<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 4, 1997
----------------
NRG ENERGY, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHART)
DELAWARE 333-33397 41-1724239
- --------------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1221 NICOLLET MALL, SUITE 700 MINNEAPOLIS, MN 55403
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 373-5300
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
<PAGE> 2
Item 2 ACQUISITION OR DISPOSITION OF ASSETS
On November 4, 1997, NRG Energy, Inc., ("NRG") acquired 100% of the
outstanding shares of Pacific Generation Company ("PGC"), an indirect
wholly-owned indirect subsidiary of PacifiCorp for a cash purchase price of
$148.6 million. The consideration paid by NRG was comprised of working capital
funds, and funds drawn from NRG's $175 million Revolving Credit Facility with a
syndicate of banks led by ABN-AMRO. NRG was selected to acquire the PGC shares
pursuant to a private auction conducted by PGC's sole shareholder, PacifiCorp
Holdings, Inc. and its investment banker, Goldman Sachs & Co. PGC has
ownership interest in 11 projects with a total capacity of 737 MW, with
operational responsibility for 312 MW and net ownership interests of 166 MW.
Moreover, PGC owns a limited partnership interest in Energy Investors Funds,
through which it owns an additional allocated share equal to 39MW.
One of PGC's projects is located in Canada and the other ten are located
throughout the United States. The three largest projects are gas-fired, but
the others are fueled by coal, hydro, waste wood, refuse-derived fuel and wind.
One sells only steam, while the other ten have power sales agreements with a
total of seven different utilities. PGC serves a variety of roles in these
facilities, ranging from operator/manager of three projects, including its
largest asset, Crockett Cogeneration, to a limited partner in other projects.
Crockett Cogeneration. PGC is the sole general partner in and the
operator of the 240 MW Crockett Cogeneration project ("Crockett"), which
commenced operations in May 1996. PGC also holds a 23.87% limited partnership
interest in Crockett through ENI Crockett, LP, a limited partnership in which
Destec is a 25.27% limited partner. The project sells 240 MW of capacity and
electric power to Pacific Gas & Electric Company ("PG&E") under a power
purchase agreement ("PPA") extending to 2026. The PPA provides for a fixed
capacity payment and a variable energy payment based on the market price of
gas. In addition, Crockett provides up to 450,000 lbs./hr. of steam to the
C&H Sugar refinery under a steam sales agreement that does not expire until
2026. Natural gas is supplied to the project by Amoco Canada Marketing Corp.
under a fifteen year contract, with performance guaranteed by Amoco Canada
Petroleum Company Ltd. PGC operates the project under a 15-year contract that
provides for reimbursement of all costs within an approved budget, plus a fee
and the possibility of a performance bonus.
PGC holds the sole one percent general partnership interest in
Crockett as well as a 23.87% limited partnership interest, which will increase
to 56.68% after certain conditions of payment to the other limited partners
have been satisfied. Those partners are the Energy Investors Fund and Tomen
Investments. Crockett was financed with a $278 million construction and term
loan facility provided by a commercial bank syndicate led by ABN-AMRO, which
will mature on December 31, 2010.
Kingston Cogeneration. Kingston, the only PGC project located outside
of the United States, is a 110 MW combined cycle gas turbine project in
Ontario, Canada. The project commenced operation in 1996. It sells power to
Ontario Hydro under a 20-year, which provides for a fixed capacity payment and
a variable energy payment, provided the plant meets certain operating targets.
Up to 150,000 lbs./hr. of thermal energy is sold to Hoechst-Celanese and gas is
supplied under a 20-year agreement with PanCanadian Petroleum Limited.
PGC has a 25% general partnership interest in this project, though the
project is operated by AES. The project was financed with a C$193.6 million
construction and term loan led by Bank of Nova Scotia and Credit Suisse, which
will mature in March 2013.
2
<PAGE> 3
PowerSmith Cogeneration. The PowerSmith Cogeneration project is a 110
MW combined cycle gas turbine project. Smith Cogeneration is the managing
general partner of the project and General Electric is the operator. The
PowerSmith project sells its power to Oklahoma Gas and Electric under a
contract expiring in 2004, and sells its steam to Dayton Tire for the same
term. PGC has a total of 8.75% general and limited partnership interests in
this project until 2003, which is decreased automatically to a 6.25% ownership
interest thereafter.
Maine Energy Recovery Project ("MERC"). MERC is a 680 ton per day
waste-to-energy facility located in Biddeford, Maine. The annual throughput of
municipal solid waste is approximately 200,000 tons and income is received from
the disposal or "tipping" fees paid by communities utilizing this service. The
facility sells its 22 MW output to Central Maine Power under a 20-year PPA,
which was restructured in May 1996 to provide for energy-only rates until 2007,
after which all sales will be at market-based capacity and energy rates. The
new PPA also extended its term through 2012.
PGC owns a 16.25% limited partnership interest in MERC with no operating
responsibilities. All of the senior debt on the project was repaid with funds
received from the renegotiation of the PPA but there is still some
subordinated debt outstanding to certain partners (including PGC) in the amount
of $14.1 million.
Penobscot Energy Recovery Project ("PERC"). PERC is an 800 ton per day
waste-to-energy facility located in Orrington, Maine, which began operations in
1988. The minimum annual throughput is approximately 175,000 tons under a
series of agreements with Maine communities that pay "tipping" fees for waste
disposal services. The project's 22 MW electric power output is sold to Bangor
Hydroelectric Company pursuant to a 30-year PPA. PERC, Bangor Hydro and the
affected communities have reached an agreement in principle to restructure the
terms of this PPA and are seeking the approvals required to do so. If
approved, this restructuring is expected to result, among other things, in a
substantial cash payment to PERC from the utility.
PGC owns 28.7% of the general and limited partnership interests in
PERC and NRG has become the operator of the project under the terms of the
acquisition. PERC was financed with $108.6 million of tax-exempt bonds,
supported by a letter of credit from Bankers Trust. It is expected that this
financing would be replaced by bonds issued by the Finance Authority of Maine
as a part of the restructuring of the PPA.
Mt. Poso Cogeneration Facility. Mt. Poso is one of two coal-fired
cogeneration plants in which PGC has an ownership interest. It is a 49.5 MW
circulating fluidized bed facility located near Bakersfield, California. The
project sells electricity to PG&E under a standard offer contract which extends
to 2009. The standard offer contract requires PG&E to make fixed energy
payments to the project for capacity and energy for a period of 10 years. Upon
termination of the fixed energy payment period on April 1, 1999, PG&E is
obligated to pay for all electricity deliveries at its full short-run avoided
operating costs. Thus, there can be no assurances concerning the likely
income from this project following April 1, 1999. The project also supplies up
to 45,000lbs./hr. of steam to an adjacent oil field owned by the project for
enhanced oil recovery. Coal has been supplied to the project by ARCO Coal
Company and the project recently renegotiated the terms of that contract.
PGC owns a 21.50% general partnership interest in Mt. Poso itself, and in
addition, owns a 47.5% interest in the company that operates the project,
Pyro-Pacific Operating Company.
Turners Falls Cogeneration. The second PGC coal-fired cogeneration
facility, Turners Falls, is in cold shut-down as a result of a PPA Termination
Agreement entered into in 1996 at the request of the power purchaser, Unitil
Power Company. Turners Falls is a 20.1 MW coal-fired facility that had been
placed into service in 1989. Under the terms of the PPA Termination Agreement,
Unitil will make monthly payments to Turners Falls until 2009, and the project
must be ready to resume operations on six months notice. PGC owns an 8.9%
limited partnership interest in Turners Falls.
Wind Power Partners. The wind projects consist of one 50 MW project (500
wind turbines) and one 30 MW project (300 wind turbines), both located in
California. PGC has a one percent general partnership interest in each
project, and a 16% and a 17.54% limited partnership interest in them,
3
<PAGE> 4
respectively. Power is sold from both projects to PG&E under five 30-year
standard offer contracts. Each of the standard offer contracts obligate PG&E to
make a fixed payment for capacity and energy for a period of 10 years. Although
the fixed payment period has terminated for certain of the Wind Power standard
offer contracts, all remaining Wind Power standard offer contract fixed payment
periods will expire on or before February, 1998. After the expiration of fixed
payment period, power is sold at PG&E's short-run avoided cost rate with a
reduced capacity payment. PGC also owns half of the $7.6 million senior debt
on the 50 MW project and all of the $4.4 million senior debt on the 30 MW
project.
Curtis Palmer Hydroelectric Project. Curtis Palmer is the only hydro
electric project in the PGC portfolio. It is a 58 MW project located at two
dams on the Hudson River near the town of Corinth, New York. The project
recently entered into a renegotiated PPA with Niagara
Mohawk Power Corp. for a term that is projected to expire in 2027. PGC has
only an 8.5% limited partnership interest in this project.
Camus Power Boiler. The Camas project is a 200,000 lbs./hr. wood and
natural gas fired boiler which supplies steam to the Fort James Paper Mill in
Camas, Washington. Under the Steam Sales Agreement, which expires in 2007, Fort
James makes fixed and variable payments to Camas in exchange for the steam
supply. The project does not generate electricity or make any power sales,
but its steams sales are the equivalent of 25 MW of electric power.
PGC owns 100% of the Camas project, but Fort James has an
option to buy the project at various prices determined in accordance with the
Agreement during its term. The project was financed with $15 million of
tax-exempt bonds and $22.8 million in taxable debt, all supported by a letter
of credit from HelebaBank.
4
<PAGE> 5
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
Page
----
<S> <C>
a. Financial Statements of Businesses Acquired.
1. Audited Consolidated Balance Sheets of Pacific Generation Company
at December 31, 1996 and 1995 and the audited Consolidated Statements of
Operations, Shareholders Equity and Cash Flows for the years ended
December 3, 1996 and 1995 and Independent Auditors Report. 6
2. Unaudited Consolidated Balance Sheet at September 30, 1997 and Unaudited
Consolidated Statement of Operations and Cash Flows for the period January 1,
1997 to September 30, 1997. 23
3. Reports of Other Independent Accountants. 29
b. Pro Forma Financial Information.
1. Introduction to the pro forma financial statements. 35
2. A pro forma balance sheet at December 31, 1996, which combines the
balance sheet of the company and the balance sheet of Pacific Generation
Company along with a description of material pro forma adjustments. 36
3. A pro forma income statement which combines the results of the company
and the results of Pacific Generation Company, for the year ended December
31, 1996, along with a description of material pro forma adjustments. 38
4. A pro forma balance sheet at September 30, 1997, which combines the
balance sheet of the company and the balance sheet of Pacific Generation
Company along with a description of material pro forma adjustments. 39
5. A pro forma income statement which combines the results of the company
and the results of Pacific Generation Company for nine months ended
September 30,1997, along with a description of material pro forma
adjustments. 41
Signature Page. 42
c. Exhibit Index. 43
2. Stock Purchase Agreement between NRG Energy, Inc. and PacifiCorp
Holdings, Inc. dated October 10, 1997.
</TABLE>
5
<PAGE> 6
PACIFIC GENERATION COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PACIFICORP COMPANY, INC.)
FINANCIAL STATEMENTS
ITEM 7 (A)
(AUDITED)
6
<PAGE> 7
PACIFIC GENERATION COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1996 AND 1995, AND INDEPENDENT
AUDITORS' REPORT
7
<PAGE> 8
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Pacific Generation Company:
We have audited the accompanying consolidated balance sheets of Pacific
Generation Company and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Energy Investors Fund, Energy Investors Fund III, Maine
Energy Recovery Company, Mt. Poso Cogeneration Company, Penobscot Energy
Recovery Company, and Powersmith Cogeneration Company (the "Investments").
These Investments are accounted for by use of the equity method. The Company's
equity in the Investments of $41,475,924 and $40,485,965 at December 31, 1996
and 1995, respectively, is included in Investments In and Advances to
Partnerships and earnings of $10,861,449 and $5,810,088 for the respective
years then ended are included in Equity in Income from Partnerships, all
included in the accompanying financial statements. The financial statements of
the Investments were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for the Investments, are based solely on the reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Pacific Generation Company and subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Portland, Oregon
September 19, 1997
<PAGE> 9
PACIFIC GENERATION COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,984 $ 2,205
Accounts receivable PacifiCorp Holdings, Inc. (Note 8) 6,873 6,995
Accounts receivable (Note 2) 202 545
Receivables from partnerships 1,745 2,268
Interest receivable 138 157
Prepaid expenses 67 39
-------- --------
Total current assets 11,009 12,209
-------- --------
RESTRICTED CASH (Note 5) 1,149 1,157
-------- --------
LONG-TERM NOTES RECEIVABLE 1,021 1,263
-------- --------
PROPERTY, PLANT, AND EQUIPMENT:
Power plants 43,894 43,894
Furniture and equipment 553 479
Construction work in process 277 -
-------- --------
44,724 44,373
Less accumulated depreciation 6,809 5,299
-------- --------
Property, plant, and equipment - net 37,915 39,074
-------- --------
INVESTMENTS IN AND ADVANCES TO
PARTNERSHIPS (Note 3) 77,481 61,440
-------- --------
OTHER ASSETS (Note 4) 217 511
-------- --------
TOTAL $128,792 $115,654
======== ========
(Continued)
</TABLE>
9
<PAGE> 10
PACIFIC GENERATION COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 694 $ 1,363
Accounts payable - affiliates 372 224
Accrued expenses 1,455 2,605
Income taxes payable 890 131
Current portion of long-term debt (Note 5) 3,389 3,314
Letter of credit obligation (Note 12) 3,176 -
-------- --------
Total current liabilities 9,976 7,637
-------- --------
DEFERRED REVENUE 846 780
-------- --------
LONG-TERM DEBT (Note 5) 33,424 36,813
-------- --------
DEFERRED INCOME TAXES (Note 6) 13,047 12,236
-------- --------
MINORITY INTEREST IN CONSOLIDATED
PARTNERSHIPS 14,553 4,716
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDER'S EQUITY:
Common stock - no par value: authorized, 500 shares;
issued and outstanding, 100 shares - -
Additional paid-in capital 47,106 47,106
Retained earnings 9,840 6,366
-------- --------
Total stockholder's equity 56,946 53,472
-------- --------
TOTAL $128,792 $115,654
========= ========
</TABLE>
See notes to consolidated financial statements. (Concluded)
10
<PAGE> 11
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENTS
OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31,
1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ - $47,106 $ 5,820 $52,926
Dividends paid - - (5,000) (5,000)
Net income - - 5,546 5,546
------ ------- ------- -------
BALANCE, DECEMBER 31, 1995 - 47,106 6,366 53,472
Net income - - 3,474 3,474
------ ------- ------- -------
BALANCE, DECEMBER 31, 1996 $ - $47,106 $ 9,840 $56,946
====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 12
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
REVENUES:
Equity in income from partnerships (Note 3) $19,400 $11,899
Operating (Note 3) 14,354 12,479
------- -------
Total revenues 33,754 24,378
------- -------
COSTS AND EXPENSES:
General and administrative 3,394 3,124
Project development 5,156 4,203
Operating 7,191 6,027
Impairment losses (Note 12) 8,999 -
Depreciation and amortization 1,729 1,643
------- -------
Total costs and expenses 26,469 14,997
------- -------
INCOME FROM OPERATIONS 7,285 9,381
OTHER INCOME (EXPENSE):
Other income 317 748
Interest income (Notes 3 and 8) 2,785 2,867
Interest expense (3,029) (3,293)
Gain on sale of partnership interests - 619
Minority interest (1,790) (1,411)
------- -------
INCOME BEFORE INCOME TAX EXPENSE 5,568 8,911
INCOME TAX EXPENSE (Note 6) 2,094 3,365
------- -------
NET INCOME $ 3,474 $ 5,546
======= ========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 13
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,474 $ 5,546
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Income from investment in partnerships (19,400) (11,899)
Capitalization of interest (752) (1,285)
Recovery of deferred interest income (1,291) -
Deferred income taxes 811 2,931
Depreciation and amortization 1,729 1,643
Gain on sale of assets - (619)
Minority interest 1,790 1,411
Impairment loss 8,999 -
Other (77) (558)
Changes in assets and liabilities:
Accounts receivable 362 (234)
Accounts receivable - PacifiCorp Holdings, Inc. 122 1,203
Receivables from partnerships 523 (807)
Prepaid expenses (28) 6
Other assets 74 -
Accounts payable (669) 1,196
Accounts payable - affiliates 148 11
Accrued expenses (1,150) 208
Income taxes payable 759 (169)
-------- --------
Net cash used in operating activities (4,576) (1,416)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances from partnerships 10,274 1,854
Investment in partnerships (17,452) (1,552)
Distributions from partnerships 6,772 8,468
Other 20 893
-------- --------
Net cash provided by (used in) investing activities (386) 9,663
-------- --------
(Continued)
</TABLE>
13
<PAGE> 14
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Restricted cash under long-term debt $ 8 $ 150
Debt principal repayments (3,314) (3,065)
Dividends paid - (5,000)
Contributions from minority interests 8,605 -
Distributions to minority interest holder (558) (902)
-------- ---------
Net cash provided by (used in) financing activities 4,741 (8,817)
-------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (221) (570)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,205 2,775
-------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,984 $ 2,205
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION - See Note 7
</TABLE>
See notes to consolidated financial statements. (Concluded)
14
<PAGE> 15
PACIFIC GENERATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS - Pacific Generation Company (the "Company"), was
incorporated in August 1984 for the purpose of developing, building, owning,
operating, and managing energy production facilities. The Company is a
wholly-owned subsidiary of PacifiCorp Holdings, Inc. ("Holdings"), which is
a wholly-owned subsidiary of PacifiCorp.
