of any saving and of such Finance Party's opinion as to the amount or value of that saving. 13.6 RIGHT TO PREPAY In the event that any such Applicable Tax is required to be deducted from any payment to be made by any Borrower to any Finance Party under this Agreement (or on any corresponding payment by the Finance Party to any other Finance Party under this Agreement) and, in consequence, any Borrower is or would be obliged under Clause 13.3 to pay any additional amounts to such Finance Party in respect of the Applicable Tax, such Borrower may prepay the whole (but not part) of the then outstanding amount of such Finance Party's participation in the Utilisations made by it, together with all interest and other charges accrued on those participations and all other amounts payable to such Finance Party under the Finance 52 Documents, on giving not less than ten Business Days' prior written notice to such Finance Party (through the Facility Agent). 13.7 RECOGNISED BANK Each Finance Party (other than Goldman Sachs Credit Partners L.P.) confirms to the Company that it is a Recognised Bank and agrees to notify the Company promptly if it becomes aware that (a) it is no longer a Recognised Bank, or (b) Clause 13.3 may for any other reason apply in respect of payments made to it or to the Facility Agent for its account. 13.8 FILINGS Each Bank proposing to be a Recognised Bank by virtue of paragraph (c) of the definition of Recognised Bank in Clause 1.1 shall submit the appropriate Inland Revenue form (being at the date hereof form FD13 in the case of the United States/United Kingdom double tax treaty) to the relevant tax authorities as promptly as practicable after becoming a party hereto and, if such form is returned to such Bank by such tax authority, shall then promptly submit such form to the United Kingdom Inland Revenue (FICO Dept). If a Bank is or becomes unable for any reason to submit such form or a Bank becomes aware that such a form previously submitted by it is no longer valid or becomes incorrect for any reason, such Bank shall notify the Company as promptly as practicable. 14. MARKET DISRUPTION 14.1 DISRUPTION EVENTS If, in relation to any Advance or proposed Advance and any (or the) Interest Period relative thereto:- (a) no (or where there is more than one Reference Bank, only one) Reference Bank supplies an interest rate to the Facility Agent as required by the definition of LIBOR after the Facility Agent has requested such a rate from the Reference Banks; or (b) the Facility Agent shall have received notification from a Bank or Banks whose participations in such Advance constitute at least fifty per cent. (50%) by value of such Advance that by reason of circumstances affecting the London interbank eurocurrency market (in the case of any Optional Currency) or the London interbank market (in the case of Sterling): (i) matching deposits for the same period as such Interest Period will not be readily available to them in the London interbank eurocurrency market (in the case of any Optional Currency) or the London interbank market (in the case of Sterling) (as the case may be) in sufficient amounts in the ordinary course of business to fund their respective participations in such Advance for such Interest Period; or (ii) whilst such deposits are so available, the cost of such deposits exceeds LIBOR as determined in relation to such Advance for such Interest Period, the Facility Agent shall promptly give written notice of such determination or notification to the relevant Borrower, the Company (if different) and each of the Banks. 53 14.2 EFFECT The giving of any notice by the Facility Agent pursuant to Clause 14.1(a) or 14.1(b) shall not relieve any Bank of any obligation it may have under this Agreement to advance, on the relative Utilisation Date, its participation in any Advance (including any Advance for which a Request was given prior to such notice by the Facility Agent). 14.3 NEGOTIATION AND SUBSTITUTE BASIS During the period of 15 days after the giving of any notice by the Facility Agent pursuant to Clause 14.1, the Facility Agent (in consultation with the Banks) shall negotiate with the relevant Borrower and the Company in good faith with a view to ascertaining whether a substitute basis (a "SUBSTITUTE BASIS") may be agreed for the making of further Advances and/or the maintaining of any existing Advances to which such notice by the Facility Agent related for the current Interest Period relative to those Advances. If a Substitute Basis is agreed by all the Banks, the relevant Borrower and the Company it shall apply in accordance with its terms from the commencement of such Interest Period. The Facility Agent shall not agree any Substitute Basis on behalf of any Bank without the prior consent of that Bank. 14.4 COST OF FUNDS If a Substitute Basis is not so agreed by the relevant Borrower, the Company and all the Banks by the end of the 15 day period, each Bank's participation in each then existing Advance to which the notice by the Facility Agent related shall bear interest during the current Interest Period relative thereto at the rate certified by such Bank to be its cost of funds (from such sources as it may reasonably select out of those sources then available to it) for such Interest Period in relation to such Advance, plus the applicable Margin. 14.5 RIGHT TO PREPAY Where Clause 14.4 applies the relevant Borrower, upon giving not less than five Business Days' prior written notice (through the Facility Agent) to any Bank , may prepay the whole (but not part) of the participation of that Bank in all (but not some only of) the existing Advances to which the notice by the Facility Agent related and, if so specified in the notice, in all (but not some only of) the other outstanding Utilisations of that Borrower, together with all interest accrued on those Advances and all other amounts payable under this Agreement in connection with the Utilisations prepaid. 14.6 REVIEW OF SUBSTITUTE BASIS So long as any Substitute Basis is in force or Clause 14.4 shall apply in relation to any Advance, the Facility Agent, in consultation with the relevant Borrower, the Company and each Reference Bank shall from time to time, but not less often than monthly, review whether or not the circumstances referred to in Clause 14.1 still prevail with a view to returning to the normal interest provisions of this Agreement. 54 15. INCREASED COSTS 15.1 INCREASED COSTS Subject to Clause 15.3, if the result of:- (a) any change after the date hereof in or the introduction after the date hereof of, or any change after the date hereof in the interpretation, administration or application by any competent court, authority or organisation in the relevant jurisdiction of, any law, regulation or treaty or in or of any official directive or official request from, or the rules of, any governmental, fiscal, monetary or regulatory (including self-regulatory) authority, organisation or agency (whether or not having the force of law but, if not having the force of law, being a regulation, treaty, official directive, official request or rule which it is the practice of banks in the relevant jurisdiction to comply with) after the date hereof which affects banks or financial institutions of the same type as any Finance Party in that jurisdiction; or (b) compliance by any Finance Party (or any Holding Company of such Finance Party) with any such change or introduction; including, in each case without limitation, those relating to Taxation, change in currency of a country, reserves, special deposit, cash ratio, liquidity or capital adequacy requirements or other forms of banking, fiscal, monetary or regulatory controls, is that:- (i) any Finance Party (or any Holding Company of such Finance Party which is regulated as a financial institution or as a Holding Company of a financial institution) incurs an increased cost as a result of its (or such Finance Party's) having entered into, and/or performing and/or maintaining and/or funding its (or such Finance Party's) obligations under, any Finance Document; or (ii) any Finance Party (or any such Holding Company of such Finance Party) incurs an increased cost in making, funding or maintaining all or any advances comprised in a class of advances or acceptances formed by or including its (or such Finance Party's) participation in some or all of the Utilisations made or to be made under this Agreement; or (iii) any amount receivable by any Finance Party under any Finance Document is reduced (save to the extent matched by a reduction in the cost of providing the Facilities) or the effective rate of return to any Finance Party (or any such Holding Company of such Finance Party) under any Finance Document or on its (or such Holding Company's) capital employed for the purposes of this Agreement is reduced; or (iv) any Finance Party (or any such Holding Company of such Finance Party) makes any payment or forgoes any interest or other return on or calculated by reference to any amount received or receivable by it (or by such Finance Party) from any Obligor or the Facility Agent or the Security Agent or any other Finance Party under any Finance Document; and such increased cost (or the relevant proportion thereof), reduction, payment, forgone interest or other return is not compensated for by any other provision of this Agreement 55 (including, without limitation, by any Additional Cost payable pursuant to Clause 11.1(c)), then and in each such case:- (A) such Finance Party shall notify the Company through the Facility Agent in writing of that event promptly upon its becoming aware of the event including, in reasonable detail, particulars of the event; (B) subject as provided below and to Clause 2.4(a), within five Business Days after receipt by any Borrower (directly or through the Company) of a written demand from time to time by such Finance Party through the Facility Agent accompanied by a certificate of such Finance Party specifying the amount of compensation claimed and setting out the calculation of the amount in reasonable detail, such Borrower shall pay to the Facility Agent for the account of such Finance Party (or, as the case may be, Holding Company of such Finance Party) such amount as shall compensate such Finance Party (or such Holding Company) for such increased cost (or, in the case of (i) or (ii) above, the portion of such increased cost as is attributable to its making, funding or maintaining Advances or maintaining its obligation, if any, to participate in Utilisations under this Agreement), reduction, payment or forgone interest or other return. Nothing in this Clause shall oblige any Finance Party (or any Holding Company of such Finance Party) or the Facility Agent or the Security Agent to disclose any confidential information relating to the organisation of its affairs. Notwithstanding the foregoing, any claim by any Finance Party pursuant to this Clause 15.1 in respect of any period more than 90 days before such Finance Party gave notice pursuant to paragraph (A) above of the relevant event shall be disallowed. 15.2 RIGHT TO PREPAY Where Clause 15.1 applies the relevant Borrower, upon giving not less than five Business Days' notice to that Finance Party (being a Bank) may prepay the whole (but not part only) of that Finance Party's participation in all (and not some only of) the outstanding Utilisations, together with all interest and other charges on or in respect thereof, and all other amounts payable by it under the Finance Documents to such Finance Party, provided always that any such notice by such Borrower is given whilst circumstances exist entitling such Finance Party to claim compensation under this Clause 15. 15.3 EXCEPTIONS Clause 15.1 shall not apply so as to oblige the Company or any other Borrower to compensate any Finance Party for Applicable Taxes (to the extent that the provisions of Clause 13.3 fully and effectively compensate therefor) or for any Taxes which would have been Applicable Taxes save only for any failure by the relevant Finance Party to satisfy the exception to Clause 13.1 or to comply with its obligations under Clause 13.8 or for any increased cost, reduction, payment or forgone interest or other return:- (a) resulting from any change in or the introduction of, or any change in the interpretation or application of, any law, regulation, treaty, directive, request or rules relating to, or any change in the rate of, Taxation on the overall net income of such Bank imposed in the jurisdiction in which such Finance Party's principal office for the time being is situate or on the overall net income of such Finance Party's Facility Office imposed in the jurisdiction in which that office is situate; or 56 (b) resulting from the implementation by the applicable authorities having jurisdiction over such Finance Party and/or its Facility Office of any directive of the European Union in existence as at the date hereof and/or the matters set out in the statement of the Basle Committee on Banking Regulation and Supervisory Practices dated July, 1988 and entitled "International Convergence of Capital Measurement and Capital Standards", in each case to the extent, at the rates and according to the timetable provided for therein as at the date hereof; or (c) attributable to such Finance Party after the date of this Agreement entering into a commitment to lend to a third party which is, at the time that commitment is entered into, in breach of any law, regulation, treaty, directive, request or rule relating thereto as aforesaid. 16. ILLEGALITY If any change after the date hereof in or the introduction after the date hereof of any law, regulation, treaty or (whether or not having the force of law but, if not having the force of law, being one with which it is the practice of banks in the relevant jurisdiction to comply) official directive or rule of any governmental, fiscal, monetary or regulatory (including self regulatory) authority, organisation or agency, having jurisdiction (together "LAWS"), or any change after the date hereof in the interpretation, administration or application of Laws by a competent court or the relevant authority, organisation or agency or compliance by any Finance Party with any such change or introduction of Laws or change in interpretation, administration or application of Laws, shall make it (or make it apparent that it is) unlawful or a breach of Laws for any Finance Party to make available or fund or maintain the Utilisations or any part of the Utilisations under this Agreement or to give effect to its obligations and exercise its rights as contemplated by this Agreement, that Finance Party may, by notice to the Company through the Facility Agent, declare that to the extent necessary to avoid any such illegality or breach of Laws its obligations to the Company and the other Borrowers under the Finance Documents shall be terminated forthwith or, if later, on the latest date to which the obligations may remain in effect without causing the Finance Party to be in breach of Laws, whereupon:- (a) PREPAY: each Borrower will forthwith, or by such later date as shall be immediately prior to the illegality or breach in question taking effect, prepay such part of such Finance Party's participation in the Utilisations made by such Borrower together with all interest and other charges accrued thereon to the date of the prepayment and all other amounts payable to such Finance Party under the Finance Documents as shall be necessary to avoid any such illegality or breach by such Finance Party of any Laws; and (b) COMMITMENTS: to the extent necessary to avoid any such illegality or breach of Laws such Finance Party's Commitments shall be cancelled and reduced to nil. 57 17. MITIGATION 17.1 MITIGATION If circumstances arise in respect of any Finance Party which would, or upon the giving of notice would, result in the operation of Clause 13, 14, 15 or 16 to the detriment of any Borrower:- (a) such Finance Party shall promptly upon becoming aware of the same notify the Facility Agent and the Company and, upon the written request of such Borrower, shall enter into discussions with the Company and such Borrower with a view to determining what mitigating action might be taken by such Finance Party, including discussion of the possibility of a change in its Facility Office or transfer of its participation in the Facilities and its Commitments to another bank; and (b) at the request of the Company, the Facility Agent will enter into discussions with the Company with a view to determining what mitigating action might be taken by the Facility Agent with respect to the administration of this Agreement by the Facility Agent. Without limiting or reducing the obligations of the Obligors (or any of them) under Clauses 13, 14, 15 or 16, the relevant Finance Party, shall upon the written request of the Company take such reasonable steps as may be practical and open to it to mitigate or remove the effects of such circumstances including, without limitation, a change in its Facility Office or transfer of its participation in the Facilities and its Commitments to another bank (or termination of its Commitments and prepayment of its participation in the Utilisations coupled with the assumption by another bank of a like participation and Commitment) reasonably acceptable to or nominated by the relevant Borrower and the Company or the restructuring of its participation in this Agreement in a manner which will avoid the circumstances in question and on terms acceptable to the Facility Agent, such Finance Party and the relevant Borrower and the Company, provided that nothing in this Clause shall oblige any Finance Party or the Facility Agent to take any such step if, in the opinion of such Finance Party or the Facility Agent (such opinion being conclusive), as the case may be, any such step might reasonably be expected to have an adverse effect upon its business, operations or financial condition or the management of its Tax affairs or its return in relation to its participation in the Utilisations. 17.2 ADDITIONAL COST MITIGATION If circumstances exist or arise in respect of a Bank which result in its incurring, in relation to any Advance or overdue amount for any Interest Period, an Additional Cost falling within paragraph (ii) of the definition of Additional Cost in Clause 1.1, then at the request of the Company that Bank shall enter into discussions with the Company with a view to determining what mitigating action might be taken by that Bank, including the possibility of a change in the Facility Office of such Bank. Without prejudice to any other provision of this Agreement obliging the Obligors or any of them, to pay, indemnify or otherwise compensate such Bank for such Additional Cost, upon the written request of the Company, the Bank shall take such steps as it considers reasonable and practical to mitigate and remove such circumstances provided nothing in this Clause shall oblige any Bank or the Facility Agent to take any step or action which it considers may reasonably be expected to have an adverse effect upon its business, operations, financial condition or Tax affairs. 58 17.3 COSTS AND EXPENSES Any costs and expenses reasonably incurred by any Finance Party pursuant to this Clause 17 shall be paid by the relevant Borrowers within five Business Days after receipt of a written demand specifying the same in reasonable detail. 18. GUARANTEE 18.1 GUARANTEE In consideration of the Finance Parties entering into this Agreement and/or becoming party to this Agreement pursuant to a Substitution Certificate or otherwise and/or participating or agreeing to participate in any Utilisation, each Guarantor hereby irrevocably and unconditionally and jointly and severally:- (a) guarantees to each Finance Party on demand, as principal obligor and not merely as surety (or similar in any applicable jurisdiction), prompt performance by each other Obligor of all its payment obligations under the Finance Documents and the payment of all sums payable now or in the future to such Finance Party by each other Obligor under or in connection with the Finance Documents when and as the same shall become due; (b) undertakes with each Finance Party that, if and whenever any other Obligor does not pay any amount when due from it under or in connection with any Finance Document, such Guarantor will on demand pay such amount as if such Guarantor instead of such other Obligor were expressed to be the primary obligor, together with interest on that sum at the rate per annum from time to time payable by that other Obligor on that sum from the date when that sum becomes payable by such Guarantor under this Agreement until payment of that sum in full; and (c) indemnifies each Finance Party on demand against any loss or liability suffered by it under any Finance Document as a result of any obligation guaranteed by such Guarantor being or becoming unenforceable, invalid or illegal. 18.2 CONTINUING GUARANTEE This guarantee is a continuing guarantee and shall extend to the ultimate balance of all sums payable by the Obligors or any of them under the Finance Documents. 18.3 REINSTATEMENT Where any discharge (whether in respect of the obligations of any Obligor, any security for such obligations or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be repaid on insolvency, administration, liquidation or otherwise without limitation, the liability of each Guarantor under this guarantee shall continue as if there had been no such discharge or arrangement. Each Finance Party shall be entitled to concede or compromise any claim that any such payment, security or other disposition is liable to avoidance or repayment. 59 18.4 WAIVER OF DEFENCES Except to the extent that such Guarantor is specifically released in writing or its obligations are specifically waived in a Waiver Letter, the obligations of each Guarantor under this Agreement shall not be affected by any circumstance, act, omission, matter or thing which but for this provision might operate to release or otherwise exonerate such Guarantor from its obligations hereunder in whole or in part, including without limitation and whether or not known to any Obligor or any Finance Party:- (a) any time, indulgence or waiver granted to or composition with any other Obligor or any other person; or (b) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect or take up or enforce any rights or remedies against any security or any other Obligor or any other person or any non-presentment or non-observance of any formality or other requirements in respect of any instruments or any failure to obtain the full value of any security; or (c) any legal limitation, disability, incapacity, lack of power, authority or legal personality of, or dissolution or change in the members or status of, or other circumstance relating to any other Obligor or any other person; or (d) any variation (however fundamental and whether or not involving any increase in the liability of any other Obligor thereunder) or replacement of any Finance Document or any other document or security (including without limitation any Substitute Basis agreed pursuant to Clause 14 and any agreement contemplated by this Agreement) so that references to such Finance Document or other document or security in this guarantee shall include each such variation or replacement; or (e) any unenforceability, illegality, invalidity or frustration of any obligations of any other Obligor or any other person under any Finance Document or any other document or security, or any failure of any other Obligor or proposed Additional Obligor to become bound by the terms of any other Finance Document, in each case whether through any want of power or authority or otherwise; or (f) any postponement, discharge, reduction, non-provability or other similar circumstance affecting any obligation of any other Obligor under a Finance Document resulting from any insolvency, liquidation or dissolution proceedings or from any law, regulation or order, to the intent that such Guarantor's obligations under this Agreement shall remain in full force and this guarantee be construed accordingly as if there were no such circumstance, act, omission, matter or thing. 18.5 IMMEDIATE RECOURSE Each Guarantor waives any right it may have of first requiring any Finance Party to proceed against or enforce any other rights or security of or claim payment from or file any proof or claim in any insolvency, administration, winding up, bankruptcy or liquidation proceedings 60 relating to, any other Obligor or any other person before claiming from such Guarantor under this Agreement. 18.6 PRESERVATION OF RIGHTS Until all amounts which may be or become payable by any and all Obligors under or in connection with the Finance Documents have been irrevocably paid and discharged in full (whether by any Borrower or Guarantor or otherwise), after a claim has been made pursuant to this guarantee each Finance Party may:- (a) refrain from applying or enforcing any other security, monies or rights held or received by such Finance Party, as the case may be, in respect of (or capable of being applied in respect of) such amounts or apply and enforce the same in such manner and order as such Finance Party sees fit (whether against such amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and (b) hold in a suspense account (with liability to pay interest on the monies held therein at the rate payable to its corporate customers for deposits in the same currency on like terms and in like amounts) any monies received from any Guarantor or on account of any Guarantor's liability under this Agreement. 18.7 NON-COMPETITION Until all amounts which may be or become payable by any and all Obligors under or in connection with the Finance Documents have been irrevocably paid in full (whether by any Borrower or Guarantor or otherwise), no Guarantor shall, after a claim has been made on it pursuant to this guarantee:- (a) be subrogated to any rights, security or monies held, received or receivable by any Finance Party or be entitled to any right of contribution or indemnity in respect of any payment made or monies received on account of any Obligor's liability under any Finance Document and, to the extent that any Guarantor is so subrogated or entitled by law, such Guarantor hereby (to the fullest extent permitted by law) waives and agrees not to exercise those rights or security or that right of contribution or indemnity; (b) be entitled or claim to rank as a creditor in the insolvency, administration, winding-up, bankruptcy or liquidation of any Obligor in competition with any Finance Party unless otherwise required by the Facility Agent or by law (in which case the proceeds, if any, of any claim in respect of any rights, security or monies of any Finance Party to which such Guarantor was subrogated, filed by such Guarantor with a receiver or other similar official, will be paid by such Guarantor to the Facility Agent to be applied in accordance with the provisions of the Finance Documents); or (c) be entitled to receive, claim or have the benefit of any payment, distribution or security from or on account of any Obligor or exercise any right of set-off as against any Obligor (and, without prejudice to the foregoing, each Guarantor shall forthwith pay to the Facility Agent for the Finance Parties an amount equal to any such set-off in fact exercised by it and forthwith pay or transfer, as the case may be, to the Finance Parties any such payment or distribution or benefit of security in fact received by it). 61 18.8 ADDITIONAL SECURITY This guarantee shall be in addition to and shall not in any way be prejudiced by any other security (including, without limitation, the Security Documents) now or hereafter held by any Finance Party as security for or capable of being applied against the obligations of any Obligor. 18.9 CERTIFICATE A certificate of the Facility Agent as to any amount due from any Borrower under this Agreement shall, in the absence of manifest error, be prima facie evidence of such amount as against each Guarantor. 19. ADDITIONAL BORROWERS, GUARANTORS AND SECURITY 19.1 ADDITIONAL BORROWERS (a) Bidco shall use reasonable endeavours to ensure that each of the members of the Target Group identified in the Borrowings List as intended to become a Borrower (or, where more than one member of the Bidco Group is identified in respect of any particular Refinancing Debt, whichever of those members is selected by Bidco to be the borrower of any funds borrowed to refinance that Refinancing Debt) shall do so as promptly as practicable after the Unconditional Date in order that the Borrowings identified in the Borrowings List shall be refinanced (as and to the extent required by Clause 21.9) by Tranche 1B Advances and/or Tranche 2 Advances (as therein specified) borrowed by them, and that all conditions precedent applicable under Schedule G, Part II in respect of the making of Utilisations by those members of the Target Group shall be satisfied as promptly as practicable. To the extent that the procedures set out in S.155-158 Companies Act 1985 need to be satisfied for that purpose, Bidco shall use reasonable endeavours to procure that those procedures are satisfied. (b) In order for any wholly-owned Subsidiary of Bidco to become a Borrower, it and the Company (for itself and on behalf of the existing Borrowers and Guarantors) shall execute and deliver to the Facility Agent a duly completed Borrower Accession Agreement. If all the Banks confirm to the Facility Agent their agreement to the relevant Subsidiary becoming a Borrower (which confirmation is deemed given in respect of the members of the Target Group referred to in Clause 19.1(a)) , the Facility Agent shall execute such Borrower Accession Agreement for itself and on behalf of the other Finance Parties. (c) Subject to Clause 19.1(d), upon execution of such Accession Agreement by the relevant Subsidiary as Additional Borrower, the Company and the Facility Agent, such Subsidiary shall become an Additional Borrower in accordance with the terms hereof and thereof. If included in the Borrower Accession Agreement, the Additional Borrower's right to make Utilisations hereunder may be limited in accordance with the terms so included. (d) The obligations of the Finance Parties to such Additional Borrower with respect to the making of the first Utilisation to it under this Agreement are subject to the condition precedent that the Facility Agent shall have received in form and substance satisfactory to it (acting reasonably) each of the documents listed in Schedule G Part II. 62 19.2 ADDITIONAL GUARANTORS (a) The Obligors shall procure that, subject to any provision of law prohibiting the relevant person from becoming an Additional Guarantor, the companies identified in Schedule G Part III shall, as soon as the procedures set out in section 155 et seq. Companies Act 1985 have been completed and the Unconditional Date has occurred, each become an Additional Guarantor by (i) executing and delivering to the Facility Agent a Guarantor Accession Agreement (duly executed by the Company for itself and on behalf of the existing Borrowers and Guarantors) and (ii) delivering to the Facility Agent each of the documents listed in Schedule G Part II, each in form and substance satisfactory to the Facility Agent (acting reasonably). (b) Where any such prohibition as is referred to above exists, each Obligor shall use its reasonable endeavours lawfully to overcome the prohibition. (c) The Company shall use its reasonable endeavours to ensure that any procedures set out in Section 155 et seq. Companies Act 1985 required to be completed to permit the companies identified in Schedule G Part III to give such guarantees, to permit the members of the Target Group to enter into the Intra Group Loan Agreement and to permit the Companies identified in Schedule G Part III to accede to the terms of the Debenture as Chargors as required by Clause 19.3(a) shall be implemented: (i) if the requirements of S.429 Companies Act 1985 for the implementation of the procedures set out therein shall be met with respect to the Offer, promptly after the completion of those procedures; or (ii) if such requirements shall not be met within the period specified in S.429(3) Companies Act 1985, promptly after the expiry of such period. 19.3 ADDITIONAL SECURITY (a) The Obligors shall procure that (i) the Security Document specified in Schedule G Part IV is executed and delivered to the Security Agent on or before the Unconditional Date and (ii) as soon as the procedures set out in section 155 et seq. Companies Act 1985 have been completed the companies identified in Schedule G Part III accede to the terms of the Debenture as Chargors (as defined therein). (b) Where any such prohibition as is referred to above exists, the Obligors shall use their reasonable endeavours lawfully to overcome the prohibition. (c) The Obligors shall at their own expense execute and do all such assurances, acts and things as the Security Agent may reasonably require (i) for perfecting or protecting the security intended to be afforded by the Security Documents (and shall deliver to the Security Agent such directors and shareholders resolutions, title documents and other documents as the Security Agent may reasonably require) or (ii) for facilitating the realisation of all or any part of the assets which are subject to the Security Documents and the exercise of all powers, authorities and discretions vested in the Security Agent or in any receiver of all or any part of those assets. 63 20. REPRESENTATIONS AND WARRANTIES 20.1 REPRESENTATIONS AND WARRANTIES ON AND FROM THE DATE HEREOF On and from the date hereof, each Obligor (or in the case of Clause 20.1(l), the Company and Bidco only) represents and warrants to each of the Finance Parties (but, in the case of any Obligor other than the Company, only in relation to itself and its Subsidiaries or Material Subsidiaries (as the case may be)) that:- (a) STATUS: It is (and each of its Material Subsidiaries is) a company, duly incorporated and validly existing under the laws of the place of its incorporation and has the power to own its property and assets and carry on its business as it is now being and will be conducted. (b) POWERS AND AUTHORITY: It has the power to enter into and perform the Finance Documents and any other Transaction Documents to which it is a party and the transactions to be implemented pursuant thereto and has taken all necessary action to authorise the entry into and performance of those documents and transactions. (c) LEGAL VALIDITY: Subject to the Reservations, this Agreement constitutes, and any and each other Transaction Document to which it is or will become a party (when executed by it or on its behalf) will constitute, its legal, valid and binding obligations and (without limiting the generality of the foregoing) any Security Document to which it is a party creates the security interests which that Security Document purports to create or, as the case may be, accurately evidences a security interest which has been validly created. (d) NON-CONFLICT: The entry into and performance by it of this Agreement and any and each other Transaction Document to which it is a party and the transactions to be implemented pursuant to those documents do not and will not conflict with: (i) any law or regulation or any official or judicial order applicable to it or any Licence or any Licence Undertaking; (ii) its memorandum or articles of association, statutes, by-laws or other constitutional or governing documents or any of its resolutions (having current effect); or (iii) any agreement or instrument to which it or any Subsidiary of it is a party or which is binding upon any of them or on its assets or those of any such Subsidiary (other than those agreements or instruments referred to in the Borrowings List to the extent that the liability is not materially greater than that indicated in the Borrowings List) in such a manner or to such an extent as to have a Material Adverse Effect, nor will it result in the creation or imposition of any Encumbrance on any of its assets or those of any Subsidiary (save for any Encumbrance permitted to exist by the terms of this Agreement). (e) NO DEFAULT: (i) No Event of Default has occurred and is continuing which has not been waived, and (ii) no event has occurred and is continuing which has not been waived and which constitutes or which, with the giving of notice or expiry of any grace 64 or cure period, is reasonably likely to constitute a default under or in respect of any other agreement or document to which it or any Material Subsidiary of it is a party (and any such event which by reason of express provisions in any such agreement or document requires satisfaction of a condition as to materiality (including, without limitation the existence or absence of an opinion or determination as to materiality) before it may constitute a default shall not be considered reasonably likely to constitute a default unless that condition is satisfied) in such a manner or to such an extent as to have a Material Adverse Effect. (f) CONSENTS: Any and all authorisations, approvals, consents, licences, exemptions, filings, registrations and other matters required on the part of any Obligor or the Target or any Material Subsidiary pursuant to any law or the terms of the Licence or any Licence Undertaking for or in consequence of (i) the Offer, and/or (ii) the entry into and performance by it of and/or the validity of any of the Finance Documents and/or the Transaction Documents to which it is a party or the transactions to be implemented pursuant thereto and/or (iii) the continued carrying on of the business of the Target and the Company Group in the ordinary course, have been obtained or effected or will be obtained or effected prior to the date required by law, in each case, to the extent that failure to do so would have a Material Adverse Effect, save (in the case of (ii)) for the filing in the United Kingdom of the prescribed particulars of the Security Documents pursuant to Section 395 of the Companies Act 1985 (as amended), the registration of the transfers of the shares which are the subject of mortgages and other Encumbrances created by the Security Documents and other filings and registrations necessary in connection with the enforcement of the Security Documents. (g) ACCOUNTS: (i) Its Accounts most recently delivered to the Facility Agent under Clause 21.2(a) have been prepared, save as disclosed in notes to or accompanying those Accounts, in accordance with the provisions of Clause 21.2(d) and (in the case of audited annual Accounts) present a true and fair view of or (in the case of unaudited Accounts) fairly present its and (if consolidated Accounts) its Subsidiaries' financial position as at the Accounting Date to which the same were prepared and/or (as appropriate) the results of operations and (in the case of annual Accounts) cashflow during the Accounting Period ending on the relevant Accounting Date, subject, in the case of quarterly and monthly Accounts, to normal year end adjustments and to the lack of notes thereto. (ii) Each of the information, reports and documents delivered to the Facility Agent under Clause 21.2(b) was true and accurate in all material respects as of the date thereof and did not omit any material information required to be included therein. (iii) (I) The Model was prepared in accordance with the Applicable Accounting Principles with due care, (II) to the best of the Company and Bidco's knowledge and belief (reasonable enquiry having been made), the Model taken as a whole together with the assumptions on which it is based is not misleading in any material respect, and all projections and assumptions used for the 65 purposes of the Model were arrived at after careful consideration and to the best of the Company and Bidco's knowledge and belief were based on reasonable grounds. All such projections are illustrative exercises but the actual results may be materially affected by changes in economic and other circumstances. The reliance which can be placed upon the projections is a matter of commercial judgment. No representation or warranty is made that any projection will be achieved. (h) LITIGATION: No litigation, arbitration or administrative or regulatory proceedings or investigations for which process or initiation claims have been served on it or any of its Material Subsidiaries and, to its knowledge, no litigation, arbitration, administrative or regulatory proceedings involving it or any of its Material Subsidiaries are pending or threatened, which are reasonably likely to be determined adversely to it or to such Subsidiary, and which, if so adversely determined, would have a Material Adverse Effect. (i) TAX LIABILITIES: No claims are being or are reasonably likely to be asserted against it or any of its Subsidiaries with respect to Taxes which are reasonably likely to be determined adversely to it or to such Subsidiary and which, if so adversely determined, would have a Material Adverse Effect. It and each of its Subsidiaries is not materially overdue in the filing of any Tax returns required to be filed where failure to make such filing would have a Material Adverse Effect, and it and any of its Subsidiaries has paid all Taxes shown to be due on any Tax returns required to be filed by it or on any assessments made against it (other than any being contested in good faith by appropriate process in respect of which adequate reserves are being maintained) non-payment, or a claim for payment, of which would in each such case have a Material Adverse Effect. (j) ENCUMBRANCES: No Encumbrance exists over its or any of its Subsidiaries' assets which would cause a breach of Clause 21.3(a) of this Agreement. (k) INFORMATION MEMORANDUM: (This representation and warranty is given only upon issue and approval by the Company in writing of an Information Memorandum.) All material factual information contained in the Information Memorandum was true (or, in the case of information provided by any person other than the Company or Bidco or its or their advisors or relating to the Target or any of its Subsidiaries, was true to the best of the Company's or Bidco's knowledge and belief) in all material respects at the date (if any) ascribed thereto in the Information Memorandum or (if none) at the date of the relevant component of the Information Memorandum. Any and all expressions of opinion or intention and any projections contained in the Information Memorandum were arrived at after careful consideration and to the best of the Company's and Bidco's knowledge and belief (reasonable enquiry having been made) were based on reasonable grounds. In all other respects, the Information Memorandum, taken as a whole, as of its date (insofar as based on information provided by any person other than the Company or Bidco or its or their advisors or relating to the Target or any of its Subsidiaries, to the best of the Company's or Bidco's knowledge or belief) was not misleading in any material respect and did not omit to disclose any matter failure to disclose which would result in any material information contained in the Information Memorandum being misleading in any material respect in the context of this Agreement. 