SALE OF THE COMPANY - In 1997, Holdings decided to sell the Company as part
of a larger PacifiCorp decision to sell certain assets deemed not to be core
to its operations. The consolidated financial statements of the Company are
presented under the presumption that they will continue as a separate going
concern.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
CASH EQUIVALENTS - Short-term investments with original maturities of three
months or less are considered cash equivalents.
DEPRECIATION AND AMORTIZATION are computed using the straight-line method
over the estimated useful lives of the related assets which approximate 3 to
30 years.
INVESTMENT IN PARTNERSHIPS - The Company accounts for its investment in 50%
or less owned partnerships under the equity method of accounting.
INTEREST RATE SWAPS - The Company uses interest rate swap agreements to
manage its exposure to fluctuations in interest rates. These financial
instruments are recorded on an accrual basis. Amounts to be paid or received
under interest rate swap agreements are recognized as an adjustment to
interest expense in the periods in which they accrue.
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. The Company files consolidated income tax
returns with PacifiCorp. The Company's tax is computed on a stand-alone
basis.
ASSET IMPAIRMENT - Effective January 1, 1996, the Company adopted Statement
of Financial Accounting Standards ("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 made adjustments as disclosed in Note 12.
15
<PAGE> 16
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.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Trade $ 9 $ 352
Notes receivable - current portion 193 193
------ -----
Total $ 202 $ 545
====== =====
</TABLE>
3. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in and advances to partnerships consisted of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investments $72,344 $48,085
Advances 5,137 13,355
------- -------
Total $77,481 $61,440
======= =======
</TABLE>
The Company's effective percentage ownership in partnerships at December
31, 1996 was as follows:
<TABLE>
<S> <C>
Carolina Energy Limited Partnership (see Note 12) 16.55%
Crockett Cogeneration Limited Partnership 24.88%
Curtis/Palmer Hydroelectric Company 8.50%
Energy Investors Fund 3.10%
Energy Investors Fund III 6.94%
Kingston Cogeneration 25.00%
Maine Energy Recovery Company 16.25%
Mt. Poso Cogeneration Company 21.90%
Orrington Waste Limited Partnership 16.67%
Penobscot Energy Recovery Company 28.71%
PowerSmith Cogeneration Project 8.75%
Pyro-Pacific Operating Company 47.50%
Turners Falls Ltd. Partnership 8.89%
VEDCO Energy (see Note 12) 15.00%
Windpower Partners 1987 17.00%
Windpower Partners 1988 18.55%
</TABLE>
16
<PAGE> 17
Summary financial information of the partnerships for which the Company
accounts for its investment using the equity method of accounting as of
December 31, 1996 and 1995 and for the years then ended is as follows:
<TABLE>
1996 1995
<S> <C> <C>
Total assets $1,160,642 $1,119,259
Total liabilities 723,627 766,696
Revenues 329,889 242,927
Net income 85,066 71,901
</TABLE>
The Company had made advances to a partnership under various note
agreements bearing interest at 12%. The Company earned $2,075 and $1,725 of
interest income from the notes in 1996 and 1995, respectively.
The Company participates in the management of certain partnerships.
Management fees billed to the partnerships and included in operating
revenues were $379 and $349 in 1996 and 1995, respectively.
The Company has entered into operation and maintenance, fuel sales, and
construction agreements with certain partnerships. Sales relating to the
agreements, included in operating revenues in the accompanying statements
of operations, were $7,038 and $5,724 in 1996 and 1995, respectively.
Maine Energy Recovery Company, of which the Company owns 16.25%, recorded
income of $35,690 in 1996 in connection with the sale of electric
generating capacity under a restructuring of its power sale agreement.
4. OTHER ASSETS
Other assets consisted of the following at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Debt issuance costs $ 839 $ 839
Deferred contract costs 625 200
Deferred investment costs 2,160 1,019
------- -------
3,624 2,058
Less accumulated amortization 3,407 1,547
------- -------
Total $ 217 $ 511
======= =======
</TABLE>
17
<PAGE> 18
5. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
9.93% ONSITE Funding senior secured notes $ 3,977 $ 5,395
Revenue bond 12,640 13,375
Term loan 20,196 21,357
------- -------
Total 36,813 40,127
Less current portion 3,389 3,314
------- -------
Long-term debt $33,424 $36,813
======= =======
</TABLE>
ONSITE Funding, a wholly-owned subsidiary of the Company, issued 9.93%
senior secured notes, Series A, in the amounts of $3,867 and $8,483,
pursuant to six separate note agreements dated as of August 15, 1988 and
December 15, 1988, respectively, between ONSITE Funding and Connecticut
General Life Insurance Company, Horace Mann Life Insurance Company, and
CIGNA Property and Casualty Insurance Company. The notes, which are due
December 31, 1998, June 30, 2000 and December 31, 2000, are payable in
semi-annual installments including interest at 9.93% per annum and are
guaranteed by Holdings.
REVENUE BOND - Camas Power Boiler Limited Partnership ("Camas"), an
indirectly wholly-owned subsidiary of the Company, has a loan agreement
with Industrial Revenue Bond Public Corporation of Clark County, Washington
consisting of $15,000 collateralized, nonrecourse debt, of which $12,640 is
outstanding at December 31, 1996. The debt is collateralized by a Letter of
Credit from Swiss Bank Corporation and interest in the assets of the
project.
Industrial Revenue Bond Public Corporation issued Series 1990 A Revenue
Bonds for the purpose of loaning the proceeds of such bonds to Camas to be
used to finance part or all of the acquisition, construction and equipping
of a waste wood-fired steam boiler at the James River Corporation in Camas,
Washington.
Interest is payable on each February 1 and August 1, commencing August 1,
1991 and continuing through August 1, 2007. The interest rate at December
31, 1996 and 1995 was 7.2%.
TERM LOAN - Camas has a term loan note with Swiss Bank Corporation
consisting of a $20,196 collateralized note as of December 31, 1996. The
note is collateralized by Camas' contract rights, future revenues derived
from the ownership or operation of the project, all other personal property
and fixtures, all monies and investments on deposit, and all other rights
or claims of Camas. The note is without recourse to the partners.
The term loan note is due in 60 quarterly installments through June 30,
2007 with interest at Eurodollar rate plus .625% for five years and .75%
thereafter. Camas has entered into an interest rate swap agreement (for the
same amount as debt maturities), which provides a fixed interest rate of
7.52% through September 30, 1997 and a rate of 7.645% thereafter.
Camas is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate swap agreement. However, Camas does not
anticipate nonperformance by the counterparties.
18
<PAGE> 19
Maturities of long-term debt for years ending December 31 are as follows:
<TABLE>
<S> <C>
1997 $ 3,389
1998 3,443
1999 3,166
2000 3,158
2001 2,747
Thereafter 20,910
---------
Total $36,813
=========
</TABLE>
In accordance with the loan and bond agreements, Camas has established a
sinking fund for the repayment of the debt. The balance at December 31,
1996 and 1995 is $1,149 and $1,157, respectively, and is shown as
restricted cash.
The Company capitalizes costs incurred in obtaining long-term debt. The
costs are amortized using the straight-line method over the term of the
associated debt.
6. INCOME TAXES
The Company's net deferred tax liability at December 31 was composed as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets $ 8,805 $ 15,116
Deferred tax liabilities (21,852) (27,352)
-------- --------
Net deferred tax liability $(13,047) $(12,236)
======== ========
</TABLE>
The Company's net deferred tax liability at December 31, 1996 and 1995
resulted primarily from the effect of the excess of tax depreciation over
financial reporting depreciation, partially offset by the effect of net
operating loss carryforwards and investment tax credits.
At December 31, 1996, the Company has investment tax credit carryforwards
for tax purposes of $1,904 and net operating loss carryforwards for tax
purposes of $6,227, which begin to expire in 2000 and 2002, respectively.
The difference between income tax expense reported for the years ended
December 31, 1996 and 1995 and the amount of income tax which would result
from applying U.S. statutory rates to pre-tax income from continuing
operations is due primarily to state income taxes.
The total income tax expense for the year ended December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current $1,283 $ 434
Deferred 811 2,931
------ ------
Total $2,094 $3,365
====== ======
</TABLE>
19
<PAGE> 20
7. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid was $609 and $302 for the years ended December 31, 1996 and
1995, respectively. Income taxes paid were $3,060 and $3,310 for 1996 and
1995, respectively.
8. RELATED-PARTY TRANSACTIONS
Related-party transactions which have not been disclosed in other footnotes
are described herein.
The Company and Holdings made advances of funds to one another under an
intercompany loan agreement. These advances are due upon demand and bear
interest at Holdings' external borrowing rate, which was 5.49% and 5.87% at
December 31, 1996 and 1995, respectively. The Company earned net interest
income of $451 and $784 in 1996 and 1995, respectively. Advances to Holdings
were $6,873 and $6,995 at December 31, 1996 and 1995, respectively, and are
included as accounts receivable PacifiCorp Holdings, Inc. in the
accompanying balance sheets.
Holdings and PacifiCorp provide the Company administrative and engineering
services on an as-needed basis. The amount charged the Company for these
services was $798 and $226 in 1996 and 1995, respectively.
The Company provides engineering, administrative, operational and
maintenance services to Crockett Cogeneration Limited Partnership. The total
charged for such services was $751 and $474 in 1996 and 1995, of which $129
and $67 was receivable at December 31, 1996 and 1995, respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of financial instruments is defined as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS, RESTRICTED CASH, RECEIVABLES, PAYABLES, AND
ACCRUED LIABILITIES - The carrying amount approximates fair value because of
the short maturity of those instruments.
LONG-TERM DEBT - 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. At December 31, 1996 and 1995, the
estimated fair value of the Company's long-term debt was $38,549 and
$40,613, respectively.
INTEREST RATE SWAP AGREEMENT - The fair value of the interest rate swap (see
Note 5) is the estimated amount that the Company would pay to settle the
swap agreement at the reporting date, determined by obtaining quotes from
the counterparties. At December 31, 1996 and 1995, the estimated fair value
of the interest rate swap was $500 and $1,400, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company leases its office space and certain equipment and facilities
under operating lease agreements. Rent expense under these agreements was
$185 and $167 in 1996 and 1995, respectively.
20
<PAGE> 21
Future minimum lease payments due under noncancelable lease agreements at
December 31, 1996 were as follows:
<TABLE>
<S> <C>
1997 $ 311
1998 110
-----
Total minimum lease payments $ 421
=====
</TABLE>
Long-term debt of partnerships accounted for under the equity method of
accounting is nonrecourse to the Company and is collateralized by the
assets of the partnerships. The Company's partnership interest in
Curtis/Palmer Hydroelectric Company totaling approximately $6,647 is
pledged as additional collateral for the long-term debt of that
partnership.
The Company is committed to make capital contributions to Penobscot Energy
Recovery Company to supplement their debt reserve fund up to $1,429 if such
payments are not met through operations.
The Company was committed to make capital contributions to Kingston
Cogeneration at conversion of the project's term loan to permanent
financing. The Company made an equity contribution of $5,114 to Kingston
Cogeneration in September 1997.
The Company has outstanding at December 31, 1996 a commitment of up to
$5,000 to make investments in the Energy Investors Fund III. Investment
commitments of $1,401 remain outstanding as of September 1997.
In connection with various performance obligations, Holdings, on behalf of
the following investments, has provided at December 31, 1996 irrevocable
letters of credit to secure performance:
<TABLE>
<S> <C>
ONSITE Funding $ 3,977
Penobscot Energy Recovery Company 1,429
Crockett Cogeneration Limited Partnership 2,000
Crockett Cogeneration Limited Partnership 3,992
Crockett Cogeneration Limited Partnership 11,400
-------
Total $22,798
=======
</TABLE>
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 presently believes that disposition of
these matters will not have a materially adverse effect on the Company's
consolidated financial statements.
11. RETIREMENT PLAN
Substantially all of the Company's salaried employees are covered by
noncontributory pension plans (the plans) which are sponsored by
PacifiCorp. The Company's portion of pension costs was $92 and $86 in 1996
and 1995, respectively. Because actuarial information regarding the status
of the plans is computed for the plans in total, the Company does not
separately determine its portion of the actuarial present value of
accumulated plan benefits or net assets available for benefits. The
PacifiCorp retirement plan is currently underfunded.
21
<PAGE> 22
12. IMPAIRMENT LOSSES
In late 1996, Carolina Energy Limited Partnership ("Carolina") failed to
meet certain operational and financial covenants contained within the
provisions of their loan agreements with certain banks. During the same
period, the Company's investment in VEDCO Energy, whose subsidiary was a
general partner in Carolina, became impaired. Subsequent attempts to
renegotiate Carolina's debt failed and the Company's $3,176 letter of credit
which secured the debt was called by the banks in June 1997. The total
impairment loss incurred and recorded in 1996 by the Company related to its
investments in VEDCO Energy of $2,120 and Carolina of $6,879, including the
letter of credit.
13. INVESTMENT IN BAKUN AC HYDRO POWER PROJECT
In January 1997, the Company acquired a one-third interest in Luzon Hydro
Corporation, a Philippine corporation ("LHC"), for $2,923. LHC was formed to
construct and operate a proposed 70MW Bakun AC Hydro Power Project in the
Philippines. In connection with financing obtained in June 1997, Holdings
has provided letters of credit totaling $31,880 in support of a loan
facility and a performance bond. Additionally, Holdings has provided a
guarantee in the amount of $14,900 to support cost overruns and debt service
reserves.
* * * * * *
22
<PAGE> 23
Pacific Generation Company
(an indirect wholly owned subsidiary of PacifiCorp)
Financial Statements
Item 7 (a)
as of September 30, 1997 and
for the nine month period ended September 30, 1997.
(Unaudited)
23
<PAGE> 24
PACIFIC GENERATION COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash in bank $ 1,429
Accounts receivable 579
Accounts receivable, partnerships 1,150
Notes receivable - current 193
Interest receivable 101
Prepaid expenses (26)
--------
Total current assets 3,426
Restricted cash 811
Notes receivable 9,206
Property plant and equipment, net 36,556
Investments in and advances to partnerships 91,934
Others assets, net 134
--------
TOTAL ASSETS $142,067
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable $ 633
Accounts payable, affiliates 11,225
Accrued interest 185
Accrued expenses 1,293
Current taxes payable 890
Current portion of long-term debt 3,359
--------
Total current liabilities 17,585
Deferred revenue 816
Long-term debt 30,962
Deferred income taxes 15,799
Minority interest 14,958
--------
Total liabilities 80,120
Common stock 0
Additional paid-in capital 47,106
Retained earnings 14,841
--------
Total shareholder's equity $ 61,947
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $142,067
========
</TABLE>
See Notes to consolidated financial statements.
24
<PAGE> 25
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD ENDING SEPTEMBER 30, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<S> <C>
REVENUES
Equity in partnership income 16,844
Operating 11,012
-------
Total revenue 27,856
COSTS AND EXPENSES
Operating costs 5,213
General and administrative 4,981
Project development costs 2,474
Depreciation and amortization 1,203
-------
Total operating costs and expenses 13,871
INCOME FROM OPERATIONS 13,985
OTHER INCOME (EXPENSE)
Interest income 990
Interest expense (2,116)
Other income 54
Minority interest (1,749)
-------
Total other income (expense) (2,821)
-------
INCOME BEFORE TAXES 11,164
Income tax expense 4,187
-------
NET INCOME $ 6,977
=======
</TABLE>
See Notes to consolidated financial statements.
25
<PAGE> 26
PACIFIC GENERATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,977
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Equity in partnership earnings (16,844)
Cash dividends received from Partnerships 9,938
Reserve for partnership advances 28
Distributions to minority interest holder (1,344)
Deferred gain (29)
Capitalization of interest (674)
Depreciation and amortizations 1,226
Provision for income taxes 478
Minority interest 1,749
Changes in assets and liabilities:
Accounts receivable (571)
Receivables from partnerships 594
Notes receivable 138
Other assets 7
Prepaid expenses 94
Accounts payable (61)
Accounts payable, related parties 11,401
Accrued expenses 23
Taxes payable (313)
--------
Net cash provided by operating activities 12,817
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (331)
Investment in partnerships (15,679)
Advances to partnerships (34)
Notes to partnerships (8,762)
Investment in other assets (5)
Payments received on advances to partnerships 3,955
Payments received on notes receivable 715
--------
Net cash used in investing activities (20,141)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash under long-term debt 338
Debt principal payments (2,491)
Dividend to parent company (529)
--------
Net cash used in financing activities (2,682)
--------
INCREASE (DECREASE) IN CASH (10,006)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,857
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,149
========
</TABLE>
See Notes to consolidated financial statements.
26
<PAGE> 27
PACIFIC GENERATION COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
================================================================================
NOTE 1: - BASIS OF COMPANY PRESENTATION
Pacific Generation Company (the Company), an indirect wholly owned
subsidiary of PacifiCorp is engaged in the ownership and operation of 11
energy projects located in the United States and Canada. One of the
projects is located in Canada and the other ten are broadly distributed
throughout the United States. The fuels used by the projects include
natural gas, coal, hydro, waste wood, refused derived fuel and wind. One of
the projects sells only steam, while the other ten have power sales
agreements with a total of seven different utilities.
When reading the financial information contained in these interim financial
statements, reference should be made to the audited financial statements
and notes contained in the Company's financial statements for the years
ended 1996 and 1995.
Reference is made to the Summary of Significant Accounting Policies
contained in the notes to the 1996 and 1995 financial statements. These
policies guided the preparation and presentation of these interim financial
statements.
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates. On an
on going basis, management reviews its estimates based on currently
available information. Changes in facts and circumstances may result in
revised estimates. In the opinion of management, the combined financial
statements include all material adjustment necessary to present fairly the
Company's financial position, results of operations, and cash flows. Such
adjustments are of normal recurring nature. The results for this interim
period are not necessarily indicative of results for the entire year or any
interim period.
NOTE 2: - STOCK SALE TO NRG ENERGY, INC.
On November 4, 1997, NRG Energy, Inc., purchased all the equity of Pacific
Generation Company together with other equity interest and assets related to
Pacific Generation Company from PacifiCorp for an aggregate price of
$148.6 million. Certain subsidiaries not significant to Pacific Generation
Company were not purchased.
NOTE 3: - IMPAIRMENT LOSSES
In late 1996, Carolina Energy Limited Partnership ("Carolina") failed to
meet certain operational and financial covenants contained within the
provisions of their loan agreements with certain banks. During the same
period, the Company's investment in VEDCO Energy, whose subsidiary was a
general partner in Carolina, became impaired. Subsequent attempts to
renegotiate Carolina's debt failed and the Company's $3,176 letter of credit
that secured the debt was called by the banks in June 1997. The total
impairment loss incurred and recorded in 1996 by the Company related to its
investments in VEDCO Energy of $2,120 and Carolina of $6,879, including the
letter of credit. Carolina and VEDCO were not purchased by NRG Energy, Inc.
27
<PAGE> 28
NOTE 4: - WINDPOWER PARTNERS (CONSISTING OF WINDPOWER 87 & WINDPOWER 88)
In May 1997, the operator/general partner of WindPower Partners declared
bankruptcy and the general partnership was taken over by Pacific Generation
Company and Mountain Energy California. In June 1997, Pacific Generation
Company and Mountain Energy California purchased WindPower Partners
subordinated debt of $26,600 at a discount for $12,900.
28
<PAGE> 29
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Project Finance Fund III, L.P.:
We have audited the accompanying balance sheets of Project Finance Fund III,
L.P. (a Delaware limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations for the year ended December 31, 1996 and for
the period from July 31, 1995 (commencement of operations) to December 31,
1995, and the related statements of partners' capital and cash flows for the
year ended December 31, 1996 and for the period from October 28, 1994
(inception) to December 31, 1995. These financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Project Finance Fund III, L.P.
as of December 31, 1996 and 1995, and the results of its operations for the
year ended December 31, 1996 and for the period from July 31, 1995
(commencement of operations) to December 31, 1995, and its cash flows for the
year ended December 31, 1996 and for the period from October 28, 1994
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
/S/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Boston, Massachusetts
April 25, 1997
<PAGE> 30
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Energy Investors Fund, L.P.:
We have audited the accompanying consolidated balance sheets of Energy
Investors Fund, L.P. (a Delaware limited partnership) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' capital and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Energy
Investors Fund, L.P. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Boston, Massachusetts
April 25, 1997
30
<PAGE> 31
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Partners
Maine Energy Recovery Company,
Limited Partnership
We have audited the balance sheets of Maine Energy Recovery
Company, Limited Partnership as of December 31, 1996 and 1995, and the
related statements of income, changes in partners' capital (deficit) and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maine Energy Recovery Company,
Limited Partnership at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Ernst & Young LLP
Hackensack, N.J.
February 28, 1997
31
<PAGE> 32
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Mt. Poso Cogeneration Company
We have audited the accompanying balance sheets of Mt. Poso Cogeneration Company
(a California limited partnership) as of December 31, 1996 and 1995 and the
related statements of operations, partners' capital and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mt. Poso Cogeneration Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
San Diego, California
January 17, 1997
32
<PAGE> 33
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Partners
Penobscot Energy Recovery Company
We have audited the balance sheets of Penobscot Energy Recovery Company (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, changes in partners' capital and cash flows for each of
the three years in the period ended December 31, 1996 (not presented separately
herein). These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Penobscot Energy Recovery
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Hackensack, N.J.
February 7, 1997
33
<PAGE> 34
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
The Managing General Partner
The PowerSmith Cogeneration Project, Limited Partnership
We have audited the balance sheets of The PowerSmith Cogeneration
Project, Limited Partnership as of December 31, 1996 and 1995, and the related
statements of income and partners' capital, and cash flows for the years then
ended (not presented separately herein). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The PowerSmith Cogeneration
Project, Limited Partnership at December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Oklahoma City, Oklahoma
February 6, 1997
34
<PAGE> 35
NRG ENERGY, INC.
PACIFIC GENERATION COMPANY
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
ITEM 7 (b)
On November 4, 1997, NRG Energy, Inc. (the Company), purchased all the
outstanding capital of Pacific Generation Company together with other equity
interest and assets related to Pacific Generation Company from PacifiCorp for
an aggregate price of $148.6 million plus accrued acquisition costs of
approximately $2.0 million. Pacific Generation Company is engaged in the
ownership and operation of various energy projects located throughout the
United States and Canada.
The purchase price of $148.6 million for the equity of Pacific Generation
Company has been preliminarily allocated to tangible assets identifiable assets
and intangible assets of Pacific Generation Company based on estimates of their
respective values and an initial review of an appraisal recently completed.
This appraisal needs to be carefully evaluated and most likely adjusted for
other valuations and studies currently underway. These evaluations and studies
will be completed over the next several months and, as such, final values may
differ substantially from those shown herein.
The pro forma combined financial statements should be read in conjunction with
the Company's and Pacific Generation Company's historical financial statements.
The pro forma information presented is for informational purposes only and is
not necessarily indicative of future earnings or financial position or of what
the earnings and financial position would have been had the Company's
acquisition of Pacific Generation Company been consummated at the beginning of
the respective periods or as of the date for which such pro forma financial
information is presented.
35
<PAGE> 36
NRG ENERGY, INC. -- PACIFIC GENERATION COMPANY
PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments (1)
NRG Pacific ------------------------ NRG Energy
Energy, Inc. Generation Debit Credit Pro forma
------------ ----------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $12,438 $ 1,984 $14,422
Restricted cash 17,688 1,149 18,837
Accounts receivable-trade 12,061 202 12,263
Accounts receivable-affiliates 6,708 8,618 15,326
Current portion of notes receivable - affiliates 3,601 3,601
Current portion of notes receivable 5,985 5,985
Income taxes receivable - -
Inventory 2,312 2,312
Prepayments and other current assets 4,644 205 4,849
-------- -------- --------- ---------- ---------
TOTAL CURRENT ASSETS 65,437 12,158 - - 77,595
-------- -------- --------- ---------- ---------
Property, plant and equipment, at original cost
In service 176,072 44,724 1,287 (2) 222,083
Under construction 24,683 - 24,683
-------- -------- --------- ---------- ---------
200,755 44,724 1,287 246,766
-------- -------- --------- ---------- ---------
Less accumulated depreciation (71,106) (6,809) (77,915)
-------- -------- --------- ---------- ---------
Net property, plant and equipment 129,649 37,915 1,287 - 168,851
-------- -------- --------- ---------- ---------
Other Assets
Investments in projects 365,749 77,481 32,753 (3) 3,700 (6) 472,283
Capitalized project costs 9,267 9,267
Notes receivable, less current portion -
affiliates 58,169 58,169
Notes receivable, less current portion 9,309 1,021 8,213 (4) 18,543
Intangible assets, net of accumulated
depreciation 40,476 217 61,271 (5) 13,937 (7) 88,027
Debt issuance costs, net of accumulated
depreciation 2,753 2,753
-------- -------- --------- ---------- ---------
Total other assets 485,723 78,719 102,237 17,637 649,042
-------- -------- --------- ---------- ---------
TOTAL ASSETS $680,809 $128,792 $103,524 $17,637 $895,488
======== ======== ========= ========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current portion of long-term debt $4,848 $ 3,389 $148,631 (8) $156,868
Accounts payable 4,443 694 2,000 (9) 7,137
Accounts payable-affiliates 3,867 372 372 (7) 3,867
Letter of credit obligation - 3,176 3,176
Accrued income taxes 1,930 890 890 (7) 1,930
Accrued property and sales taxes 2,159 2,159
Accrued salaries, benefits and related costs 6,559 6,559
Accrued interest 4,726 4,726
Other current liabilities 4,424 1,455 5,879
-------- -------- --------- ---------- ---------
TOTAL CURRENT LIABILITIES 32,956 9,976 1,262 150,631 192,301
Long-term debt, less current portion 207,293 33,424 240,717
Deferred revenues 6,340 846 7,186
Deferred income taxes 8,606 13,047 13,047 (7) 8,606
Deferred investment tax credits 1,853 1,853
Deferred compensation 1,847 1,847
Minority interest in consolidated partnerships - 14,553 6,511 (10) 21,064
-------- -------- --------- ---------- ---------
TOTAL LIABILITIES 258,895 71,846 14,309 157,142 473,574
-------- -------- --------- ---------- ---------
STOCKHOLDER'S EQUITY
Common stock; $1 par value; 1,000 shares
authorized;
1,000 shares issued and outstanding 1 - 1
Additional paid-in capital 351,013 47,106 47,106 (11) 351,013
Retained earnings 66,301 9,840 9,840 (11) 66,301
Currency translation adjustments 4,599 - 4,599
-------- -------- --------- ---------- ---------
Total Stockholder's Equity 421,914 56,946 56,946 - 421,914
-------- -------- --------- ---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $680,809 $128,792 $71,255 $157,142 $895,488
======== ======== ========= ========== =========
</TABLE>
36
<PAGE> 37
NRG ENERGY, INC. - PACIFIC GENERATION COMPANY
NOTES TO PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(1) The pro forma balance sheet at December 31, 1996 reflects the pro forma
adjustments required to present the acquisition of Pacific Generation
Company, as if the acquisition took place on December 31, 1996. The
Company has elected to step up the asset basis of its acquired
subsidiaries of Pacific Generation Company. However, at the current
time, the appraisals and the Company's review of these appraisals have
not been completed so the pro forma assets shown are based on estimated
values and best information at this time. Therefore, the Company cannot
state with certainty the amount of acquisition costs that will be
capitalized or the value of intangible assets, including goodwill
associated with the acquisition.
(2) Reflects the estimated step up in value for Camas project, a wholly owned
asset of Pacific Generation Company.
(3) Reflects the estimated change in value for Pacific Generation Company's
share in equity investments. See Item 2 for description of projects.
(4) The Company, as part of the purchase, acquired notes receivable related
to Wind Power 87 and Wind Power 88. These notes were purchased by Pacific
Generation Company in June 1997.
(5) Reflects the estimated amount of current of intangible assets resulting
from the transaction, including amounts related to operating agreements and
goodwill.
(6) Reflects approximately $3.7 million of investments of Pacific Generation
Company not purchased. This includes primarily PacGen Holdings and Pacific
Generation Company international subsidiaries.
(7) NRG did not assume, as part of the purchase, the current or deferred tax
liabilities and intercompany payables of Pacific Generation Company.
These are eliminated and result in a reduction in intangible assets.
(8) Reflects the short term financing used to acquire the Pacific Generation
Company investment.
(9) Reflects the estimated acquisition costs to acquire Pacific Generation
Company which will be capitalized as part of the acquisition.
(10) Reflects the increase in minority interest due to a step up in project
valuations.
(11) Eliminating entry to remove Pacific Generation Company shareholder equity.