66 (l) ACQUIRED ASSETS: All of the Shares which are acquired by it (whether pursuant to the Offer, the implementation of the procedures set out in s.429 et seq. Companies Act 1985 or by transfer from Riki) will be beneficially owned by Bidco and Bidco will be entitled forthwith (but subject to registration in the shareholders' register of the Target of the transfer of those Shares, which registration will be completed as soon as reasonably practicable) to become the legal registered owner of such Shares free from all Encumbrances, claims and competing interests whatsoever save as expressly permitted or created pursuant to the Finance Documents. (m) OWNERSHIP OF ASSETS: Save to the extent disposed of without breaching the terms of any of the Finance Documents, it and each of its Subsidiaries has good title to or valid leases or licences of or is otherwise entitled to use all material assets necessary properly to conduct its business the absence of which would have a Material Adverse Effect. (n) DOCUMENTS: (i) The documents delivered to the Facility Agent by or on behalf of any Obligor pursuant to Clause 4.1 and any other provision of the Finance Documents were genuine and in the case of copy documents, were true, complete and accurate copies in all material respects, of originals which had not been amended, varied, supplemented or superseded in any way which would be likely to affect materially and adversely the interests of the Banks under the Finance Documents (taken as a whole), save as consented to pursuant to a Waiver Letter. (ii) The Press Release and Offer Document and any other documents relating to the Offer furnished to the Facility Agent, contain all the material terms of the Offer. The terms of the Offer set out in the Offer Document correspond to the terms of the Offer set out in the Press Release in all material respects. (o) ENVIRONMENTAL MATTERS: (i) It and its Subsidiaries have obtained any and all requisite Environmental Licences required for the carrying on of its business as currently conducted and have at all times complied in all material respects with (A) the terms and conditions of such Environmental Licences and (B) all other applicable Environmental Law which in each case, if not obtained and complied with, would have a Material Adverse Effect, and there are to its knowledge no circumstances which may prevent or interfere with such compliance to that extent in the future. (ii) No Dangerous Substance has been used, disposed of, generated, stored, transported, dumped, released, deposited, buried or emitted at, on, from or under any site or premises (whether or not owned, leased, occupied or controlled by any Obligor or any of its Subsidiaries and including any offsite waste management or disposal location utilised by any Obligor or any such Subsidiary) in circumstances where this would be likely to result in the 67 imposition of a liability on any Obligor which would have a Material Adverse Effect. (iii) There is no Environmental Claim (whether in respect of any site previously or currently owned or occupied by any member of the Company Group or otherwise) pending or threatened, and there are no past or present acts, omissions, events or circumstances that would be likely to form the basis of any Environmental Claim (whether in respect of any site previously or currently owned or occupied by any member of the Company Group or otherwise), against that Obligor or any of its Subsidiaries which in each case is reasonably likely to be determined against that Obligor or Subsidiary and which if so decided would have a Material Adverse Effect. (p) THE COMPANY AND BIDCO: At the first Utilisation Date, save as arises or is contemplated under or in connection with the Transaction Documents or the Offer or referred to in the Structure Memorandum and save also for Offer Costs, neither the Company nor Bidco will have any material commitments or indebtedness. (q) LICENCE: (i) Each Licenceholder has been duly authorised by: (A) the Secretary of State under Section 6 of the Act to generate and/or distribute and/or supply (as appropriate in each case) electricity; and/or (B) the Director General of Gas Supply under Section 7 or 7A of the Gas Act to transport and/or ship and/or supply (as appropriate) gas, and such Licences are in full force and effect; (ii) no Licenceholder is in contravention of: (A) any term or condition of any Licence; or (B) any requirement of the Act and/or the Gas Act or any regulations made thereunder; or (C) any other statutory requirement or any final order or confirmed provisional order made under the Act and/or the Gas Act; or (D) any undertaking given by it to the Director-General or the Director General of Gas Supply or the Secretary of State in relation to the conduct of its business as a generator of electricity or, as a public electricity supplier or as a public gas supplier (as the case may be), the contravention or consequence of which is reasonably likely to have a Material Adverse Effect; 68 (iii) none of the Director-General, the Director General of Gas Supply or the Secretary of State has given notice to revoke a Licence except where a replacement licence is to be granted to a member of the Target Group or (after the Unconditional Date) the Bidco Group in its place (if such replacement Licence is required by statute or by regulation by a company to carry on the business of the relevant Licenceholder as carried on as at the date hereof); (iv) save as described in writing to the Facility Agent no amendment of any of the terms of a Licence has been made or proposed which is reasonably likely to have a Material Adverse Effect; and (v) there are no Licence Undertakings, other than those copies (or a reasonable summary) of which have been delivered to the Facility Agent. (r) STRUCTURE MEMORANDUM: (i) All those matters (including, without limitation, capitalisations, reorganisations, transfers, debt repayments and receipts) as described in the Structure Memorandum which are indicated in the Structure Memorandum to occur prior to or at or immediately after first Utilisation hereunder have been or will at or immediately after such Utilisation Date be completed in all material respects as contemplated thereby. Each flow of funds shown in the Structure Memorandum as occurring prior to or at or immediately after first Utilisation hereunder has been or will be completed substantially as contemplated in the Structure Memorandum. (ii) The Structure Memorandum contains descriptions which (insofar as they relate to it and its Subsidiaries or any joint venture) in all material respects are true, complete and correct, of the corporate ownership structure of the Group (including details of any minority shareholders in any member of the group held by any person who is not a member of the Group). 20.2 REPETITION The representations and warranties set out in Clause 20.1 shall survive the execution of this Agreement and the making of each Utilisation hereunder and shall be made on the date hereof and (other than the representations and warranties set out in Clause 20.1(g)(iii)) shall be deemed to be repeated on the date of delivery of each Request hereunder and on each Utilisation Date and on each Interest Date, with reference to the facts and circumstances then subsisting, as if made at each such time, provided that: (a) the representation and warranty set out in Clause 20.1(k) shall be made only on the date of issue and approval by the Company or Bidco in writing of any Information Memorandum; (b) the representations and warranties set out in Clauses 20.1, (h), (i), (l), (n)(ii), (p) and (r) shall not be repeated after the first Utilisation Date; and (c) prior to the Unconditional Date the representation and warranty set out in Clause 20.1(q)(v) shall be qualified by the actual knowledge of the Company and Bidco. 69 21. UNDERTAKINGS 21.1 DURATION The undertakings in this Clause 21 shall remain in force from and after the date hereof and so long as any amount is or may be outstanding under this Agreement or any Commitment is in force and, in the case of any Obligor other than the Company, are given only in relation to itself and its Subsidiaries. 21.2 INFORMATION AND ACCOUNTING STANDARDS (a) ACCOUNTS: The Company shall furnish or procure that there shall be furnished to the Facility Agent in sufficient copies for each of the Banks: (i) as soon as practicable after the end of each annual Accounting Period: (I) (and in any event within 120 days thereof) the audited consolidated accounts of itself and of the Bidco Group for such Accounting Period; (II) (and in any event within 180 days thereof) the audited accounts of itself and each Material Subsidiary for such Accounting Period, to the extent required to be prepared by law, in each case comprising at least an audited (in the case of Bidco, consolidated) balance sheet and profit and loss account and in the case of the Bidco Group, cash flow statement for such Accounting Period; (ii) as soon as practicable (and in any event within 90 days) after the end of the first quarterly Accounting Period to commence after the Unconditional Date, a profit and loss statement, balance sheet and cash flow statement for such quarterly Accounting Period in the form customarily prepared by management, and as soon as practicable (and in any event within 60 days) after the end of each quarterly Accounting Period commencing with the second quarterly Accounting Period to commence after the Unconditional Date, the unaudited consolidated accounts of the Bidco Group for such quarterly Accounting Period showing at least the detailed information necessary to determine Bidco's compliance with its obligations under Clause 23.1, and in each case comprising at least a consolidated balance sheet, profit and loss account and cash flow statement for such Accounting Period; (iii) at the same time as the Accounts for any annual Accounting Period are delivered (or, if not delivered, required to be delivered) pursuant to paragraph (i) above: (I) a report of the Auditors setting out in reasonable detail computations establishing, as at the date of such Accounts, whether each of the financial ratios set out in Clause 23.1 were complied with; and (II) a certificate signed by the Chief Financial Officer, stating that as at the date of such certificate no Default has occurred and is then continuing which has not 70 previously been waived pursuant to a Waiver Letter or providing details of any such Default and of the remedial action proposed to be taken; and (III) a certificate signed by the Chief Financial Officer identifying the Material Subsidiaries and setting out the result for each of them of the calculation of the tests provided for in the definition of Material Subsidiary in Clause 1.1 to determine the identity of the Material Subsidiaries and applied by reference to such Accounts; (iv) at the same time as the Accounts for any quarterly Accounting Period are delivered (or, if not delivered, required to be delivered) pursuant to paragraph (ii) above a certificate, signed by the Chief Financial Officer: (I) setting out in reasonable detail computations establishing, as at the date of such Accounts, whether each of the financial ratios set out in Clause 23.1 was complied with; and (II) stating that as at the date of such certificate no Default has occurred and is then continuing which has not been previously waived pursuant to a Waiver Letter or providing details of any such Default and of the remedial action proposed to be taken; (v) at the same time as delivered to the Director General pursuant to Condition 2 of Part II of any Licence held by any member of the Company Group, copies of the accounting statements delivered to the Director General pursuant thereto after the Unconditional Date; (vi) as soon as practicable after the Unconditional Date (and in any event no later than the date of delivery, or, if not delivered, the last date for delivery, of Accounts pursuant to Clause 21.2(a)(ii) for the first full quarterly Accounting Period commencing after the Unconditional Date) consolidated unaudited accounts of the Bidco Group prepared on a pro forma basis for the three consecutive quarterly Accounting Periods last commencing (on a pro forma basis as described below) before the Unconditional Date, showing at least the detailed information necessary to determine the Bidco Group's compliance with its obligations under Clause 23.1 and comprising at least a consolidated balance sheet, profit and loss account and cash flow statement for such Accounting Periods and all prepared as if: (A) the Unconditional Date had occurred on the first day of the first of those three pro forma Accounting Periods (and as if Bidco had then been in existence); (B) all Utilisations had been made on dates falling at the same intervals after the Unconditional Date taken to have occurred as aforesaid as was the case relative to the actual Unconditional Date (but nevertheless applying the actual interest rates determined and applicable hereunder). (b) NOTIFICATIONS: The Company shall furnish or procure that there shall be furnished to the Facility Agent in sufficient copies for each of the Banks:- 71 (i) promptly, all notices, reports or other documents despatched by the Company and by Bidco to their respective shareholders (in their capacity as shareholders convening or concerning shareholders meetings or to which they are entitled by statute or under the Company's or Bidco's (as the case may be) Articles of Association) generally (or any class of them); (ii) promptly after becoming aware of the same being instituted or threatened and, in the case of (I) or (II) below, that the same would, if adversely determined, (A) have a Material Adverse Effect or (B) involve any such liability as is referred to in (II) below, details of any litigation, arbitration or administrative proceedings involving it or any of its Subsidiaries which, if adversely determined, would (I) have a Material Adverse Effect or (II) involve liability or potential liability or alleged liability in excess of (Pounds)5,000,000 or its equivalent in other currencies or which involves the Director General, the Secretary of State, any Licence held by any member of the Company Group or any Licence Undertaking; (iii) promptly, such further information regarding its financial condition, business and assets and that of the Company Group and/or any member thereof (including any requested explanation of any item in any Accounts) as the Facility Agent or the Majority Banks through the Facility Agent may reasonably request from time to time (subject to any duty of confidentiality); (iv) promptly, upon being notified of the same, details of all transfers of shares by any member of the Company Group in the share capital of any Obligor, and details of any issue or transfer of shares in the capital of any Material Subsidiary made by any member of the Company Group after the date hereof to any person who is not a member of the Bidco Group; (v) written details of any Default promptly after becoming aware of the same, and of any remedial steps being taken and proposed to be taken in respect of that Default; (vi) during the period from the date of issue and approval by the Company to the earlier of (A) the date six months thereafter, and (B) the close of general syndication of the Facilities as determined and confirmed to the Company by the Facility Agent, the Company will notify the Facility Agent in reasonable detail of any matters (whether occurring prior to or after the date of approval and issue of the Information Memorandum) which (to the knowledge of the Chief Financial Officer and, after the Unconditional Date only, of the executive directors of the Target) cause the Information Memorandum taken as a whole when read without knowledge of such matters to be inaccurate or misleading in any material respect; (vii) promptly upon becoming aware that any modifications to the Licence are being proposed by the Director-General or the Secretary of State and/or that any Licence Undertaking is being requested by the Director General or the Secretary of State, reasonable details thereof, to be updated from time to time to reflect any changes, provided that such details shall be required to be reported to the Facility Agent hereunder, only to the extent that if such proposed modifications were to be made to the Licence or any such Licence Undertaking given, compliance with such modification or undertaking would have a Material Adverse Effect; 72 (viii) promptly upon Energyco and/or the Company making any filing with the Securities and Exchange Commission, a copy thereof; (ix) or to the English legal advisers to the Facility Agent, the Offer Document and each draft of the Offer Document produced on or after the date of the Press Release and delivered to the Target; and (x) on the date on which Accounts are first furnished in accordance with Clause 21.2(a)(ii) and (vi), a certificate signed by the Chief Financial Officer identifying the Material Subsidiaries and setting out the result for each of them of the calculation of the tests provided for in the definition of Material Subsidiary in Clause 1.1 to determine the identity of the Material Subsidiaries, applied by reference to such Accounts. (c) AUDIT AND ACCOUNTING DATES: Bidco will ensure that:- (i) the annual Accounts to be delivered to the Facility Agent pursuant to Clause 21.2(a)(i)(I) are audited by the Auditors; (ii) Bidco shall at all times have duly appointed Auditors or, in the event of resignation of the Auditors, shall appoint replacement Auditors within a reasonable time; (iii) each financial year and each quarterly Accounting Period of the Bidco Group shall end on an Accounting Date; (iv) each of its financial years and each financial year of each Subsidiary (other than any Licenceholder and its Subsidiaries) shall end on an Accounting Date in December, and no member of the Bidco Group will change its financial year end (other than to an Accounting Date in December) without the prior written consent of the Facility Agent. (d) ACCOUNTING STANDARDS: Bidco will ensure that all Consolidated Accounts of the Bidco Group shall be prepared in accordance with the Applicable Accounting Principles and (except in the case of annual audited Accounts provided pursuant to Clause 21.2(a)(i)(I)) in substantially the same format and with substantially the same headings and other characterisations as in the Base Financial Statements, or shall indicate in notes to or a letter accompanying such Accounts any material departures from the Applicable Accounting Principles and/or such format, headings and characterisations. (e) DEPARTURES: Where any consolidated Accounts of the Bidco Group have been prepared in any respect so as to depart materially from the Applicable Accounting Principles and/or the format, headings and characterisations as applied and/or set out in the Base Financial Statements, the Company shall provide or procure that there is provided to the Facility Agent a written explanation of such departure which the Facility Agent shall forward to the Banks. If the Majority Banks and Bidco agree, such departure shall become part of the Applicable Accounting Principles. If the Majority Banks and Bidco do not so agree, the Facility Agent and Bidco shall negotiate in good faith to agree to any amendments to this Agreement (including, but not limited to, any amendment required to be made to the covenants set out in Clause 23.1 (and the related definitions in Clause 1.1)) which would, if such a departure were to become part of the Applicable Accounting Principles ensure that the Finance Parties position and the protection afforded to them pursuant to Clauses 23.1 and 23.2 is maintained. If such amendments are made to this Agreement then such departures shall become part of the 73 Applicable Accounting Principles. Unless and until such agreement or amendment (as the case may be) is made, such departure shall not become part of the Applicable Accounting Principles and the Majority Banks may require that Bidco include in each Reconciliation Statement a statement that such departure has not altered any of the numerical information required for the purpose of establishing whether or not Bidco is in compliance with its obligations under Clause 23.1 or (if it has) setting out the effects of such alteration in reasonable detail. 21.3 SECURITY VALUE (a) NEGATIVE PLEDGE: No Obligor will, and each Obligor will procure that no other member of the Company Group will, create or permit to subsist any Encumbrance on the whole or any part of its respective present or future business, assets or undertaking, except for the following:- (i) Encumbrances constituted or evidenced by the Security Documents; (ii) Encumbrances expressly permitted by a Waiver Letter, provided that, except to the extent permitted by any of the following exceptions, the principal amount of the indebtedness secured by such Encumbrances shall not at any time be increased beyond the amount so permitted, save as permitted by a further Waiver Letter; (iii) Encumbrances arising by operation of law (or by agreement to the same effect) in the ordinary course of business and not as a result of any default or omission on the part of any member of the Company Group, including without limitation (but subject as aforesaid) (A) any rights of set-off with respect to demand or time deposits with financial institutions and bankers' liens with respect to property held by financial institutions, save in each case where such arrangements are deliberately established for the purpose of affording security to the bank or financial institution concerned and (B) Encumbrances with respect to Taxes; (iv) Encumbrances over goods and documents of title to goods (and related insurances) arising in the ordinary course of letter of credit transactions entered into in the ordinary course of trade; (v) Encumbrances over assets (other than the Shares) acquired by members of the Bidco Group and existing at the date of their acquisition but not created in contemplation of their acquisition, provided that the principal amount secured by any such Encumbrances is not prohibited by Clause 21.4 and shall not be increased beyond the amount secured thereby at the date of such acquisition; (vi) Encumbrances over credit balances on accounts of members of the Bidco Group with a bank or financial institution created in order to facilitate the operation of such accounts and other accounts of such members of the Bidco Group with the same bank on a net balance basis with or without credit balances and debit balances on the various accounts being netted off for interest purposes or to comply with any net limit, or for cash management purposes, or as part of a back-to- back or similar arrangement; (vii) any Encumbrance created under or in connection with or arising out of any pooling and settlement and onshore transportation arrangements or agreements (including but without limitation the Pooling and Settlement Agreement (in the case of electricity) and the Network Code (in the case of gas)) of the electricity or gas generation, 74 transportation, distribution and/or supply industry or telecommunications or water industry or energy or energy-related business or any transactions or arrangements entered into in a form usual in any such industry or business; (viii) any Encumbrance on Cash and Cash Equivalent Investments deposited in satisfaction of any requirement to place margin deposits to secure obligations in respect of Derivatives Transactions permitted by the terms hereof to be undertaken provided that the aggregate of such deposits shall not at any time exceed (Pounds)10,000,000 or the equivalent in other currencies; (ix) the right of a counterparty to two or more Derivative Transactions effected with the same member of the Bidco Group to close out such Derivative Transactions if applicable margin and other requirements are not met and apply any proceeds to any resulting balance due; (x) any Encumbrance over goods purchased in the ordinary course of business arising by virtue of retention of title Clauses in suppliers' standard terms of business, (or on terms more favourable to the Bidco Group) securing only the unpaid purchase price of goods supplied; (xi) any Encumbrance created by or over the shares in the capital of a Project Finance Subsidiary to secure its Project Finance Borrowings or recourse to the holder of such shares; (xii) any Encumbrance expressly disclosed against this undertaking in writing addressed to the Banks prior to the date hereof; (xiii) any Encumbrance created over shares and/or other securities held in any clearing system or listed on any exchange which arise as a result of such shares and/or securities being so held in such clearing system or listed on such exchange as a result of the rules and regulations of such clearing system or exchange; (xiv) any Encumbrance over cash providing cash collateral as referred to in and for the purposes identified in Clause 2.2(g); and (xv) Encumbrances (other than over the Shares and shares in the capital of a member of the Company Group) not otherwise permitted pursuant to paragraphs (i)-(xiv) (inclusive) above together securing indebtedness in an aggregate principal amount not exceeding (Pounds)75,000,000 (or its equivalent in other currencies). (b) TRANSACTIONS SIMILAR TO SECURITY: No Obligor will, and each Obligor will procure that no member of the Company Group will, save as permitted by a Waiver Letter: (i) sell or otherwise dispose of any of its assets on terms where such asset may be leased to or re-acquired by any member of the Bidco Group other than to the extent that such transaction (if structured as a Borrowing secured by an Encumbrance on such asset) could take place without causing or increasing any breach of either of Clauses 21.3(a) and 21.4; or 75 (ii) purchase any asset on terms providing for a retention of title by the vendor or on conditional sale terms or on terms having a like substantive effect to any of the foregoing, except for assets purchased in the ordinary course of business as provided in Clause 21.3(a) (x) above and any assets which, if the same were the subject of any Encumbrance arising as a result of such transaction, such Encumbrance would not be prohibited by the terms of Clause 21.3(a). (c) DISPOSALS: No Obligor will, and each Obligor will procure that no member of the Company Group will, save as permitted by a Waiver Letter either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily, sell, transfer, lease or otherwise dispose of: (i) any Shares and any shares in Amazon Electricity or in any Holding Company thereof; (ii) all or any substantial part of the assets or undertaking of the Group taken as a whole (not being an asset referred to in paragraph (i) above), other than: (A) disposals in the ordinary course of trading; (B) in any annual Accounting Period, disposals of assets by any member of the Bidco Group, (I) the gross value of which (based, in relation to disposals occurring before the first delivery of any Accounts in accordance with Clause 21.2(a)(i)(I), on the Base Financial Statements, and in relation to disposals occurring thereafter, on the audited consolidated Accounts of the Bidco Group most recently delivered to the Facility Agent) when aggregated with all other disposals by each member of the Bidco Group during such annual Accounting Period not permitted by any other paragraph of this Clause 21.3(c)(ii), does not exceed an amount equal to 10% of the gross value of the assets of the Bidco Group as shown in such Accounts and (II) in respect of which the Net Proceeds of such disposal will be applied (A) within 12 months of the date of such disposal in or towards acquiring for any member of the Bidco Group assets of a type ordinarily employed in the operation of any business permitted by Clause 21.10(a) or (B) in prepayment of any Utilisation in accordance with Clause 9.3; (C) disposals of plant and equipment or other like assets, not required for the efficient operation of its business; (D) transfers of cash unless otherwise prohibited by the terms of the Finance Documents; (E) the disposal of Cash Equivalent Investments for cash or in exchange for other Cash Equivalent Investments; (F) the disposal (on arm's length terms) or securitisation (on normal market terms) of customer account receivables of Amazon Electricity on a non-recourse basis (other than recourse as to title and any requirement to repurchase receivables which do not meet the eligibility criteria for inclusion in the disposal or securitisation (other than on grounds of non-payment or insolvency); 76 (G) disposals by one member of the Bidco Group to another member of the Bidco Group; (H) disposals of assets not otherwise permitted pursuant to paragraphs (A)-(G) above or (I)-(K) below, the consideration for which (including any amount of intercompany debt repaid to any member of the continuing Group), when aggregated with the consideration for all other such disposals in the same annual Accounting Period do not exceed (Pounds)50,000,000 (or its equivalent in other currencies); (I) the Asset Split and all such other matters as are contemplated by the Structure Memorandum; (J) the disposal of Citizens; (K) disposals permitted pursuant to Clause 21.3(b)(i). All disposals (save those permitted pursuant to paragraphs (D), (F) (in the case of securitisations on normal market terms only) or (G)) shall be made on arm's length terms or on terms more favourable to the Bidco Group. (d) PARI PASSU RANKING: Each Obligor undertakes that its obligations under this Agreement rank and will at all times rank at least pari passu in right and priority of payment and in point of security (save by reason of and to the extent of the security afforded thereto by the Security Documents) with all its other present and future unsecured and unsubordinated obligations, other than obligations applicable generally to companies incorporated in its jurisdiction of incorporation which have priority by operation of law (including, without prejudice to the generality of the foregoing, in respect of employees' remuneration, Taxes and like obligations). 21.4 LIABILITIES (a) BORROWINGS: (i) The Company will procure that the aggregate Borrowings of the Target and its Subsidiaries taken together on a consolidated basis (including the amount of any Borrowings thereof permitted pursuant to Clause 21.4(b) and (c) and giving effect to the proviso to the definition of Borrowings in Clause 1.1) outstanding at any one time will not exceed the sum of the following: (A) the outstanding principal amount from time to time of any Tranche 2 Utilisations made by such companies and any Tranche 1 Utilisations drawn by such companies and applied for the purposes contemplated in Clause 3.1(a)(i)(B), (ii)(A) and (iii); (B) the principal amount of all Borrowings of such companies outstanding at the Unconditional Date and disclosed in the Borrowings List until refinanced by Tranche 1 Utilisations or by Tranche 2 Utilisations made by such companies; (C) the outstanding principal amount from time to time of all Borrowings where the creditor and debtor of such Borrowings are members of the Bidco Group; 77 (D) Borrowings to the extent covered by a Documentary Credit made available under this Agreement; (E) (Pounds)75,000,000 (or its equivalent in other currencies) or such higher amount (if any) as may be permitted by a Waiver Letter; (F) Project Finance Borrowings; (G) Borrowings incurred to refinance the Facilities in full and discharge all outstanding liabilities under the Finance Documents in a principal amount (when aggregated with all amounts permitted to be outstanding under paragraph (iii)(G) below) of not less than the amount required to do so; and (H) any guarantees, indemnities and like instruments permitted to exist pursuant to Clause 21.4(b) which constitute Borrowings. (ii) The Company will procure that the members of the Bidco Group do not incur Borrowings of such amounts as result in the Company failing to be in compliance with Clause 23.1. (iii) The Company, Finance and Bidco shall not incur any Borrowings other than: (A) under this Agreement; (B) Subordinated Debt and the Coalco/Bidco Loan; (C) under the Energyco/Company Loan Agreement; (D) Borrowings to the extent covered by a Documentary Credit made available under this Agreement; (E) in the case of Bidco, where the other party to such Borrowing is a member of the Bidco Group; (F) in the case of Borrowings incurred by the Company or Finance as debtor, where the creditor is Bidco and the loan has been made in compliance with the terms of Clause 21.6; (G) Borrowings incurred to refinance the Facilities in full and discharge all outstanding liabilities under the Finance Documents in a principal amount (when aggregated with all amounts permitted to be outstanding under paragraph (i)(G) above) of not less than the amount required to do so; (H) those represented by the loan notes referred to in the Offer. (b) THIRD PARTY GUARANTEES: No Obligor will, and each Obligor will procure that no other member of the Company Group will, incur or permit to be outstanding, save as permitted by a Waiver Letter, any Borrowing falling within the provisions of paragraph (e) of the definition of that term in Clause 1.1, other than any such Borrowing arising under (A) the Finance 78 Documents, or (B) the endorsement of negotiable instruments for the purpose and in the ordinary course of carrying on the relevant entity's trade (if and to the extent that the same would fall within the definition of Borrowings in Clause 1.1), or (C) any guarantee, indemnity or similar assurance against financial loss given under or in connection with any pooling and settlement or onshore transportation arrangements or agreements of the electricity or gas generation, transportation, distribution and/or supply industry (including (but without limitation) the Pooling and Settlement Agreement (in the case of electricity) and the Network Code (in the case of gas)) or telecommunications or water industry or energy or energy-related business or in connection with any transactions or arrangements entered into in a form usual in any such industry or business (if and to the extent that the same would fall within the definition of Borrowings in Clause 1.1, or (D) the Gas Framework Agreement, or (E) arrangements created to facilitate the operation of accounts of members of the Bidco Group and other accounts of members of the Bidco Group with the same bank or financial institution on a net balance basis with (or without) credit balances and debit balances on the various accounts being netted off for interest purposes or to comply with any net limit, or for cash management purposes, or as part of a back-to-back or similar arrangement or (F) (to the extent such guarantees are outstanding in respect of Borrowings referred to in paragraph (I) under the heading Citizens Power LLC in the Borrowings List) guarantees by the Target in respect of obligations of Citizens existing at the Unconditional Date not exceeding an aggregate principal amount of $310,000,000, provided that such guarantees by the Target shall, unless otherwise agreed by the Majority Banks, be released within 270 days after the first Utilisation Date (G) guarantees by the member of Target Group existing at the Unconditional Date in respect of Borrowings identified in the Borrowings List which remain outstanding without breaching Clause 21.9, other than any such guarantees and Borrowings referred to in (F) above. 