37
<PAGE> 38
NRG ENERGY, INC. -- PACIFIC GENERATION COMPANY
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments (1)
NRG Pacific -------------------------- NRG Energy
Energy, Inc. Generation Debit Credit Pro forma
------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Revenues from wholly-owned operations $71,649 $14,354 $ 86,003
Equity in earnings of unconsolidated affiliates 32,815 19,400 3,161 (3) 27 (2) 55,349
------- ------- -------- ------- --------
Total operating revenues 104,464 33,754 3,161 27 141,352
------- ------- -------- ------- --------
Operating costs and expenses
Cost of operations-wholly-owned operations 36,562 7,191 43,753
Depreciation and amortization 8,378 1,729 1,676 (4) 11,783
General, administrative, and development 39,248 8,550 3 (2) 47,795
Impairment loss - 8,999 8,999
------- ------- -------- ------- --------
Total operating costs and expenses 84,188 26,469 1,676 3 112,330
------- ------- -------- ------- --------
Operating income (loss) 20,276 7,285 1,485 24 29,022
------- ------- -------- ------- --------
Other income (expense)
Other income, net 9,477 3,102 76 (2) 12,655
Interest expense (15,430) (3,029) (10,682) (5) (29,141)
Minority interest - (1,790) 494 (6) (1,296)
------- ------- -------- ------- --------
Total other income (expense) (5,953) (1,717) (10,112) (17,782)
------- ------- -------- ------- --------
Income before income taxes 14,323 5,568 (8,627) 24 11,240
------- ------- -------- ------- --------
Income taxes (5,655) 2,094 (3,572) (7) (10) (7) (7,143)
------- ------- -------- ------- --------
Net income $19,978 $3,474 $ (5,055) $ 14 $ 18,383
======= ======= ======== ======= ========
</TABLE>
- ------------------------
(1) The pro forma income statement for the year 1996 reflects the pro
forma income statement adjustments required to present the estimated
combined results of the Company and Pacific Generation Company as if
the acquisition of Pacific Generation Company took place on
January 1, 1996.
(2) Represents the equity (expenses) of those Pacific Generation Company
affiliates not purchased but included in the audited
financial
statements.
(3) Reflects the ownership percentage change the Company will realize in the
Crockett Cogeneration project (see Item 2 discussion of Crockett
Cogeneration project) offset by increased depreciation and amortization
costs for stepped up project valuations resulting from acquisition
appraisals. The stepped up valuations are being amortized over the
remaining life of each project's contracted sales agreements for
electricity or steam.
(4) Reflects the increased depreciation due to stepped up value of Camas
project, a wholly owned asset, and amortization of intangibles over
30 years.
(5) Represents accrued interest on $148.63 million principal amount for
twelve months at a rate of 7.24% per annum.
(6) Reflects the minority interest related to the stepped up project
valuation.
(7) Net tax benefit derived from pretax loss.
38
<PAGE> 39
NRG ENERGY, INC. -- PACIFIC GENERATION COMPANY
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Adjustments (1)
NRG Pacific ------------------------------- NRG Energy
Energy, Inc. Generation Debit Credit Pro forma
--------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 19,294 $ 1,429 $ 20,723
Restricted cash 347 811 1,158
Accounts receivable-trade 14,138 580 14,718
Accounts receivable-affiliates 4,956 1,150 6,106
Current portion of notes receivable -
affiliates 11,587 11,587
Current portion of notes receivable 46,571 193 46,764
Income taxes receivable 14,249 14,249
Inventory 2,624 2,624
Prepayments and other current assets 4,972 74 5,046
------------ -------------- ------------ ------------ -----------
TOTAL CURRENT ASSETS 118,738 4,237 - - 122,975
------------ -------------- ------------ ------------ -----------
Property, plant and equipment
In service 138,724 36,556 1,287 (2) 176,567
Under construction 26,191 26,191
------------ -------------- ------------ ------------ -----------
Net property, plant and equipment 164,915 36,556 1,287 - 202,758
------------ -------------- ------------ ------------ -----------
Other Assets
Investments in projects 635,047 91,934 32,753 (3) 759,734
Capitalized project costs 26,129 26,129
Notes receivable, less current portion -
affiliates 75,439 9,206 84,645
Intangible assets, net of accumulated
depreciation 40,098 134 49,930 (4) 16,689 (5) 73,473
Debt issuance costs, net of accumulated
depreciation 6,450 6,450
------------ -------------- ------------ ------------ -----------
Total other assets 783,163 101,274 82,683 16,689 950,431
------------ -------------- ------------ ------------ -----------
TOTAL ASSETS $ 1,066,816 $ 142,067 $ 83,970 $ 16,689 $ 1,276,164
============ ============== ============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current portion of long-term debt $ 43,311 $ 3,359 $ 148,631 (6) $ 195,301
Accounts payable 2,841 633 2,000 (7) 5,474
Accounts payable-affiliates - 11,225 11,225 (5)
Accrued income taxes 8,586 890 890 (5) 8,586
Accrued property and sales taxes 2,961 2,961
Accrued salaries, benefits and related
costs 8,991 8,991
Accrued interest 5,471 185 5,656
Other current liabilities 5,587 1,293 6,880
------------ -------------- ------------ ------------ -----------
TOTAL CURRENT LIABILITIES 77,748 17,585 12,115 150,631 233,849
Long-term debt, less current portion 474,427 30,962 505,389
Deferred revenues 13,597 816 14,413
Deferred income taxes 16,042 15,799 15,799 (5) 16,042
Deferred investment tax credits 1,662 1,662
Deferred compensation 2,061 2,061
Minority interest in consolidated
partnerships - 14,958 6,511 (8) 21,469
------------ -------------- ------------ ------------ -----------
TOTAL LIABILITIES 585,537 80,120 27,914 157,142 794,885
------------ -------------- ------------ ------------ -----------
STOCKHOLDER'S EQUITY
Common stock; $1 par value; 1,000 shares
authorized; 1,000 shares issued
and outstanding 1 - 1
Additional paid-in capital 431,374 47,106 47,106 (9) 431,374
Retained earnings 80,715 14,841 14,841 (9) 80,715
Currency translation adjustments (30,811) (30,811)
------------ -------------- ------------ ------------ -----------
Total Stockholder's Equity 481,279 61,947 61,947 - 481,279
------------ -------------- ------------ ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,066,816 $ 142,067 $ 89,861 $ 157,142 $ 1,276,764
============ ============== ============ ============ ===========
</TABLE>
39
<PAGE> 40
NRG ENERGY, INC. - PACIFIC GENERATION COMPANY
NOTES TO PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(1) The pro forma balance sheet at September 30, 1997 reflects the pro forma
adjustments required to present the acquisition of Pacific Generation
Company, as if the acquisition took place on September 30, 1997. The
Company has elected to step up the asset basis of its acquired
subsidiaries of Pacific Generation Company. However, at the current time,
the appraisals and the Company's review of these appraisals have not been
completed so the pro forma assets shown are based on estimated values and
best information at this time. Therefore, the Company cannot state with
certainty the amount of acquisition costs that will be capitalized or the
value of intangible assets, including goodwill associated with the
acquisition.
(2) Reflects the estimated step up in value for Camas project, a wholly owned
asset of Pacific Generation Company.
(3) Reflects the estimated change in value for Pacific Generation Company's
share in equity investments. See Item 2 for a description of projects.
(4) Reflects the estimated amount of intangible assets resulting from the
transaction, including amounts related to operating agreements and
goodwill.
(5) The Company did not assume, as part of the purchase, the current or
deferred tax liabilities and intercompany payables of Pacific Generation
Comppany. These are eliminated and result in a reduction in intangible
assets.
(6) Reflects the short term financing used to acquire the Pacific Generation
Company investment.
(7) Reflects the estimated acquisition costs to acquire Pacific Generation
Company which will be capitalized as part of the acquistion.
(8) Reflects the increase in minority interest due to a step up in project
valuations.
(9) Eliminating entry to remove Pacific Generation Company shareholder equity.
40
<PAGE> 41
NRG ENERGY, INC. - PACIFIC GENERATION COMPANY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
NRG Pacific Adjustments (1) NRG Energy
Energy, Inc. Generation --------------------- Pro forma
------------ ---------- Debit Credit ----------
----- ------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Revenues from wholly-owned operations $ 65,081 $ 11,012 $ 76,093
Equity in earnings of unconsolidated affiliates 17,759 16,844 2,371 (2) 36,974
--------- --------- --------- ------ ----------
Total operating revenues 82,840 27,856 2,371 113,067
--------- --------- --------- ------ ----------
Operating costs and expenses
Cost of operations-wholly-owned operations 32,863 5,213 38,076
Depreciation and amortization 7,096 1,203 1,257 (3) 9,556
General, administrative, and development 28,402 7,455 35,857
Total operating costs and expenses 68,361 13,871 1,257 83,489
--------- --------- --------- ------ ----------
Operating income (loss) 14,479 13,985 1,114 29,578
--------- --------- --------- ------ ----------
Other income (expense)
Other income, net 8,610 1,044 9,654
Interest expense (19,815) (2,116) (8,069) (4) (30,000)
Minority interest - (1,749) 370 (5) (1,379)
--------- --------- --------- ------ ----------
Total other income (expense) (11,205) (2,821) (7,699) (21,725)
--------- --------- --------- ------ ----------
Income before income taxes 3,274 11,164 (6,585) 7,853
--------- --------- --------- ------ ----------
Income taxes (11,140) 4,187 (2,724) (6) (9,677)
--------- --------- --------- ------ ----------
Net income $ 14,414 $ 6,977 $ (3,861) $ 17,530
========= ========= ========= ======= ==========
</TABLE>
- --------------------------------------------------------------------------
(1) The pro forma income statement for the nine month period ended September
30, 1997, reflects the pro forma income statement adjustments required to
present the estimated combined results of the Company and Pacific
Generation Company, as if the acquisition of Pacific Generation Company
took place on January 1, 1997.
(2) Reflects the ownership percentage change the Company will realize in the
Crockett Cogeneration project (see Item 2 discussion of Crockett
Cogeneration project) offset by increased depreciation and amortization
costs for stepped up project valuations resulting from acquisition
appraisals. The stepped up valuations are being amortized over the
remaining life of each project's contractual sales agreements for
electricity or steam.
(3) Reflects the increased depreciation due to stepped up value of Camas
project, a wholly-owned asset, and amortization
of intangibles over 30 years.
(4) Represents accrued interest on $148.63 million principal amount for nine
months at a rate of 7.24% per annum.
(5) Reflects the minority interest related to the stepped up project
valuation.
(6) Net tax benefit derived from pre-tax loss.
41
<PAGE> 42
NRG Energy, Inc.
By: /s/
-------------------------------------------
Valorie A. Knudsen
Title:
--------------------------------------------
Vice President, Finance
Signature page for 8-K (PacGen)
42
<PAGE> 43
NRG Energy, Inc.
ITEM 7 (C) - EXHIBITS
The following Exhibit is hereby filed and is to be included as part of that
report.
2. Stock Purchase Agreement between NRG Energy, Inc. and PacifiCorp
Holdings, Inc. dated October 10, 1997.
43
<PAGE> 1
EXHIBIT 2
STOCK PURCHASE AGREEMENT
BETWEEN
NRG ENERGY, INC.
AND
PACIFICORP HOLDINGS, INC.
OCTOBER 10, 1997
<PAGE> 2
TABLE OF CONTENTS
Page #
1. Definitions..........................................................1
2. Purchase and Sale of Company Shares..................................6
2(a) Basic Transaction...........................................6
2(b) Purchase Price..............................................6
2(c) Purchase Price Adjustment...................................6
2(d) The Closing.................................................7
2(e) Deliveries at the Closing...................................7
3. Representations and Warranties Concerning the Transaction............7
3(a) Representations and Warranties of the Seller................7
(i) Organization of Seller................................7
(ii) Authorization of Transaction..........................7
(iii) Noncontravention......................................8
(iv) Brokers' Fees.........................................8
(v) Company Shares........................................8
3(b) Representations and Warranties of the Buyer.................8
(i) Organization of the Buyer.............................9
(ii) Authorization of Transaction..........................9
(iii) Noncontravention......................................9
(iv) Brokers' Fees.........................................9
(v) Investment............................................9
(vi) Financing............................................10
(vii) Utility Regulation...................................10
4. Representations and Warranties Concerning the Company and
Its Subsidiaries....................................................10
4(a) Organization, Qualification, and Corporate Power...........10
4(b) Capitalization.............................................10
4(c) Noncontravention...........................................10
4(d) Brokers' Fees..............................................11
4(e) Title to Tangible Assets...................................11
4(f) Subsidiaries...............................................11
4(g) Financial Statements.......................................12
4(h) Events Subsequent to Most Recent Period End................12
4(i) Legal Compliance...........................................12
4(j) Tax Matters................................................13
4(k) Personal Property..........................................14
4(l) Contracts..................................................15
4(m) Litigation.................................................15
i
<PAGE> 3
4(n) Employee Benefits...........................................16
4(o) Environmental Matters.......................................18
4(p) Transactions with Affiliates................................19
4(q) Intellectual Property.......................................19
4(r) Energy Investors Funds......................................19
4(s) Insurance...................................................20
4(t) Real Property...............................................20
4(u) Investment Company Act......................................21
4(v) Holding Company Act and Electric Utility Status.............21
4(w) Public Utility Regulatory Policies Act of 1978..............21
4(x) Development Obligations.....................................22
5. Pre-Closing Covenants................................................22
5(a) General.....................................................22
5(b) Notices and Consents........................................22
5(c) Operation of Business.......................................22
5(d) Full Access.................................................24
5(e) Notice of Developments......................................24
5(f) Exclusivity.................................................24
5(g) Seller Obligations..........................................24
5(h) Intercompany Loans..........................................25
5(i) Overseas Operations.........................................25
5(j) Pacific Kinston Energy, Inc.................................25
5(k) Headquarters Lease and Office Equipment.....................25
6. Post-Closing Covenants...............................................25
6(a) General.....................................................25
6(b) Litigation Support..........................................25
6(c) Transition..................................................26
6(d) Benefit and Employee Matters................................26
6(e) Access to Information.......................................31
6(f) Transition Services.........................................31
6(g) Maintenance of Minimum Equity...............................31
6(h) Philippine Option...........................................32
7. Conditions to Obligation to Close....................................33
7(a) Conditions to Obligation of the Buyer.......................33
7(b) Conditions to Obligation of the Seller......................35
8. Remedies for Breaches of This Agreement..............................36
8(a) Survival of Representations and Warranties..................36
8(b) Indemnification Provisions for Benefit of the Buyer.........36
8(c) Indemnification Provisions for Benefit of the Seller........37
8(d) Matters Involving Third Parties.............................37
ii
<PAGE> 4
8(e) Determination of Adverse Consequences.......................38
8(f) Certain Environmental Matters...............................38
8(g) Tax Indemnification.........................................39
9. Tax Matters..........................................................39
9(a) Section 338(h)(10) Election.................................39
9(b) Tax Sharing Agreements......................................39
9(c) Tax Returns.................................................40
9(d) Audits......................................................40
9(e) Carrybacks..................................................40
9(f) Indemnification for Post-Closing Transactions...............41
9(g) Post-Closing Transactions not in the Ordinary Course........41
10. Termination..........................................................41
10(a) Termination of Agreement....................................41
10(b) Effect of Termination.......................................42
11. Miscellaneous........................................................42
11(a) Press Releases and Public Announcements.....................42
11(b) No Third Party Beneficiaries................................42
11(c) Entire Agreement............................................42
11(d) Succession and Assignment...................................42
11(e) Counterparts................................................43
11(f) Headings....................................................43
11(g) Notices.....................................................43
11(h) Governing Law...............................................44
11(i) Amendments and Waivers......................................44
11(j) Severability................................................44
11(k) Expenses....................................................44
11(l) Construction................................................44
11(m) Incorporation of Exhibits, Annexes, and Schedules...........44
Exhibit A Historical Financial Statements
Exhibit B Form of Opinion of Counsel to the Seller
Exhibit C Form of Opinion of Counsel to the Buyer
Exhibit D July 31, 1997 Pro Forma
Exhibit E Form of Letter from PacifiCorp
iii
<PAGE> 5
Schedule 1 Material Subsidiaries
Schedule 2 Projects and Project Entities
Schedule 3 Energy Investors Fund Projects
Schedule 4 Indebtedness Secured by Security Interests
Schedule 5(c) Conduct Pending Closing
Schedule 5(g) Seller Obligations
Schedule 6(d) Certain Employees
Schedule 6(f) Philippine Subsidiaries
Annex I Exceptions to Seller's Representations and Warranties
Concerning the Transaction
Annex II Exceptions to the Buyer's Representations and Warranties
Concerning the Transaction
Annex III Disclosure Schedule - Exceptions to Representations and
Warranties Concerning the Company and its Subsidiaries
Annex IV Philippine Subsidiary Schedules
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
The Stock Purchase Agreement (the "Agreement") is entered into as of
October 10, 1997, by and among NRG ENERGY, INC., a Delaware corporation (the
"Buyer"), and PACIFICORP HOLDINGS, INC., a Delaware corporation, (the "Seller").
The Buyer and the Seller are referred to collectively herein as the "Parties."
The Seller owns all of the outstanding capital stock of Pacific
Generation Company, an Oregon corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Company in return for cash.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504.
"Aggregate Deductible" means $2,666,000.
"Applicable Rate" means a variable rate equal to the interest rate per
annum published in The Wall Street Journal under the caption "Money Rates;
London Interbank Offer Rates" for three-month calendar periods (the "LIBOR
Rates"), plus 300 basis points, provided that if such a publication is not
available or such rate is not set forth therein, the LIBOR Rate shall be
determined on the basis of another source reasonably acceptable to the party to
which interest is payable.
<PAGE> 7
"Auditors" has the meaning set forth in Section 2(c)(ii) below.
"Buyer" has the meaning set forth in the preface above.
"CERCLIS" has the meaning set forth in Section 4(o)(iv) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the common stock, no par value of
the Company.
"Confidentiality Agreement" has the meaning set forth in Section 5(d)
below.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee List" has the meaning set forth in Section 6(d) below.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental Laws" has the meaning set forth in Section 4(o) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" has the meaning set forth in Section 4(g) below.
2
<PAGE> 8
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Substances" has the meaning set forth in Section 4(o) below.
"Headquarters Equipment" has the meaning set forth in Section 5(k)
below.
"Headquarters Lease" has the meaning set forth in Section 5(k) below.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Key Employee Plan" has the meaning set forth in Section 6(d) below.
"Knowledge" means, with respect to Seller, actual knowledge of the
following representatives of the Company or Seller without independent
investigation: John T. Miller, Franidin D. Wareham, Stan Marks, Dennis Quinn,
Michael C. Henderson and Richard T. O'Brien; and, with respect to Buyer, the
actual knowledge of the following representatives of the Buyer without
independent investigation: Michael A. O'Sullivan, Michael J. Young, Dirk E.
Andreas and Thomas A. Smith.
"Leases" has the meaning set forth in Section 4(t) below.
"Material Adverse Effect" means any change or affect that is reasonably
likely to be materially adverse to the business, operation, properties,
financial condition, assets or liabilities (including without limitation
contingent liabilities) of the Company and its Subsidiaries taken as a whole,
unless the term is used in an uncapitalized form with reference to a particular
entity or issue.
"Material Agreement" has the meaning set forth in Section 4(1) below.
"Material Subsidiaries" means the Subsidiaries of the Company set forth
on Schedule 1.
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"Most Recent Financial Statements" has the meaning set forth in
Section 4(g) below.
"Most Recent Period End" has the meaning set forth in Section 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Operated Entities" means the Project Entities which own the Operated
Projects, and the partnerships, corporations or limited liability companies
which both (i) operate the Operated Projects, and (ii) are owned beneficially,
in whole or in part, by the Company.
"Operated Projects" shall mean the Crockett Cogeneration Project, PERC
Project, and Mt. Poso Cogeneration Project.
"Ordinary Course of Business" means the ordinary course of business
consistent with prior custom and practice (including with respect to quantity
and frequency).
"Overseas Operations" means: (i) the stock of PacGen International
Holdings, Inc. and stock of Subsidiaries of PacGen International Holdings, Inc.
and all assets owned by such entities; and (ii) all interest of the Company and
its Subsidiaries in the Tagoloan Project and other development projects in the
Philippines.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means the Security Interests securing the
indebtedness set forth on Schedule 4.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Project Entities" means the partnerships, corporations, and limited
liability companies listed on Schedule 2.
"Projects" shall mean all power generation projects in which Seller has
a direct or indirect ownership interest other than the power generation projects
listed on Schedule 3.
"PUHCA" has the meaning set forth in Section 4(v) below.
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"Purchase Price" has the meaning set forth in Section 2(b) below.
"PURPA" has the meaning set forth in Section 4(w) below.
"Real Property" has the meaning set forth in Section 4(t) below.
"Regular Plan" has the meaning set forth in Section 6(d) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Section 338(h)(10) Election" has the meaning set forth in Section 9(a)
below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Obligations" has the meaning set forth in Section 5(g) below.
"Subsidiary" means any corporation, partnership or limited liability
company or other entity in which the Company has a direct or indirect equity or
ownership interest which represents fifty percent (50%) or more of the aggregate
equity or ownership interest in such entity.
"Taxes" or "Tax" means any net income, gross income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, windfall
profits, environmental, ad valorem, customs duties, utility, production, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or additions thereto, imposed by
any taxing authority (domestic or foreign) whether disputed or not, including
any liability for Taxes under Section 1.1502-6 of the Treasury Regulations (or
similar provision of state, local or foreign law).
"Third Party Claim" has the meaning set forth in Section 8(d) below.
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<PAGE> 11
"Tax Return" shall mean any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed, or required to be filed, in connection with the calculation,
determination, assessment or collection of any Tax.
2. Purchase and Sale of Company Shares.
2(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the
Seller, and the Seller agrees to sell to the Buyer, 100 Company Shares,
constituting all of the issued and outstanding Company Shares, for the
Purchase Price specified below in this Section 2.
2(b) Purchase Price. The Buyer agrees to pay to the Seller at
the Closing $133,300,000, plus or minus the Purchase Price Adjustment
specified in Section 2(c) (the "Purchase Price"), payable by wire
transfer or delivery of other immediately available funds.
2(c) Purchase Price Adjustment.
(i) The Purchase Price Adjustment shall be an amount
equal to the change in stockholder's equity in the Company (computed in
accordance with GAAP) for the period from July 31, 1997 through the Closing Date
(taking into account the contribution by Seller of the balance of intercompany
loans to capital as envisioned by Section 5(h)). If stockholder's equity
increases in such period, the Purchase Price Adjustment will increase the
Purchase Price; if stockholder's equity decreases in such period, the Purchase
Price Adjustment will decrease the Purchase Price.
(ii) In computing the Purchase Price Adjustment, (1)
no further Purchase Price Adjustment shall be made for the transfer of stock in
Pacific Kinston Energy, Inc. and the assets described in Section 5(k) to Seller
or an Affiliate of Seller, and (2) no Purchase Price Adjustment will be made for
the failure to maintain reserves or accruals for liabilities for which Seller is
providing indemnity under Section 8(b)(iii). For the purpose of computing
Purchase Price Adjustment, the stockholder's equity of the Company as of July
31, 1997 shall be deemed to be as set forth on the proforma financial statement
set forth on attached Exhibit D, which is prepared based upon the July 31, 1997
balance sheet of the Company as adjusted to reflect the transfer of the Overseas
Operations to Seller or an Affiliate of Seller.
(iii) At least three days prior to the Closing,
Seller shall deliver to Buyer a statement setting forth the projected
stockholder's equity in the Company as of the Closing Date, as applicable, and
the estimated Purchase Price Adjustment. At Closing, the Purchase Price shall be
adjusted by the full amount of the estimated Purchase Price Adjustment.
Following Closing, the Parties `shall compute the Purchase Price Adjustment.
Within five days after Seller and Buyer have agreed upon the Purchase Price
Adjustment (or, if the Parties are unable to agree, within five days after the
decision of the Auditors), Buyer shall pay to Seller, or Seller pay to Buyer, as
the case may be, the difference between the
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<PAGE> 12
actual amount of the final Purchase Price Adjustment and the amount of the
estimated Purchase Price Adjustment utilized for computing the payment by Buyer
at Closing, plus interest thereon at the Applicable Rate. If the Parties have
not, within thirty days after the Closing, agreed upon the final Purchase Price
Adjustment, the final Purchase Price Adjustment shall be conclusively determined
jointly by Price Waterhouse LLP and Deloitte & Touche, LLP (the "Auditors")
whose decision shall be final and unappealable, the cost of which shall be
shared equally by Buyer and Seller. The Auditors shall provide a draft of its
Purchase Price Adjustment computation to both Parties, who shall have ten days
from receipt of such draft to advise the Auditors of any concerns or
disagreements regarding the draft Purchase Price Adjustment calculation.
2(d) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Stoel Rives
LLP, 900 SW Fifth Avenue, Portland, Oregon 97204, commencing at 9:00 a.m. local
time on the last business day of the month in which all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) are satisfied or waived or such other date as the Buyer
and the Seller may mutually determine (the "Closing Date").
2(e) Deliveries at the Closing. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in Section 7(b)
below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of the Company Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) the Buyer will deliver to Seller the
consideration specified in Section 2(b) above.
3. Representations and Warranties Concerning the Transaction.
3(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 3(a) are true as of the date of this Agreement and will be true as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(a)), except
as set forth in Annex I attached hereto.
(i) Organization of Seller. The Seller is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
(ii) Authorization of Transaction. The Seller has
full power and authority (including, full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its
terms and conditions, subject, however, to the effects of bankruptcy,
insolvency,
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<PAGE> 13
reorganization, moratorium or similar laws affecting creditor's rights
generally, and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
The Seller need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement, except for the filings required under
the Hart-Scott-Rodino Act, and except for notices, filing,
authorizations, consents or approvals which, if not made or obtained,
would not adversely affect Seller's ability to consummate the
transactions contemplated by this Agreement.
(iii) Noncontravention. Assuming the filings required
under the Hart-Scott-Rodino Act are timely made. and the conditions set
forth in subsection 7(b) (v) are satisfied, neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject or, any provision of its charter
or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject, except for such
violations, defaults, breaches or other occurrences which do not,
individually or in the aggregate, have a material effect on Seller, its
business or financial condition.
(iv) Brokers' Fees. The Seller has no liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which the Buyer could become liable or obligated.
(v) Company Shares. The Seller holds of record and
owns beneficially 100 Company Shares, which represents all of the
issued and outstanding stock of the Company, free and clear of any
restrictions on transfer (other than restrictions under the Securities
Act and state securities laws), taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims,
and demands. The Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of the Company.
3(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Seller that the statements contained in this
Section 3(b) are true as of the date of this Agreement and will be true as of
the Closing Date (as though made then and as
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<PAGE> 14
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(b)), except as set forth in Annex II attached hereto.
(i) Organization of the Buyer. The Buyer is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
(ii) Authorization of Transaction. The Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions, subject, however, to the affects of bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditor's rights
generally and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
The Buyer need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement, except for the filings required under
the Hart-Scott-Rodino Act, and except for notices, filings,
authorizations, consents or approvals which, if not made or obtained,
would not adversely affect Buyer's ability to consummate the
transactions contemplated by this Agreement.
(iii) Noncontravention. Assuming the filings required
under the Hart-Scott-Rodino Act are timely made, and the conditions set
forth in subsection 7(a)(v) are satisfied, neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of its charter or
bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject, except for such violations,
defaults, breaches or other occurrences which do not, individually or
in the aggregate, have a material effect on Buyer, its business or
financial condition.
(iv) Brokers' Fees. The Buyer has no liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which the Seller could become liable or obligated.
(v) Investment. The Buyer is not acquiring the
Company Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
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<PAGE> 15
(vi) Financing. Buyer has sufficient cash, available
lines of credit or other sources of funds (not including financings
tied specifically to the Company, its Subsidiaries or their interest in
the Projects) to enable it to make payment of the Purchase Price at
Closing.
(vii) Utility Regulation. Buyer is a wholly-owned
subsidiary of Northern States Power Company which is a "holding
company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, but which is exempt therefrom pursuant to Section
3(a)(2) thereof.
4. Representations and Warranties Concerning the Company and Its
Subsidiaries. The Seller represents and warrants to the Buyer that the
statements contained in this Section 4 are true as of the date of this Agreement
and will be true as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the disclosure schedule initialed by the
Parties and attached hereto as Annex III (the "Disclosure Schedule"), and except
for the changes contemplated by Sections 5(i), 5(j) and 5(k).
4(a) Organization, Qualification, and Corporate Power. Each of the
Company, its Material Subsidiaries and the Operated Entities, and to the
Seller's Knowledge, each of the Company's other Subsidiaries and the Project
Entities (i) is an organization duly organized and validly existing, under the
laws of the jurisdiction of its organization; (ii) is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a material adverse effect on such entity; and (iii) has full power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
4(b) Capitalization. The entire authorized capital stock of the
Company consists of 500 Company Shares, of which 100 Company Shares are issued
and outstanding. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, hilly paid, and nonassessable, and are held of
record by the Seller. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.
4(c) Noncontravention. Assuming the filings required under the
Hart-Scott-Rodino Act are timely made and the conditions set forth in subsection
7(b)(v) are satisfied, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby (which includes the
making of the Section 338(h)(l0) Election), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or
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<PAGE> 16
court to which any of the Company, its Material Subsidiaries, and the Operated
Entities, or to Seller's Knowledge, any other Subsidiary or Project Entity, is
subject or any provision of the charter, bylaws or organizational documents of
any of the Company, its Material Subsidiaries, and the Operated Entities, or to
Seller's Knowledge, any other Subsidiary or Project Entity, or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which any of the Company, its Material
Subsidiaries, and Operated Entities, or to Seller's Knowledge any other
Subsidiary or Project Entity, is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect on such entity, or
materially adversely affect the ability of the Parties to consummate the
transactions contemplated by this Agreement. To Seller's Knowledge, except for
the filings required under the Hart-Scott-Rodino Act, none of the Company and
its Material Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement, except where the failure to give notice, to file, or to obtain
any authorization, consent, or approval would not have a material adverse effect
on such entity or materially adversely affect the ability of the Parties to
consummate the transactions contemplated by this Agreement.
4(d) Brokers' Fees. None of the Company and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
4(e) Title to Tangible Assets. The Company, its Material
Subsidiaries, and the Operated Entities, and to Seller's Knowledge, the Project
Entities, have sufficient title, leasehold interest or easements to all
properties and assets which they purport to own, including without limitation,
in the case of the Company, all assets and properties reflected on the Most
Recent Period End Financial Statements to conduct their businesses as currently
conducted, and hold such properties free of Security Interests, except Permitted
Encumbrances, except where the failure to have such title or interests or to
hold such properties or assets would not, individually or in the aggregate, have
a material adverse effect on the Company, Material Subsidiary, Operated Entity
or Project Entity purporting to own such property or asset.
4(f) Subsidiaries. Section 4(f) of the Disclosure Schedule lists all
Subsidiaries of the Company, all Project Entities and all Operated Entities.
Except as set forth on Schedule 4(f), the Company, directly or indirectly, has
good, valid and marketable title to its respective capital stock or partnership
interest in all Subsidiaries, Project Entities and Operated Entities as set
forth on Schedule 4(f) free and clear of all liens, and, to Seller's Knowledge,
each of Energy Investors Fund, L.P. and Project Finance Fund III, L.P. have
good, valid and marketable title to each of their respective partnership
interest as set forth on
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Schedule 3 free and clear of all liens. Neither the Company nor any Subsidiary
has taken any action which could result in the Company or any such Subsidiary
being deemed liable as a general partner in any partnership in which the Company
or such Subsidiary presently holds only a limited partnership interest.