21.5 LOANS OUT No Obligor will, and each Obligor will procure that no member of the Company Group will, be the creditor in respect of any Borrowings, save for:- (a) any Borrowing approved pursuant to a Waiver Letter; (b) any Borrowing: (i) under paragraph (b) of the definition of "Borrowing" in Clause 1.1 where trade credit is extended by any member of the Group on normal commercial terms and in the ordinary course of its business; and (ii) under paragraph (c) of the definition of "Borrowing" in Clause 1.1 where moneys are received in the ordinary course of business; (c) loans made by one member of the Bidco Group to another member of the Bidco Group the proceeds of which are used in the ordinary course of the business of the borrower carried on in compliance with the terms of this Agreement; (d) loans made to trade customers of the Bidco Group in the ordinary course of business the purpose of which is to facilitate trade between such customers and members of the Bidco Group; 79 (e) Borrowings not otherwise permitted pursuant to paragraphs (a) - (d) above in an aggregate amount for the Bidco Group as a whole at any time outstanding not exceeding (Pounds)20,000,000 (or its equivalent in other currencies); (f) finance leases entered into in the ordinary course of business; (g) any Borrowing between Bidco as creditor and the Company or Finance as debtor which is permitted under Clause 21.6; (h) any Borrowing between Finance as creditor and the Company as debtor (or vice versa); (i) any Borrowing between the Company as creditor and Energyco as debtor; (j) any Borrowing between the Company or Finance as creditor and Bidco as debtor constituting Subordinated Debt. 21.6 DISTRIBUTIONS, SUBORDINATED DEBT AND SHARE CAPITAL (a) Bidco will not and will procure that none of its Subsidiaries will, save as permitted by a Waiver Letter: (i) pay any Interest in respect of any Subordinated Debt or repay or prepay any amount of principal (or capitalised interest) of or in respect of any Subordinated Debt or purchase or enter into any sub- participation arrangements in respect of any amount of the Subordinated Debt (collectively "SUBORDINATED PAYMENTS"); or (ii) declare, make or pay any dividend (or interest on any unpaid dividend), charge, fee or other distribution (whether in cash or in kind) (the "DIVIDENDS") on or in respect of the share capital of Bidco (or any class of its share capital) or distribute any dividend or share premium reserve of Bidco; or (iii) pay (other than to a member of the Bidco Group) any amount (the "EXCESS AMOUNT") pursuant to the Tax Sharing Agreement in respect of any period where such amount is in excess of the amount by which the aggregate of the payments by the Bidco Group to the United Kingdom tax authorities in respect of that period is or will be reduced as a result of the UK tax losses made or to be made available to the Bidco Group in consequence of such payment; or (iv) make any loans to Energyco or any Affiliate thereof which is not a member of the Bidco Group; or (v) redeem, repurchase, defease, retire, return or repay any of its share capital or resolve to do so other than where such redemption, repurchase, defeasement, retirement or repayment occurs between members of the Bidco Group; or Provided that: (A) Bidco may pay in cash Subordinated Payments; and (B) Bidco may declare and pay in cash Dividends; and 80 (C) Bidco may make loans to the Company or Finance (the "COMPANY LOANS"); and (D) Bidco may pay any Excess Amount; and (E) Bidco may redeem, repurchase, defease, retire, return or repay any of its share capital (a "REDEMPTION PAYMENT") (such Subordinated Payments, Dividends, Company Loans, Redemption Payments and Excess Amounts together being the "DISTRIBUTIONS") in accordance with and subject to Clause 21.6(b) or (f)(ii) of this Agreement and/or Clause 7.2 of the Intercreditor Agreement. (b) Subject to the provisos below, Bidco shall be entitled to pay a Distribution in respect of any quarterly Accounting Period at any time after the tenth Business Day after delivery to the Facility Agent pursuant to Clause 21.2(a)(i) or (ii) of the consolidated Accounts of Bidco for that quarterly Accounting period (accompanied by a certificate as referred to in Clause 22.2(a)(iv)) in an amount equal to: (i) if at all times during that quarterly Accounting Period Bidco has maintained and does also on the proposed payment date maintain senior long term debt ratings of BBB - or better (from Standard & Poor's Rating Group) and Baa3 or better (from Moody's Investor Services Group) (both ratings being required contemporaneously), fifty per cent. (50%) of Adjusted Net Income for that quarterly Accounting Period; or (ii) if either or both of such debt ratings were not maintained at any relevant time, twenty five per cent. (25%) of Adjusted Net Income for that quarterly Accounting Period; PROVIDED THAT notwithstanding the foregoing: (A) if on the last Accounting Date (for which Accounts have been delivered to the Facility Agent pursuant to Clause 21.2(a)(ii)) prior to the proposed date for payment of the Distribution Consolidated Net Total Borrowings exceeded 70% of the sum of (i) Adjusted Capital and Reserves and (ii) Consolidated Net Total Borrowings (both as calculated by reference to the quarterly Accounts delivered pursuant to Clause 21.2(a)(ii) in respect of the quarterly Accounting Period ended on that Accounting Date and the certificate relating thereto delivered pursuant to Clause 21.2(a)(iv)), the amount payable by way of Distribution as aforesaid shall be limited so that the aggregate Distributions paid by Bidco during the quarterly Accounting Period in which such Distribution is paid and the three immediately preceding quarterly Accounting Periods shall not exceed the Sterling Equivalent of $75,000,000; (B) no Distribution may be paid if any Event of Default or any Default falling within Clause 24.1(a) has occurred and is continuing at the time for payment or would occur or be continuing immediately after the payment (whether or not caused by such payment) or as a result of the payment; (C) for the purposes of applying provisos (A) and (B) above in respect of any proposed payment of a Distribution, the amount of such Distribution shall be deemed paid on, and (to the extent that Adjusted Capital and Reserves have not already been reduced on 81 account thereof) shall be deducted in calculating Adjusted Capital and Reserves as determined on, the last Accounting Date prior to the date for payment. (c) CERTIFICATION OF PAYMENT AMOUNTS Where any payment of Distributions is proposed to be made, Bidco shall, prior to making such payment, provide to the Facility Agent not less than 10 Business Days before the proposed date for payment a certificate signed by the Chief Financial Officer in a form reasonably satisfactory to the Facility Agent showing (i) the date and amount of such proposed payment and (ii) such calculations in reasonable detail as are necessary to show that such payment is justified in terms of Clause 21.6(b). (d) OVERPAYMENT OF DISTRIBUTIONS (i) If the Accounts delivered to the Facility Agent pursuant to Clause 21.2(a)(ii) with respect to any quarterly Accounting Period during which a payment of Distributions has been made show that the requirements of Clause 21.6(b) have not been met with respect to such payment (when tested by reference to such Accounts) the amount (the "QUARTERLY EXCESS PAYMENT") by which the aggregate payment exceeded that which could have been made while satisfying the requirements of Clause 21.6(b) (when so tested) shall be applied in reduction of the amount of Distributions otherwise permitted to be paid in respect of subsequent period(s) by Clause 21.6 until the amount of such Quarterly Excess Payment shall have been so applied in full. (ii) If the annual audited Accounts delivered to the Facility Agent pursuant to Clause 21.2(a)(i) with respect to any annual Accounting Period during which a payment of Distributions has been made show that the requirements of Clause 21.6(b) have not been met with respect to such payment (when tested by reference to such audited accounts instead of the relevant quarterly management accounts), the amount (the "ANNUAL EXCESS PAYMENT") by which the aggregate payment exceeded that which could have been made while satisfying the requirements of Clause 21.6(b) (when so tested) shall be applied in reduction of the amount of Distributions otherwise permitted to be paid in respect of subsequent period(s) by Clause 21.6 until the amount of such Annual Excess Payment shall have been so applied in full. (e) TIMING OF CERTAIN DISTRIBUTIONS Without prejudice to the restrictions set out in the foregoing provisions of this Clause 21.6 relating to Distributions, the Company shall ensure that payments (other than to any member of the Bidco Group) pursuant to the Tax Sharing Agreement are not made earlier than is provided for in the Tax Sharing Agreement. (f) SHARE CAPITAL AND DEBT The Company will not, and no Obligor will, and each Obligor will procure that no other member of the Company Group will, save as permitted by a Waiver Letter: (i) save as contemplated by the Structure Memorandum, issue any new share capital or grant any option to any person to subscribe for any shares in its capital: 82 (aa) save that Finance may issue to the Company and/or Bidco may issue to Finance share capital of a type carrying no mandatory redemption rights and no fixed dividend (provided always that such shares are charged immediately upon their issue to the Security Agent pursuant to the terms of the Debenture and, if required by the Security Agent, registered in its name in the books of Finance or Bidco (as the case may be)) and save also that the Company may issue shares to Energyco or (provided that the Net Proceeds of the issue are used to prepay outstandings under the Facilities in accordance with the terms of Clause 9.3) effect an IPO of shares representing less than 25% of the issued share capital of the Company; and (bb) save that any member of the Bidco Group may issue share capital to another member of the Bidco Group (provided that if the Security Agent or the Banks already have security over the shares of the issuer of any such new shares then the Company will procure that the member of the Group to whom such new shares are issued promptly provides security over such shares to the Security Agent and the Banks to the reasonable satisfaction of the Security Agent); or (ii) repay or prepay any amount of principal, capitalised interest or interest pursuant to the Energyco/Company Loan Agreement and/or the Company/Bidco Loan Agreement and/or the Pedro Global Subordinated Loan Note and/or in respect of any Subordinated Debt other than as permitted pursuant to Clause 21.6(a) and (b) and the terms of the Intercreditor Agreement and, with respect to the Pedro Global Subordinated Loan Note, interest may be paid to the extent that Pedro Global has declared or will promptly declare a dividend payment at least equal to the proceeds of such interest payment. 21.7 ENVIRONMENTAL MATTERS Each Obligor will and will procure that each member of the Company Group will: (a) obtain all requisite Environmental Licences and comply in all material respects with (i) the terms and conditions of all Environmental Licences applicable to it and (ii) all other applicable Environmental Law in each case where failure to do so would have a Material Adverse Effect; (b) promptly upon receipt of the same, notify the Facility Agent and the Security Agent of any claim, notice or other communication served on it in respect of any alleged breach of or corrective or remedial obligation or liability under any Environmental Law which it is aware would, if substantiated, have a Material Adverse Effect. 21.8 INSURANCE Each Obligor will, and will procure that each member of the Company Group will, insure and keep insured all its property and assets (including those taken on lease) of an insurable nature and which are customarily insured (either generally or by companies carrying on a similar business) against loss or damage by fire and other risks normally insured against by persons carrying on the same class of business as that carried on by it in a similar location and in a sum or sums and with deductibles and other terms consistent with prudent market practice for companies carrying on a similar business in a similar location. Each Obligor will, and will 83 procure that each member of the Company Group will, with reasonable promptness after becoming aware of the relevant requirement effect and maintain all insurances required by any applicable law or by the Licence. 21.9 REFINANCING DEBT The members of the Bidco Group indicated in the Borrowings List as being the debtors in respect of Refinancing Debt which is to be refinanced (or, where more than one member is indicated in respect of any particular Refinancing Debt, whichever of those members is selected by Bidco to be the borrower of any funds borrowed to refinance that Refinancing Debt) shall accede as Borrowers hereunder in order to enable the relevant member to borrow hereunder to refinance the relevant Refinancing Debt. The Company shall procure that: (a) within three months of the Unconditional Date the Refinancing Debt (other than that which is identified in the Borrowings List as being permitted to remain outstanding on its existing terms or terms negotiated in compliance with the terms hereof) shall be repaid or prepaid in full save to the extent that to do so would breach the prohibition set out in Section 151 Companies Act 1985; and (b) as soon as the procedures set out in Section 155 et seq Companies Act 1985 required to be implemented to permit the repayment of Refinancing Debt not required to be repaid or prepaid in accordance with paragraph (a) above by reason of the exception relating to Section 151 of the Companies Act 1985 have been completed all such Refinancing Debt shall be repaid or prepaid (other than that which is identified in the Borrowings List as being permitted to remain outstanding as aforesaid). The Company shall ensure that any renegotiated terms applicable to any Refinancing Debt (other than that denominated according to the Borrowings List in the currency of the Czech Republic) which is identified in the Borrowings List as being permitted to remain outstanding shall not be more favourable in terms of all-in return in any material respect to the creditors therefor than the terms of this Agreement applicable to Utilisations by Bidco. 21.10 GENERAL UNDERTAKINGS (a) CHANGE OF BUSINESS: No Obligor will, and each Obligor will procure that no other member of the Company Group will, save as permitted by a Waiver Letter, carry on any business other than those which are usual for energy companies (including, without limitation, electricity distribution, supply and generation, and business activities related to the gas, telecommunications and water industries or the energy or energy related business) provided that any member of the Company Group may continue to carry on any business which it carries on as at the date hereof. (b) MERGERS: No member of the Company Group shall enter into any merger or consolidation with any other person, save that (i) members of the Bidco Group may do so with other members of the Bidco Group provided that the security provided for in the Security Documents (taken as a whole) will not be materially prejudiced thereby, and (ii) Finance may do so with the Company. 84 (c) HOLDING COMPANY: Save as permitted by a Waiver Letter, none of the Company, Finance or Bidco shall carry on any business (other than the provision of administrative services to members of the Company Group and the holding of shares and making of loans as provided for below) or acquire any assets other than Cash, Cash Equivalent Investments or shares or loans which (i) in the case of the Company, are shares in Finance or a share in Bidco held as nominee for Finance or loans to Finance or Bidco or (to the extent permitted by Clauses 21.5 and 21.6) Energyco, or (ii) in the case of Finance, are shares in Bidco or loans to Bidco or the Company, or (iii) in the case of Bidco, are Shares acquired in the Target by Bidco or loans to any member of the Bidco Group or (subject to Clause 21.6) to the Company or Finance, and in the case of (i), (ii) and (iii) and subject to Clause 2.6 are or become on acquisition mortgaged, pledged or otherwise charged to the Security Agent pursuant to the Security Documents, provided that the foregoing restriction shall cease to apply to Bidco immediately upon any merger of it and the Target (whether by liquidation of the Target or otherwise). (d) ADMINISTRATION AND WINDING-UP ORDERS ETC.: No Obligor will, and each Obligor will procure that no other member of the Company Group will, save as permitted by a Waiver Letter, make or join in making any application to any court for an administration, winding-up, receivership or other similar order to be made in relation to any Obligor or Material Subsidiary, other than in respect of a solvent winding-up or dissolution of a member of the Company Group where such application or the granting of any such application is made to effect a merger of two companies permitted under the terms of Clause 21.10(b) or would not have a Material Adverse Effect. (e) ARM'S-LENGTH TERMS: No Obligor will, and each Obligor will procure that no other member of the Company Group will, enter into any material transaction with any person otherwise than on arm's length terms, save as permitted by a Waiver Letter, and save for (i) loans made by one member of the Company Group to a member of the Bidco Group or by Bidco to the Company or Finance, (ii) disposals by one member of the Company Group to a member of the Bidco Group permitted by Clause 21.3(c), (iii) transactions entered into on terms more favourable to a member of the Bidco Group than would have been the case had the transaction been entered into on arm's length terms, (iv) transactions expressly permitted by this Agreement, (v) other transactions between members of the Bidco Group not otherwise prohibited by the terms of this Agreement, (vi) the Asset Split and (vii) the Coalco/Bidco Loan Agreement and (viii) disposal by Pedro Investments to Coalco or any of its subsidiaries of net proceeds of any disposal of Citizens. (f) AMENDMENTS TO DOCUMENTS: No Obligor will, and each Obligor will procure that no other member of the Company Group, save as permitted by a Waiver Letter, will or will agree to amend, supplement, supersede or waive any term of the Transaction Documents in any manner which would materially and adversely affect the interests of the Banks under the Finance Documents taken as a whole without the prior written consent of the Majority Banks. (g) CONSTITUTIONAL DOCUMENTS: No Obligor will, and each Obligor will procure that no other member of the Company Group will, save as permitted by a Waiver Letter or as required by law, amend or seek or agree to amend or replace the memorandum or articles of association or other constitutional documents or by-laws of any member of the Company Group in any way which would materially and adversely affect the interests of the Banks under the Finance Documents (taken as a whole), provided that if any such undertaking would not be enforceable (having regard to the rule in Russell v. Northern ------------------- Bank Development Corporation Limited & Ors) against any Obligor it shall ------------------------------------------- not be given by that Obligor. 85 (h) COMPLIANCE WITH LAWS: Each Obligor will, and will procure that each other member of the Company Group will, comply in all material respects with all applicable laws, rules, regulations and orders of any governmental authority, whether domestic or foreign, having jurisdiction over it or any of its assets, failure to comply with which would have a Material Adverse Effect. (i) CONSENTS: Each Obligor will, and will procure that each other member of the Company Group will, obtain, promptly renew from time to time and maintain in full force and effect, and if so requested promptly furnish certified copies to the Facility Agent of all such material authorisations, approvals, consents, licences and exemptions as may be required under any applicable law or regulation or under the Licence or any Licence Undertaking: (i) to enable each Obligor to perform its respective material obligations under the Finance Documents to which it is a party or required for the validity or enforceability of such Finance Documents or of any security provided for thereby; and/or (ii) to carry on its business as it is being conducted from time to time where failure to obtain, renew or maintain any such authorisation, approval, consent, licence or exemption or non-compliance with the terms of the same would have a Material Adverse Effect. (j) PENSION SCHEMES: The Company shall procure that all pension schemes maintained by or for the benefit of any member of the Company Group and/or any of its employees are maintained and operated in all material respects in accordance with all applicable laws from time to time and will ensure that all such pension schemes are funded substantially in accordance with the governing provisions of such schemes with any shortfall in funding advised by actuaries of recognised standing, being rectified in accordance with such governing provisions. (k) SYNDICATION: The Company shall ensure that such members of the Company Group as the Facility Agent may reasonably require shall provide reasonable assistance to the Facility Agent and the Arrangers in the preparation of the Information Memorandum for syndication of the Facilities and comply with all reasonable requests for information from potential syndicate members made through the Facility Agent or an Arranger and, in each case until the earlier of conclusion of the general syndication (as notified to the Company by the Facility Agent) or the date falling six months after the Unconditional Date. (l) LICENCE UNDERTAKINGS The Company shall procure that on and from the Unconditional Date each Licenceholder will: (i) take all appropriate steps efficiently to perform and discharge the duties and functions of a generator of electricity or, as the case may be, public electricity supplier in accordance with the provisions of the Act and, in particular, to comply with: (A) the terms and conditions of the Licence; (B) the provisions of any final order or confirmed provisional order made under the Act; and 86 (C) all undertakings given by it to the Director-General and/or the Secretary of State in respect of the matters referred to in Section 25(5) of the Act, where failure to take all appropriate steps would have or would be reasonably likely to have a Material Adverse Effect; (ii) take all appropriate steps efficiently to perform and discharge the duties and functions of a public gas transporter, shipper and/or supplier in accordance with the provisions of the Gas Act and, in particular, to comply with: (A) the terms and conditions of the Licence; and (B) the provisions of any final order or confirmed provisional order made under the Gas Act, where failure to take all appropriate steps would have or would be reasonably likely to have a Material Adverse Effect; (iii) not consent to any material amendment to the terms and condition of the Licence or to the giving of or amendment to any Licence Undertaking if that amendment or Licence Undertaking would have (whether immediately or in the course of time prior to the Final Repayment Date) a Material Adverse Effect and, if the amendment is required pursuant to a law or regulation applying to the electricity industry or gas industry (as the case may be) as a whole, within 30 days the Company and the Facility Agent (on behalf of the Banks), have not agreed new terms for this Agreement acceptable to the Majority Banks, within 30 days the Company and the Agent (on behalf of the Banks) have not agreed new terms for this Agreement acceptable to the Majority Banks; (iv) not consent to any revocation of any Licence except where a replacement licence is to be granted to a member of the Bidco Group in its place (if such replacement Licence is required by statute or by regulation by a company to carry on the business of a Licenceholder as carried on as at the date hereof); (v) promptly and in any event not less than 10 Business Days prior to it so doing, inform the Agent of any Licence Undertaking to be given by it to the Director General and/or the Secretary of State and of any material amendment to be made by it to the terms and conditions of the Licence; (vi) promptly supply to the Facility Agent: (A) certified copies of all notices or orders served on it by the Director General or the Director General of Gas Supply or the Secretary of State in exercise of the powers conferred on him by the Act and/or the Gas Act (as the case may be); (B) details of any references relating to it to the Monopolies and Mergers Commission; and (C) details of the exercise or purported exercise by the Secretary of State or the Director General or the Director General of Gas Supply of the powers conferred on them by the Fair Trading Act 1973, the Competition Act 1980, 87 Section 12 of the Act and/or Section 24 of the Gas Act relating to it or any business carried on by it and regulated thereby; (vii) ensure that at all times the Licenceholder has sufficient working capital to finance the performance and discharge of its duties as a generator of electricity or, as the case may be, public electricity supplier, in accordance with the provisions of the Act and the terms and conditions of its Licence; and (viii) not permit any person other than a member of the Bidco Group to perform or manage on its behalf any of its functions as a public electricity and/or gas supplier, as set out in the relevant Licence and the Act (in the case of electricity) or the Gas Act (in the case of gas. (m) OFFER DOCUMENT: Upon reasonable notice being given by the Facility Agent and at its reasonable request, the Company shall procure that Bidco shall explain or give details of any item in any draft of the, or the Offer Document and discuss with the Arrangers the contents thereof (such explanation and/or details being to the best of its knowledge and belief, in respect of any item relating to the Target and/or the Target Group). (n) OFFER TERMINATION DATE: Promptly upon the occurrence of the Offer Termination Date Bidco shall give notice to the Facility Agent (who shall notify the Banks of the same) that the same has occurred. (o) SECTION 428: Promptly upon acquisition by it of 90% in value of the share capital in Target to which the Offer relates, Bidco shall implement the procedures set out in Section 429 of the Companies Act 1985 and use its reasonable endeavours to acquire 100% of the issued share capital of Target within 6 weeks of its implementation of such procedure. (p) HEDGING DOCUMENTS: The Company will effect the interest rate hedging transactions described in the letter referred to in Clause 4.1(d) in amounts, and by the times contemplated in such letter. (q) STRUCTURE MEMORANDUM: As soon as permitted by relevant law after the Unconditional Date the Company shall procure that: (i) the American Depositary Shares in the capital of the Target shall be delisted from the New York Stock Exchange and shall be converted to ordinary shares in the capital of the Target; and (ii) those steps contemplated by the Structure Memorandum, not completed as at the date hereof, shall be completed substantially in accordance with and as set out in the Structure Memorandum. (r) ASSET SPLIT: The Company will procure that within 270 days of the first Utilisation Date the Asset Split shall have occurred. 22. THE OFFER (a) Each of the Company and Bidco undertakes that: 88 (i) without the prior agreement of the Majority Offer Banks (such agreement being conclusively evidenced by a written notice from the Facility Agent to the Company and, in the case of sub-paragraphs (A) and (C), not to be unreasonably withheld or delayed) neither Bidco nor, in respect of sub-paragraph (C) only, the Company will: (A) amend or vary in any material respect any material term or condition of the Offer, other than by virtue of any extension of the time for acceptance of the Offer; (B) take or permit to be taken any step as a result of which the offer price stated in the Offer is, or may be required to be, increased beyond the level agreed between Bidco and the Banks from time to time; (C) issue or allow to be issued any press release or other publicity, the text of which has not been previously agreed with the Arrangers, which makes reference to the Facilities or to some or all of the Finance Parties unless the publicity is required by law, the Code or any stock exchange (in which case the Company or Bidco (as the case may be) shall notify the Facility Agent and the Banks as soon as practicable upon becoming aware that the publicity is required); (ii) in all material respects relevant in the context of the Offer, it will comply with the Code (subject to any applicable waivers by the Panel), the Financial Services Act 1986, the Companies Act 1985 and all other applicable statutes, laws and regulations; (iii) it will keep the Facility Agent informed as to the status and progress of the Offer and, in particular, will from time to time and promptly on request give to the Facility Agent reasonable details as to the current level of acceptances of the Offer (including a copy of every certificate delivered by the receiving agent to Bidco and/or its advisers pursuant to the Code) and such other matters relevant to the Offer as the Facility Agent may reasonably request. (b) Bidco undertakes that, without the prior agreement of the Majority Offer Banks, Bidco will not decide, declare or accept that valid acceptances in respect of less than 90 per cent. in nominal value of Amazon Securities to which the Offer relates shall be required for fulfilment of the condition set out in paragraph (a) of Appendix 1 to the Press Release, Provided that the Majority Offer Banks shall not unreasonably withhold or delay giving their agreement if it is shown to their reasonable satisfaction that Bidco will achieve acceptances sufficient to enable it to give notice under section 429 of the Companies Act 1985 in relation to the shares to which the Offer relates. (c) Bidco shall keep the Facility Agent informed and consult with it as to: (i) the terms of any undertaking or assurance proposed to be given by it, any of its Affiliates or any member of the Target Group to the Director General of Electricity Supply, the Director General of Gas Supply or the Secretary of State for Trade and Industry in connection with the Offer; (ii) the terms of any modification to any of the Target Group's licences under the Gas Act 1986 or the Electricity Act 1989 proposed in connection with the Offer; 89 (iii) any terms proposed in connection with any authorisation or determination necessary or appropriate in connection with the Offer, including those from the Secretary of State for Trade and Industry and the Foreign Investment Review Board of Australia. If any of such proposed undertakings, assurances, modifications or terms are, where applicable, of a type materially more onerous than those accepted in connection with the acquisition of other regional electricity companies in the UK and the Majority Offer Banks, acting reasonably, state that in their opinion such proposed undertaking(s), assurance(s), modification(s) and/or term(s), or compliance therewith, would materially and adversely affect the ability of the Bidco Group to comply with its material obligations under the Finance Documents, Bidco shall promptly request the Panel to confirm (and shall use its reasonable endeavours to ensure that the Panel does confirm) that the Panel will not object to the lapsing of the Offer as a result of the non-satisfaction of whichever of conditions (b) to (f), (j) and (l) in Appendix 1 to the Press Release is relevant. If the Panel gives a confirmation substantially in those terms, Bidco shall at the earliest opportunity declare the Offer lapsed by reason of the non-fulfilment of such condition(s). (d) If Bidco becomes aware (whether through notice from the Agent or any Bank or otherwise) of a circumstance or event which is or could reasonably be construed to be covered by any condition of the Offer (other than those contained in paragraphs (a) to (j) of Appendix 1 to the Press Release) which, if not waived, would entitle Bidco (with the Panel's consent, if needed) to lapse the Offer, Bidco shall promptly notify the Facility Agent and, if the Majority Offer Banks, acting reasonably, state that in their opinion such circumstance or event would materially and adversely affect the ability of the Bidco Group to comply with its material obligations under the Finance Documents, Bidco shall promptly request the Panel to confirm (and shall use its reasonable endeavours to ensure that the Panel does confirm) that the Panel will not object to the lapsing of the Offer as a result of the non-satisfaction of that condition. If the Panel gives a confirmation substantially in those terms, Bidco shall not waive that condition or treat it as fulfilled and shall declare the Offer lapsed at the earliest opportunity. 23. FINANCIAL RATIOS 23.1 FINANCIAL UNDERTAKINGS The Company and Bidco will procure that:- (a) CONSOLIDATED NET TOTAL BORROWINGS TO THE SUM OF ADJUSTED CAPITAL AND RESERVES AND CONSOLIDATED TOTAL NET BORROWINGS: Consolidated Net Total Borrowings at all times during the periods set out below shall not be more than Y per cent. of the sum of Adjusted Capital and Reserves and Consolidated Total Net Borrowings on such Accounting Date, where Y has the value indicated for such Accounting Date in such table:-
PERIOD Y% Unconditional Date to 78 31st March, 1998 1st April, 1998 to 31st December, 1998 76
90 1st January, 1999 to 31st December, 1999 75 1st January, 2000 to 31st December, 2000 74 1st January, 2001 to 31st December, 2001 72 1st January, 2002 to Final Repayment Date 70
(b) CONSOLIDATED EBITDA TO CONSOLIDATED TOTAL NET INTEREST PAYABLE: Consolidated EBITDA for any period comprising an annual Accounting Period of Bidco or four (taking into account the provisions of Clause 23.2) consecutive quarterly Accounting Periods of Bidco (taken together as one period) ending on any Accounting Date falling closest to the date specified in the table below, shall not be less than Y times Consolidated Total Net Interest Payable for such period, where Y has the value indicated for such Accounting Date in such table:-
ACCOUNTING DATE Y% (before any adjustment) 31st December, 1997 2.3 31st March, 1998 2.3 30th June, 1998 2.3 30th September, 1998 2.3 31st December, 1998 2.3 31st March, 1999 2.3 30th June, 1999 2.3 30th September, 1999 2.3 31st December, 1999 2.3 31st March, 2000 2.5 30th June, 2000 2.5 30th September, 2000 2.5 31st December, 2000 2.5 31st March, 2001 2.7 30th June, 2001 2.7 30th September, 2001 2.7 31st December, 2001 2.7 31st March, 2002 2.7 30th June, 2002 2.7
23.2 INITIAL CONSOLIDATED EBITDA TO CONSOLIDATED TOTAL NET INTEREST PAYABLE TESTS The first test of the covenant set out in Clause 23.1(b) shall be made in respect of a period ending on the expiry of the quarterly Accounting Period commencing on, or (if none) on the expiry of the first quarterly Accounting Period commencing after, the Unconditional Date. The first three tests of such covenant shall be made in respect of periods which shall include such number of pro forma Accounting Periods commencing before the Unconditional Date as shall be required in order that each test is made for a period comprising four quarterly Accounting Periods and on the basis of pro forma Accounts for those pro forma Accounting Periods delivered to the Facility Agent pursuant to Clause 21.1(a)(vi) and Accounts delivered to the Facility Agent pursuant to Clause 21.2(a)(ii). 91 24. DEFAULT 24.1 EVENTS OF DEFAULT Each of the events set out below is an Event of Default (whether or not caused by any reason outside the control of any or all of the Obligors or of any other person):- (a) NON-PAYMENT: any Obligor does not pay on the due date any amount payable by it under any Finance Document at the place, in the currency and in the funds expressed to be payable, provided that this sub- clause shall not apply (i) to unpaid amounts which are paid in full within three Business Days of the due date where the failure to pay such amount on its due date is due solely to technical or administrative error, failure or delay in the transmission of funds; or (ii) to unpaid amounts (other than of principal of or interest or fee on any Utilisation) which are paid in full within five Business Days of the due receipt by the relevant Obligor of written notice from the Facility Agent requiring the failure to be remedied; or (b) BREACH OF OBLIGATION: (i) any Obligor fails to comply with any provision of Clause 23 (Financial Undertakings); or (ii) any Obligor fails to comply with any other provision of this Agreement (irrespective of whether or not such provision is valid and enforceable against such Obligor) and/or any other provision of any other Finance Document and, if such failure is capable of remedy within such period, such Obligor shall have failed to remedy such failure within 14 days after the earlier of the relevant Obligor becoming aware of such default (provided that such 14 day period shall be suspended from the date on which any Obligor notifies the Facility Agent of such failure, to the date on which the Facility Agent confirms to the relevant Obligor that such remedy is required) and receipt by the relevant Obligor of written notice from the Facility Agent to such Obligor requiring the failure to be remedied; or (iii) any Obligor shall do any of the things prohibited in Clauses 21.6(a) (Dividends) or 21.6(f) (Share Capital), or any of the things prohibited in Clause 21.10(g) (Constitutional Documents) shall be done to or by any Obligor, whether or not (having regarding to the rule in Russell v. Northern Bank Development ------------------------------------ Corporation Limited & Ors.) such undertaking is enforceable -------------------------- against that Obligor, and, in each case, the thing, if remediable, shall not have been remedied within 14 days after the earlier of the relevant Obligor becoming aware thereof (provided that such 14 day period shall be suspended from the date on which any Obligor notifies the Facility Agent of such thing, to the date on which the Facility Agent confirms to the relevant Obligor such remedy is required) and receipt by the relevant Obligors of written notice from the Facility Agent to such Obligor requiring the thing to be remedied; or 92 (c) MISREPRESENTATION/BREACH OF WARRANTY: any representation, warranty or statement made or repeated by or on behalf of any Obligor, in any Finance Document or in any certificate or statement delivered by or on behalf of any Obligor or other member of the Company Group under or in connection with any Finance Document, is incorrect or misleading in any respect which is material when made or deemed to be made or repeated by reference to the facts and circumstances then subsisting and, if the circumstances causing such misrepresentation are capable of remedy within such period, such Obligor shall have failed to remedy such circumstances within 14 days after the earlier of the relevant Obligor becoming aware of such misrepresentation (provided that such 14 day period shall be suspended from the date on which any Obligor notifies the Facility Agent of such misrepresentation, to the date on which the Facility Agent confirms to the relevant Obligor that such remedy is required) and receipt by the relevant Obligor of written notice from the Facility Agent to such Obligor requiring the circumstances causing such misrepresentation to be remedied; or (d) INVALIDITY: any of the Finance Documents (other than any Documentary Credit or Substitution Certificate)shall cease to be in full force and effect in any material respect or shall cease to (or be alleged by any Obligor not to) constitute the legal, valid and binding obligation of any Obligor party to it or, in the case of any Security Document, fail to (or be alleged by any Obligor not to) provide effective security in favour of the Security Agent and the Banks over the assets over which security is intended to be given by that Security Document, in each case in a manner and to an extent materially adverse to the interests of the Banks under the Finance Documents (taken as a whole) or it shall be unlawful for any Obligor to perform any of its material obligations under any of the Finance Documents, provided that where the relevant Finance Documents are re-executed by the relevant Obligors in the same form in all material respects and none of the circumstances described in this paragraph apply in respect of those Finance Documents as so re-executed by the relevant Obligors and the interests of the Banks under the Finance Documents are not continuing to be materially and adversely affected as a result of any of the foregoing circumstances having occurred, the relevant Event of Default under this paragraph shall be treated as having been cured; or (e) CROSS-DEFAULT: (i) Any Borrowings (other than Project Finance Borrowings) of a member or any members of the Company Group (taken together) aggregating (Pounds)30,000,000 (or its equivalent in other currencies) or more at any one time outstanding become (or become capable of being declared) due and payable or due for redemption before their normal maturity date or are placed on demand, in each case by reason of the occurrence of an event of default (howsoever characterised); (ii) Any Borrowings (other than Project Finance Borrowings) of any member or members of the Company Group (taken together) aggregating (Pounds)30,000,000 (or its equivalent in other currencies) or more are not paid when due (whether falling due by demand, at scheduled maturity or otherwise) nor within any applicable grace period provided for in the document evidencing or constituting those Borrowings unless being disputed in good faith; or 93 (iii) If funds aggregating (Pounds)30,000,000 (or its equivalent in other currencies) are outstanding in respect thereof, any commitment for or underwriting of any facility for Borrowings (other than Project Finance Borrowings) aggregating (Pounds)30,000,000 (or its equivalent in other currencies) or more of any member or members of the Company Group (taken together) is cancelled or suspended by the provider of that facility by reason of the occurrence of an event of default (howsoever characterised). For the purpose of this Clause 24.1(e) any amount arising pursuant to any arrangement falling within paragraph (f) of the definition of Borrowing in Clause 1.1 which is capable of being declared due and payable before its normal due date by reason of the occurrence of an event of default (howsoever characterised) shall be deemed to be the Negative Termination Amount in respect of such arrangement and shall be aggregated with all other relevant amounts accordingly; or (f) LIQUIDATION: any order is made or resolution passed or any legal proceedings are initiated or are consented to by any Obligor or any Material Subsidiary, or any petition shall be presented or legal proceedings commenced by any person (and not, where that person is unconnected with that Obligor or Material Subsidiary save for being a creditor of such member, discharged or stayed within twenty-one days in the case of both legal proceedings and such petition), for the suspension of payments generally or for any process giving protection against creditors or for the dissolution, termination of existence, liquidation, winding up, bankruptcy or other like process, in each case with respect to the Obligor or any Material Subsidiary save to the extent any such liquidation is made to effect a merger of two companies permitted under the terms of Clause 21.10(b); or (g) MORATORIUM: a moratorium in respect of all or any debts of any Obligor or Material Subsidiary or a composition or an arrangement with creditors generally of such Obligor or Material Subsidiary or any other arrangement whereby its affairs and/or assets are submitted to the control of or are protected from its creditors is applied for, ordered or declared save where the relevant company is, in good faith, contesting such application, moratorium, composition or arrangement by appropriate proceedings diligently pursued and such application, moratorium, composition or arrangement is discharged within 21 days; or (h) ADMINISTRATOR: an application is made for the appointment of an administrator (as such term is used in the Insolvency Act 1986) or similar official in relation to any Obligor or Material Subsidiary or an administrator or administrative receiver is appointed in respect of any Obligor or Material Subsidiary save where the relevant company is, in good faith, contesting such application or appointment by appropriate proceedings diligently pursued and such application is not discharged or appointment rescinded within 21 days or an effective resolution is passed by the directors or shareholders of any Obligor or Material Subsidiary for such an application to be made; or (i) RECEIVER: a liquidator or provisional liquidator (save as excepted in paragraph (f) above) or, a trustee, receiver, administrative receiver, manager (being a person acting on behalf of all or any creditors) or similar officer is appointed in respect of any Obligor or Material Subsidiary or in respect of (or takes possession of) all or any part 94 of its assets with a value in excess of (Pounds)30,000,000 (or the equivalent in other currencies); or (j) INSOLVENCY: any Obligor or Material Subsidiary is declared or deemed pursuant to any applicable legislation to be insolvent or is or is deemed pursuant to any applicable legislation to be unable, or admits in writing its inability, to pay its debts as they fall due or stops or threatens to stop payment of its debts generally or becomes insolvent within the terms of any applicable law excluding Section 123(1)(a) of the Insolvency Act, 1986; or (k) DISTRESS: any distress, execution, attachment, sequestration or other like process affects any Obligor or Material Subsidiary save where (i)(I) the relevant member is, in good faith, contesting the distress, execution, attachment, sequestration or other like process by appropriate proceedings diligently pursued, or (II) such process is discharged within 21 days or (III) such process is being pursued in respect of an amount due not exceeding (Pounds)30,000,000 and (ii) the ability of any Obligor to comply with its obligations under the Finance Documents will not be materially and adversely affected whilst such distress, execution, attachment, sequestration or other process is being so contested; or (l) ANALOGOUS PROCEEDINGS: there occurs, in relation to any Obligor or Material Subsidiary in any country or territory in which it is incorporated or carries on business or to the jurisdiction of whose courts it or any part of its assets is subject, any event which, in the reasonable opinion of the Majority Banks, corresponds in that country or territory with any of the events mentioned in paragraphs (f) to (k) (inclusive) above or any Obligor or Material Subsidiary otherwise becomes subject, in any of those countries or territories, to any law or proceedings relating to insolvency, bankruptcy, liquidation, reorganisation or dissolution having a similar effect to the events mentioned in paragraphs (f) to (k) (inclusive) above; or (m) CESSATION: any Obligor or Material Subsidiary ceases to carry on all or a substantial part of its business (save in consequence of any reorganisation, reconstruction or amalgamation permitted under this Agreement or approved pursuant to a Waiver Letter or and save as may result from any disposal of assets permitted by the terms of this Agreement or any solvent liquidation, dissolution or winding up of any Material Subsidiary (not being an Obligor, other than in the event of such liquidation made to effect a merger of two companies permitted under the terms of Clause 21.10(b)) which would not have a Material Adverse Effect); or (n) CONTROL: without the prior written consent of the Majority Banks, any single person or group of persons acting in concert (as defined in the City Code on Takeovers and Mergers), other than one or more of Ricardo and any of its Affiliates acquires control (as defined in Section 416 of the Income and Corporation Taxes Act 1988) of the Company; or (o) PROCEEDINGS: there is current or pending at the Unconditional Date or there shall occur thereafter any litigation, arbitration, administrative, regulatory or other proceedings or enquiry (including without limitation, any such by the Office of Fair Trading, the Monopolies and Mergers Commission, the Department of Trade and Industry, or any equivalent body in any other jurisdiction or the European Commission or any division 95 of any thereof or authority deriving power from any thereof) concerning or arising in consequence of any of the Transaction Documents and/or the implementation of any matter or transaction provided for in the Transaction Documents or otherwise concerning or involving any Obligor or Material Subsidiary and, in each case the same has a Material Adverse Effect; or (p) EXPROPRIATION: the authority or ability of any Obligor or Material Subsidiary to conduct its business (i) is wholly curtailed by any seizure, expropriation, intervention, renationalisation or other action by or on behalf of any governmental, regulatory or other authority or (ii) is substantially curtailed by any seizure, expropriation, intervention, renationalisation, or other action by or on behalf of any governmental, regulatory or other authority which is reasonably likely to have a Material Adverse Effect; or (q) DISTRIBUTION BUSINESS/GENERATION BUSINESS: (i) the Bidco Group ceases, or threatens to cease, to carry on the Distribution Business; or (ii) any change is made in the statutory or regulatory requirements applicable to the Distribution Business or the Generation Business or any new statutory or regulatory requirements are imposed on it which have a Material Adverse Effect and, if the changed or new statutory or regulatory requirements apply to the electricity industry as a whole, within 30 days the Company and the Facility Agent (on behalf of the Banks) have not agreed new terms for this Agreement acceptable to the Majority Banks; or (r) REVOCATION AND MODIFICATION OF LICENCE: (i) The Secretary of State gives notice in writing of the revocation of a Licence for any reason or a Licence ceases to be in full force and effect in any material respect, in each case except where a similar licence is granted to a member of the Bidco Group in its place or where such Licence is no longer required (by law or regulation) to be held by any Licenceholder in order that it may carry on any business carried on by such Licenceholder on the date hereof. (ii) Without prejudice to paragraph (i) above, any legislation (whether primary or subordinate) removing, reducing or qualifying the duties of the Secretary of State and/or the Director-General with regard to the creditors or the ability of the Licenceholder to raise finance under a Licence or of generators of electricity or public electricity suppliers generally is enacted and the enactment has a Material Adverse Effect. (iii) Any amendment is made to the terms and conditions of a Licence and the amendment has a Material Adverse Effect and, if the amendment is required pursuant to a law or regulation applying to the electricity industry as a whole, within 30 days the Company and the Facility Agent (on behalf of the Banks) have not agreed new terms for this Agreement acceptable to the Majority Banks; or 96 (s) GAS FRAMEWORK AGREEMENT: Target or any other member of the Bidco Group ceases to be a party to the Gas Framework Agreement except where another member of the Bidco Group becomes a party to that agreement in its place or (t) COMPLIANCE WITH ACT: Any member of the Bidco Group fails to comply with a final order (within the meaning of Section 25 of the Electricity Act) or with a provisional order (within the meaning of that section) which has been confirmed under that section (and not since been revoked) or any provisions of the Act detailing the rights, powers, authorities, obligations and duties of the Secretary of State or the Director-General or the manner in or time at which they are to be exercised, are repealed or amended in a manner which has (or is likely to have) a Material Adverse Effect; or (u) POOLING AND SETTLEMENT AGREEMENT: any notice requiring Target to cease to be a party to the Pooling and Settlement Agreement is given to Target or any member of the Bidco Group under Clauses 60.1.3 or 60.2.2 of the Pooling and Settlement Agreement or Target or any member of the Bidco Group otherwise ceases to be a party to the Pooling and Settlement Agreement save where another member of the Bidco Group becomes a party in its place; or (v) INTERCREDITOR AGREEMENT: (i) any Affiliate of the Company (other than a member of the Company Group) party thereto fails to comply with any provision of the Intercreditor Agreement or the Coalco Intercreditor Agreement and, if such failure is capable of remedy within such period, such party shall have failed to remedy such failure within 14 days after the earlier of the relevant party becoming aware of such default (provided that such 14 day period shall be suspended from the date on which any such party notifies the Facility Agent of such failure, to the date on which the Facility Agent confirms to the relevant party that such remedy is required) and receipt by the relevant party of written notice from the Facility Agent to such party requiring the failure to be remedied; or (ii) any representation, warranty or statement made or repeated by or on behalf of any Affiliate of the Company (other than a member of the Company Group) party thereto, in the Intercreditor Agreement or in the Coalco Intercreditor Agreement or in any certificate or statement delivered by or on behalf of any Obligor or other member of the Company Group under or in connection with the Intercreditor Agreement or in the Coalco Intercreditor Agreement, is incorrect or misleading in any respect which is material when made or deemed to be made or repeated by reference to the facts and circumstances then subsisting and, if the circumstances causing such misrepresentation are capable of remedy within such period, such Obligor shall have failed to remedy such circumstances within 14 days after the earlier of the relevant Obligor becoming aware of such misrepresentation (provided that such 14 day period shall be suspended from the date on which any Obligor notifies the Facility Agent of such misrepresentation, to the date on which the Facility Agent confirms to the relevant Obligor that such remedy is required) and receipt by the relevant Obligor of written notice from the Facility Agent to such Obligor requiring the circumstances causing such misrepresentation to be remedied; or 97 (iii) any of the Intercreditor Agreement or the Coalco Intercreditor Agreement is not or ceases to be in full force and effect in any material respect or shall cease to (or be alleged by any party not to) constitute the legal, valid and binding obligation of any Affiliate of the Company (other than a member of the Company Group) party thereto, in each case in a manner and to an extent to be materially adverse to the interests of the Banks under the Intercreditor Agreement or in the Coalco Intercreditor Agreement (taken as a whole) or it shall be unlawful for any such Affiliate to perform any of its material obligations under the Intercreditor Agreement or in the Coalco Intercreditor Agreement provided that where the relevant agreement is re-executed by the relevant party in the same form in all material respects and none of the circumstances described in this paragraph apply in respect of that agreement as so re-executed by the relevant party and the interests of the Banks under that agreement are not continuing to be materially and adversely affected as a result of any of the foregoing circumstances having occurred, the relevant Event of Default under this paragraph shall be treated as having been cured; and in each such case in the reasonable opinion of the Majority Banks the interests of the Banks under the Finance Documents (taken as a whole) shall be materially prejudiced thereby; or (w) MATERIAL ADVERSE EFFECT: any event or series of events whether related or not occurs which has a Material Adverse Effect; or (x) ASSET SPLIT AND CERTAIN GUARANTEES: (i) the Asset Split shall not have occurred and been completed in all material respects as indicated in the Structure Memorandum within 270 days of the first Utilisation Date, or (ii) any of the guarantees referred to in Clause 21.4(b)(F) shall not be discharged or released within 270 days of the first Utilisation Date. 24.2 SANCTIONS Subject, where applicable, to Clause 24.3, upon the occurrence of an Event of Default and at any time thereafter while the same is continuing and has not been waived pursuant to a Waiver Letter, the Facility Agent may, and shall if so directed by the Majority Banks, by notice to the Company:- (a) declare that an Event of Default has occurred; and/or (b) declare that the Total Commitments shall be cancelled or reduced forthwith to the level specified by the Facility Agent, whereupon the same shall be so cancelled and all fees payable in relation to the amount of the Total Commitments so cancelled or reduced shall become immediately due and payable, provided that until all the Shares have been acquired pursuant to the Offer and/or the procedure set out in Section 428 et seq. Companies Act, 1985 or the Offer Termination Date has occurred this power shall not be exercised so as to result in (i) the maximum aggregate amount from time to time remaining to be paid (on the assumption that all outstanding Shares will be acquired) to accepting shareholders pursuant to the Offer and/or pursuant to procedures implemented or to be implemented under Section 428 et seq. Companies Act 1985 and 98 to the Optionholders under the proposals referred to in Clause 3.1(a)(i)(B), less (ii) the amount (if any) by which the aggregate amount paid to Bidco by the Company in cash for share capital and Subordinated Debt and all Matching Amounts capable of being drawn pursuant to the Coalco/Bidco Loan Agreement from time to time exceeds the amount which has actually been paid to accepting shareholders pursuant to the Offer from time to time and/or used for any other purpose referred to in Clause 3.1(a)(i)(B) or (C) or (ii), exceeding (iii) the amount of the undrawn Commitments the proceeds of drawings of which are capable in accordance with Clause 3.1 of being applied in payment to accepting shareholders in the Target pursuant to the Offer and/or for any other purpose referred to in Clause 3.1(a)(i)(B) or (C); and/or (c) declare that all or part of the Advances to some or all of the Borrowers be payable on demand, whereupon (to the extent so declared) they shall immediately become payable by the relevant Borrower on demand by the Facility Agent (and if and to the extent any such demand is subsequently made those Advances (to the extent so declared and demanded), together with accrued interest on and all other amounts accrued under this Agreement in respect of the Advances so declared and demanded, shall be immediately due and payable); and/or (d) demand that all or part of the Advances to some or all of the Borrowers, together with accrued interest, and all other amounts accrued under this Agreement be immediately due and payable, whereupon (to the extent so demanded) they shall become immediately due and payable; and/or (e) require the payment to the Facility Agent of a sufficient sum to cover the Outstanding Liability Amounts under some or all outstanding Documentary Credits issued for the account of some or all of the Borrowers, whereupon the same shall become immediately due and payable by the relevant Borrowers and, once paid, shall be held by the Facility Agent in an interest bearing account for application in reimbursing the LC Bank or the Banks forthwith for all payments made or to be made under such outstanding Documentary Credits. No Finance Party shall be entitled to enjoin the funding of the Offer or exercise any right of rescission or set-off or similar right (whether on the basis of misrepresentation or Event of Default or otherwise) (until after the Offer Termination Date) if to do so would prevent the funding of the Offer as contemplated hereby and in accordance with Clauses 4.2 and 22 (other than Clauses 22(a)(i)(C), (ii) and (iii)) hereof. 24.3 CLEAN UP PERIOD If during the period ending on the date three months from the Unconditional Date any event or circumstance which (but for this Clause 24.3) would constitute a Default (the "POTENTIAL EVENT OF DEFAULT") shall exist which consists of, or is a direct consequence of any event or circumstance which occurred in relation to the Target or any of its Subsidiaries (or its or any of their business, assets or liabilities) on or before the Unconditional Date, then the following shall apply: (a) the Company or Bidco or the Target shall notify the Facility Agent of that fact by fax promptly after becoming aware thereof, giving a reasonable description of: 99 (i) the Potential Event of Default and (so far as known to them) its causes; and (ii) any remedial action in relation to that Potential Event of Default which the Company and/or Bidco and/or the Target propose to take or procure is taken; (b) that Potential Event of Default shall not constitute a Default, and the Facility Agent shall not with respect to that Potential Event of Default (but, for the avoidance of doubt, not so as to restrict the Facility Agent's rights to take such action with respect to any other Event of Default which is not a Potential Event of Default) be entitled to take any of the actions set out in Clause 24.2, until (assuming that the Potential Event of Default is then continuing) the earlier of: (i) the date three months after the Unconditional Date; or (ii) the date on which, as a direct consequence of it being reasonably likely that a Material Adverse Effect would result from such Potential Event of Default or from the effects thereof or from the continued inaction by the Facility Agent and the Banks as regards the exercise of rights under this Agreement, the Facility Agent on the instructions of the Majority Banks has confirmed in writing to the Company that it is so reasonably likely; or (iii) a Material Adverse Effect actually occurring as a direct consequence of that Potential Event of Default. Provided that (A) the foregoing shall not apply with respect to any Potential Event of Default under any of Clauses 24.1(a), (b)(iii), (d), (e)(i) (in consequence only of Borrowings being declared due and payable or capable of being declared due and payable which are not Refinancing Debt), (f), (g), (h), (i), (j), (l), (p), (q), (r), (s), (t), or (v) in each case irrespective of whether or not that Potential Event of Default occurred in consequence of any event or circumstance which occurred before the Unconditional Date, and (B) any Potential Event of Default shall nevertheless constitute a Default for the purposes of Clause 4.3, save (in the case only of a Potential Event of Default consisting of a Default arising under Clause 24.1 (b)(ii), (c) or (e) (i) (in consequence as aforesaid)) where it is demonstrated to the reasonable satisfaction of the Majority Offer Banks that such Potential Event of Default is likely to be cured within three months after the Unconditional Date without any Material Adverse Effect occurring. 25. INDEMNITIES 25.1 CURRENCY INDEMNITY (a) If any amount payable by any Obligor under or in connection with any Finance Document is received by any Finance Party in a currency (the "PAYMENT CURRENCY") other than that agreed to be payable under that Finance Document (the "AGREED CURRENCY"), whether as a result of any judgement or order or the enforcement of the same, the liquidation of such Obligor or otherwise and the amount produced by converting the Payment Currency so received into the Agreed Currency at market rates prevailing at or about the time of receipt of the Payment Currency is less than the amount of the Agreed Currency due under that Finance Document, then the Obligors shall, as an independent and additional obligation, indemnify each Finance Party for the deficiency and any loss sustained as a result. 100 (b) The above indemnities shall constitute separate and independent obligations of each of the Obligors from their other obligations under the Finance Documents and shall apply irrespective of any indulgence granted by any Finance Party. The Obligors shall pay the reasonable costs of making any conversion from the Payment Currency to the Agreed Currency. (c) Each Obligor waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than that in which it is expressed to be payable under that Finance Document. 25.2 OTHER INDEMNITIES The Obligors shall indemnify each Finance Party against any losses (excluding loss of the applicable Margin save in the case of paragraphs (a) and (b) below), charges or expenses which such Finance Party may sustain or incur as a consequence of:- (a) the occurrence of any Default; or (b) the operation of Clauses 2.5 or 24.2; or (c) any repayment or prepayment of an Advance or payment of an overdue amount being made otherwise than on its Interest Date; or (d) (other than by reason of default by any Finance Party) any Utilisation not being made (or not being made in full) to any Borrower after a Request has been given pursuant to Clause 5 or Clause 6 (as the case may be), including but not limited to any losses, charges or expenses on account of funds acquired, contracted for or utilised to fund any amount payable under this Agreement, any amount repaid or prepaid or any Utilisation (as the case may be). A certificate of such Finance Party as to the amount of any such loss or expense shall be prima facie evidence in the absence of manifest error. 25.3 INDEMNITY RELATING TO FACILITIES (a) The Company agrees to indemnify each Finance Party and any Holding Company or subsidiary of any Finance Party and each of their respective directors, officers and employees against any and all claims, damages, liabilities, costs and expenses (including reasonable legal fees) which may be incurred by or asserted against such Finance Party or any such Holding Company or Subsidiary or their respective directors, officers and employees in connection with or arising out of any such proceedings, actions or enquiry by any regulatory authority of a type referred to in Clause 24.1(o) (ignoring the provision as to materiality contained therein) or any litigation or other proceedings (other than between Finance Parties) connected with the Offer except to any extent resulting from the gross negligence or wilful misconduct of any person otherwise entitled to be indemnified under this indemnity. It is agreed that: (i) each Finance Party shall notify the Company promptly in reasonable detail of any potential claim by it or any Holding Company or Subsidiary of it or any of their respective directors, officers or employees on the Company under this Clause 25.3 promptly upon its becoming aware of that potential claim; and 101 (ii) if the Company wishes any Finance Party to enter into any negotiations with a view to settlement of any dispute with any third party likely to give rise to any claims, damages, liability, costs and expenses for which a claim may be made under this Agreement, it shall notify that Finance Party accordingly, which Finance Party will then enter into such negotiations in good faith on a without prejudice basis but shall not be bound so to settle unless such Finance Party is agreeable so to settle (such agreement not to be unreasonably withheld); and (iii) any payments required to be made by reason of this indemnity shall be in addition to any other amounts provided for in this Agreement or agreed to be paid in respect of the Facilities. (b) Each Finance Party shall give promptly to the Company such details and copies of legal opinions and process served concerning (or concerning the circumstances giving rise to) any claims, damages, liabilities, costs and expenses which may form the basis of any claim by it on the Company hereunder, as the Company may reasonably request. (c) At the request of the Company, from time to time, each Finance Party will discuss with the Company and will give careful consideration in good faith to the views of the Company concerning the appointment of professional advisers in connection with any such claims, damages, liabilities, costs and expenses (and in connection with the circumstances giving rise thereto and any proceedings current, pending or threatened relating thereto) and the conduct of any proceedings, and will use reasonable endeavours to procure that (once appointed) all professional advisers acting for it in relation thereto shall do likewise and that where possible and where such Finance Party does not reasonably consider that it is against such Finance Party's best interest, one firm of professional advisers only is appointed to represent all of the Finance Parties. (d) Notwithstanding the foregoing provisions of this Clause 25.3, no Finance Party shall be required to disclose to the Company or any other Obligor any matter with regard to which it is under a duty of non-disclosure. All information which may be disclosed by any Finance Party pursuant to this Clause 25.3 shall be disclosed on the same conditions as to confidentiality, as are set out in Clause 33. 26. AGENTS, ARRANGERS AND BANKS 26.1 APPOINTMENT Each Bank hereby appoints the Facility Agent and the Security Agent to act as its agent hereunder and with respect to the Finance Documents and irrevocably authorises the Facility Agent on such Bank's behalf to: (a) enter into any Borrower Accession Agreement, Guarantor Accession Agreement or Security Agreement (whereupon and by which act such Bank shall become bound thereby); and (b) perform such duties and exercise such rights and powers under the Finance Documents as are specifically delegated to such Agent by the terms thereof, together with such rights and powers as are reasonably incidental thereto. 102 Each Agent shall have only those duties and powers which are expressly specified in the Finance Documents. Each Agent's duties under the Finance Documents each are intended to be of a mechanical and administrative nature. 26.2 MAJORITY BANKS' DIRECTIONS In the exercise of any right or power granted and as to any matter not expressly provided for by the Finance Documents, each Agent shall act in accordance with the instructions of the Majority Banks or as this Agreement may require and shall be fully protected in so doing. Any such instructions shall be binding on all the Banks. Subject to Clauses 26.7 and 26.16, in the absence of any such instructions and/or any relevant requirement contained in any Finance Document, each Agent may act or refrain from acting with respect to such right or power and as to any such matter as it shall see fit. 26.3 RELATIONSHIP (a) The relationship between each Bank and each Agent is that of principal and agent. Nothing herein (other than in relation to the Security Agent and the Security Documents as to which the Security Agent shall be a trustee for the Banks) shall constitute the Facility Agent a trustee or (save, with regard to any Bank, as necessarily results from its agency relationship with that Bank) fiduciary for any Bank, any Obligor or any other person. (b) No Agent shall be liable to any Obligor for any breach by any Bank of this Agreement or be liable to any Bank for any breach by any Obligor of any Finance Document. 26.4 DELEGATION Without prejudice to its obligations hereunder, each Agent may act under the Finance Documents through its personnel and through agents selected by it with reasonable care (who shall be entitled to the same protections as those given to the Agents under this Clause 26). 26.5 DOCUMENTATION Neither any Agent or any of the Arrangers nor any of its officers, employees or agents shall be responsible to any Bank or to each other for:- (a) the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document in connection therewith; or (b) the collectability of amounts payable thereunder; or (c) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or other document in connection therewith. 26.6 DEFAULT No Agent shall be required to ascertain or inquire as to the performance or observance by any Obligor of the terms of any Finance Document or any other document in connection therewith. No Agent shall be deemed to have knowledge of the occurrence of any Default unless that Agent has received notice from a party hereto describing such Default and stating that such 103 notice is a "Notice of Default". If any Agent receives such a notice of default or officers of any Agent engaged in the performance of that Agent's functions under the Finance Documents otherwise acquire actual knowledge that a Default has occurred, that Agent shall give notice thereof promptly to the Banks. Each Agent shall take or refrain from taking such action with respect to such Default as shall be directed by the Majority Banks, provided that nothing herein contained shall oblige any Agent to institute any legal action or proceedings on behalf of any Bank. Until any Agent shall have received such directions, it may (but shall not be obliged to) take or refrain from taking such action with respect to such Default as it shall see fit. 26.7 EXONERATION Neither Agent nor any of its officers, employees or agents shall be liable to any Bank for any action taken or omitted under or in connection with any Finance Document unless caused by its or their gross negligence or wilful misconduct. 26.8 RELIANCE Each Agent may rely on any communication or document reasonably believed by it to be genuine and correct and may rely on any statement made by a director or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify. Each Agent may engage, pay for and rely on legal or other professional advisers selected by it and shall be protected in so relying. 26.9 CREDIT APPROVAL Each of the Banks severally represents and warrants to each Agent and each of the Arrangers that it has made its own independent investigation and assessment of the financial condition and affairs of each Obligor and their related entities and other parties considered by it to be relevant in connection with its participation in this Agreement and has not relied exclusively on any information, including the Information Memorandum provided to such Bank by any Agent or any Arranger in connection herewith. Each Bank represents, warrants and undertakes to each Agent and each Arranger that it shall continue to make its own independent appraisal of the creditworthiness of the Obligors and other parties considered by it to be relevant in connection with the Finance Documents and their related entities while any amount is or may be outstanding under the Finance Documents. 26.10 INFORMATION (a) The Facility Agent shall promptly furnish each Bank with a copy of any documents received by it under Clause 21.2. If so requested by any Bank, the Facility Agent shall furnish to such Bank (at the expense of the Company) a copy of any of the documents listed in Schedule G delivered on or prior to the first Utilisation Date. (b) The Facility Agent shall, without any liability on its part in the event of any failure to do so except in the case of its negligence or wilful default, send to the Banks (at the expense of the Company) any document (or a summary of the material details of such document) received by it from any Obligor pursuant to this Agreement which contains any information which the Facility Agent considers to be of direct and material interest and significance to the Banks and their interests under this Agreement and which can lawfully be distributed by the Facility Agent without incurring any liability to any person whatsoever. 