4(g) Financial Statements. Attached hereto as Exhibit A are the
following financial statements (collectively the "Financial Statements"): (i)
audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal year ended December
31, 1994, for the Company and its consolidated Subsidiaries; and (ii) audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the years ended December 31, 1995 and
December 31, 1996 for the Company and its consolidated Subsidiaries (the "Most
Recent Financial Statements"), (iii) unaudited consolidated balance sheets and
statements of income, changes in stockholder's equity, and cashflow and as of
and for the seven months ended July 31, 1997 (the "Most Recent Period End") for
the Company and its consolidated Subsidiaries. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and present fairly
the financial condition of the Company and its consolidated Subsidiaries as of
such dates and the results of operations of the Company and its consolidated
Subsidiaries for such periods, and are consistent with the books and records of
the Company and its consolidated Subsidiaries; provided, however, that the Most
Recent Period End Financial Statements are subject to normal year-end
adjustments and lack footnotes and other presentation items. To Seller's
Knowledge, the Company, the Subsidiaries and the Operated Entities do not have
any liabilities that are required to be reflected in a balance sheet which is
prepared in accordance with GAAP, which individually or in the aggregate, would
have a Material Adverse Effect, except for (i) liabilities reflected or reserved
against in the Most Recent Period End Financial Statements; (ii) liabilities
that have arisen in the ordinary course after July 31, 1997; or (iii)
liabilities described in the Disclosure Schedule.
4(h) Events Subsequent to Most Recent Period End. Since the Most
Recent Period End, there has not been any changes in the assets, condition or
affairs, financial or otherwise, of the Company, its Material Subsidiaries or
any Operated Entity which would individually or in the aggregate have a material
adverse effect on such entity except for the transfer of the Overseas
Operations, and the stock of Pacific Kinston Energy, Inc., as contemplated by
Sections 5(i) and 5(j), and the transfer of the Headquarters Lease and
Headquarters Equipment as contemplated by Section 5(k).
4(i) Legal Compliance. Each of the Company, its Material
Subsidiaries, and Operated Entities is in substantial compliance (and has been
in substantial compliance excepting noncompliance which has been corrected) with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), except where the
failure to comply would not have a material adverse effect on such entity. Each
of the Company, its Material Subsidiaries and Operated Entities has all permits,
licenses,
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<PAGE> 18
certificates of authority, orders and approvals of, and has made all filings,
applications, and regulations with federal, state, local or foreign government
or regulatory bodies that are currently required in order to permit it to carry
on its business as presently conducted, the absence of which individually or in
the aggregate would reasonably be expected to have a material adverse effect on
such entity.
4(j) Tax Matters.
(i) Each of the Company, its Subsidiaries, the
Affiliated Group of which the Company or its Subsidiaries have been
a member, and Operated Entities of which the Company or a Subsidiary
is a tax matters partner, has filed all Tax Returns that it was
required to file, and has paid all Taxes shown thereon as owing,
except where the failure to file Tax Returns or to pay Taxes would
not have a material adverse effect on such entity. Seller has
delivered to Buyer correct and complete copies of all federal Tax
Returns of the Company since and including the tax year ended 1994.
(ii) All Tax deficiencies asserted or assessed
against the Company, its Subsidiaries, or the Operated Entities of
which the Company or a Subsidiary is a tax matters partner have been
resolved and paid in full. There are no outstanding requests for
extension of time within which to pay taxes not yet paid. No power
of attorney has been granted by the Company, its Subsidiaries, or
the Operated Entities of which the Company or a Subsidiary is a tax
matters partner which is currently in force with respect to any
matter relating to Taxes.
(iii) All Federal Income Tax Returns of the Company,
its Material Subsidiaries and Operated Entities for periods through
December 31, 1990 have been audited.
(iv) None of the Company, its Subsidiaries, nor
Operated Entities of which the Company or a Subsidiary is a tax
matters partner has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency, or has received any notice or has
Knowledge of any pending or threatened actions, audits, proceedings
or investigations for assessment or collection of Taxes.
(v) None of the Company, its Subsidiaries, nor
Operated Entities of which the Company or a Subsidiary is a tax
matters partner is a party to any Tax allocation or sharing
agreement.
(vi) Neither the Company nor any of its Subsidiaries
has been a member of an Affiliated Group filing a consolidated
federal income tax return other than a group the common parent of
which is PacifiCorp.
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(vii) None of the Company and its Subsidiaries has
any liability for the Taxes of any Person other than the Company and
its Subsidiaries under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local, or foreign law).
(viii) The Company and its Subsidiaries have
established on their respective books and records in accordance with
GAAP reserves that are adequate for the payment of all material
Taxes of the Company and its Subsidiaries not yet due and payable.
(ix) The common parent of the Affiliated Group
including the Company is eligible to make an election under Section
338(h)(10) of the Code with respect to the Company and its
Subsidiaries (other than Pacific Kingston Energy, Inc.) as a result
of the stock purchase contemplated by this Agreement.
(x) Each of the Operated Entities that is not a
corporation under state law and, to the best of Seller's Knowledge,
each other Project Entity and Subsidiary which is- not a corporation
under state law, qualifies (and has since the date of its formation
qualified) to be treated as a partnership for federal income tax
purposes and for state tax purposes in all states in which such
treatment is relevant.
(xi) Each of the Section 754 Entities has in effect a
valid election pursuant to Section 754 of the Code, or the Company
or the Subsidiary or other entity in which the Company has a
beneficial ownership that is a partner and/or owner in such Section
754 Entity has obtained (or will obtain before the Closing Date) a
binding written agreement from such Section 754 Entity (and, to the
extent necessary, its owners) that, at the request of the Buyer,
acting through the Company or the Subsidiary or other entity in
which the Company has a beneficial ownership, a valid and timely
election pursuant to Section 754 of the Code (and any corresponding
election pursuant to state, local, and foreign law) will be made
with respect to the tax year of the Section 754 Entity that includes
the Closing Date. For this purpose, a Section 754 Entity is an
entity other than a corporation under state law that is (a) a
Project Entity, (b) Energy Investors Fund, L.P. or Project Finance
Fund III, L.P., or (c) is an entity that owns a direct or indirect
interest (through one or more other entities) in a Project Entity.
(xii) The making of the Section 338(h)(10) Election
for the Company and each of its eligible Subsidiaries will not cause
a termination pursuant to Section 708(b) of the Code of any Section
754 Entity taking into account only transfers within the twelve
month period ending on the Closing Date, and not transfers occurring
after the Closing Date.
4(k) Personal Property. To Seller's Knowledge, all material
personal property (specifically excluding rolling stock) of the Company, any
Material Subsidiary, and the Operated Entities is free from defects, patent or
latent, has been maintained in accordance
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with standard independent power industry practices and is in an operable state
of repair adequate to maintain normal operations in a manner consistent with
past practices, except where such defects or failures to maintain as would not,
individually or in the aggregate, have a material adverse effect on such entity.
Except as provided in this Section 4(k), SELLER MAKES NO AND DISCLAIMS ANY
REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AND WHETHER BY COMMON
LAW, STATUTE OR OTHERWISE, AS TO (I) THE QUALITY, CONDITION OR OPERABILITY OF
ANY PERSONAL PROPERTY OR EQUIPMENT, OR (II) ITS MERCHANTABILITY, OR (III) ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR, (IV) ITS CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS AND, EXCEPT AS PROVIDED IN THIS SECTION 4(k), ALL PERSONAL PROPERTY
AND EQUIPMENT IS DELIVERED "AS IS, WHERE IS" IN THE CONDITION IN WHICH THE SAME
EXISTS.
4(l) Contracts. Section 4(l) of the Disclosure Schedule lists
all written contracts and other written agreements to which any of the Company,
its Subsidiaries, and Operated Entities and to Seller's Knowledge, other Project
Entities in which Company or a Subsidiary of the Company is a general partner,
is a party, the performance of which will involve consideration in excess of
$500,000 per year or $2,000,000 in the aggregate (the "Material Agreements").
The Seller made available to the Buyer a correct and complete copy of each
contract or other agreement listed in 4(l) of the Disclosure Schedule (as
amended to date). With respect to each Material Agreement: (A) the agreement is
legal, valid, binding, enforceable (subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors
generally and general principles of equity), and in full force and effect in all
material respects; (B) neither Company, its Subsidiaries nor an Operated Entity,
is in material breach or default, and to Seller's Knowledge, no other party
thereto is in material breach or default; and (C) no event has occurred which
with notice or lapse of time would constitute a material breach or default under
the agreement by Company, its Subsidiaries, or Operated Entities, or to Seller's
Knowledge, by any other party to the agreement; and (D) none of Company, its
Subsidiaries or Operated Entities, and to Seller's Knowledge, any other party to
such agreement, has repudiated any material provision of the agreement.
4(m) Litigation. Section 4(m) of the Disclosure Schedule sets
forth each instance in which any of the Company, its Material Subsidiaries, or
Operated Entities, or to Seller's Knowledge, any other Subsidiary or other
Project Entity (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge, or (ii) is a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction, or
(iii) to Seller's Knowledge, is threatened to be made a party to any such
proceeding, except in cases (i), (ii) or (iii) above, where the injunction,
judgment, order, decree, ruling, action, suit, proceeding, hearing, or
investigation would not have a material adverse effect on such entity.
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4(n) Employee Benefits. Section 4(n) of the Disclosure
Schedule lists each Employee Benefit Plan that any of the Company and its
Material Subsidiaries maintains or to which any of the Company and its Material
Subsidiaries contributes.
(i) To Seller's Knowledge, each such Employee Benefit
Plan (and each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable requirements
of ERISA and the Code, and any other statute, rule, regulation,
agreement or instrument by which it is governed, except where the
failure to comply would not have a material adverse effect on such
Employee Benefit Plan.
(ii) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(iii) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan intended to be qualified under Code
Section 401(a) has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Code
Section 401(a). Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan intended to be qualified under Code Section 401(a)
has received a determination letter from the Internal Revenue Service
to the effect that it meets the requirements of Code Section 401(a) (as
amended by the Tax Reform Act of 1986), has been timely amended to
comply with the Unemployment Compensation Amendments of 1992 and the
Omnibus Budget Reconciliation Act of 1993 and, to Seller's Knowledge,
no facts exist that would adversely affect the qualified status of any
such Employee Pension Benefit Plan other than the failure to make any
required amendments, the time for the adoption of which has not
expired. Neither the Seller, nor any entity considered under common
control with the Seller (within the meaning of subsection (b), (c),
(m) or (o) of Code Section 414), has incurred any liability in
connection with the termination or partial termination of a pension
plan subject to Title IV of ERISA, the complete or partial withdrawal
from a multiemployer plan subject to Tile IV of ERISA, or the failure
to make contributions due under Code Section 412 or premiums due to the
PBGC under Title IV or ERISA, which liability will not have been
satisfied as of the Closing Date.
(iv) As of the last day of the most recent prior plan
year, the market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equaled or exceeded the present value of liabilities thereunder
(determined in accordance with then current funding assumptions).
(v) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions,
including any amendments and summaries of material modifications, the
most recent determination
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letter received from the Internal Revenue Service, the most recent Form
5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(vi) With respect to each Employee Benefit Plan that
any of the Company and its Material Subsidiaries maintains or ever has
maintained or to which any of them contributed or ever has contributed
or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been completely or partially terminated or been the subject
of a Reportable Event as to which notices would be required to be
filed with the PBGC. No proceeding by the PBGC to terminate any
such Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been instituted.
(B) No action, suit, proceeding, hearing, or
investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending.
(C) None of the Company and its Material
Subsidiaries has incurred any liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal liability) with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(vii) All applicable ERISA requirements as to the
filing of reports, documents and notices regarding such Employee
Benefit Plans with the Department of Labor, the Internal Revenue
Service and the PBGC, and the furnishing of such documents to
participants and beneficiaries, have been complied with in all material
respects.
(viii) Except to the extent required under a
severance pay plan or under ERISA Section 601 et seq. and Code Section
4980B or applicable state coverage continuation laws, no such Employee
Benefit Plan provides health or welfare benefits for any retired or
former employee or is obligated to provide health or welfare benefits
to any active employee following such employee's retirement or other
termination of service. No representation or warranty is made with
respect to benefits provided under a Multiemployer Plan.
(ix) The Seller, the Company and the Material
Subsidiaries have complied with the provisions of ERISA Section 601 et
seq. and Code Section 4980B.
(x) No transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Code Section 4975(c), for which
an exemption is not
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available under ERISA Section 408 or Code Section 4975(d), has occurred
with respect to any such Employee Benefit Plan.
4(o) Environmental Matters.
(i) Each of Company and the Material Subsidiaries and
the Operated Entities and to Seller's Knowledge, the other Subsidiaries
and other Project Entities, is in compliance with all applicable
federal, state and local laws, ordinances, rules and regulations
relating to occupational safety, public health or protection or
enhancement of the environment including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section
6901, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., as
amended, the Federal Water Pollution Control Act, 33 U.S.C. Section
1251, et seq., as amended and the Oil Pollution Act of 1990, 33 U.S.C.
Section 2701, et seq., as amended and the Occupational, Safety and
Health Act, as amended, 29 U.S.C. Section 651, et seq. (collectively,
the "Environmental Laws"), except for such matters that individually or
in the aggregate do not have a material adverse effect on the condition
of such entity.
(ii) Each of Company and the Material Subsidiaries
and the Operated Entities, and to Seller's Knowledge, the other
Subsidiaries and other Project Entities, has obtained all permits,
licenses, franchise authorities, consents and approvals, and has made
all filings and maintained all material information, documentation and
records, as are currently necessary under all applicable Environmental
Laws, for operating its assets and business as it is presently
conducted in compliance with all applicable Environmental Laws, and all
such permits, licenses, franchises, authorities, consents, approvals
and filings remain in full force and effect, except for such matters
that individually or in the aggregate do not have a material adverse
effect on the condition of such entity.
(iii) There are no pending or, to Seller's Knowledge,
threatened claims, demands, actions, administrative proceedings,
lawsuits or investigations against the Company, the Material
Subsidiaries or the Operated Entities, or to Seller's Knowledge,
against the other Subsidiaries or other Project Entities under any
Environmental Laws or arising from any activities not in compliance
with any Environmental Laws.
(iv) None of the real property currently owned or
operated, or previously owned or operated by Company, any Material
Subsidiary or any Operated Entity, or to Seller's Knowledge, any
location where any such entity transported or arranged for
transportation of any Hazardous Substances is: (a) listed on the
National Priorities List, the Comprehensive Environmental Response
Compensation and Liability Information System ("CERCLIS") List or any
similar list of sites requiring
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<PAGE> 24
remedial action; (b) being considered for possible inclusion on the
National Priorities List, CERCLIS List or on any such similar list; or
(c) the subject of any regulatory action which may lead to claims
against Company, any of the Material Subsidiaries or any Operated
Entity under any Environmental Law (provided, that as to property
previously, but not currently, owned or operated by Company, any
Material Subsidiary or Operated Entity, the representations in clauses
(b) and (c) is given only as to Seller's Knowledge).
(v) No part of any of the real property currently
owned or operated (or previously owned or operated) by Company, any
Material Subsidiary or any Operated Entity or to Seller's Knowledge,
any other Subsidiaries or Project Entities, has been used as a
landfill, dump or for other disposal, treatment, storage, transfer or
handling area of Hazardous Substances prior to or during the period of
ownership or operation by such entity; except, however, for the
handling, storage and disposal of Hazardous Substances used or
generated in the ordinary course of business of Company, its Material
Subsidiaries, and Operated Entities and in material compliance with all
applicable Environmental Laws; and except for (a) the isolated,
inadvertent incineration of Hazardous Substances at solid fuel power
plants as described on Section 4(o) of the Disclosure Schedule, and (b)
for the production and storage of oil and hydrocarbons at the oil field
associated with the Mt. Poso Project (but not including the power plant
facility).