104 (c) Save as provided in paragraph (a) above neither Agent nor any Arranger shall have any duty either initially or on a continuing basis to provide any Bank with any credit or other information with respect to the financial condition or affairs of any Obligor or any of their related entities whether coming into its possession or that of any related entities of the Facility Agent or any Arranger before the entry into of this Agreement or at any time thereafter. (d) Unless specifically requested to do so by a Bank, neither Agent shall have any duty to request any certificates or other documents from any Obligor under any of the Finance Documents. (e) No Agent need disclose any information relating to any Obligor or any of their related entities or any other person if such disclosure would or might in the reasonable opinion of the Facility Agent constitute a breach of any law or regulation or be otherwise actionable at the suit of any person. 26.11 THE FACILITY AGENT AND THE ARRANGERS INDIVIDUALLY (a) Each Agent and each Arranger shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not the Facility Agent or an Arranger. (b) Each Agent and each Arranger may accept deposits from, lend money to and generally engage in any kind of banking, trust, advisory or other business whatsoever with any Obligor and their related entities and accept and retain any fees payable by any Obligors or any related entities for its own account in connection herewith and/or therewith without liability to account therefor to any Bank or any Arranger. 26.12 INDEMNITY Each Bank agrees to indemnify each Agent and each Arranger on demand (to the extent not reimbursed by any Obligor and without prejudice to the liability of any Obligor under any Finance Document) for any and all liabilities, losses, damages, penalties, actions, judgements, costs, expenses or disbursements of any kind whatsoever which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of its acting as an Agent under any of the Finance Documents or performing its duties thereunder or any action taken or omitted by any Agent thereunder (including, without limitation, the charges and expenses referred to in Clause 27.5 and all stamp Taxes on or in connection with any of the Finance Documents but excluding payment of its agency fee pursuant to Clause 27.3 and the normal administrative costs and expenses incidental to the performance of its agency duties hereunder save to the extent increased in consequence of a Default). Such indemnification by each Bank shall be pro rata to its Commitments. Notwithstanding the foregoing, no Bank shall be liable for any portion of the foregoing resulting from any Agent's gross negligence or wilful misconduct. 26.13 LEGAL RESTRICTIONS Each Agent may refrain from doing anything which would or might in its reasonable opinion (a) be contrary to the law of any applicable jurisdiction or any applicable official directive or regulation or (b) render it liable to any person, and may do anything which in its reasonable opinion (acting on legal advice) is necessary to comply with any such law or directive. 105 26.14 RESIGNATION Each Agent may (after consultation with the Company) resign by giving notice thereof to the Banks and the Company and may be removed by the Majority Banks giving notice to that effect to such Agent and the Company after prior consultation with the Company. In that event the Majority Banks, with the consent of the Company where the relevant Agent has so resigned (such consent not to be unreasonably withheld or delayed and the Company shall be deemed to have consented if it has not given notice refusing consent within 14 days of any request for consent) and in any event after consultation with the Company to the extent practicable, may appoint a successor for the relevant Agent which shall be a reputable and experienced bank, incorporated in or having a branch in England and acting through such branch. If the Majority Banks have not, within 30 days after such notice of resignation or removal, so appointed a successor Agent which shall have accepted such appointment, the retiring Agent, after consultation with the Company, shall have the right to appoint a successor Agent which shall be a reputable and experienced Bank incorporated or having a branch in England and acting through such branch. The resignation or removal of the retiring Agent and the appointment of any successor Agent or Security Agent shall both become effective upon the successor Facility Agent or Security Agent notifying all the parties hereto in writing that it accepts such appointment, whereupon the successor Facility Agent or Security Agent shall succeed to the position of the retiring Facility Agent or Security Agent and the terms "FACILITY AGENT" and "SECURITY AGENT" in all of the Finance Documents shall include such successor Agent where appropriate. This Clause 26 shall continue to benefit a retiring Agent in respect of any action taken or omitted by it hereunder while it was an Agent. 26.15 ASSIGNMENTS Each Agent may treat each Bank named as a party hereto as continuing to be such a party, as entitled to payments hereunder and as acting hereunder through its Facility Office until it has received notice from such Bank to the contrary. 26.16 AMENDMENTS (a) If authorised by the Majority Banks, the Facility Agent or (in the case of the Security Documents) the Security Agent may (except where any other authority is required for the same by the express provisions of this Agreement) grant waivers or consents or (with the agreement of the Company) vary the terms of the Finance Documents. Any such waiver, consent or variation so authorised and effected by the Facility Agent or, as the case may be, the Security Agent shall be binding on all the Banks and the Facility Agent or, as the case may be, the Security Agent shall be under no liability whatsoever in respect of any such waiver, consent or variation, provided always that, except with the prior written consent of all the Banks and the Company, nothing in this Clause 26.16(a) shall authorise:- (i) the extension of any Availability Period; or (ii) any variation of the definition of "MAJORITY BANKS" in Clause 1.1; or (iii) any extension of the date for, or alteration in the amount or currency of, or waiver of any payment of principal, interest, Margin, fee, commission or any other amount payable under any of the Finance Documents; or 106 (iv) any change to any Bank's Commitment; or (v) any variation of Clauses 12.2, 13, 31.2, 33 or this Clause 26.16; or (vi) any variation of any provision wherein (before such variation) it is provided that certain things may not be done without or may be done with the consent or approval of all the Banks. (b) If authorised by the Majority Banks, the Security Agent may grant any waiver or consent in relation to, or variation of the material provisions of, any Security Document (but not, for the avoidance of doubt, so as to release any security). Subject as otherwise provided for in this Agreement or any Security Document, any release of the security provided by any Security Document over the Shares requires the consent of all the Banks. 26.17 SECURITY AGENT AS TRUSTEE (a) The Security Agent in its capacity as trustee or otherwise shall not be liable for any failure, omission, or defect in perfecting the security constituted by any Security Document or any security created thereby including, without limitation, any failure to register the same in accordance with the provisions of any of the documents of title of the relevant Obligor to any of the property thereby charged. (b) The Security Agent in its capacity as Trustee or otherwise may accept without enquiry such title as any Obligor may have to the property over which security is intended to be created by any Security Document. (c) Save where the Security Agent holds a legal mortgage over or over an interest in, real property or shares, the Security Agent in its capacity as Trustee or otherwise shall not be under any obligation to hold any title deeds, Security Documents or any other documents in connection with the property charged by any Security Document or any other such security in its own possession or to take any steps to protect or preserve the same. The Security Agent may permit the relevant Obligor to retain all such title deeds and other documents in its possession. (d) Save as otherwise provided in the Security Documents, all moneys which under the trusts herein or therein contained are received by the Security Agent in its capacity as Trustee or otherwise may be invested in the name of or under the control of the Security Agent in any investment for the time being authorised by English law for the investment by trustees of trust money or in any other investments which may be selected by the Security Agent with the consent of the Majority Banks. Additionally, the same may be placed on deposit in the name of or under the control of the Security Agent at such bank or institution (including any Agent) and upon such terms as the Security Agent may think fit. Any and all such monies and all interest thereon shall be paid over to the Facility Agent forthwith upon demand by the Facility Agent. (e) Each Bank hereby confirms its approval of the Finance Documents and any security created or to be created pursuant thereto and hereby authorises, empowers and directs the Security Agent (by itself or by such person(s) as it may nominate) to execute and enforce the same as trustee or as otherwise provided (and whether or not expressly in the Banks' names) on its behalf. 107 26.18 BANKS (a) Each Bank (other than Goldman Sachs Credit Partners L.P.) represents to the Facility Agent that, in the case of a Bank which is a Bank on the date of this Agreement, on the date of this Agreement and, in the case of a Bank which becomes a Bank after the date of this Agreement, on the date it becomes a Bank it is: (i) either: (A) not resident in the United Kingdom for United Kingdom tax purposes; or (B) a "bank" as defined in section 840A of the Income and Corporation Taxes Act 1988 and resident in the United Kingdom; and (ii) beneficially entitled to the principal and interest payment by the Facility Agent to it under this Agreement, and shall forthwith notify the Agent if either representation ceases to be correct. (b) The Facility Agent may at any time, and shall if requested to do so by the Majority Banks, convene a meeting of the Banks. 27. FEES, EXPENSES AND STAMP TAXES 27.1 COMMITMENT FEE (a) Bidco shall pay to the Facility Agent for each Bank a commitment fee computed at the rate of zero point one zero (0.10%) per annum on that Bank's Tranche 1 Commitment and Tranche 2 Commitment during the period from the date of this Agreement up to the Unconditional Date. (b) Bidco shall pay to the Facility Agent for each Bank a commitment fee computed at the rate of fifty per cent. (50%) of the applicable Margin (as set out in Column 2 in the definition of Margin in Clause 1.1) from time to time per annum on the daily unutilised balance of that Bank's Tranche 1 Commitment and Tranche 2 Commitment on and from the Unconditional Date up to and including the last day of the relevant Availability Period. (c) Commitment fee shall accrue from day to day and be computed on the basis of a year of 365 days for the actual number of days elapsed. Accrued commitment fee is payable to the Facility Agent quarterly in arrear from the date of this Agreement on (i) the earlier of first occurring Utilisation Date hereunder and the expiry of the Tranche 1 Availability Period, (ii) the Final Repayment Date, and (iii) for any Bank(s) on the cancelled amount of its Commitment(s) at the time the cancellation takes effect. 27.2 FRONT END AND AGENCY FEES (a) Bidco shall pay to the Facility Agent for the account of the Arrangers front end fees in amounts and on the dates as stated in a letter dated on or around the date hereof from the Facility Agent to Bidco and countersigned by Bidco, to be distributed in the amounts and manner as heretofore agreed between the Arrangers. 108 (b) Bidco shall pay to the Facility Agent for its own account the agency fees on the dates and in the amount agreed in the letter of even date herewith from the Facility Agent to Bidco and countersigned by Bidco. (c) Bidco shall pay to the Security Agent for its own account the agency fees on the dates and in the amount agreed in the letter of even date herewith for the Security Agent to Bidco and countersigned by Bidco. 27.3 DOCUMENTARY CREDIT ISSUANCE FEE Each Borrower shall pay to the Facility Agent on the Utilisation Date in respect of each Documentary Credit for the account of the relevant party a fee of: (a) (in the case of a Documentary Credit issued by the LC Bank) point one two five per cent. (0.125%) flat calculated on the intended maximum Outstanding Liability Amount of such Documentary Credit as at the Utilisation Date payable to the LC Bank; or (b) (in the case of a Documentary Credit issued by the Facility Agent on behalf of all of the Banks severally in proportion to their Tranche 2 Commitments) an administration fee of (Pounds)1,000 to the Facility Agent. 27.4 DOCUMENTARY CREDIT PER ANNUM FEE Each Borrower shall pay to the Facility Agent for distribution amongst the Banks pro rata to their respective Commitments between it and the Banks in the case of payments arising under (a) below, or for distribution to the LC Bank in the case of payments arising under (b) below a fee equivalent to the aggregate of: (a) the Margin applied on the Outstanding Liability Amount of each Documentary Credit issued at its request; and (b) (in the only case of Documentary Credits issued by the LC Bank) an additional point one two five per cent. (0.125%) per annum applied on that portion of the face amount of each Documentary Credit for which the LC Bank is counter-indemnified by the Banks (other than itself where the LC Bank is also the Bank) pursuant to Clause 5.6, in each case in respect of the period between the date of issue of the Documentary Credit and the earlier of its Expiry Date and the date on which its Outstanding Liability Amount has been reduced to nil. The fee shall accrue from day to day and be calculated on the basis of a 365 day year for the actual number of days elapsed and shall be payable quarterly in arrears and on the Expiry Date of such Documentary Credit. 27.5 INITIAL AND DOCUMENTATION EXPENSES (a) Subject to Clause 27.5(c) below, on the date of the first Utilisation if demanded before such date and otherwise promptly on demand by the Facility Agent after such date, the Company shall reimburse the Facility Agent for the reasonable out-of-pocket charges and expenses incurred by it in respect of the fees and expenses of its legal advisers incurred in connection with the negotiation, preparation, printing and execution of the Finance Documents (including 109 any thereof which may be executed at any time after the date of this Agreement), together in all cases with all value added and similar Taxes applicable. (b) Subject to Clause 27.5(c) below, the Company shall reimburse the Facility Agent within 30 days of demand for the reasonable out of pocket charges and expenses (including, but not limited to, the fees and expenses of legal advisers) incurred by it or the Arrangers in connection with the syndications of the Finance Documents and the Commitments and Utilisations thereunder within 12 months of the date hereof and the execution of any further Finance Documents from time to time, together with all value added tax and similar Taxes applicable to the same. (c) Where this Agreement provides that any document or other information is to be copied or provided by the Facility Agent to all or any of the Banks or the Security Agent (including, without limitation, as contemplated in Clause 26.10(a) or (b)) the Company will promptly on demand reimburse the Facility Agent for the reasonable out-of-pocket charges and expenses incurred by it in so copying or providing such document or other information, together with all value added and similar Taxes applicable to the same. (d) Upon the occurrence of the Unconditional Date the out-of-pocket charges and expenses referred to in Clause 27.5(b) shall be deemed not to include internal costs so incurred by the Arrangers. 27.6 EXPENSES OF ADMINISTRATION, ENFORCEMENT, WAIVER AND AMENDMENT The Company (or the relevant Borrower where in the reasonable opinion of the Facility Agent such amounts are referable to a particular Borrower) shall reimburse each of the Finance Parties promptly on demand for the out-of-pocket charges and expenses (including the fees and expenses of legal advisers and notaries and the fees and expenses of any accountants or other professional advisers (a) incurred by any of them in connection with the enforcement of, or the preservation of any rights under, any of the Finance Documents, (b) reasonably incurred by any of them in connection with any waiver or consent which may at any time be sought by any Obligor under or in relation to any of the Finance Documents, and (c) reasonably incurred by any of them in connection with any variation of or supplement to any of the Finance Documents (other than any Substitution Certificate or a variation or supplement requested by a Finance Party other than if requested pursuant to Clause 2.6), together, in each case, with all value added and similar Taxes applicable to the same. 27.7 STAMP TAXES The Company shall pay or indemnify the Finance Parties against any and all stamp, registration and similar Taxes (excluding such Taxes as are imposed by a jurisdiction other than the United Kingdom) which may be or become payable in connection with the entry into, performance or enforcement against any of the Obligors of any of the Finance Documents (other than any Substitution Certificate). 28. WAIVERS, REMEDIES CUMULATIVE 28.1 WAIVERS No failure to exercise and no delay in exercising any right, power or privilege under any Finance Document by any of the Finance Parties shall operate as a waiver of the same, nor shall any single or partial exercise of any such right, power or privilege preclude any other or 110 further exercise of the same, or the exercise of any other right, power or privilege. No waiver by any of the Finance Parties shall be effective unless it is in writing. 28.2 REMEDIES CUMULATIVE The rights and remedies of each of the Finance Parties in this Agreement may be exercised as often as necessary and are cumulative and not exclusive of any rights or remedies provided by law. 29. NOTICES 29.1 ADDRESS Except as otherwise stated in this Agreement, all notices or other communications hereunder to any party hereto shall be made by letter or by facsimile transmission (and, in the case of communications to any Obligor shall be copied to Ricardo by facsimile transmission at such facsimile number as shall be notified in writing to the Facility Agent by Ricardo from time to time) and shall be deemed to be duly given or made when delivered (in the case of letter or facsimile transmission) to such party addressed to it at its address or telex number or facsimile number, and for such attention, specified in the relevant Part of Schedule A or Schedule B, or at such other address or telex number or facsimile number as such party may after the date of this Agreement specify for such purpose to the others by notice. 29.2 NON-WORKING DAYS A notice or other communication received on a non-working day or after 5.00 p.m. on a working day in the place of receipt shall be deemed to be served on the next following working day in such place. 30. ASSIGNMENTS, TRANSFERS AND SUBSTITUTIONS 30.1 SUCCESSORS This Agreement shall be binding upon and ensure to the benefit of the Obligors, the Banks, the Facility Agent, the Security Agent and their respective successors and permitted assigns. 30.2 ASSIGNMENTS AND TRANSFERS BY OBLIGORS Save as expressly provided in this Agreement, no Obligor may assign or transfer all or any part of its rights or obligations under this Agreement without the prior written consent of all the Banks (but this Clause shall be without prejudice to the operation of Clause 21.10(b)). 30.3 TRANSFERS BY BANKS (a) Subject to Clause 30.9, a Bank (the "EXISTING BANK") may at any time assign, transfer or novate any of its rights and/or obligations under this Agreement to another bank or financial institution (the "NEW BANK") provided that (i) save where the New Bank is a Bank or an Affiliate of the Existing Bank, the prior consent of the Company has been obtained (such consent not to be unreasonably withheld or delayed), and (ii) save where the New Bank is a Bank or Affiliate of the Existing Bank the New Bank takes an assignment, transfer or novation of a minimum amount of (Pounds)10,000,000. 111 An Existing Bank shall not assign, transfer or novate in part (but shall not be prohibited from so doing in whole) any of its rights and/or obligations under this Agreement unless it will maintain a Commitment or Commitments aggregating a minimum amount of at least (Pounds)10,000,000 as of the date immediately following the date of such transfer, provided that this sub-paragraph shall not apply to any such transfers made between Goldman Sachs International Bank and Goldman Sachs Credit Partners L.P. (b) A transfer of obligations will be effective only if either: (i) the obligations are novated in accordance with Clause 30.4 (Procedure for substitution); or (ii) the New Bank confirms in writing to the Facility Agent and the Company that it undertakes to be bound by the terms of the Finance Documents as a Bank in form and substance satisfactory to the Facility Agent and the Company (acting reasonably). On the transfer becoming effective in this manner the Existing Bank shall be relieved of its obligations under the Finance Documents to the extent that they are transferred to the New Bank. (c) Nothing in this Agreement restricts the ability of a Bank to sub- participate or sub-contract an obligation if that Bank remains liable under this Agreement for that obligation. (d) On each occasion an Existing Bank assigns, transfers or novates any of its rights and/or obligations under this Agreement (other than where such assignment, transfer or novation is made on general syndication or to an Existing Bank or an Affiliate), the New Bank shall, on the date the assignment, transfer and/or novation takes effect, pay to the Facility Agent for its own account a fee of (Pounds)750. (e) Neither an Existing Bank nor any other Finance Party is responsible to a New Bank for: (i) the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document; (ii) the collectability of amounts payable under any Finance Document or the financial condition of or the performance of its obligations under the Finance Documents by any Obligor; or (iii) the accuracy of any statements or information (whether written or oral) made in or in connection with or supplied in connection with any Finance Document. (f) Each New Bank confirms to the Existing Bank and the other Finance Parties that it: (i) has made its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Bank or any other Finance Party in connection with any Finance Document; 112 (ii) will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities while any amount is or may be outstanding under this Agreement or any Commitment is in force; and (iii) is a bank or financial institution whose ordinary business includes participation in syndicated facilities of this type. (g) Nothing in any Finance Document obliges an Existing Bank to: (i) accept a re-transfer from a New Bank of any of the rights and/or obligations assigned, transferred or novated under this Clause 30.3 or Clause 30.4; or (ii) support any losses incurred by the New Bank by reason of the non- performance by any Obligor of its obligations under this Agreement or otherwise. (h) Any reference in this Agreement to a Bank includes a New Bank, but excludes a Bank if no amount is or may be owed to or by that Bank under this Agreement and its Commitment has been cancelled or reduced to nil. 30.4 PROCEDURE FOR SUBSTITUTION (a) Subject to satisfaction of the requirements set out in Clause 30.3(a), a novation is effected if: (i) the Existing Bank and the New Bank deliver to the Facility Agent a duly completed certificate executed by the Existing Bank and the New Bank, substantially in the form of Schedule D (a "SUBSTITUTION CERTIFICATE"); and (ii) the Facility Agent executes it. Promptly upon its receipt (by facsimile transmission or otherwise) the Facility Agent hereby agrees to execute any Substitution Certificate delivered to it and which has been duly completed and executed by Goldman Sachs Credit Partners L.P. as Existing Bank and Goldman Sachs International Bank as New Bank or vice versa. The Facility Agent shall be permitted to rely on a facsimile copy of such Substitution Certificate. (b) Each Party (other than the Existing Bank and the New Bank) irrevocably authorises the Facility Agent to execute any duly completed Substitution Certificate on its behalf. (c) To the extent that they are expressed to be the subject of the novation in the Substitution Certificate: (i) the Existing Bank and the other Parties (the "EXISTING PARTIES") will be released from their obligations to each other under the Finance Documents (the "DISCHARGED OBLIGATIONS"), except for any obligation which the Existing Bank has to the LC Bank pursuant to Clause 5.6 in respect of Documentary Credits issued prior to the date on which such novation takes effect as determined below unless otherwise agreed in writing by the LC Bank (provided that the LC Bank hereby agrees to any novation from Goldman Sachs Credit Partners L.P. to Goldman Sachs International Bank and vice versa); 113 (ii) the New Bank and the existing Parties will assume obligations towards each other under the Finance Documents which differ from the discharged obligations only insofar as they are owed to or assumed by the New Bank instead of the Existing Bank; (iii) the rights of the Existing Bank against the existing Parties under the Finance Documents and vice versa (the "DISCHARGED RIGHTS") will be cancelled; and (iv) the New Bank and the existing Parties will acquire rights against each other under the Finance Documents which differ from the discharged rights only insofar as they are exercisable by or against the New Bank instead of the Existing Bank, all on the date of execution of the Substitution Certificate by the Facility Agent or, if later, the date specified in the Substitution Certificate and in each case, the provisions of Clause 30.4 are complied with. The discharged obligations shall not include any obligation under Clauses 13 and 15 in respect of payments made prior to the effective date of such Substitution Certificate. 30.5 REFERENCE BANKS The Facility Agent may (subject to the Company giving its consent thereto, such consent not to be unreasonably withheld) nominate additional Banks or Affiliates thereof to become Reference Banks and such Banks or Affiliates shall become Reference Banks upon their indicating to the Facility Agent that they are prepared to act as such. The Facility Agent will give the Company written notice of such Banks or Affiliates having become Reference Banks as soon as practical thereafter. If a Reference Bank (or the Bank of which a Reference Bank is an Affiliate, in the case of any Reference Bank which is not itself a Bank) transfers the whole of its rights and obligations under this Agreement as a Bank or ceases to be one of the Banks, the Facility Agent, subject to agreement by the Company (such agreement not to be unreasonably withheld or delayed) will appoint another Bank to replace such Bank or Affiliate as a Reference Bank. 30.6 CHANGE OF FACILITY OFFICE Each Bank shall participate in this Agreement through its Facility Office(s), but any Bank may change its Facility Office with respect to any Utilisation from time to time, on giving not less than four Business Days' prior notice to the Facility Agent, to (a) any other location in the United Kingdom or (b) to any other location in any other jurisdiction provided (in respect of any Bank other than Goldman Sachs Credit Partners L.P.) it does not thereby cease to be a Recognised Bank. 30.7 INCREASED COSTS AND ILLEGALITY (a) Subject as provided in paragraph (b) below, if any assignment, transfer or substitution of or with respect to all or any part of the rights or obligations of a Bank under this Agreement pursuant to Clause 30.3 or 30.4 or any change in Facility Office pursuant to Clause 30.6 is made which results (or would but for this Clause result) at the time thereof in amounts becoming payable under Clauses 13 or 15.1, then the assignee, transferee, New Bank or Bank acting through its new Facility Office shall be entitled to receive such amounts only to the extent that the assignor, transferor, Existing Bank or Bank acting through its original Facility Office would have been so entitled had there been no such assignment, transfer, substitution or 114 change in Facility Office. No such assignment, transfer, substitution or change in Facility Office shall be made if the assignee, transferee or substitute or such Bank (in the case of a change in Facility Office) would be entitled immediately afterwards to give notice under Clause 16. (b) The provisions of the first sentence of paragraph (a) above shall not apply (i) in relation to any assignment, transfer or substitution of or with respect to the rights or obligations of the Original Banks, provided that the same is effected by the Original Banks within twelve months from the date of this Agreement, or (ii) with respect to any assignment, transfer or novation from Goldman Sachs Credit Partners L.P. to Goldman Sachs International Bank and, or (iii) with respect to any assignment, transfer or novation by Goldman Sachs Credit Partners L.P. to the extent that they would not have applied had such assignment, transfer or novation been effected by Goldman Sachs International Bank. However, the Original Banks (except with respect to assignments, transfers or novations by Goldman Sachs Credit Partners L.P. to Goldman Sachs International Bank and except, with respect to other assignments, transfers or novations by Goldman Sachs Credit Partners L.P., that the obligations of Goldman Sachs Credit Partners L.P. under this paragraph as it applies thereto shall be limited to those which would apply if such assignment, transfer or novation were made by Goldman Sachs International Bank) will use reasonable endeavours (to the extent not materially prejudicial to their ability successfully to syndicate the Facilities within twelve months of the Unconditional Date) to avoid making any assignment, transfer or substitution to or in favour of any assignee, transferee or New Bank having an entitlement at the time of such assignment, transfer or novation to receive amounts payable under Clauses 15 or 16.1 in amounts greater than would have been payable by the Obligors hereunder at that time in the absence of such assignment, transfer or substitution. 30.8 TIMING Each Bank undertakes to the Facility Agent that it will not effect any assignment or transfer pursuant to Clause 30.3 and will not enter into any Substitution Certificate pursuant to Clause 30.4 on or within five Business Days before the due date for any payment to be made under any of the Finance Documents where it would have the effect of altering the amount to be paid by the Facility Agent to such Bank consequent on the receipt by the Facility Agent of such payment under the Finance Documents provided that this Clause 30.8 shall not apply to any assignment, transfer or Substitution Certificate entered into between Goldman Sachs International Bank and Goldman Sachs Credit Partners L.P.). 30.9 RESTRICTION Notwithstanding anything to the contrary contained in this Agreement, unless otherwise agreed by the Majority Banks and the Company in any particular case (which agreement is hereby given in respect of any transfers, assignments or substitutions of any Utilisations and/or Commitments between Goldman Sachs International Bank and Goldman Sachs Credit Partners L.P. and vice versa), each Bank may only effect an assignment or transfer of, or substitution with respect to, outstanding Utilisations and/or Commitments where the assignment, transfer or substitution relates to all Utilisations in which it participates and/or all its Commitments pro rata as between such Utilisations and/or such Commitments. 115 31. SET-OFF AND REDISTRIBUTION 31.1 SET-OFF Each Bank may (but shall not be obliged to) whilst any Default shall be continuing set off against any obligation of any Obligor due and payable by it to or for the account of such Bank under this Agreement and not paid on the due date any moneys held by such Bank for the account of such Obligor at any office of such Bank anywhere and in any currency, whether or not matured. Such Bank may effect such currency exchanges as are appropriate to implement the set-off and any usual charges and all applicable Taxes in relation to such currency exchanges shall be paid by such Obligor. Any Bank which has set off shall give prompt notice of that fact to the relevant Obligor. 31.2 REDISTRIBUTION (a) If at any time the proportion which any Bank (the "RECEIVING BANK") has received or recovered (whether by set-off or otherwise) on account of any sum due from any Borrower or any Guarantor under this Agreement is greater (the amount of the excess being herein referred to as the "EXCESS AMOUNT") than the proportion received or recovered by the Bank receiving or recovering the smallest proportion (which shall include a nil receipt) in relation to the sum then due to the latter Bank from the relevant Borrower or the Guarantors under this Agreement, then the receiving Bank shall promptly notify the Facility Agent thereof and:- (i) the receiving Bank shall promptly and in any event within ten days of receipt or recovery of the excess amount pay to the Facility Agent an amount equal to the excess amount; (ii) the excess amount shall be treated as having been paid to or recovered by the receiving Bank for the account of the Facility Agent for payment to the Banks as provided in paragraph (iii) below, and the obligations of the relevant Borrower and the Guarantors to the receiving Bank shall only be reduced or discharged by the receipt or recovery by the receiving Bank of such excess amount to the extent of the receiving Bank's entitlement to payment by the Facility Agent pursuant to paragraph (iii) below; and (iii) the parties to this Agreement shall treat such payment as if it were a payment by the relevant Borrower or the Guarantors to the Facility Agent on account of a sum owed to the Banks and shall pay the same to the Banks (including the receiving Bank) pro rata to their respective entitlements in such sum; provided that where a receiving Bank is subsequently required to repay to any Obligor any amount received or recovered by it and dealt with under paragraphs (i), (ii) and (iii) above, each Bank shall promptly repay to the Facility Agent for the receiving Bank the portion of such amount distributed to it, together with interest on it at a rate sufficient to reimburse the receiving Bank for any interest which it has been required to pay to such Obligor in respect of such portion of such amount. (b) Where a receiving Bank has recovered any amount as a consequence of the satisfaction or enforcement of a judgement obtained in any legal action or proceedings to which it is a party, this Clause 31.2 shall not apply so as to benefit any other Bank which (being entitled so to do) did not join with the receiving Bank in such action or proceedings, unless the receiving Bank 116 did not give prior notice of its involvement in such action or proceedings to the Facility Agent for disclosure to the other Banks. (c) Each Bank shall promptly give notice to the Facility Agent of:- (i) the institution by such Bank of any legal action or proceedings under this Agreement or in connection with this Agreement prior to such institution; and (ii) the receipt or recovery by such Bank of any amount received or recovered by it otherwise than through the Facility Agent. Upon receipt of any such notice, the Facility Agent will as soon as practicable thereafter notify all the other Banks. 31.3 LOSS SHARING Without prejudice to the foregoing provisions of this Clause 31, if it transpires for any reason that after enforcement in full of the Finance Documents any of the liabilities of any of the Obligors under the Finance Documents remain undischarged and for any reason any resulting losses are not being borne by the Banks pro rata to the amount which their respective aggregate Commitments bore to the aggregate of all the Commitments on the date on which an Enforcement Event occurred, the Banks shall make such payments inter se as shall be required to ensure that after taking into account such payments such losses are borne by the Banks pro rata. For this purpose, "ENFORCEMENT EVENT" means the Facility Agent first exercising any of its rights under Clause 24.2(b), (d) or (e) or, having exercised its rights under Clause 24.2(c), first making demand with respect to some or all of the Advances. Any assignment, transfer or substitution by a Bank pursuant to Clause 30 (whether occurring before or after an Enforcement Event) shall also be effective to assign, transfer or effect a substitution pursuant to that Clause with respect to the rights of such Bank under this Clause 31.3. 32. GOVERNING LAW AND JURISDICTION 32.1 GOVERNING LAW This Agreement shall be governed by and construed in accordance with English law. 32.2 COURTS OF ENGLAND (a) For the benefit of each of the Finance Parties, each Obligor hereby irrevocably agrees that the High Courts of Justice in London, and all appellate courts therefrom have jurisdiction to settle any disputes which may arise out of or in connection with any of the Finance Documents and that any suit, action or proceedings (together "PROCEEDINGS") in connection with any Finance Document may be brought in the High Courts of Justice in London and all appellate courts therefrom and accordingly submits to the jurisdiction of the High Courts of Justice in London and all appellate courts therefrom. (b) Each Obligor hereby irrevocably and unconditionally agrees that nothing in any of the Finance Documents shall affect the right to serve process in any manner permitted by law. 117 32.3 NO LIMITATION Nothing in this Clause 32 shall limit the right of any of the Finance Parties to take Proceedings against any Obligor in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdiction preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. 33. CONFIDENTIALITY Each Finance Party hereby severally undertakes to each Obligor that it will keep confidential and that it will not make use of for any purposes (otherwise than for the purposes of the Finance Documents and otherwise than in the context of an addition to its general experience, knowledge or expertise), any of the Transaction Documents or other documents relating to this Agreement and all of the information distributed on behalf of the Obligors or any of them during syndication or contained in, received under or obtained in the course of discussions relating to the Information Memorandum and/or the Transaction Documents, other than any such document or information which has become generally available to banks through no breach by it of this Clause, provided that each Finance Party shall be entitled to make disclosure of the same:- (a) to its auditors, accountants, legal counsel and tax advisers and to any other professional advisers appointed to act in connection with the administration of the Finance Documents or the enforcement of, or realisation of any security provided under, any of the Finance Documents; (b) (whether or not the relevant assignment, transfer, substitution, sub-participation or other arrangement is made) to any proposed assignee, transferee or substitute of, or proposed party to any proposed sub-participation (or party to any actual sub- participation) or other arrangement with, any Bank permitted pursuant to this Agreement, provided that before any such disclosure such assignee, transferee, substitute or other party expressly undertakes to the Company and the Facility Agent in writing to be bound by this Clause 33 irrespective of whether such assignment, transfer, substitution or other arrangement shall proceed; (c) to any other third party where the relevant Obligor has previously agreed in writing that disclosure may be made to that third party; (d) to any banking or other regulatory or examining authorities (whether governmental or otherwise) where such disclosure is requested by them; (e) pursuant to subpoena or other legal process, or in connection with any action, suit or proceeding relating to any of the Finance Documents; (f) pursuant to any law or regulation having the force of law; and (g) to Ricardo and to any member of the Company Group. The provisions of this Clause 33 shall supersede any undertakings with respect to confidentiality previously given by any Finance Party in favour of any Obligor. 118 34. MISCELLANEOUS 34.1 SEVERABILITY (a) If any provision of any Finance Document is prohibited or unenforceable in any jurisdiction, such prohibition or unenforceability shall not invalidate the remaining provisions of such Finance Document or affect the validity or enforceability of such provision in any other jurisdiction. (b) If any of the undertakings given in Clause 21.6(a) (Dividends), 21.6(d) (Share Capital and Subordinated Debt) or 21.10(g) (Constitutional Documents) are not enforceable against any Obligor the obligation on each other Obligor to procure compliance with such undertaking shall remain enforceable. 34.2 CERTIFICATIONS Where any person gives any certificates on behalf of any of the parties to the Finance Documents pursuant to any provision hereof and such certificate proves to be incorrect, the individual shall incur no personal liability in consequence of such certificate being so incorrect save where such individual acted fraudulently, recklessly or negligently in giving such certificate (in which case any liability of such individual shall be determined in accordance with applicable law). 34.3 ACCOUNTS AS EVIDENCE Accounts maintained by the Facility Agent or each Bank in connection herewith shall constitute prima facie evidence of sums owing to such Bank under this Agreement. 34.4 COUNTERPARTS This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF the parties to this Agreement have caused this Agreement to be duly executed on the date first written above. 119 SCHEDULE A PART I BORROWERS PACIFICORP ACQUISITIONS State of Incorporation: England and Wales Registered Office: Barrington House, 59/67 Gresham Street, London EC2V 7JA Registered No: 3386442 Address for Notices: 700 N.E. Multnomah, Suite 1600 Portland, Oregon 97232 Attention: W.E. Peressini, Vice President and Treasurer Fax: (503) 731 2027 120 PART II GUARANTORS PACIFICORP SERVICES LIMITED State of Incorporation: England and Wales Registered Office: Barrington House 59/67 Gresham Street, London EC2V 7JA Registered No: 3366016 Address for Notices: 700 N.E. Multnomah, Suite 1600 Portland, Oregon 97232 Attention: W.E. Peressini, Vice President and Treasurer Fax: (503) 731 2027 PACIFICORP FINANCE (UK) LIMITED State of Incorporation: England and Wales Registered Office: Barrington House 59/67 Gresham Street, London EC2V 7JA Registered No: 3365681 Address for Notices: 700 N.E. Multnomah, Suite 1600 Portland, Oregon 97232 Attention: W.E. Peressini, Vice President and Treasurer Fax: (503) 731 2027 PACIFICORP ACQUISITIONS State of Incorporation: England and Wales Registered Office: Barrington House 59/67 Gresham Street, London EC2V 7JA Registered No: 3386442 Address for Notices: 700 N.E. Multnomah , Suite 1600 Portland, Oregon 97232 Attention: W.E. Peressini, Vice President and Treasurer Fax: (503) 731 2027 121 PART III FACILITY AGENT Citibank International Plc P.O. Box 242 336 Strand London, WC2R 1HB Address for notices: as above Attention: Loans Agency Tel: 0171 500 4247 Fax: 0171 500 4482 SECURITY AGENT Citibank, N.A. P.O. Box 242 336 Strand London, WC2R 1HB Address for notices: as above Attention: Loans Agency Tel: 0171 500 4247 Fax: 0171 500 4482 122 SCHEDULE B
BANK, FACILITY OFFICE AND NOTICE TRANCHE 1A TRANCHE 1B TRANCHE 2 DETAILS COMMITMENT COMMITMENT COMMITMENT (Pounds) (Pounds) (Pounds) CITIBANK, N.A. 540,000,000 210,000,000 200,000,000 P.O. Box 242 336 Strand London WC2R 1HB England Address for notices: as above Attention: Loans Administration - Tel: 0171-500-4264 Fax: 0171-500-4482 GOLDMAN SACHS CREDIT PARTNERS L.P. 540,000,000 210,000,000 200,000,000 85 Broad Street New York New York 10004 Address for notices: 133 Fleet Street London EC4A 2BB Attention: Sue Wolstenholme/ Emanuel Mahe Tel: 0171 774 2551/ 0171 774 2925 Fax: 0171 774 6337 MORGAN GUARANTY TRUST COMPANY OF 540,000,000 210,000,000 200,000,000 NEW YORK 60 Victoria Embankment London EC4Y 0JP Address for notices: as above Attention: Credit Operations Tel: 0171 325 5245 Fax: 0171 325 8190
123 SCHEDULE C FORMS OF REQUEST To: [ ] Attention: [ ] From: [Company or Borrower] Date: [ ] REQUEST (ADVANCE) FACILITY AGREEMENT DATED [ ] JUNE, 1997 Dear Sirs, [On behalf of] [As] the Borrower named below, we hereby give you notice pursuant to Clause 5.1 of the above Facility Agreement that we require an Advance to be made to the Borrower named below under the Facility Agreement, as follows (a) Borrower: [ ] (b) Utilisation Date: [ ] (c) Requested Amount: [Currency][ ] (d) Interest Period: [ ] (e) Tranche Designation: [ ] (f) Payment Instructions: [ ]/Beneficiary Details [ ] Terms used in this Request and defined in the Facility Agreement have the same meaning in this Request as in the Facility Agreement. We confirm that all of the conditions precedent to the obligations of the Banks with respect to the making of the proposed Advance provided for in Clause 4 of the Facility Agreement are satisfied or have been waived pursuant to a Waiver Letter. Yours faithfully [Authorised Signatory] [for and on behalf of [ ] 124 SCHEDULE D SUBSTITUTION CERTIFICATE To: [ ] as Facility Agent From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ] PACIFICORP ACQUISITIONS (Pounds)[ ] TERM LOAN FACILITY AND REVOLVING CREDIT FACILITY DATED [ ] JUNE, 1997 (THE "CREDIT AGREEMENT") References to Clauses are to Clauses of the Credit Agreement. We refer to Clause 30.4 (Substitution Certificates). 1. We [ ] (the "EXISTING BANK") and [ ] (the "NEW BANK") agree to the Existing Bank and the New Bank novating all the Existing Bank's rights and obligations referred to in the Schedule in accordance with Clause 30.4 (Substitution Certificates). 2. From the date specified in paragraph 3 below, the New Bank becomes party to the Credit Agreement as a Bank and a party to the Intercreditor Agreement as a Senior Creditor, with the rights and obligations referred to in the Schedule below. 3. The specified date for the purposes of Clause 30.4(c) is [date of novation]. 4. The Facility Office and address for notices of the New Bank for the purposes of Clause 29.1 (Address) are set out in the Schedule. [5. The New Bank undertakes to counter-indemnify the Existing Bank for the New Bank's pro rata share of all amounts payable by the Existing Bank (whether pursuant to Clause 5.6 or otherwise) in respect of any outstanding Documentary Credit.]/*/ 6. The Existing Bank and the New Bank acknowledge and agree that Clauses 30.3(d), (e), (f) and (g) apply to this Substitution Certificate and the novation contemplated hereby as if set out in full herein, mutatis mutandis. [7. The New Bank confirms that it is a Recognised Bank and the Existing Bank confirms that any necessary consent of any Obligor required to be obtained from the Company in connection herewith has been obtained.]/*/ 8. This Substitution Certificate is governed by English law. /*/ Not required for transfers between Goldman Sachs Credit Partners L.P. and Goldman Sachs International Bank /*/ Not required for transfers between Goldman Sachs Credit Partners L.P. and Goldman Sachs International Bank 125 THE SCHEDULE Rights and obligations to be novated [Details of the rights and obligations of the Existing Bank to be novated]. [NEW BANK] [Facility Office Address for notices] [Existing Bank] [New Bank] By: By: Date: Date: [ ] for and on behalf of itself and as Facility Agent and on behalf of each of the Obligors By: Date: 126 SCHEDULE E CALCULATION OF ADDITIONAL COST (1) The Additional Cost relative to each Advance where (and to the extent that) Banks making such Advance are subject to the Mandatory Liquid Asset requirements of the Bank of England, will be, subject as hereinafter provided, for the Interest Period relating to such Advance (or, if longer than three months, for each consecutive period of three months within such Interest Period and for any balance of such Interest Period) (which Interest Period if not longer than three months and each other such period is herein referred to as a "RELEVANT PERIOD") the percentage rate (or the arithmetic average of the percentage rates where there is more than one Reference Bank supplying the same) supplied by the Reference Banks (or such of them as supply it to the Facility Agent) arrived at by applying the following formula in relation to each Reference Bank:- Additional Cost = BY + L(Y-X) + S(Y-Z)% per annum -------------------------------- 100-(B + S) Where:- B = The percentage of such Reference Bank's eligible liabilities then required to be held on a non-interest-bearing deposit account with the Bank of England pursuant to the cash ratio requirements of the Bank of England. Y = The rate at which Sterling deposits in an amount approximately equal to the principal amount of such Advance are offered by such Reference Bank to leading banks in the London Interbank Market at or about 11.00 a.m. on the Utilisation Date relative to such Advance (or the first day of the relevant Interest Period) for a period comparable to the Relevant Period in relation to such Advance. L = The average percentage of eligible liabilities which the Bank of England from time to time requires each Reference Bank to maintain as secured money with members of the London Discount Market Association and/or as secured call money with those money brokers and gilt-edged market makers recognised by the Bank of England. X = The rate at which secured Sterling deposits in an amount approximately equal to the principal amount of such Advance may be placed by such Reference Bank with members of the London Discount Market Association and/or as secured call money with money brokers and gilt-edged market makers at or about 11.00 a.m. on such Utilisation Date (or the first day of the relevant Interest Period) for a period comparable to the Relevant Period in relation to such Advance. S = The percentage of such Reference Bank's eligible liabilities then required to be placed as a special deposit with the Bank of England. 127 Z = The percentage interest rate per annum allowed by the Bank of England on special deposits. For the purposes of this paragraph "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" shall bear the meanings ascribed to them from time to time by the Bank of England. (2) In the application of the above formula, B, Y, L, X, S and Z will be included in the formula as figures and not as percentages, e.g. if B = 0.5% and Y = 15%, BY will be calculated as 0.5 x 15 and not as 0.5% x 15%. (3) The Additional Cost computed by the Facility Agent in accordance with this schedule shall be rounded upward, if necessary, to four decimal places. (4) The calculation in respect of the Additional Cost for each Advance denominated in Sterling will be made by the Facility Agent on the first day of each Relevant Period. (5) Calculations will be made on the basis of a year of 365 days and the actual number of days elapsed. (6) If no Reference Bank furnishes the appropriate information for the purposes of this Schedule, the Additional Cost shall be determined by the Facility Agent on the basis of such other information and quotations as the Facility Agent shall reasonably determine to be appropriate. (7) In the event of a change in circumstances (including the imposition of alternative or additional official requirements, excluding capital adequacy requirements) which renders the above formula inappropriate in the reasonable opinion of the Facility Agent, the Facility Agent shall promptly notify the Company and the Banks thereof and (after consultation with the Reference Banks and the Company) shall notify the Borrowers of the manner in which the Additional Cost shall thereafter be determined (which manner shall be determined in a bona fide manner and provide a fair assessment of the Additional Cost) and the Obligors and the Banks shall be bound thereby. 128 SCHEDULE F PART I BORROWER ACCESSION AGREEMENT THIS ACCESSION AGREEMENT is dated the day of June, 1997 and made BETWEEN [ ] (the "ADDITIONAL BORROWER") (1), PacifiCorp Services Limited (the "COMPANY" and a "GUARANTOR") (2), PacifiCorp Acquisitions ("BIDCO" and an "EXISTING BORROWER" and a "GUARANTOR") (3), PacifiCorp Finance (UK) Limited ("FINANCE" and a "GUARANTOR") (4), [ ] (each also an "EXISTING BORROWER") (5), and in its capacity as Facility Agent under the Facility Agreement referred to in Recital (A) hereof and on behalf of the Arrangers, the Banks, the LC Bank and the Security Agent parties to and defined as such in such Facility Agreement and on behalf of each of the parties to the Intercreditor Agreement (5) other than the Obligors. WHEREAS: (A) By and upon and subject to the terms of a facility agreement (the "FACILITY AGREEMENT", which term includes any supplements and amendments thereto which may at any time be made in relation thereto and also any Substitution Certificates, Borrower Accession Agreements and Guarantor Accession Agreements) dated [ ], 1997 made between the Company and Bidco as Borrowers and Guarantors as therein defined, the Arrangers, the several banks parties thereto as Banks, Citibank International Plc as Facility Agent and Citibank, N.A. as Security Agent, term loan facilities and a revolving credit facility were made available to certain of the Borrowers (as defined in the Facility Agreement). (B) Each of the entities expressed to be party hereto (other than the Additional Borrower), whether directly or through signature hereof by the Facility Agent or the Company on its behalf, is a party to the Facility Agreement and the Intercreditor Agreement either by having been an original party thereto or pursuant to a Borrower Accession Agreement, a Guarantor Accession Agreement or a Substitution Certificate to which it is party or otherwise. (C) The Additional Borrower wishes to become party to the Facility Agreement as a Borrower pursuant to the procedure established in Clause 19 of the Facility Agreement and a party to the Intercreditor Agreement pursuant to the procedure established in Clause 24 of the Intercreditor Agreement, by the execution of this Borrower Accession Agreement. NOW IT IS HEREBY AGREED as follows:- 1. DEFINITIONS Terms used herein which are defined in or to which a meaning or construction is assigned by or in the Facility Agreement shall, unless otherwise defined herein, have the same meaning and construction herein as therein. 2. AGREEMENTS, CONFIRMATIONS AND REPRESENTATIONS (a) The Additional Borrower hereby:- 129 (i) confirms that it has received a copy of the Facility Agreement and the Intercreditor Agreement, together with such other documents and information as it has required in connection herewith and therewith; (ii) agrees to become, with effect from the date of this Borrower Accession Agreement a Borrower under the Facility Agreement and an Obligor under the Intercreditor Agreement and agrees to be bound in such capacity with effect from such date by the terms of the Facility Agreement and the Intercreditor Agreement and undertakes accordingly to perform its obligations as a Borrower or, as the case may be, Obligor thereunder; (iii) confirms the accuracy of the information set out under its name at the end of this Borrower Accession Agreement; (iv) represents and warrants as a Borrower to the Arranger, the Banks, the Security Agent and the Facility Agent in the terms of Clause 20.2 (other than paragraphs (g)(iii), (k), (l), (n)(ii) and (p)] of the Facility Agreement by reference to the facts and circumstances existing at the date hereof; and (v) confirms that it has not relied on any of the Finance Parties, to assess or inform it as to the legality, validity, effect or enforceability of the Facility Agreement or the Intercreditor Agreement or any other document referred to therein or the accuracy or completeness of any such information as is referred to in paragraph (i) above or the creditworthiness, affairs, condition or status of any of the parties to the Facility Agreement or the Intercreditor Agreement, or any such other document. (b) The Existing Borrower(s), the Guarantors and the Finance Parties and the parties to the Intercreditor Agreement hereby agree amongst themselves and with the Additional Borrower that the Additional Borrower shall become party to the Facility Agreement and the Intercreditor Agreement with effect from the date of this Borrower Accession Agreement. 3. LAW This Borrower Accession Agreement shall be governed by and construed in accordance with English law. IN WITNESS WHEREOF the parties hereto have caused this Borrower Accession Agreement to be duly executed on the date first written above. ADDITIONAL BORROWER: COMPANY: PACIFICORP SERVICES LIMITED By: 130 for itself and as agent for and on behalf of the Existing Borrowers and the Guarantors By: FACILITY AGENT: [ ] for itself and as Facility Agent and for and on behalf of the Arrangers, the Banks, the LC Bank and the Security Agent and all parties to the Intercreditor Agreement other than the Obligors By: 131 PART II GUARANTOR ACCESSION AGREEMENT THIS ACCESSION AGREEMENT is dated the day of June, 1997 and made BETWEEN [ ] (the "ADDITIONAL GUARANTOR") (1), PacifiCorp Services Limited (the "COMPANY" and an "EXISTING GUARANTOR") (2), PacifiCorp Acquisitions ("BIDCO") and an "EXISTING GUARANTOR" and a "BORROWER") (3) PacifiCorp Finance (UK) Limited ("FINANCE" and "EXISTING GUARANTOR") (4) [ ] (each also an "EXISTING GUARANTOR") (5), and [ ] in its capacity as Facility Agent under the Facility Agreement referred to in Recital (A) hereof and on behalf of the Arrangers, the Banks, the LC Bank and the Security Agent parties to and defined as such in such Facility Agreement and on behalf of each of the parties to the Intercreditor Agreement other than the Obligors (6). WHEREAS: (A) By and upon and subject to the terms of a facility agreement (the "FACILITY AGREEMENT", which term includes any supplements and amendments thereto which may at any time be made in relation thereto and also any Substitution Certificates, Borrower Accession Agreements and Guarantor Accession Agreements) dated [ ], 1997 made between the Company and Bidco as Borrowers and Guarantors as therein defined, the Arrangers, the several banks parties thereto as Banks, Citibank International Plc as Facility Agent and Citibank, N.A. as Security Agent, term loan facilities and a revolving credit facility were made available to certain of the Borrowers (as defined in the Facility Agreement). (B) Each of the entities expressed to be party hereto (other than the Additional Guarantor), whether directly or through signature hereof by the Facility Agent or the Company on its behalf, is a party to the Facility Agreement and the Intercreditor Agreement either by having been an original party thereto or pursuant to a Borrower Accession Agreement, a Guarantor Accession Agreement or a Substitution Certificate to which it is party or otherwise. (C) The Additional Guarantor wishes to become party to the Facility Agreement as a Guarantor pursuant to the procedure established in Clause 19 of the Facility Agreement and a party to the Intercreditor Agreement pursuant to the procedure established in Clause 24 of the Intercreditor Agreement, by the execution of this Guarantor Accession Agreement. NOW IT IS HEREBY AGREED as follows:- 1. DEFINITIONS Terms used herein which are defined in or to which a meaning or construction is assigned by or in the Facility Agreement shall, unless otherwise defined herein, have the same meaning and construction herein as therein. 2. AGREEMENTS, CONFIRMATIONS AND REPRESENTATIONS (a) The Additional Guarantor hereby:- 132 (i) confirms that it has received a copy of the Facility Agreement and the Intercreditor Agreement, together with such other documents and information as it has required in connection herewith and therewith; (ii) agrees to become, with effect from the date of this Guarantor Accession Agreement a Guarantor under the Facility Agreement and an Obligor under the Intercreditor Agreement and agrees to be bound in such capacity with effect from such date by the terms of the Facility Agreement and the Intercreditor Agreement and undertakes accordingly to perform its obligations as a Guarantor or, as the case may be, Obligor thereunder; (iii) confirms the accuracy of the information set out under its name at the end of this Guarantor Accession Agreement; (iv) represents and warrants as a Guarantor to the Arranger, the Banks, the Security Agent and the Facility Agent in the terms of Clause 20.2 (other than paragraphs [(g)(iii), (k), (l), (n)(ii) and (p)] of the Facility Agreement by reference to the facts and circumstances existing at the date hereof; and (v) confirms that it has not relied on any of the Finance Parties, to assess or inform it as to the legality, validity, effect or enforceability of the Facility Agreement or the Intercreditor Agreement or any other document referred to therein or the accuracy or completeness of any such information as is referred to in paragraph (i) above or the creditworthiness, affairs, condition or status of any of the parties to the Facility Agreement or the Intercreditor Agreement, or any such other document. (b) The Existing Borrower(s), the Guarantors and the Finance Parties and the parties to the Intercreditor Agreement hereby agree amongst themselves and with the Additional Guarantor that the Additional Guarantor shall become party to the Facility Agreement and the Intercreditor Agreement with effect from the date of this Guarantor Accession Agreement. 3. LAW This Guarantor Accession Agreement shall be governed by and construed in accordance with English law. IN WITNESS WHEREOF the parties hereto have caused this Guarantor Accession Agreement to be duly executed on the date first written above. ADDITIONAL GUARANTOR: COMPANY: PACIFICORP SERVICES LIMITED 133 for itself and as agent for and on behalf of the Existing Guarantors and the Borrowers By: Facility Agent: [ ] for itself and as Facility Agent and for and on behalf of the Arrangers, the Banks, the LC Bank and the Security Agent and all parties to the Intercreditor Agreement other than the Obligors By: 134 SCHEDULE G DOCUMENTARY CONDITIONS PRECEDENT PART I 1. A certified copy of the memorandum and articles of association (if any), statutes or by-laws and of each other constitutional or governing document of each Obligor. 2. A certified copy or originals of the Tax Sharing Agreement. 3. The Fee Letter(s) referred to in Clause 27.2 duly executed by Bidco. 4. At least two originals of (a) the Debenture, duly executed by each relevant Obligor, and (b) the Intercreditor Agreement, and the Coalco Intercreditor Agreement duly executed by all parties other than the Finance Parties. 5. A certified copy of a resolution of the Directors (or of a duly constituted and empowered committee of the directors) of each Obligor approving the transactions and matters contemplated by this Agreement and the other Finance Documents to which it is a party and authorising an Authorised Signatory of such Obligor to execute respectively on their behalf all the Finance Documents to which they are party and in the case of documents to be executed under seal or as a deed, authorising the execution thereof as a deed or the affixation of the seal and the witnessing thereof by the appropriate officers in accordance with the relevant Obligor's articles of association, statutes, by-laws or other constitutional documents. 6. A copy of (and of all applications for) any and all approvals, consents, licences, exemptions and other requirements of governmental and other authorities required for the entering into or performance of the Finance Documents. 7. A specimen, of the signature of each person (each being an Authorised Signatory) authorised to execute any of the Finance Documents on behalf of any Obligor and/or to sign all notices, certificates and other documents or communications to be delivered by such Obligor thereunder. 8. An opinion, addressed to the Facility Agent and the Banks, of English legal advisers to the Facility Agent and the Banks as to such matters relating to the Obligors and their obligations under the Finance Documents as the Facility Agent may reasonably require. 9. The Offer Document, reflecting in all material respects the text of the Press Release. 10. The Press Release. 11. The Structure Memorandum. 12. The letter referred to in Clause 4.1(d). 13. Model. 14. Borrowings List. 135 PART II Each of the documents referred to in paragraphs 1, 5, 6, 7 and 8 (and, in the case of a company incorporated outside of England & Wales such opinion of overseas counsel as the Facility Agent may reasonably require) of Part I of this Schedule relating to the Additional Borrower or Additional Guarantor, in each case in form and substance reasonably satisfactory to the Facility Agent. 136 PART III ADDITIONAL GUARANTORS AND CHARGORS The Energy Group PLC Rollalong Limited Rollalong Hire Limited Eastern Group PLC 137 PART IV SECURITY DOCUMENTS THE DEBENTURE PLEDGE AGREEMENT between (inter alios) PacifiCorp Powercoal LLC and Morgan Guaranty Trust Company of New York as Collateral Agent for the Coalco Lenders and (as regards that security) the Bidco Banks creating a pledge over all the capital stock of TPC Corporation securing (inter alia) the Coalco Loan and related obligations of Coalco under the Coalco Facility Agreement and the obligations of Bidco as Borrower under this Agreement in respect of Tranche 1A Loans the proceeds of which are applied in financing the acquisition of Shares and/or financing Offer Costs, Tranche 1B Loans the proceeds of which are applied in financing Offer Costs and Tranche 2 Utilisations outstanding at any time in an aggregate Original Sterling Amount not exceeding (Pounds)50,000,000. SECURITY AGREEMENT between (inter alios) TPC Corporation and Morgan Guaranty Trust Company of New York as Collateral Agent for the Coalco Lenders and (as regards that security) the Bidco Banks creating a pledge over certain personal property of TPC Corporation securing the same obligations as are secured by the aforementioned Pledge Agreement. 138 SCHEDULE H TERMS OF BANKS' INDEMNITY TO LC BANK 1. Each Bank ("TRANCHE 2 BANK") having a Tranche 2 Commitment or which had a Tranche 2 Commitment which it has assigned, transferred or novated without the written consent of the LC Bank will pay any amount demanded of it by the LC Bank pursuant to Clause 5.6 on the later of the date that the LC Bank has itself to make payment under the Documentary Credit (as notified by the LC Bank to such Tranche 2 Bank in the demand) and 2 Business Days after receipt by such Tranche 2 Bank of such demand. 2. Where a Tranche 2 Bank makes a payment pursuant to paragraph 1 after the date on which the LC Bank makes the relevant payment under the Documentary Credit in question, such Tranche 2 Bank shall pay on demand to the LC Bank its pro rata share (as calculated in Clause 5.6) of such amount as the LC Bank certifies (such certification to be conclusive in the absence of manifest error) as necessary to compensate it for funding the amount demanded in the interim. 3. No assurance, security or payment avoided under any law relating to bankruptcy, liquidation, insolvency, reconstruction or reorganisation or any similar laws and no release settlement, arrangement or discharge which may have been given or made on the basis of any such assurance, security or payment shall prejudice or affect the right of the LC Bank to recover from each of the Tranche 2 Bank to the full extent of their obligations under Clause 5.6 and this Schedule H. 4. The obligations of each Tranche 2 Bank under Clause 5.6 and this Schedule H shall not be impaired, affected or revoked by any act, omission, transaction, limitation, matter, thing or circumstance whatsoever which but for this provision might operate to release or exonerate such Tranche 2 Bank from all or any part of its obligations under Clause 5.6 and this Schedule H or reduce, impair or affect such obligations or cause all or any part of such obligations to be irrecoverable from or unenforceable against any Obligor or to discharge, reduce, affect or impair any of such obligations, including without limitation: (a) any time, waiver or indulgence granted to any Obligor or any other person or the forbearance of the LC Bank in enforcing the obligations of any Obligor or any other person under this Agreement or any of the other Finance Documents or in respect of any other guarantee, security, obligation, right or remedy; (b) the recovery of any judgment against any Obligor or any other person or any action to enforce the same; (c) the taking of any other security from any Obligor or any other person or the failure, refusal or neglect to take, perfect or enforce, any rights, remedies or securities from or against any Obligor or any other person or all or any part of the security constituted by any of the Finance Documents; (d) any alteration in the constitution of any Obligor or any defect in or irregular exercise of the borrowing or other powers of any Obligor or any other person or any legal limitation, disability, incapacity or other circumstance relating to any Obligor or any 139 other person whether arising in relation to this Agreement, any of the other Finance Documents or any other guarantee or security or otherwise howsoever; (e) any amendment or supplement to or variation of any Finance Document; (f) the insolvency, bankruptcy, liquidation, reconstruction or reorganisation of, or analogous proceedings relating to any Obligor or any other person or any composition or arrangement made by any of them with the LC Bank, any Bank or any other person or any transfer or extinction of any liabilities of or any Obligor by any law, order, regulation, decree, court order or similar instrument; or (g) any irregularity, unenforceability or invalidity of any obligations of any Obligor or any other person under any security or document (to the intent that such Tranche 2 Bank's obligations under Clause 5.6 and this Schedule H shall remain in full force as if there were no such irregularity, unenforceability or invalidity). 5. The LC Bank shall be entitled to enforce the obligations of each Bank under Clause 5.6 and this Schedule H without making any demand on or taking any proceedings against or filing any proof or claim in any insolvency, winding up or liquidation of any Obligor or any other person or exhausting any right or remedy against any Obligor or any other person or taking any action to enforce any part of the security constituted or evidenced by any of the Finance Documents. 6. The obligations of each Tranche 2 Bank under Clause 5.6 and this Schedule H shall be continuing obligations and shall extend to the ultimate balance of the obligations referred to in paragraph (a) thereof. If, for any reason, such obligations cease to be continuing obligations, the LC Bank may open a new account with or continue any existing account with any Obligor or other person and the liability of each Tranche 2 Bank in respect of amounts guaranteed by it pursuant to Clause 5.6 and this Schedule H at the date of such cessation shall remain regardless of any payments in or out of any such account. 7. The LC Bank's rights under Clause 5.6 and this Schedule H shall be in addition to and shall be in no way prejudiced by any other rights of or security held by the LC Bank in relation to the obligations of any Obligor. The LC Bank's rights under Clause 5.6 and this Schedule H are in addition to and are not exclusive of those provided by law. 8. A certificate of the LC Bank as to any amount due to it from any Bank pursuant to Clause 5.6 and this Schedule H shall be conclusive in the absence of manifest error. 140 SCHEDULE I RESERVATIONS 1. The principle that equitable remedies are remedies which may be granted or refused at the discretion of the court. 2. The limitation of enforcement by law relating to bankruptcy, insolvency, liquidation, reorganisation, court schemes, moratoria, administration or other laws generally affecting the rights of creditors. 3. The time barring of claims under the Limitation Acts. 4. The possibility that following the judgement in the case of In re Charge ------------ Card Services Limited (1986) it may not be possible for a bank to obtain a --------------------- charge to secure obligations owed to it over monies deposited with it. 5. The possibility that an undertaking to assume liability for or to indemnify a person against non-payment of UK stamp duty may be void. 6. Defences of set-off or counterclaim and similar principles. 7. Rights and defences under the laws of any foreign jurisdictions in which relevant obligations may have to be performed. 8. The possibility that penalty interest may not be recoverable. 9. Circumstances in which an English court would not treat as conclusive those certificates and determinations which the Finance Documents state at to be so treated. 10. Clause 34.1 (Severability) and the corresponding clauses of other Finance Documents may not be effective in certain circumstances depending on the nature of the prohibition or unenforceability in question. 11. Documents may be amended orally by the parties thereto notwithstanding provisions therein to the contrary. 12. The effectiveness of the Debenture as regards assets (if any) situated outside England and Wales will be governed to some extent by laws other than English. 13. The priority rules for any security created by the Finance Documents. 14. English courts do not necessarily give full effect to an indemnity for the costs of litigation. 15. Security created by the Debenture over any shares will only constitute an equitable charge until such shares are registered in the name of the Security Agent or its nominee. 16. That the provisions of Clause 18.7(b) may constitute a charge which is required to be registered under Section 395 Companies Act 1985 (as amended). 141 17. That the exercise by a Security Agent of powers and remedies expressed to be given to it pursuant to the terms of the Debenture may be limited. 142 SIGNATORIES TO FACILITY AGREEMENT THE COMPANY PACIFICORP SERVICES LIMITED By: W.E. PERESSINI FINANCE PACIFICORP FINANCE (UK) LIMITED BY: W.E. PERESSINI BIDCO PACIFICORP ACQUISITIONS By: W.E. PERESSINI THE ARRANGERS CITIBANK, N.A. By: NIELS C. KIRK GOLDMAN SACHS INTERNATIONAL By: ANDREW SWINBURNE J.P. MORGAN SECURITIES LTD By: CHARLOTTE SEAGRAVE THE ORIGINAL BANKS CITIBANK, N.A. By: NIELS C. KIRK GOLDMAN SACHS CREDIT PARTNERS L.P. By: ED FORST MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: KATHRYN SAYKO-YANES 143 THE LC BANK CITIBANK, N.A. By: NIELS C. KIRK THE FACILITY AGENT CITIBANK INTERNATIONAL PLC By: JOHN STAFFORD THE SECURITY AGENT CITIBANK, N.A. By: NIELS C. KIRK EX-99.B.5 17 DEBENTURE AMONG PACIFICORP SERVICES LTD CONFORMED COPY DEBENTURE (Multiple Chargors) Dated 13th June, 1997 BETWEEN PACIFICORP SERVICES LIMITED and PACIFICORP FINANCE (UK) LIMITED and PACIFICORP ACQUISITIONS as Chargors and CITIBANK, N.A. as Security Agent THIS DEBENTURE IS ENTERED INTO WITH THE BENEFIT OF AND SUBJECT TO THE TERMS OF AN INTERCREDITOR AGREEMENT AS REFERRED TO IN THE FACILITY AGREEMENT REFERRED TO HEREIN ALLEN & OVERY London - -------------------------------------------------------------------------------- INDEX