(vi) For the purposes hereof, "Hazardous Substances"
shall be deemed to include all pollutants, contaminants, hazardous,
toxic or radioactive materials, substances or wastes, which would pose
a risk to public health or the environment, or are regulated under any
Environmental Law.
Notwithstanding any other provision of this Agreement, Seller
makes no representation in this Agreement regarding any compliance or failure to
comply with, or any actual or contingent liability under, any Environmental law,
except as set forth in this Section 4(o).
4(p) Transactions with Affiliates. Section 4(p) of the
Disclosure Schedule lists all contracts and agreements between the Company,
Subsidiaries and Operated Entities, on one hand, and Seller and other Affiliates
of Seller on the other. All such contracts and agreements will, except as noted
on Section 4(p) of the Disclosure Schedule, be terminated immediately prior to
Closing.
4(q) Intellectual Property. To the Knowledge of Seller, the
Company, its Material Subsidiaries and Operated Entities do not operate their
business in a manner that infringes upon any patents, copyrights or trademarks
of third parties.
4(r) Energy Investors Funds. Company owns a 3.1 percent
limited partner interest in Energy Investors Fund, L.P., as of July 31, 1997,
and a 4.9 percent limited
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partner interest in Project Finance Fund, III, L.P., as of August 31, 1997,
free and clear of all liens and encumbrances. Such limited partners interests
are fully paid and non-assessable, except that Project Finance Fund III, L.P.
may call $1,400,556 from the Company.
4(s) Insurance. Section 4(s) of the Disclosure Schedule sets
forth the following information with respect to each material insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) with respect to which
the Company is a party:
(i) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(ii) the policy number and the period of
coverage;
(iii) the scope (including an indication of whether
the coverage is on a claims made, occurrence, or other basis)
and amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage; and
(iv) a description of any retroactive premium
adjustment or other material loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
the Company is not in material breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a material breach or
default, or permit termination, modification, or acceleration, under the policy;
and (C) no party to the policy has repudiated any material self-insurance
arrangements affecting the Company.
4(t) Real Property. Neither the Company nor any Subsidiary
owns or has ever owned or had title to any real estate. Section 4(t) of the
Disclosure Schedule sets forth (i) legal descriptions of all parcels of real
property owned or leased in connection with the operation of an Operated Project
("Real Property"), and (ii) identifies each lease, sublease, or other material
occupancy agreement, including any amendments thereto, in effect with respect to
the use and operation of any Operated Project ("Leases"). To Seller's Knowledge,
except as set forth in Schedule 4(t):
(i) The owner of each Operated Project has fee title to
the Real Property for such Operated Project which is
identified in Section 4(t) of the Disclosure Schedule as being
owned Real Property, free and clear of Security Interests and
title defects other than the Permitted Encumbrances, the
matters described on Section 4(t) of the Disclosure Schedule
and title defects and other encumbrances which have not had or
will not have, individually or in the aggregate, a material
adverse effect on such Operated Project.
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(ii) The owner of each Operated Project is the owner of
the lessee's interest in all Leases of Real Property for such
Operated Project which is identified in Section 4(t) of the
Disclosure Schedule as being leased Real Property, free and
clear of Security Interests and title defects other than the
Permitted Encumbrances, the matters described on Section 4(t)
of the Disclosure Schedule and such title defects and other
encumbrances which have not had will not have, individually or
in the aggregate, a material adverse effect on such Operated
Project.
(iii) All of the Leases are in full force and effect and
are valid, binding and enforceable in accordance with their
respective terms (except to the extent that the same may be
subject to general principles of equity and/or limited by the
rights of creditors holding rights in and to such Leases or
the Real Property or by bankruptcy, insolvency, reorganization
or other similar laws) and there does not exist under any of
the Leases any default by the lessee thereunder, or to
Seller's Knowledge, the lessor thereunder, or any event which
with notice or lapse of time or both would constitute a
default by the lessee thereunder, or to Seller's Knowledge,
the lessor thereunder.
4(u) Investment Company Act. Neither the Company, any Operated
Entity, nor any Material Subsidiary is or has ever been an "Investment Company"
(as such term is defined in the Investment Company Act of 1940, as amended) or
otherwise subject to regulation under the Investment Company Act of 1940, as
amended and the rules and regulations promulgated thereunder.
4(v) Holding Company Act and Electric Utility Status. Neither the
Company, any Operated Entity, nor any Material Subsidiary is a "holding
company," or a "subsidiary company" of a "holding company" or an "affiliate" or
a "holding company" or an "affiliate" of a "subsidiary company" of a "holding
company," or a "public utility company" within the meaning ascribed to such
terms under the Public Utility Holding Company Act of 1935, as amended, and the
rules and regulations promulgated thereunder ("PUHCA"), or an "electric utility"
or a "public utility" within the meaning of the Federal Power Act, as amended or
a "utility" under any state law regulating public utilities.
4(w) Public Utility Regulatory Policies Act of 1978. With respect
to each facility which produces, or which when completed will produce, electric
energy, which is owned or operated by the Company, an Operated Entity or a
Material Subsidiary, either (A) such facility is (or if under construction is
intended to be): (i) a "qualifying cogeneration facility" or "qualifying small
power production facility" as such terms are defined in the Public Utility
Regulatory Policies Act of 1978, as amended, and the rules and regulations
promulgated thereunder ("PURPA"), and is or, if under construction, is intended
to become, exempted from PUHCA pursuant to PURPA and 18 C.F.R. 292.602, or is
otherwise exempt; or (ii) "an eligible facility" of an "exempt wholesale
generator" as such terms are defined in Section 32
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<PAGE> 27
of PUHCA; or (B) the beneficial ownership of such facility by the Company or
Material Subsidiary is otherwise exempt from PURPA.
4(x) Development Obligations. The Company and its Subsidiaries have no
commitments or obligations to develop any additional energy facilities which
will be binding upon the Company or its Subsidiaries after the Closing except
(1) those commitments and obligations relating to the Project Entities and (2)
the commitments and obligations with respect to the Energy Investors Fund, L.P.
and Project Finance Fund III, L.P.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
5(a) General. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the Closing conditions set
forth in Section 7 below).
5(b) Notices and Consents. The Seller will cause each of the
Company, its Material Subsidiaries and Operated Entities, to, and use reasonable
efforts to cause other Subsidiaries and Project Entities to, give any notices to
third parties, and will cause each of the Company, its Material Subsidiaries,
and use reasonable efforts to cause other Subsidiaries and the Project Entities
to use its reasonable best efforts to obtain any third party consents, that the
Buyer reasonably may request in connection with the matters referred to in
Section 4(c) above. Each of the Parties will (and the Seller will cause each of
the Company, its Material Subsidiaries and Operated Entities to, and use
reasonable efforts to cause its other Subsidiaries and Project Entities to) give
any notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section
3(a)(ii), Section 3(b)(ii) and Section 4(c) above. Without limiting the
generality of the foregoing, each of the Parties will file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use its reasonable
best efforts to obtain a waiver from the applicable waiting period, will make
(and the Seller will cause each of the Company and its Material Subsidiaries to
make) any further filings pursuant thereto that may be necessary in connection
therewith, and will cooperate and coordinate with the other Party in connection
with such filings and actions.
5(c) Operation of Business. The Seller will not, without the consent
of Buyer, cause or permit any of the Company and its Subsidiaries to engage in
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the foregoing,
the Seller will not, without the consent of Buyer, except as expressly
contemplated by this Agreement, cause or permit any of the Company and its
Subsidiaries to do any of the following, or approve actions by any Project
Entity to do any of the following:
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(i) amend or otherwise change its charter or bylaws
or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant, encumber
or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (a) any shares of capital stock of any class
of Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire
any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom
interest), of Company or any Subsidiary, or (b) any assets and
properties material to Company and the Subsidiaries, taken as
a whole, except for pledges of assets and properties required
by any financing document to which the Company, a Subsidiary
or Project Entity is a party on the date hereof;
(iii) (a) acquire (including, without limitation, by
merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or any
division thereof or any material amount of assets, except for
acquisitions of fuel in the Ordinary Course of Business; (b)
incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any
person, or make any loans or advances, except borrowing in the
Ordinary Course of Business pursuant to any existing credit
agreements or pursuant to intercompany loan agreements with
Seller; or (c) enter into or amend a contract, agreement,
commitment or arrangement with respect to any matter set forth
in this paragraph (iii);
(iv) increase the compensation payable or to become
payable to, or grant any severance or termination pay to, its
officers, employees, directors or consultants, except pursuant
to existing contractual arrangements, or existing compensation
plans, or enter into any employment, consulting or severance
agreement with, any director, officer or other employee or
consultant of Company or any Subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director,
officer, employee or consultant;
(v) enter into any collective bargaining agreements
or change accounting practices; or
(vi) amend in any material respect any contract or
agreement material to Company, the Subsidiaries or Project
Entities, or terminate any such material contract or agreement
prior to the expiration of the term thereof.
Seller intends to pursue, prior to Closing, some or all of the actions
described on Schedule 5(c). Seller will keep Buyer informed of the
status of such actions, and will not
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enter into any material agreement implementing such actions without the consent
of Buyer. Buyer shall designate a person who will be available at all reasonable
times to consult with Company regarding actions for which Buyer's consent is
required and endeavor to promptly respond to all requests of the Company for
consents required by this Section.
5(d) Full Access. The Seller will permit, and the Seller will
cause each of the Company, its Material Subsidiaries and Operated Entities to
permit, and use reasonable efforts to cause the operator of other Project
Entities to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, its Material Subsidiaries, Operated
Entities, and Project Entities to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or pertaining to
each of the Company, its Material Subsidiaries, Operated Entities and Project
Entities. Any information obtained by Buyer, its employees, representatives,
consultants, attorneys, agents, lenders and other advisors under this Section
5(d) shall be subject to the confidentiality and use restrictions contained in
that certain letter agreement between Buyer and PacifiCorp dated June 24, 1997
(the "Confidentiality Agreement").
5(e) Notice of Developments.
(i) The Seller may elect at any time to notify the Buyer
of any development causing a breach of any of the representations and
warranties in Section 4 above, provided that such notice shall not for
purposes of the indemnity set forth in Section 8(b) be deemed to have
amended Annex I, Annex II or the Disclosure Schedule, to have qualified
the representations and warranties contained in Section 4 above, or to
prevent or cure any misrepresentation or breach of warranty.
(ii) Each Party will give prompt written notice to the
others of any material adverse development causing a breach of any of
its own representations and warranties in Section 3 above. No
disclosure by any Party pursuant to this Section 5(e)(ii), however,
shall be deemed to amend or supplement Annex I, Annex II, or the
Disclosure Schedule or to prevent or cure any misrepresentation or
breach of warranty.
5(f) Exclusivity. The Seller will not (and the Seller will not
cause or permit any of the Company and its Material Subsidiaries to) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of all or substantially all of the capital stock or
assets of any of the Company and its Subsidiaries (other than the Overseas
Operations not owned by the Philippine Subsidiaries) (including any acquisition
structured as a merger, consolidation, or share exchange).
5(g) Seller Obligations. The Seller is a party to the
guarantees, agreements and reimbursement agreements listed on Schedule 5(g) (the
"Seller Obligations") pursuant to which Seller is obligated, or potentially
obligated, for certain obligations of the Company, its
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Subsidiaries, Project Entities or other related entities, or is otherwise
obligated with respect to a transaction relating to the Company, its
Subsidiaries, Project Entities and other related entities. The Buyer shall (i)
to the extent the Seller Obligation is a letter of credit, either provide a
substitute letter of credit and obtain a release of the letter of credit which
was issued on Seller's behalf or obtain from the issuer of the letter of credit
a release of all of Seller's obligations to the issuer; and (ii) use its best
reasonable efforts to negotiate arrangements to release Seller, as of the
Closing, from all other Seller Obligations, and to provide substitute
guarantees, security and reimbursement agreements and commitments to the
beneficiaries of the Seller Obligations.
5(h) Intercompany Loans. Immediately prior to the Closing, all
outstanding receivables and payables outstanding between the Company and Seller
shall be satisfied and discharged. The net amount, if any, payable by Company
to Seller shall be contributed to the capital of the Company and considered in
computing the Purchase Price Adjustment.
5(i) Overseas Operations. Seller shall use its best reasonable
efforts to cause the Overseas Operations to be transferred, prior to Closing, to
Seller or an Affiliate of Seller other than the Company and its Subsidiaries.
5(j) Pacific Kinston Energy, Inc. Seller shall cause the stock
of Pacific Kinston Energy, Inc. to be transferred, prior to Closing, to Seller
or an Affiliate of Seller other than the Company and its Subsidiaries.
5(k) Headquarters Lease and Office Equipment. Immediately
prior to Closing, Company shall assign and transfer to Seller or an Affiliate of
Seller: (i) the lease for the Company's headquarters space at 500 NE Multnomah,
Suite 900, Portland, Oregon (the "Headquarters Lease"); and (ii) all office
furnishings and office equipment located at such location (the "Headquarters
Equipment").
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
6(a) General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
6(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing
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Date involving any of the Company and its Subsidiaries, each of
the other Parties shall cooperate with it and its counsel in the defense or
contest, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the defense
or contest, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under Section 8 below).
6(c) Transition. Seller, PacifiCorp and their Affiliates will
not take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of any of the Company, its Subsidiaries and the Project Entities
(other than Seller and its Affiliates) from maintaining the same business
relationships with the Company, its Subsidiaries and the Project Entities after
the Closing as it maintained with the Company, its Subsidiaries and the Project
Entities prior to the Closing.
6(d) Benefit and Employee Matters. This Section 6(d) contains
the covenants and agreements of the Parties with respect to (a) the status of
employment of the employees of the Company, the Subsidiaries and the Operated
Entities ("Employees") upon the sale of the Company to Buyer, and (b) employee
benefit plans. Nothing herein expressed or implied is intended to confer upon
any Employee or former Employee of Seller any right or remedy, including,
without limitation, any right as a third party beneficiary.
(i) Employee Status. Buyer shall, at least ten days prior
to the Closing, deliver to Seller a list of the employees selected from
the list on Schedule 6(d) which Buyer does not wish to employ after the
Closing (the "Employee List"). Seller shall cause all employees listed
on the Employee List, at or prior to the Closing, to be transferred to
the employment of Seller or an Affiliate of the Seller. Buyer shall
deem, and shall cause the Company to deem for all Employees the period
of employment with Company and the Subsidiaries and Operated Entities
(and with predecessor employers with respect to which the Company, the
Subsidiaries and Operated Entities have granted service credit) to be
employment with Buyer for benefit plan eligibility and vesting
purposes, but not (except as otherwise provided in Section 6(d)(iv))
for benefit accrual purposes, under all of Buyer's and Company's
Employee Benefit Plans, programs, or arrangements to the extent service
with Buyer or Company is recognized under any such plan, program or
arrangement. Buyer's covenant to recognize prior service for
eligibility and vesting purposes shall not obligate Buyer or Company to
include all classes of Employees in each of Buyer's or Company's
Employee Benefit Plans, programs, or arrangements.