Clause Page 1. Interpretation.......................................................1 2. Covenant To Pay......................................................4 3. Charges On Shares....................................................4 4. Floating Charges.....................................................5 5. Continuing Security, Etc.............................................6 6. Representations And Warranties.......................................9 7. Undertakings........................................................10 8. Special Provisions Relating To The Security Shares..................11 9. When Security Becomes Enforceable...................................12 10. Enforcement Of Security.............................................13 11. Receiver............................................................13 12. Application Of Proceeds.............................................16 13. No Liability As Mortgagee In Possession.............................16 14. Protection Of Third Parties.........................................17 15. Taxes...............................................................17 16. Expenses............................................................17 17. Delegation By Security Agent........................................18 18. Further Assurances..................................................18 19. Redemption Of Prior Mortgages.......................................19 20. Power Of Attorney...................................................19 21. New Accounts........................................................19 22. Stamp Taxes.........................................................20 23. Assignments, Etc....................................................20 24. Waivers, Remedies Cumulative........................................20 25. Set-Off.............................................................21 26. Severability........................................................21 27. Counterparts........................................................21 28. Notices.............................................................21 29. Covenant To Release.................................................22 30. Governing Law And Jurisdiction......................................22 Schedules 1. The Chargors........................................................23 2. Group Shares........................................................25 3. Form Of Deed Of Accession...........................................26 Signatories..............................................................29 Signatories..............................................................30
THIS DEBENTURE is dated 13th June, 1997 and is made BETWEEN: (1) PACIFICORP SERVICES LIMITED a company incorporated under the laws of England and Wales (No. 3366016) whose registered office is at Barrington House, 59-67 Gresham Street, London EC2V 7JA (the "Company"); (2) THE COMPANIES identified in Schedule 1 (together with the Company and each company which becomes a party hereto by executing a Deed of Accession, each a "Chargor", together the "Chargors"); and (3) CITIBANK, N.A., P.O. Box 242, 336 Strand, London WC2R 1HB (the "Security Agent") as agent and trustee for itself and each of the Lenders (as defined below). WHEREAS: (A) The Banks (as defined in the Facility Agreement referred to below) have agreed to make available to the Borrowers (as defined in the Facility Agreement) certain term loan and revolving credit facilities (the "Facilities") on and subject to the terms of the Facility Agreement. (B) It is a condition precedent to the Banks making the Facilities available that the Chargors enter into this Debenture. (C) It is intended by the parties hereto that this document shall take effect as a deed notwithstanding the fact that a party may only execute this document under hand. NOW IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Debenture: "Declared Default" means an Event of Default which has resulted in the Facility Agent serving notice under any provision of Clause 24.2 of the Facility Agreement and/or an Event of Default (as defined therein) under the Coalco Facility Agreement which has resulted in the Paying Agent (as defined therein) serving notice under any provision of Article VII of the Coalco Facility Agreement; "Deed of Accession" means a deed substantially in the form set out in Schedule 3 hereto; "Default Rate" means, until the Discharge Date, at any time, a rate determined in accordance with Clause 11.3 of the Facility Agreement; "Discharge Date" means the date on which all the Secured Liabilities arising pursuant to or in respect of any of the Finance Documents and, the Coalco/Bidco Loan Agreement have been unconditionally and irrevocably paid and discharged in full and all commitments cancelled; 2 "Facility Agent" means Citibank International Plc in its capacity as agent under the Facility Agreement and its permitted successors and assigns; "Facility Agreement" means the facility agreement of even date herewith between the Company, Finance, Bidco, the Arrangers, the Original Banks, the LC Bank (each as defined therein), the Facility Agent and the Security Agent, together with each Borrower Accession Agreement, Guarantor Accession Agreement and Substitution Certificate relating thereto and any and each other agreement or instrument supplementing or amending it; "Finance Documents" has the meaning given to that term in the Facility Agreement; "Group Shares" means all shares specified in Schedule 2, or, when used in relation to a particular Chargor, such of those shares as are specified against its name in Schedule 2 together in each case with all other stocks, shares, debentures, bonds, warrants, coupons or other securities and investments now or in the future owned by any or (when used in relation to a particular Chargor) that Chargor from time to time excluding all Shares now or in the future owned by any Chargor from time to time until the de- listing on The New York Stock Exchange of the Target's American Depositary Receipt Shares whereupon all such Shares shall become Group Shares and be subject to the security created by this Debenture. "Lender" means each of the Facility Agent, the LC Banks, the Hedging Banks, the Security Agent, the Arrangers and the Banks parties to or having an interest under the Finance Documents from time to time and prior to the completion of the Asset Split in accordance with the Facility Agreement, Coalco in its capacity as lender under the Coalco/Bidco Loan Agreement; "Receiver" means a receiver and manager or (if the Security Agent so specifies in the relevant appointment) a receiver; "Related Rights" means, in relation to the Group Shares, all dividends and other distributions paid or payable after the date hereof on all or any of the Group Shares and all stocks, shares, securities (and the dividends or interest thereon), rights, money or property accruing or offered at any time by way of redemption, bonus, preference, option rights or otherwise to or in respect of any of the Group Shares or in substitution or exchange for any of the Group Shares; "Secured Liabilities" means all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity whatsoever) of each Obligor to the Lenders (or any of them) under each or any of the Finance Documents together with all costs, charges and expenses incurred by any Lender in connection with the protection, preservation or enforcement of its respective rights under the Finance Documents or any other document evidencing or securing any such liabilities and prior to the completion of the Asset Split in accordance with the terms of the Facility Agreement and the Structure Memorandum, all present and future obligations of Bidco to Coalco under and in respect of the Coalco/Bidco Loan Agreement (the "Coalco/Bidco Liabilities") PROVIDED THAT with effect from the completion of the Asset Split as aforesaid, the Coalco/Bidco Liabilities shall cease to be included within the definition of "Secured Liabilities" for all the purposes of this Debenture; and PROVIDED FURTHER THAT no obligation or liability shall be included in the definition of "Secured Liabilities" to the extent that, if it were so included, this Debenture (or any part 3 thereof) would constitute unlawful financial assistance within the meaning of Sections 151 and 152 of the Companies Act 1985; "Security Assets" means all assets, rights and property of the Chargors or any of them the subject of any security created hereby or pursuant hereto and includes, for the avoidance of doubt each Chargor's rights to or interests in any chose in action and the Security Shares; "Security Documents" means this Debenture and every other document entered into by the Chargors pursuant to this Debenture; "Security Period" means the period beginning on the date hereof and ending on the Discharge Date; "Security Shares" means the Group Shares and the Related Rights and in the case of each Chargor means such of the Group Shares as are held by it at the relevant time together with all Related Rights in respect thereof; "Shares" has the meaning ascribed thereto in the Facility Agreement; and "Share Mortgages" means the mortgages and charges created or purported to be created by Clause 3 hereof. 1.2 Interpretation (a) Save as expressly herein defined, capitalised terms defined in the Facility Agreement shall have the same meaning when used herein. Terms defined in the recitals to this Debenture have the same meaning when used in the remainder of this Debenture. (b) The provisions of Clause 1.2 of the Facility Agreement shall also apply hereto as if expressly set out herein (mutatis mutandis) with each reference to the Facility Agreement being deemed to be a reference to this Debenture. (c) For the avoidance of doubt, this Debenture (or any part thereof) shall not constitute unlawful financial assistance for the purposes of the proviso to the definition of "Secured Liabilities" in Clause 1.1 to the extent that it constitutes financial assistance within the meaning of the Sections therein cited but the provisions of Sections 155-158 of the Companies Act 1985 have been complied with in respect of the giving of such financial assistance. Each Chargor confirms that, if and to the extent that it is required by law to do so, it has complied with the provisions of Sections 155-158 of the Companies Act 1985. (d) If the Security Agent (on the basis of legal advice received by it for this purpose) reasonably considers that an amount paid by any Obligor to any Lender under any Finance Document or the Coalco/Bidco Loan Agreement, is capable of being avoided or otherwise set aside on the liquidation or administration of such Obligor or otherwise, then such amount shall not be considered to have been irrevocably paid for the purposes hereof. 4 1.3 Certificates A certificate of the Security Agent setting forth the amount of any Secured Liability due from any Obligor shall in the absence of manifest error, be prima facie evidence and shall be promptly notified to the Company, the relevant Borrower and the Banks. 2. COVENANT TO PAY 2.1 Covenant Each Chargor hereby, as primary obligor and not merely as surety, covenants with the Security Agent (as agent and trustee as aforesaid) that it will pay or discharge the Secured Liabilities on the due date therefor in the manner provided in the relevant Finance Document or in the Coalco/Bidco Loan Agreement. Any amount not paid hereunder in respect of or under any Finance Document or the Coalco/Bidco Loan Agreement when due shall bear interest (as well after as before judgment and payable on demand) at the Default Rate from time to time from the due date until the date such amount is unconditionally and irrevocably paid and discharged in full, save to the extent that interest at such rate on such amount for such period is charged pursuant to the relevant Finance Document and itself constitutes a Secured Liability. 2.2 Right of appropriation Upon the occurrence of a Declared Default and at any time thereafter while the same is continuing, the Security Agent shall be entitled to appropriate moneys and/or assets to Secured Liabilities in such manner or order as it sees fit (subject to Clause 12) and any such appropriation shall override any appropriation by any Obligor. This Clause 2.2 shall not, however, override the principle that (subject to Clause 12) the Lenders are to share in recoveries on a pro rata basis. 3. CHARGES ON SHARES Each Chargor, as sole beneficial owner and with full title guarantee, hereby as continuing security for the payment, discharge and performance of all the Secured Liabilities: (a) mortgages and charges and agrees to mortgage and charge to the Security Agent (as agent and trustee as aforesaid) all Group Shares held now or in the future by it and/or any nominee on its behalf, the same to be a security by way of a first mortgage; and (b) mortgages and charges and agrees to mortgage and charge to the Security Agent (as agent and trustee as aforesaid) all the Related Rights accruing to all or any of the Group Shares held now or in the future by it and/or any nominee on its behalf, the same to be a security by way of a first mortgage or charge. PROVIDED THAT: (i) whilst no Declared Default exists, all dividends and other distributions paid or payable as referred to in paragraph (b) above may be paid directly to the relevant Chargor free from the security created hereunder (in which case the Security Agent or its nominee shall execute any necessary dividend mandate) 5 and, if paid directly to the Security Agent, shall be paid promptly by it to the relevant Chargor; and (ii) subject to Clause 8.2, whilst no Declared Default exists, all voting rights attaching to the relevant Group Shares may be exercised by the relevant Chargor or, where the shares have been registered in the name of the Security Agent or its nominee, as the relevant Chargor may direct in writing, and the Security Agent and any nominee of the Security Agent in whose name such Group Shares are registered shall execute any form of proxy or other document reasonably required in order for the relevant Chargor to do so. 4. FLOATING CHARGES 4.1 Creation of floating charge Each Chargor as beneficial owner and with full title guarantee, as security for the payment, discharge and performance of the Secured Liabilities, charges in favour of the Security Agent (as agent and trustee as aforesaid) by way of a first floating charge all its undertaking and assets whatsoever and wheresoever both present and future (including, without limitation, any undertaking and assets situated in Scotland (whether or not the same may be mortgaged or charged by way of standard security)), subject always to the Share Mortgages or any other provision of this Debenture, PROVIDED THAT the provisions of this Clause shall not apply to the Shares owned now or in the future by Bidco until such time as such Shares shall be Group Shares, in accordance with the terms of that definition. 4.2 Restrictions on dealing Each Chargor undertakes to each Lender that, save as expressly permitted under the terms of this Debenture and/or the Facility Agreement it will not: (a) create or permit to subsist any Encumbrance over all or any of its assets, rights or property other than pursuant to this Debenture or any other Security Document; or (b) part with, lease, sell, transfer, assign or otherwise dispose of or agree to part with, lease, sell, transfer, assign or otherwise dispose of all or any part of its assets, rights or property or any interest therein, PROVIDED THAT the provisions of this Clause shall not apply to the Shares owned now or in the future by Bidco until such time as such Shares shall be Group Shares, in accordance with the terms of that definition. 4.3 Conversion of Floating Charge (a) The Security Agent may by notice to any Chargor convert the floating charge hereby created into a specific charge as regards all or any of such Chargor's assets, rights and property: (i) if a Declared Default has occurred; or 6 (ii) if such Chargor fails to comply, or takes or threatens to take any action which in the reasonable opinion of the Security Agent is likely to result in it failing to comply with its obligations under Clause 4.2. (b) The floating charge hereby created shall (in addition to the circumstances in which the same will occur under general law) automatically be converted into a fixed charge over the assets, rights and property of any Chargor on the convening of any meeting of the members of such Chargor to consider a resolution to wind such Chargor up. (c) The giving by the Security Agent of a notice pursuant to paragraph (a) above in relation to any class of any Chargor's assets, rights and property shall not be construed as a waiver or abandonment of the Security Agent's rights to give other similar notices in respect of any other class of assets or of any other of the rights of the Lenders (or any of them) or under any of the other Finance Documents. 5. CONTINUING SECURITY, ETC. 5.1 Continuing security The security constituted by this Debenture shall be continuing and will extend to the ultimate balance of the Secured Liabilities, regardless of any intermediate payment or discharge in whole or in part. 5.2 Breaking of accounts If for any reason the security constituted hereby ceases to be a continuing security in respect of any Obligor (other than by way of discharge of such security), the Lenders (and each or any of them) may open a new account with or continue any existing account with such Obligor and the liability of each Chargor in respect of the Secured Liabilities relating to such Obligor at the date of such cessation shall remain regardless of any payments in or out of any such account. 5.3 Reinstatement (a) Where any discharge (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be restored on insolvency, liquidation or otherwise without limitation, the liability of each Chargor under this Debenture shall continue as if the discharge or arrangement had not occurred. (b) The Security Agent may concede or compromise any claim that any payment, security or other disposition is liable to avoidance or restoration. 7 5.4 Waiver of defences (a) The liability of each Chargor hereunder will not be affected by any act, omission, circumstance, matter or thing which but for this provision would release or prejudice any of its obligations hereunder or prejudice or diminish such obligations in whole or in part, including without limitation and whether or not known to any Chargor, any Lender or any other person whatsoever: (i) any time, indulgence or waiver granted to, or composition with, any Obligor or any other person; or (ii) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect or take up or enforce any rights or remedies against, or any security over assets of, any Obligor or any other person or any non-presentment or non-observance of any formality or other requirement in respect of any instruments or any failure to realise the full value of any other security; or (iii) any legal limitation, disability, incapacity or lack of powers, authority or legal personality of or dissolution or change in the members or status of or other circumstance relating to, any Obligor or any other person; or (iv) any variation (however fundamental and whether or not involving any increase in the liability of any Obligor thereunder) or replacement of a Finance Document or the Coalco/Bidco Loan Agreement, or any other document or security so that references to that Finance Document or the Coalco/Bidco Loan Agreement, or other documents or security in this Debenture shall include each such variation or replacement; or (v) any unenforceability, illegality, invalidity or frustration of any obligation of any Obligor or any other person under any Finance Document or any other document or security, or any failure of any other Obligor or proposed Obligor to become bound by the terms of any Finance Document, in each case whether through any want of power or authority or otherwise; or (vi) any postponement, discharge, reduction, non-provability or other similar circumstance affecting any obligation of any Obligor under a Finance Document or affecting any obligation of Bidco under the Coalco/Bidco Loan Agreement resulting from any insolvency, liquidation or dissolution proceedings or from any law, regulation or order, this Debenture be construed as if there were no such circumstance, to the intent that each Chargor's obligations under this Debenture shall remain in full force, and this Debenture be construed accordingly, as if there were no such circumstance, act, variation, limitation, omission, unenforceability, illegality, matter or thing. No Lender shall be concerned to see or investigate the powers or authorities of any of the Chargors or their respective officers or agents, and moneys obtained or Secured Liabilities incurred in purported exercise of such powers or authorities or by any person purporting to be an Obligor shall be deemed to form a part of the Secured Liabilities, and "Secured Liabilities" shall be construed accordingly. 8 (b) For the avoidance of doubt, each Chargor shall be bound by this Debenture notwithstanding the fact that not all of the other members of the Group may have executed this Debenture and/or any of the other Security Documents required by the terms of the Finance Documents to be entered into by it or that any such document which has been entered into may be invalid, unenforceable or otherwise ineffective. 5.5 Immediate recourse Each Chargor waives any right it may have of first requiring any Lender to proceed against or enforce any other rights or security before enforcing the security constituted hereby. 5.6 Appropriations Upon and after the occurrence of a Declared Default and until all the Secured Liabilities have been unconditionally and irrevocably paid and discharged in full, each Lender may: (a) refrain from applying or enforcing any other moneys, security or rights held or received by it in respect of the Secured Liabilities or apply and enforce the same in such manner and order as it sees fit (whether against the Secured Liabilities or otherwise) and no Chargor shall be entitled to the benefit of the same; and (b) hold in a suspense account any moneys received from any Obligor or on account of any Obligor's liability in respect of the Secured Liabilities. Amounts standing to the credit of any such suspense account shall bear interest at a rate considered by such Lender to be a fair market rate. 5.7 Non-competition Until all the Secured Liabilities have been unconditionally and irrevocably paid and discharged in full no Chargor shall by virtue of any payment made, security realised or moneys received or recovered under any of the Finance Documents or the Coalco/Bidco Loan Agreement for or on account of the liability of any other Obligor(s): (a) be subrogated to any rights, security or moneys held, received or receivable by any Lender or be entitled to any right of contribution or indemnity; or (b) claim, rank, prove or vote as a creditor of any Obligor or its estate in competition with any Lender; or (c) unless the Security Agent directs it to do so after a Declared Default has occurred and is continuing, receive, claim or have the benefit of any payment, distribution or security from or on account of any Obligor, or exercise any right of set-off as against any Obligor. Each Chargor will hold in trust for and forthwith pay or transfer to the Security Agent (acting as agent and trustee as aforesaid) any payment or distribution or benefit of security received by it contrary to the above. If any Chargor exercises any right of set-off contrary to the above, it will forthwith pay an amount equal to the amount set off to the Security Agent (acting as agent and trustee as aforesaid). 9 5.8 Additional security This Debenture is in addition to and is not in any way prejudiced by any other security now or hereafter held by any Lender. 5.9 Security held by the Chargor No Chargor will without the prior written consent of the Security Agent hold any security from any other Obligor in respect of such Chargor's liability hereunder. Each Chargor will hold any security held by it in breach of this provision on trust for the Security Agent (as agent and trustee as aforesaid). 6. REPRESENTATIONS AND WARRANTIES 6.1 To whom made Each Chargor makes the representations and warranties set out in the balance of this Clause 6 to each Lender. 6.2 Matters represented (a) Security Shares (i) It is and will (save as otherwise permitted by the Facility Agreement) remain the sole beneficial owner of the Security Shares and save where the Security Shares have been registered in the name of the Security Agent or its nominee pursuant hereto, it and/or its nominee is and will (save as otherwise permitted by the Facility Agreement) remain the absolute legal owner of the Security Shares. (ii) The Share Mortgages constitute first priority security interests over the Security Shares which are not subject to any prior or pari passu Encumbrances. (iii) It will not take any action whereby the rights attaching to the Security Shares are altered or diluted. (iv) The Group Shares are fully paid and non-assessable and neither the Group Shares nor the Related Rights are subject to any options to purchase or similar rights of any person. (b) Security Subject to the Reservations, this Debenture (i) constitutes its legally binding obligation enforceable in accordance with its terms, (ii) creates those Encumbrances it purports to create, and (iii) is not liable to be avoided or otherwise set aside on its liquidation or administration or otherwise. 10 6.3 Times for making representations and warranties The representations and warranties set out in this Clause 6: (a) will survive the execution of each Finance Document and the making of each Utilisation under the Facility Agreement; (b) are made on the date hereof and are deemed to be repeated on each date during the Security Period on which any of the representations and warranties set out in Clause 20.1 of the Facility Agreement are repeated, with reference to the facts and circumstances then existing. 7. UNDERTAKINGS 7.1 Duration and with whom made The undertakings in this Clause 7: (a) shall remain in force throughout the Security Period; and (b) are given by each Chargor to each Lender. 7.2 General Undertakings Covenant to perform. Each Chargor shall at all times comply with the terms (express or implied) of this Debenture and the other Finance Documents. 7.3 Undertakings relating to Group Shares Deposit of securities. Each Chargor shall promptly deposit with the Security Agent or as the Security Agent may direct all bearer instruments, share certificates and other documents of title or evidence of ownership in relation to such Group Shares as are owned by it or in which it has or acquires an interest and their Related Rights and shall execute and deliver to the Security Agent all such share transfers and other documents as may be requested by the Security Agent in order to enable the Security Agent or its nominees to be registered as the owner or otherwise to obtain a legal title to the same and, without limiting the generality of the foregoing, shall deliver to the Security Agent on or before the first Utilisation Date executed (and, if required to be stamped, pre-stamped) share transfers for all Group Shares specified in Schedule 2 in favour of the Security Agent and/or its nominee(s) as transferees or, if the Security Agent so directs, with the transferee left blank and shall procure that all such share transfers are at the request of the Security Agent promptly registered by the relevant company and that share certificates in the name of the Security Agent and/or such nominee(s) in respect of all Group Shares are promptly delivered to the Security Agent. Each Chargor shall provide the Security Agent with certified copies of all resolutions and authorisations approving the execution of such transfer forms and registration of such transfers as the Security Agent may reasonably require. 11 8. SPECIAL PROVISIONS RELATING TO THE SECURITY SHARES 8.1 Registration on Transfer Each Chargor hereby authorises the Security Agent (at any time) to arrange for the Security Shares to be delivered to any nominee for the Security Agent or any purchaser or transferee (under the powers of realisation herein conferred) or registered as the Security Agent may feel appropriate to perfect the security thereover and to transfer or cause the Security Shares to be transferred to and registered in the name of any suitably qualified nominees of the Security Agent (as agent and trustee, as aforesaid) and each Chargor undertakes from time to time promptly to execute and sign all transfers, contract notes, powers of attorney and other documents (and promptly to register any such transfer of the Security Shares in the shareholders' register of such Chargor) which the Security Agent may reasonably require for perfecting its title to any of the Security Shares or for vesting the same in itself or its nominee or in any purchasers or transferees (under the powers of realisation herein conferred). 8.2 Powers The Security Agent and its nominee may at any time after a Declared Default has occurred and whilst the same is continuing, exercise or refrain from exercising (in the name of each Chargor, the registered holder or otherwise and without any further consent or authority from each Chargor and irrespective of any direction given by any Chargor) in respect of the Security Shares any voting rights and any powers or rights under the terms thereof or otherwise which may be exercised by the person or persons in whose name or names the Security Shares are registered or who is the holder thereof, including, without limitation, all the powers given to trustees by Section 10(3) and (4) of the Trustee Act 1925 as amended by Section 9 of the Trustee Investments Act 1961 in respect of securities or property subject to a trust PROVIDED THAT in the absence of notice from the Security Agent each Chargor may and shall continue to exercise any and all voting rights with respect to the Group Shares subject always to the terms hereof. No Chargor shall without the previous consent in writing of the Security Agent, exercise the voting rights attached to any of the Group Shares in favour of resolutions having the effect of changing the terms of the Group Shares (or any class of them) or any Related Rights or prejudicing the security hereunder or impairing the value of the Security Shares. Each Chargor hereby irrevocably appoints the Security Agent or its nominees its proxy to exercise all voting rights so long as the Group Shares remain registered in the names of the Chargors and to the extent that the Security Agent is entitled to exercise such voting rights in accordance with the terms of this Debenture. 8.3 Calls Each Chargor during the continuance of this security will make all payments which may become due in respect of any of the Security Shares and in the event of default in making any such payment the Security Agent may if it thinks fit make such payment on behalf of each Chargor. Any sums so paid by the Security Agent shall be repayable by the relevant Chargor to the Security Agent on demand together with interest at the Default Rate from the date of such payment by the Security Agent, and pending such repayment shall constitute part of the Secured Liabilities. 12 8.4 Liability to Perform It is expressly agreed that, notwithstanding anything to the contrary herein contained, each Chargor shall remain liable to observe and perform all of the conditions and obligations assumed by it in respect of the Security Shares and none of the Security Agent or the Lenders shall be under any obligation or liability by reason of or arising out of the Share Mortgages. None of the Lenders shall be required in any manner to perform or fulfil any obligation of any Chargor in respect of the Security Shares, or to make any payment, or to receive any enquiry as to the nature or sufficiency of any payment received by them, or to present or file any claim or take any other action to collect or enforce the payment of any amount to which they may have been or to which they may be entitled hereunder at any time or times. 8.5 Enforcement Upon the occurrence of a Declared Default and at any time thereafter while the same is continuing, the Security Agent shall be entitled to put into force and exercise immediately as and when it may see fit any and every power possessed by the Security Agent by virtue of the Share Mortgages or available to a secured creditor (so that Sections 93 and 103 of the Law of Property Act 1925 shall not apply to this security) and in particular (without limitation): (i) to sell all or any of the Security Shares in any manner permitted by law upon such terms as the Security Agent shall in its absolute discretion determine; (ii) to collect, recover or compromise and give a good discharge for any moneys payable to any Chargor in respect of the Security Shares or in connection therewith; and (iii) to act generally in relation to the Security Shares in such manner as the Security Agent acting reasonably shall determine. For the avoidance of doubt, each Chargor agrees that the enforceability of the Share Mortgages is not dependent on the performance or non-performance by any Lender of its respective obligations under the Facility Agreement. 9. WHEN SECURITY BECOMES ENFORCEABLE The security constituted hereby shall become immediately enforceable upon the occurrence of a Declared Default and at any time thereafter whilst the same is continuing and the power of sale and other powers conferred by Section 101 of the Law of Property Act, 1925 as varied or amended by this Debenture shall be immediately exerciseable upon the occurrence of a Declared Default and at any time thereafter whilst the same is continuing. After the security constituted hereby has become enforceable, the Security Agent may in its absolute discretion enforce all or any part of such security in such manner as it sees fit or as the Majority Banks direct. 13 10. ENFORCEMENT OF SECURITY 10.1 General For the purposes of all powers implied by statute the Secured Liabilities shall be deemed to have become due and payable on the date hereof and Section 103 of the Law of Property Act 1925 (restricting the power of sale) and Section 93 of the same Act (restricting the right of consolidation) shall not apply to this security. The statutory powers of leasing conferred on the Security Agent shall be extended so as to authorise the Security Agent to lease, make agreements for leases, accept surrenders of leases and grant options as the Security Agent shall think fit and without the need to comply with any of the provisions of sections 99 and 100 of the Law of Property Act 1925. 10.2 Contingencies (a) If the Security Agent enforces the security constituted by this Debenture (whether by the appointment of a Receiver or otherwise) at a time when no amounts are due under the Finance Documents or the Coalco/Bidco Loan Agreement (but at a time when amounts may become so due), the Security Agent (or such Receiver) may pay the proceeds of any recoveries effected by it into such number of interest bearing realisations accounts as it considers appropriate. (b) The Security Agent (or such Receiver) may (subject to the payment of any claims having priority to this security) withdraw amounts standing to the credit of such realisation accounts to: (i) meet all costs, charges and expenses incurred and payments made by the Security Agent (or such Receiver) in the course of such enforcement; (ii) pay remuneration to the Receiver as and when the same becomes due and payable; and (iii) meet amounts due and payable under the Finance Documents and the Coalco/Bidco Loan Agreement; in each case, together with interest thereon (as well after as before judgment and payable on demand) at the Default Rate from the date the same become due and payable until the date the same are unconditionally and irrevocably paid and discharged in full (provided that like interest payable under any of the Finance Documents should not be double counted). (c) No Chargor will be entitled to withdraw all or any moneys (including interest) standing to the credit of any such realisation account until the expiry of the Security Period. 11. RECEIVER 11.1 Appointment of Receiver (a) At any time after this security becomes enforceable or if any Chargor so requests the Security Agent in writing at any time, the Security Agent may without further notice appoint under seal or in writing under its hand any one or more qualified persons to be a Receiver of all or any 14 part of the Security Assets in like manner in every respect as if the Security Agent had become entitled under the Law of Property Act 1925 to exercise the power of sale thereby conferred. (b) In this Clause "qualified person" means a person who, under the Insolvency Act 1986, is qualified to act as a receiver of the property of any company with respect to which he is appointed or (as the case may require) an administrative receiver of any such company. 11.2 Powers of Receiver (a) Every Receiver appointed in accordance with Clause 11.1 shall have and be entitled to exercise all of the powers set out in paragraph (b) below in addition to those conferred by the Law of Property Act 1925 on any receiver appointed thereunder. A Receiver who is an administrative receiver of any Chargor shall have all the powers of an administrative receiver under the Insolvency Act 1986. If at any time there is more than one Receiver of all or any part of the Security Assets, each such Receiver may (unless otherwise stated in any document appointing him) exercise all of the powers conferred on a Receiver under this Debenture individually and to the exclusion of each other Receiver. (b) The powers referred to in the first sentence of paragraph (a) above are: (i) Take possession to take immediate possession of, get in and collect the Security Assets or any part thereof; (ii) Carry on business to carry on the business of such Chargor as he may think fit; (iii) Protection of assets to make and effect all repairs and insurances and do all other acts which such Chargor might do in the ordinary conduct of its business as well for the protection as for the improvement of the Security Assets; (iv) Employees to appoint and discharge managers, officers, agents, accountants, servants, workmen and others for the purposes hereof upon such terms as to remuneration or otherwise as he may think proper and to discharge any such persons appointed by any such Chargor; (v) Borrow Money for the purpose of exercising any of the powers, authorities and discretions conferred on him by or pursuant to this Debenture and/or of defraying any costs, charges, losses or expenses (including his remuneration) which shall be incurred by him in the exercise thereof or for any other purpose, to raise and borrow money either unsecured or on the security of the Security Assets or any part thereof either in priority to the security constituted by this Debenture or otherwise and generally on such terms and conditions as he may think fit and no person lending such money shall be concerned to enquire as to the propriety or purpose of the exercise of such power or to see to the application of any money so raised or borrowed; (vi) Sell assets to sell, exchange, convert into money and realise all or any part of the Security Assets by public auction or private contract and generally in such manner and on such terms as he shall think proper. Without prejudice to the generality of the foregoing he may do any of these things for a consideration consisting of cash, debentures or other obligations, shares, stock or other valuable consideration and any 15 such consideration may be payable in a lump sum or by instalments spread over such period as he may think fit. All fixtures and fittings (including trade fixtures and fittings) and fixed plant and machinery, other than landlords' fixtures, may be severed and sold separately from the property containing them without the consent of such Chargor; (vii) Leases to let all or any part of the Security Assets for such term and at such rent (with or without a premium) as he may think proper and to accept a surrender of any lease or tenancy thereof on such terms as he may think fit (including the payment of money to a lessee or tenant on a surrender); (viii) Compromise to settle, adjust, refer to arbitration, compromise and arrange any claims, accounts, disputes, questions and demands with or by any person who is or claims to be a creditor of such Chargor or relating in any way to the Security Assets or any part thereof; (ix) Legal Actions to bring, prosecute, enforce, defend and abandon all such actions, suits and proceedings in relation to the Security Assets or any part thereof as may seem to him to be expedient; (x) Receipts to give valid receipts for all moneys and execute all assurances and things which may be proper or desirable for realising the Security Assets; (xi) Subsidiaries to form a subsidiary or subsidiaries of such Chargor and transfer to any such subsidiary all or any part of the Security Assets; and (xii) General powers to do all such other acts and things as he may consider desirable or necessary for realising the Security Assets or any part thereof or incidental or conducive to any of the matters, powers or authorities conferred on a Receiver under or by virtue of this Debenture, to exercise in relation to the Security Assets or any part thereof all such powers, authorities and things as he would be capable of exercising if he were the absolute beneficial owner of the same and to use the name of such Chargor for all or any of such purposes. 11.3 Removal and remuneration The Security Agent may from time to time by writing under its hand (subject to any requirement for an order of the court in the case of an administrative receiver) remove any Receiver appointed by it and may, whenever it may deem it expedient, appoint a new Receiver in the place of any Receiver whose appointment may for any reason have terminated and may from time to time fix the remuneration of any Receiver appointed by it. 11.4 Security Agent may exercise To the fullest extent permitted by law, all or any of the powers, authorities and discretions which are conferred by this Debenture (either expressly or impliedly) upon a Receiver of the Security Assets may be exercised after the security hereby created becomes enforceable by the Security Agent in relation to the whole of such Security Assets or any part thereof without first 16 appointing a Receiver of such property or any part thereof or notwithstanding the appointment of a Receiver of such property or any part thereof. 12. APPLICATION OF PROCEEDS Any moneys received by the Security Agent or by any Receiver appointed by it pursuant to this Debenture and/or under the powers hereby conferred shall, after the security hereby constituted shall have become enforceable but subject to the payment of any claims having priority to this security and to the Security Agent's and such Receiver's rights under Clauses 10.2 and 11.2, be applied by the Security Agent for the following purposes and, unless otherwise determined by the Security Agent or such Receiver, in the following order or priority (but without prejudice to the right of the Security Agent or any Lender to recover any shortfall from any Chargor): (a) in satisfaction of or provision for all costs, charges and expenses incurred and payments made by the Security Agent or any Receiver appointed hereunder and of all remuneration due hereunder together with interest on the foregoing (as well after as before judgment and payable on demand) at the Default Rate from time to time from the date the same become due and payable until the date the same are unconditionally and irrevocably paid and discharged in full; (b) in or towards repayment to the Security Agent of all amounts repayable by the Chargors pursuant to Clause 8.3; (c) in or towards payment of the Secured Liabilities or such part of them as is then due and payable in accordance with the terms of the Intercreditor Agreement; and (d) in payment of the surplus (if any) to any Chargor or other person entitled thereto. 13. NO LIABILITY AS MORTGAGEE IN POSSESSION The Security Agent shall not nor shall any Receiver appointed as aforesaid by reason of it or the Receiver entering into possession of the Security Assets or any part thereof be liable to account as mortgagee in possession or be liable for any loss on realisation or for any default or omission for which a mortgagee in possession might be liable. Every Receiver duly appointed by the Security Agent under the powers in that behalf herein contained shall be deemed to be the agent of the relevant Chargor for all purposes and shall as such agent for all purposes be deemed to be in the same position as a Receiver duly appointed by a mortgagee under the Law of Property Act 1925. The relevant Chargor alone shall be responsible for his contracts, engagements, acts, omissions, defaults and losses and for liabilities incurred by him and neither the Security Agent nor any Lender shall incur any liability therefor (either to the Company, any other Chargor or to any other person whatsoever) by reason of the Security Agent's making his appointment as such Receiver or for any other reason whatsoever. Every such Receiver and the Security Agent shall be entitled to all the rights, powers, privileges and immunities by the Law of Property Act 1925 conferred on mortgagees and receivers when such receivers have been duly appointed under the said Act but so that Section 103 of the Law of Property Act 1925 shall not apply. 17 14. PROTECTION OF THIRD PARTIES No purchaser, mortgagee or other person or company dealing with the Security Agent or the Receiver or its or his agents shall be concerned to enquire whether the Secured Liabilities have become payable or whether any power which the Receiver is purporting to exercise has become exercisable or whether any money remains due under this Debenture, the Finance Documents or the Coalco/Bidco Loan Agreement or to see to the application of any money paid to the Security Agent or to such Receiver. 15. TAXES All payments by any Chargor under this Debenture to or for the account of any Lender shall be made without any set off, counterclaim or other deductions and free and clear of and without deduction for or on account of any Applicable Taxes (as provided for and subject to the qualifications and exceptions in Clause 13.1 of the Facility Agreement). If any Applicable Tax or amounts in respect thereof must be deducted, or any other deductions must be made, from any amounts payable or paid by such Chargor, or paid or payable by the Security Agent to another Lender, under this Debenture, or any such payment shall otherwise be required to be made subject to any Applicable Tax, such Chargor shall pay such additional amounts as may be necessary to ensure that the relevant Lender receives a net amount equal to the full amount which it would have received had payment not been made subject to the Applicable Tax. 16. EXPENSES 16.1 Undertaking to pay All reasonable costs, charges and expenses incurred and all payments made by the Security Agent or any Receiver appointed hereunder in the lawful exercise of the powers hereby conferred whether or not occasioned by any act, neglect or default of any Chargor shall carry interest (as well after as before judgment) at the Default Rate from time to time from the date on which demand is made on any Chargor for reimbursement until the date the same are unconditionally and irrevocably paid and discharged in full. The amount of all such costs, charges, expenses and payments and all such interest thereon and all remuneration payable hereunder shall be payable by the Chargors on demand. All such costs, charges, expenses and payments shall be paid and charged as between the Security Agent and the Chargors on the basis of a full indemnity and not on the basis of party and party or any other kind of taxation. 16.2 Indemnity The Lenders and every Receiver, attorney, manager, agent or other person appointed by the Security Agent hereunder shall be entitled to be indemnified out of the Security Assets in respect of all liabilities and expenses properly incurred by them in the execution or purported execution of any of the powers, authorities or discretions vested in them pursuant hereto and against all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted in any way relating to the Security Assets and the Lenders and any such Receiver may retain and pay all sums in respect of the same out of any moneys received under the powers hereby conferred. Notwithstanding the foregoing no Lender or Receiver and no person appointed by the Security Agent as aforesaid shall be entitled to be indemnified in 18 respect of any part of the foregoing which results from such party's gross negligence or wilful misconduct. 17. DELEGATION BY SECURITY AGENT The Security Agent or any Receiver appointed hereunder may at any time and from time to time delegate by power of attorney or in any other manner to any properly qualified person or persons all or any of the powers, authorities and discretions which are for the time being exercisable by the Security Agent or such Receiver under this Debenture in relation to the Security Assets or any part thereof. Any such delegation may be made upon such terms (including power to sub-delegate) and subject to such regulations as the Security Agent or such Receiver may think fit. The Security Agent or such Receiver shall not be in any way be liable or responsible to any Chargor for any loss or damage arising from any act, default, omission or misconduct on the part of any such delegate or sub- delegate. 18. FURTHER ASSURANCES 18.1 General Each Chargor shall at its own expense execute and do all such assurances, acts and things as the Security Agent may reasonably require for perfecting or protecting the security intended to be created hereby over the Security Assets or any part thereof or for facilitating (if and when this security becomes enforceable) the realisation of the Security Assets or any part thereof and in the exercise of all powers, authorities and discretions vested in the Security Agent or any Receiver of the Security Assets or any part thereof or in any such delegate or sub-delegate as aforesaid. To that intent, each Chargor shall in particular execute all transfers, conveyances, assignments and assurances of such property whether to the Security Agent or to its nominees and give all notices, orders and directions and make all registrations which the Security Agent may reasonably think expedient. 18.2 Further subsidiaries (a) Each Chargor hereby undertakes to ensure that each company incorporated in the United Kingdom which becomes a Subsidiary (whether direct or indirect) of any Chargor after the date hereof shall, forthwith upon being required to grant security pursuant to Clause 19.3 of the Facility Agreement, execute a Deed of Accession substantially in the form set out in Schedule 3 and such company shall on the date on which such Deed of Accession is executed by it become a party to this Debenture in the capacity of a Chargor and this Debenture shall be read and construed for all purposes as if such company had been an original party hereto as a Chargor (but for the avoidance of doubt the security created by such company shall be created on the date of the Deed of Accession). The Security Agent is authorised to agree any amendments or change to the form or manner in which any such member of the Group gives such a guarantee and security (including acceptance of a limit on the liability of such member of the Group) which is in the opinion of the Security Agent necessary in order that such guarantee or security may lawfully be given. (b) The Company shall procure that all registrations or other steps necessary to perfect or protect any security created pursuant to any Deed of Accession is completed as soon as practicable after the date thereof and in any event within any applicable time limit. 19 (c) Any company which becomes a party hereto as a Chargor pursuant to any Deed of Accession shall also become party to and be bound by the terms of the Intercreditor Agreement as an Obligor, in accordance with the terms of the Intercreditor Agreement. 19. REDEMPTION OF PRIOR MORTGAGES The Security Agent may, at any time after the security hereby constituted has become enforceable, redeem any prior Encumbrance over or against the Security Assets or any part thereof or procure the transfer thereof to itself and may settle and pass the accounts of the prior mortgagee, chargee or encumbrancer. Any accounts so settled and passed shall be conclusive and binding on each Chargor. All principal moneys, interest, costs, charges and expenses of and incidental to such redemption and transfer shall be paid by the Chargor to the Security Agent on demand. 20. POWER OF ATTORNEY 20.1 Appointment Each Chargor hereby by way of security and in order more fully to secure the performance of its obligations hereunder irrevocably appoints the Security Agent and every Receiver of the Security Assets or any part thereof appointed hereunder and every such delegate or sub-delegate as aforesaid to be its attorney acting severally, and on its behalf and in its name or otherwise, after the occurrence of a Default, to execute and do all such assurances, acts and things which such Chargor is required to do and fails to do under the covenants and provisions contained in this Debenture (including, without limitation, to make any demand upon or to give any notice or receipt to any person owing moneys to such Chargor and to execute and deliver any charges, legal mortgages, assignments or other security and any transfers of securities) and generally in its name and on its behalf to exercise all or any of the powers, authorities and discretions conferred by or pursuant to this Debenture or by statute on the Security Agent or any such Receiver, delegate or sub-delegate and (without prejudice to the generality of the foregoing) to seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act which it or he may reasonably deem proper in or for the purpose of exercising any of such powers, authorities and discretions. 20.2 Ratification Each Chargor hereby ratifies and confirms and agrees to ratify and confirm whatever any such attorney as is mentioned in Clause 21.1 shall do or purport to do in the exercise or purported exercise of all or any of the powers, authorities and discretions referred to in such Clause. 21. NEW ACCOUNTS If the Security Agent or any Lender receives or is deemed to be affected by notice whether actual or constructive of any subsequent charge or other interest affecting any part of the Security Assets and/or the proceeds of sale thereof, the Security Agent or such Lender (as the case may be) may open a new account or accounts with any Obligor. If the Security Agent or such Lender (as the case may be) does not open a new account it shall nevertheless be treated as if it had done so at the time when it received or was deemed to have received notice and as 20 from that time all payments made to the Security Agent or such Lender (as the case may be) shall be credited or be treated as having been credited to the new account and shall not operate to reduce the amount for which this Debenture is security. 22. STAMP TAXES Each Chargor shall pay and, promptly on demand, indemnify the Security Agent and each Lender against any liability it incurs in respect of any stamp, registration and similar Tax which is or becomes payable in connection with the entry into, performance or enforcement of this Debenture. 23. ASSIGNMENTS, ETC. 23.1 The Security Agent The Security Agent may assign and transfer all of its respective rights and obligations hereunder to a replacement Security Agent appointed in accordance with the terms of the Facility Agreement. Upon such assignment and transfer taking effect, the replacement Security Agent shall be and be deemed to be acting as agent and trustee for each of the Lenders for the purposes of this Debenture in place of the old Security Agent. 23.2 Assignments and Transfers Each Chargor shall be bound by the terms of Clause 30 (Assignments, Transfers and Substitutions) of the Facility Agreement and, accordingly, each Chargor, for the purposes of any transfer pursuant to any of such Clauses, hereby irrevocably authorises the Security Agent to execute on its behalf (i) Substitution Certificates (without any need for the prior consent of such Chargor) in accordance with the provisions of the Facility Agreement, and (ii) any other document required to perfect the security granted to the Lenders pursuant to the Finance Documents. 24. WAIVERS, REMEDIES CUMULATIVE (a) The rights of the Security Agent and each Lender under this Debenture: (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under general law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right is not a waiver of that right. (b) The Security Agent may waive any breach by any Chargor of any of such Chargor's obligations hereunder if so instructed by the Majority Banks. 21 25. SET-OFF The Security Agent and each Lender, whilst any Default shall be continuing, may (but shall not be obliged to) set off any obligation which is due and payable by any Chargor and unpaid (whether under the Finance Documents or which has been assigned to the Security Agent by any other Chargor hereunder) against any obligation (whether or not matured) owed by the Security Agent or such Lender (as the case may be) to such Chargor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Security Agent or such Lender (as the case may be) may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. The Security Agent or such Lender (as the case may be) shall notify the relevant Chargor promptly after taking any such action. 26. SEVERABILITY 26.1 General If a provision of this Debenture is or becomes illegal, invalid or unenforceable in any jurisdiction in respect of any Chargor, that shall not affect: (a) in respect of such Chargor, the validity or enforceability in that jurisdiction of any other provision of this Debenture; or (b) in respect of such Chargor, the validity or enforceability in other jurisdictions of that or any other provision of this Debenture. 26.2 Deemed separate charges This Debenture shall, in relation to each Chargor, be read and construed as if it were a separate Debenture relating to such Chargor to the intent that if any Encumbrance created by any other Chargor in this Debenture shall be invalid or liable to be set aside for any reason, this shall not affect any Encumbrance created hereunder by such first Chargor. 27. COUNTERPARTS This Debenture may be executed in any number of counterparts and this will have the same effect as if the signatures on the counterparts were on a single copy of this Debenture. 28. NOTICES 28.1 Giving of Notices All notices under, or in connection with, this Debenture shall be given in writing or by telex or fax (and, in the case of notices to any Chargor, shall be copied to Ricardo by facsimile transmission at such facsimile number, and for such attention, as shall be notified in writing to the Security Agent by Ricardo from time to time). Any such notice is deemed to be given as follows: (a) if in writing when delivered; 22 (b) if by telex when despatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender's copy of the notice; and (c) if by fax when received. However, a notice given to a Chargor in accordance with the above but received on a non-working day or after business hours in the place of receipt is deemed to be given on the next working day in that place. 28.2 Addresses for notices The address, telex number and facsimile number of the Chargors and the Security Agent for all notices under, or in connection with, this Debenture are, in the case of the Chargors, as set out in Schedule 1 and, in the case of the Security Agent, as set out in the Facility Agreement. 29. COVENANT TO RELEASE Upon the expiry of the Security Period (but not otherwise), the Security Agent and each Lender shall, at the request and cost of the Chargors, execute and do all such deeds, acts and things as may be necessary to release the Security Assets from the security constituted hereby. 30. GOVERNING LAW AND JURISDICTION 30.1 Governing Law This Debenture shall be governed by and construed in accordance with English law. 30.2 Courts of England (a) For the benefit of each of the Lenders, each Chargor agrees that the High Courts of Justice in London and all appellate courts therefrom have jurisdiction to settle any disputes which may arise out of or in connection with this Debenture and that any suit, action or proceedings (together the "Proceedings") in connection with this Debenture may be brought in High Courts of Justice in London and all appellate courts therefrom and accordingly submits to the jurisdiction of the High Courts of Justice in London and all appellate courts therefrom. (b) The Chargors hereby irrevocably and unconditionally agree that nothing in this Debenture shall affect the right to serve process in any manner permitted by law. IN WITNESS whereof this Debenture has been duly executed as a deed on the date first above written. 23 SCHEDULE 1 The Chargors: PACIFICORP SERVICES LIMITED State of Incorporation: England and Wales Registered Office: Barrington House 59-67 Gresham Street London EC2V 7JA Address for Notices: 700 N.E. Multnomah Street Suite 1600 Portland Oregon 97232-4116 Attention: William E. Peressini Fax: (503) 731 2027 PACIFICORP FINANCE (UK) LIMITED State of Incorporation: England and Wales Registered Office: Barrington House 59-67 Gresham Street London EC2V 7JA Address for Notices: 700 N.E. Multnomah Street Suite 1600 Portland Oregon 97232-4116 Attention: William E. Peressini Fax: (503) 731 2027 PACIFICORP ACQUISITIONS State of Incorporation: England and Wales Registered Office: Barrington House 59-67 Gresham Street London EC2V 7JA 24 Address for Notices: 700 N.E. Multnomah Street Suite 1600 Portland Oregon 97232-4116 Attention: William E. Peressini Fax: (503) 731 2027 25 SCHEDULE 2 Group Shares
The Chargor Name of Company in Name of Nominee (if Class of Shares held Number of Shares which Shares are held any) by whom Shares held are held Pacificorp Services Limited Pacificorp Finance (UK) None Ordinary One Limited Pacificorp Finance (UK) Pacificorp Acquisitions Richard O'Brien Ordinary Two Limited
26 SCHEDULE 3 Form of Deed of Accession THIS DEED OF ACCESSION dated [ ], 19[ ] is made BETWEEN: (1) [ ] (the "Subsidiary"), a company incorporated in England or Wales whose registered office is situate at [ ]; (2) [ ] (the "Company") for itself and as agent for and on behalf of each of the other Chargors named in the Debenture referred to below; and (3) CITIBANK, N.A. as the Security Agent. WHEREAS (A) The Subsidiary is a [wholly-owned] Subsidiary of the Company. (B) The Company has entered into a debenture dated [ ] June, 1997 (as supplemented and amended by Deeds of Accession or otherwise from time to time, the "Debenture") between the Company, each of the companies named therein as Chargors, and Citibank, N.A. as agent and trustee for certain Lenders identified therein. (C) The Subsidiary has at the request of the Company and in consideration of the Lenders making or continuing to make facilities available to Bidco or any other member of the Bidco Group and after giving due consideration to the terms and conditions of the Finance Documents, the Coalco/Bidco Loan Agreement and the Debenture and satisfying itself that there are reasonable grounds for believing that the entry into this Deed by it will be of benefit to it, decided in good faith and for the purpose of carrying on its business to enter into this Deed and thereby become a Chargor under the Debenture. The Subsidiary will also, by execution of a separate instrument, become a party to the Intercreditor Agreement as an Obligor. NOW THIS DEED WITNESSES as follows: 1. Terms defined in the Debenture shall have the same meaning in this Deed. 2. The Subsidiary hereby agrees to become a party to and to be bound by the terms of the Debenture as a Chargor with immediate effect and so that the Debenture shall be read and construed for all purposes as if the Subsidiary had been an original party thereto in the capacity of Chargor (but so that the security created consequent on such accession shall be created on the date hereof). The Subsidiary hereby undertakes to be bound by all the covenants and agreements in the Debenture which are expressed to be binding on a Chargor. In accordance with the foregoing, the Subsidiary now grants to the Security Agent as agent and trustee for the Lenders the assignments, charges, mortgages and other security described in the Debenture as being granted, created or made by Chargors thereunder, to the intent that its assignments, charges, mortgages and other security shall be effective and binding upon it and its property and assets and shall not in any way be avoided, discharged or released or otherwise adversely affected by any ineffectiveness or invalidity of the Debenture or of any other party's execution 27 thereof or any other Deed of Accession, or by any avoidance, invalidity, discharge or release of any guarantee, assignment or charge contained in the Debenture or in any other Deed of Accession. The Debenture and this Deed shall be read as one to this extent and so that references in the Debenture to "this Debenture", "herein", and similar phrases shall be deemed to include this Deed and all references in the Debenture to "Schedule 2" (or any part thereof) shall be deemed to include a reference to the Schedule to this Deed (or relevant part thereof). 3. The Company, for itself and as agent for and on behalf of all other Chargors under the Debenture, hereby agrees to all matters provided for herein. 4. Without limiting the generality of the other provisions of this Deed and the Debenture, pursuant to the terms hereof and of the Debenture, the Subsidiary as beneficial owner and with full title guarantee, as security for the payment, discharge and performance of all Secured Liabilities, hereby and by the Debenture in favour of the Security Agent (as agent and trustee for itself and each of the Lenders) hereby agrees that the Subsidiary's estates and other interests in certain Group Shares for the purposes of Clause 3 of the Debenture, as such provisions apply in relation to the Subsidiary, are specified in the Schedule to this Deed and (together with all Related Rights) are hereby mortgaged or charged as provided in such provisions and the other provisions of the Debenture. 5. This Deed shall be governed by and construed in accordance with English law. 28 SCHEDULE Insert details of Group Shares in which the Subsidiary has an interest. 29 SIGNATORIES (to Accession Agreement) The Subsidiary (For a Company incorporated in the United Kingdom) Executed as a deed by ) ------------------------ [ ] ) Director acting by [ ] ) and [ ] ) ------------------------ Director The Company [ ] ) (for itself and as ) agent for the ) other Chargors party to the ) Debenture herein referred to ) Executed as a deed by ) [ ] ) ------------------------ acting by ) Director [ ] and ) [ ] ) ------------------------ Director The Security Agent CITIBANK, N.A. By: 30 SIGNATORIES The Company Executed as a deed by ) RICHARD T. O'BRIEN PACIFICORP SERVICES LIMITED ) Director ) acting by RICHARD T. O'BRIEN ) and WILLIAM E. PERESSINI ) ) WILLIAM E. PERESSINI Director The Other Chargors Executed as a deed by ) RICHARD T. O'BRIEN PACIFICORP FINANCE (UK) ) Director LIMITED ) ) acting by RICHARD T. O'BRIEN ) and WILLIAM E. PERESSINI ) ) WILLIAM E. PERESSINI Director Executed as a deed by ) RICHARD T. O'BRIEN PACIFICORP ACQUISITIONS ) Director ) acting by RICHARD T. O'BRIEN ) and WILLIAM E. PERESSINI ) ) WILLIAM E. PERESSINI Director The Security Agent CITIBANK, N.A. By: NIELS C. KIRK EX-99.C 18 FORM OF IRREVOCABLE UNDERTAKINGS FORM OF IRREVOCABLE UNDERTAKING From: ----------------------- To: PacifiCorp Acquisitions Barrington House 55-67 Gresham Street London EC2V 7JA (the "Offeror") ------- , 1997 --------- Dear Sirs, Proposed Offer on behalf of the Offeror for the whole of the issued share capital of The Energy Group PLC (the "Company") ------- In consideration of you agreeing to make before 11th July, 1997 or such later time as may be permitted by the Panel on Takeovers and Mergers (the "Panel") an offer to acquire the whole of the issued ordinary share capital of ----- the Company including any such share capital represented by American Depositary Shares (other than any ordinary shares or American Depositary Shares representing such share capital currently held by you) substantially on the terms and subject to the conditions set out in the attached draft press announcement (the "Press Announcement") (subject to such modification thereto as ------------------ may be agreed by a duly authorized committee of the board of directors of the Company and together with such additional terms and conditions as may be required to comply with the requirements of the London Stock Exchange Limited (the "Stock Exchange") or the City Code on Takeovers and Mergers (the "Code")), -------------- ---- I agree with you as follows: 1. Irrevocable undertakings 1.1 Acceptance of Offer I undertake to accept the offer mentioned above (the "Offer") in respect ----- of: 1.1.1 the ordinary shares and American Depositary Shares in the Company listed in the Schedule to this letter; 1.1.2 any other ordinary shares and American Depositary Shares in the Company of which I may hereafter and while the Offer remains open become the registered holder and beneficial owner; and 1.1.3 any other ordinary shares and American Depositary Shares in the Company deriving from shares falling within either of paragraphs 1.1.1 and 1.1.2 above (such shares together with shares falling within those paragraphs being referred to below as the "Shares"). ------ I agree to fulfill this undertaking by returning to you, or as you may direct, not later than 3:00 p.m. on the tenth business day after despatch to shareholders of the Company of the formal document containing the Offer (or, in relation to Shares falling within either of paragraphs 1.1.2 and 1.1.3 above, as soon as practicable after I become the registered holder and beneficial owner of such Shares), duly completed and signed form(s) of acceptance, letter(s) of transmittal and/or notice of guaranteed delivery relating to the Offer. I also agree to forward with such form(s) of acceptance, letter(s) of transmittal and/or notice of guaranteed delivery or as soon as possible thereafter the share certificate(s) or other document(s) of title in respect of the relevant Shares. 1.2 Dealings with Shares I agree: 1.2.1 notwithstanding the provisions of the Code or any terms of the Offer regarding withdrawal, not to withdraw such acceptances(s); 1.2.2 except pursuant to the Offer, not to dispose of, charge, pledge or otherwise encumber or grant any option or other right over or otherwise deal with any of the Shares of any interest therein (whether conditionally or unconditionally); and 1.2.3 not to acquire any Interest (as defined in Part VI of the Companies Act 1985) in any shares in the Company other than an interest in shares deriving from shares falling within either of paragraphs 1.1.1 and 1.1.2 above. 1.3 Action to facilitate the Offer I agree: 1.3.1 subject to my fiduciary duties as a director, in the announcement of the Offer and in the offer document containing the formal Offer, to recommend all members of the Company to accept the Offer; 1.3.2 subject to my fiduciary duties as a director, to co-operate with the Company in the production of an offer document containing the formal Offer together with, among other things, the information required by Rules 24 and 25 of the Code and to take responsibility for the information in that document concerning the 2 Company, its directors, their close families and any related companies and trusts in the terms required or permitted by Rule 19.2 of the Code; 1.3.3 subject to any fiduciary duties as a director, not to solicit any general offer for the Company's ordinary shares or any other class of its shares from any third party or any proposal for a merger of the Company with any other entity; and 1.3.4 subject to my fiduciary duties as a director and to any duties of confidence (whether contractual or not), to endeavor to procure that you are notified of the details of any approach by any third party made with a view to the making of such an offer or such a merger and also of any such discussions (whether or not in breach of the obligations set out in this letter) immediately I become aware of the relevant matter. 1.4 Information I agree promptly on demand to supply, or to endeavor to procure the supply to you of: 1.4.1 all information relating to me, my close relatives and any related companies and trusts required to be contained in any document relating to the Offer by the rules of any relevant regulatory authority (and, in particular, Rule 24.3 of the Code); and 1.4.2 any such information relative to the Company and to subsidiaries and associated companies. 2. Warranties and undertakings 2.1 Warranties etc. I warrant and undertake to you: 2.1.1 that the Shares include all the ordinary shares and American Depositary Shares in the Company registered in my name and beneficially owned by me (as defined in Part VI of the Companies Act 1985); 2.1.2 that the Shares will be transferred pursuant to the Offer free from all charges, liens and encumbrances and with all rights now or hereafter attaching thereto, including the right to all dividends declared, made or paid after the announcement of the Offer and excluding any dividend which holders of ordinary shares or American Depositary Shares of the Company may be entitled to retain pursuant to the terms of the Offer; and 3 2.1.3 that I have full power and authority to accept the Offer and execute any document recording acceptance thereof or to undertake the Offer will be accepted, in respect of all the Shares. Such warranties and undertaking shall not be extinguished or affected by completion of the sale of the Shares. 3. Publicity I consent to the announcement of the Offer containing references to me and to this letter substantially in the terms set out in the Press Announcement, to particulars of this letter being set out in the formal document containing the Offer and to this letter being available for inspection during all or part of the period for which the Offer remains open for acceptance. 4. Interpretation 4.1 Revised Offers In this letter, references to the Offer shall include any revised offer which, in the opinion of Goldman Sachs International (the "Bank"), is at ---- least as favorable to shareholders of the Company as the original Offer. 4.2 Obligations to procure Each undertaking and agreement set out in this letter to do or not to do certain things shall be construed as including an undertaking or agreement to procure that those things are done or, as the case may be, not done. 4.3 Time Time shall be of the essence of the obligations set out in this letter. 4.4 Meaning References in this letter to "subsidiaries" include subsidiary undertakings ------------ and the expressions "subsidiaries", "subsidiary undertakings" and "wholly- ------------ ----------------------- ------- owned subsidiaries" have the same meanings as in the Companies Act 1985. ----- ------------ 5. Conditions and termination 4 5.1 Unconditional and irrevocable obligations Except to the extent otherwise specified, the undertakings, agreements, warranties, appointments, consents and waivers set out in this letter (collectively "Obligations") are unconditional and irrevocable. ----------- 5.2 Making of Offers Your agreement to make the Offer is conditional upon: 5.2.1 the release of the Press Announcement (with such amendments as you may approve) being authorized by or pursuant to a resolution of the board of directors of the Company or a duly authorized committee thereof, such authorization not being withdrawn prior to the release and the release occurring on or prior to 16th June, 1997; and 5.2.2 no event or circumstances occurring or becoming known to you before the time specified in the first paragraph of this letter in consequence of which the Panel requires or permits you not to make this Offer (or, in the case of an event or circumstance becoming known to you prior to the release of the Press Announcement, which is of such a nature that, had it occurred thereafter, the Panel would have required or permitted you not make the Offer). My obligations shall not be affected by the non-fulfillment of any of these conditions. 5.3 Acceptance of Offer My Obligations under paragraph 1.1 above are conditional upon the announcement of the Offer and upon the Offer being publicly recommended by the board of directors of the Company. 5.4 Lapse My Obligations shall lapse if: 5.4.1 the Offer is not made (by the posting of an offer document) by the time specified in the first paragraph of this letter; or 5.4.2 the Offer lapses or is withdrawn without having become wholly unconditional; Provided that, the lapsing of my Obligations shall not affect any rights or liabilities in respect of breaches of contract committed prior to the lapsing. 5 6. Enforcement 6.1 Governing law, etc. This letter shall be governed by and construed in accordance with English law and I agree that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this letter and I waive any objection to any suit, action or proceedings ("Proceedings") in such courts on the ground of venue or on the ----------- ground that such Proceedings are brought in an inconvenient forum. 6.2 Specific performance I agree that, if I should fail to accept or procure the acceptance of the Offer in accordance with my Obligations under this letter or should otherwise be in breach of any of my Obligations, an order of specific performance may be the only adequate remedy. 7. Customer relationship I confirm that the Bank has indicated to me that it is not acting for me in relation to the Offer and will not be responsible to me for providing protections afforded to customers of the Bank or advising me on any matter relating to the Offer. I accept this. EXECUTED as a DEED by ) ) - --------------- in the presence of: ) 6 -----END PRIVACY-ENHANCED MESSAGE-----