Buyer agrees that if any of the Employees of the Company
listed on Part II of Schedule 6(d) and not listed on the Employee List
is (x) terminated from employment for reasons other than cause within
12 months after the Closing by the Company, its Subsidiaries, or
Operated Entities, or (y) experiences within 12 months after the
Closing a "material alteration in assignment or compensation" or a
"material change in geographic location", as such terms are defined in
the "Safety Net
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<PAGE> 32
Guidelines for Pacific Generation Company" adopted effective July 1,
1997 (the "Regular Plan"), Buyer shall, or shall cause the Company to,
give notices and provide severance benefits as provided in the Regular
Plan. Buyer agrees that if any of the employees of the Company listed
on Part I of Schedule 6(d) and not listed on the Employee List is
terminated from employment within 18 months after Closing by the
Company for reasons other than cause, or experiences within 18 months
after Closing a "Material Alteration in Position", as defined in the
"Pacific Generation Company Key Executive Severance Benefits Plan"
adopted effective July 1, 1997 (the "Key Employee Plan"), Buyer shall,
or shall cause Company to, give notices and provide severance benefits
as provided in the Key Employee Plan. Seller agrees to indemnify Buyer
and Company for any liability and expenses, including severance
benefits and attorney fees, arising from claims by or on behalf of
employees listed on the Employee List under the Regular Plan or the Key
Employee Plan.
(ii) Plan Sponsorship. Except as provided in Section
6(d)(i), (iii)(C), (iii)(D), and (iv), Buyer shall not, and shall not
cause Company to, adopt or be directly or indirectly responsible for
administering, funding or maintaining after the Closing Date any
Employee Benefit Plan maintained prior to the Closing Date by Company,
its Subsidiaries or the Operated Entities, or to which any of Company,
its Subsidiaries or the Operated Entities contributes. Except as
provided in Section 6(d)(i) and (iv), Buyer shall not, and shall not
cause Company or any Employee Benefit Plan maintained by Buyer or its
Affiliates to, accept any transfers of assets or liabilities from any
Employee Benefit Plan maintained prior to the Closing Date by Seller,
Seller's Affiliates, Company, the Subsidiaries or the Operated
Entities.
(iii) Seller's Employee Benefit Plans.
(A) PacifiCorp Retirement Plan. Employee shall
cease to be eligible to accrue benefits under the PacifiCorp Retirement
Plan as of the Closing Date. Company, Buyer and Buyer's Affiliates
shall have no obligation to make contributions, other than the Normal
Pension Contribution, to the PacifiCorp Retirement Plan after the
Closing Date, and any contributions made on or before the Closing Date
shall not exceed an amount equal to the Company's normal pension
contribution for benefits accrued by eligible Employees through the
Date of Closing (the "Normal Pension Contribution"), as determined
under the Seller's standard method for allocating contributions among
participating employers. All participants in the PacifiCorp Retirement
Plan who continue as Employees after the Closing Date shall be deemed
to be severed from employment for purposes of such plan and shall be
entitled to make application for distributions from such plan, to the
extent permitted under federal law and the terms of the PacifiCorp
Retirement Plan, unless assets and liabilities of such plan are
transferred to Buyer as provided in Section 6(d)(iv).
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<PAGE> 33
(B) PacifiCorp K Plus Employee Savings and Stock
Ownership Plan. Employees shall cease to be eligible to make or accrue
contributions to the PacifiCorp K Plus Employee Savings and Stock
Ownership Plan ("Savings Plan") as of the Closing Date. All
participants in the Savings Plan who continue as Employees shall be
entitled to make application for distributions from such plan after the
Closing Date, to the extent permitted under federal law and the terms
of the Savings Plan.
(C) Esoco Orrington, Inc. 401(k) Profit Sharing
Plan. Seller shall cause Esoco Orrington, Inc. to continue to maintain
the Esoco Orrington, Inc. 401(k) Profit Sharing Plan (the "Orrington
Plan") until the Closing Date. Employees shall continue to be eligible
to make and accrue contributions under the Orrington Plan through the
Closing Date and until such time as Buyer shall cause Esoco Orrington,
Inc. to amend or terminate the Orrington Plan.
(D) Pyro-Pacific Operating Co. 401(k) Plan and
Certain Welfare Benefits Plans. Seller shall cause Pyro-Pacific
Operating Co. ("PPOC") to continue to maintain the Pyro-Pacific
Operating Co. 401(k) Plan (the "Pyro-Pacific Plan") until the Closing
Date. Employees shall continue to be eligible to make and accrue
contributions under the Pyro-Pacific Plan through the Closing Date and
until such time as Buyer shall cause PPOC to amend or terminate the
Pyro-Pacific Plan. Subject to 6(d)(i), Buyer may adopt or maintain or
cause Company to adopt or maintain or cause PPOC to maintain any
welfare benefits plan that Seller or any of Sellers direct or indirect
parent or subsidiary corporations maintains after the Closing Date.
(E) PacifiCorp Unfunded Welfare Benefits Plan.
Seller shall remain solely responsible for all claims incurred by any
Employee under the PacifiCorp Unfunded Welfare Benefits Plan on or
before the Closing Date, whether or not such claims have been submitted
prior to the Closing Date, and Buyer end the Company and its
Subsidiaries and Operated Entities shall have no liability for any such
claims incurred. Seller shall pay and be solely liable for and shall
indemnify and hold Buyer and the Company and its Subsidiaries and the
Operated Entities harmless from and against and in respect of any and
all losses, damages, liabilities, taxes, sanctions that may arise under
Section 4980B of the Code, interest and penalties, costs and expenses
(including, without limitation, disbursements and reasonable legal fees
incurred in connection therewith and in seeking indemnification
therefor, and any amounts or expenses required to be paid or incurred
in connection with any action, suit proceeding, claim, appeal, demand,
assessment or judgment) imposed upon, incurred by, or assessed against
Buyer, the Company, the Subsidiaries or the Operated Entities arising
by reason of or relating to any failure to comply with the continuation
health care coverage requirements of Section 4980B of the Code,
Sections 601 through 608 of ERISA, or any applicable state law health
care continuation statutes, which failure occurred with respect to any
current or prior
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<PAGE> 34
Employee or any qualified beneficiary of such Employee (as defined in
Section 4980B(g)(1) of the Code) on or prior to the Closing Date, or
which failure occurred as a result of the actions required by this
Agreement. A failure shall be deemed for purposes of this paragraph to
have occurred on or prior to the Closing Date if the Employee's or
qualified beneficiary's qualifying event occurred on or prior to the
Closing Date. Seller shall have retiree medical obligations, if any,
for all Employees with retirements on or before the Closing Date.
(F) Severance Plans. Seller shall be solely
responsible (and none of Buyer, its Affiliates or Company shall have
any responsibility) for any severance or other claims with respect to
any of the Employees that do not continue as Employees after the
Closing Date. Except as provided in Section 6(d)(i), Buyer is under no
obligation to continue the Regular Plan or the Key Employee Plan and
shall be free to terminate or modify such plans at any time.
(G) PacifiCorp Life Insurance Plans. Seller shall
have state law life insurance continuation obligations, if any, for all
Employees with terminations before the Closing Date. Seller shall have
retiree life insurance obligations, if any, for all Employees with
retirements before the Closing Date.
(H) PacifiCorp Flexible Spending Account Plans.
Seller shall extend continuation coverage to Employees covered under
the medical expense reimbursement arrangement in its cafeteria plan.
The dependent care expense reimbursement arrangement will terminate as
of the Closing Date insofar as it relates to employees who continue in
employment with Company, its Subsidiaries or the Operated Entities.
Such employees may continue to submit claims against their dependent
care spending account through the end of the plan year (including any
runoff period provided under the plan).
(I) PacifiCorp Accidental Death and Dismemberment
Plan. Seller shall have continuation obligations, if any, for
accidental death and dismemberment benefits for all Employees with
terminations before the Closing Date. Seller shall have retiree
obligations for such benefits, if any, for all Employees with
retirements before the Closing Date.
(J) PacifiCorp Financial Services Business Travel
Accident Plan. Seller shall be solely responsible for travel accident
benefit obligations, for all employees with events eligible for such
benefits before the Closing Date.
(K) Workers' Compensation. Seller shall have
workers' compensation obligations for all Employees with events
eligible for workers' compensation before the Closing Date.
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(iv) Buyer Continuation of Company Benefits. Buyer
and Seller acknowledge that, as of the Closing Date, Esoco Crockett,
Inc. will no longer be able to comply with those provisions of the
Collective Bargaining Agreement between Esoco Crockett, Inc. and
International Union of Operating Engineers, Stationary Local No. 39,
AFL-CIO (the "Union Contract") which requires that Esoco Crockett, Inc.
continue the participation of certain employees in Employee Benefit
Plans maintained by Seller or an Affiliate of Seller. Buyer shall use
its best efforts to negotiate with said union to substitute Buyer's
Employee Benefit Plans for the Employee Benefit Plans referenced in the
Union Contract. If such negotiations result in an agreement that
employees of Esoco Crockett, Inc. who are covered by the Union Contract
("Union Employees") shall be covered by a defined benefit plan with
benefits substantially similar to the PacifiCorp Retirement Plan, then,
and only in that event, shall the following provisions of this Section
6(d)(iv) apply.
Buyer shall assumes as of the date of the transfer
of assets pursuant to this Section 6(d)(iv), the liabilities and
obligations of the PacifCorp Retirement Plan for all Union Employees.
Buyer shall establish, effective as of the Closing Date, a
tax-qualified "defined benefit plan", as defined in Section 3(35) of
ERISA ("Buyer's Pension Plan"), which shall discharge the obligations
of Buyer as set forth in this Section 6(d)(iv). As soon as practicable
after the Closing Date, Seller shall cause a transfer from the
PacifiCorp Retirement Plan of the liabilities and obligations of the
Union Employees and of the assets described below to the Buyer's
Pension Plan.
The assets to be transferred from the PacifiCorp
Retirement Plan with respect to the Union Employees shall be an amount
equal to the greater of (i) the total value of the assets (including
accrued but unpaid contributions) as of the Closing Date of the
PacifiCorp Retirement Plan multiplied by a fraction the denominator of
which is the "projected benefit obligation," as defined within
Financial Accounting Standards No. 87, for the pension benefits of all
participants in the PacifiCorp Retirement Plan and the numerator of
which is the "projected benefit obligation" of the pension benefits of
the Union Employees in the PacifiCorp Retirement Plan, as of the
Closing Date, and (ii) the "projected benefit obligation" for the
pension benefits of the Union Employees under the PacifiCorp Retirement
Plan as of the Closing Date, with adjustments described below for
investment earnings and benefit payments between the Closing Date and
the actual date of such transfer of assets. The above "projected
benefit obligation" shall include an amount reflecting, on an actuarial
basis, benefits attributable to the effect of an assumption for future
pay increases after the Closing Date. Seller's actuary shall calculate
the above "projected benefit obligation" by applying the funding
assumptions described in the attachment to the PacifiCorp Retirement
Plan's most recently filed IRS Form 5500, Schedule B and other relevant
actuarial assumptions, methods and methodologies, described in such
attachment and/or used in preparing calculations shown on such Form
5500, except that the annual interest rate assumption to be used to
calculate the
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<PAGE> 36
above "projected benefit obligation" shall be the immediate annuity
rate prescribed by the Pension Benefit Guaranty Corporation for the
month in which the transfer of assets occurs.
The assets transferred pursuant to this Section
6(d)(iv) shall be calculated by Seller's actuary, and shall be subject
to review by Buyer's actuary for the purpose of confirming that the
calculation was made in accordance with this Section 6(d)(iv). In the
event that actuaries of the Parties do not agree, the determination of
an independent actuary, as selected and agreed upon by Buyer and
Seller, shall be final. The cost and expense of such independent
actuary shall be equally shared by the Parties. The amount of assets as
so determined shall be adjusted for investment earnings for the period
between the Closing Date and the actual date of transfer at a rate
equal to the rate of interest on 90-day United States Treasury bills as
of the Closing Date as published in The Wall Street Journal, and
reduced by the amount of any benefit payments to Union Employees. In
connection with the implementation of this Section 6(d)(iv), Buyer and
Seller shall cooperate in the preparation of all documentation required
to be filed with the Internal Revenue Service, the Department of Labor
and any other applicable governmental agency.
6(e) Access to Information. After the Closing, Buyer shall
afford to Seller and PacifiCorp, and their respective representatives and
advisors, such access during normal business hours with reasonable notice, to
the books, records and personnel of the Company, its Subsidiaries and Operated
Entities and to such other information, and shall furnish such cooperation
relating to the Company, its Subsidiaries, Project Entities and Operated
Entities, as Seller shall reasonably request for financial reporting and
accounting matters, the preparation and filing of any tax returns, the defense
of tax claims, and related purposes. Buyer shall cause Company to preserve all
tax and accounting records of Company, its Subsidiaries and Operated Entities
for a period of seven (7) years following the Closing. In addition, Seller shall
afford Buyer, its respective representatives and advisors, similar access to any
books, records, files retained by Seller relating to the business of the
Company, its Subsidiaries, Project Entities, and Operating Entities.
6(f) Transition Services. If requested by Buyer, and subject
to negotiation of mutually acceptable conditions, Seller will provide, at its
actual cost, administrative services reasonably requested by Buyer with respect
to the Company for a period not to exceed 90 days after the Closing.
6(g) Maintenance of Minimum Equity. For a period of five years
following the Closing Date, or if earlier, the date that Seller has made
aggregate indemnity payments hereunder of at least $66,650,000, Seller or its
successor shall maintain minimum consolidated stockholder's equity, as reflected
on its regularly prepared balance sheets, of $100,000,000. Seller covenants and
agrees that Seller will notify Buyer in advance of any transaction which would
cause a breach of this provision.
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6(h) Philippine Option. Seller grants Buyer an option (the
"Option") to purchase the outstanding capital stock held by Seller or its
Affiliates in the entities listed on Schedule 6(h) attached hereto (the
"Philippines Subsidiaries"). The Option is exercisable only by Buyer notifying
Seller in writing, prior to thirty days after the date of this Agreement, that
Seller has exercised the Option. Buyer will endeavor to decide in advance of the
expiration of the 30 day period, whether to exercise the Option, and to notify
Seller of its decision as soon as practicable. If the Option is not so exercised
within such period, the Option shall expire, and Buyer shall have no further
right or option to acquire the Philippine Subsidiaries. In the event that Buyer
so exercises the Option, (i) Seller will sell to Buyer, or cause its Affiliates
to sell to Buyer, all of the issued and outstanding capital stock of the
Philippine Subsidiaries held by the Seller or its Affiliate; and (ii) the
Parties will execute a Stock Purchase Agreement substantially in the form of
this Agreement, with the following modifications:
(i) "Company" shall mean the Philippine Subsidiaries.
(ii) Section 2(a) shall be revised to reflect the sale of
the shares of each Philippine Subsidiary.
(iii) The Purchase Price under Section 2(b) shall be $8.5
million; and shall be adjusted upward by all contributions made by Seller or its
Affiliates to the Philippine Subsidiaries between the date of this Agreement and
Closing, and, without double-counting, all expenditures of the Philippine
Subsidiaries between the date of this Agreement and Closing and adjusted
downward by all distributions made by the Philippine Subsidiaries to Seller and
its Affiliates between the date of this Agreement and Closing.
(iv) Section 2(c) shall not apply.
(v) Section 3(a)(v) shall be revised to reflect the sale
of the shares of each Philippine Subsidiary.
(vi) Section 4(b) shall be revised to reflect the
capitalization of each Philippine Subsidiary.
(vii) Sections 4(f), 4(g), 4(h), 4(j), 4(k), 4(n), 4(r),
4(s), 4(t) and 4(y) shall not apply.
(viii) The Philippine Subsidiaries shall be treated as
Project Entities for purposes of Sections 4, 5(b), 5(c) and 5(d).
(ix) The Aggregate Deductible under Section 1 shall be
$2,836,000 and the aggregate ceiling under Section 8(b) shall be $70,900,000.
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(x) The Disclosure Schedule and other Schedules to the
Agreement shall be as set forth on Annex IV attached hereto, with such
modifications as are reasonably necessary or appropriate to make such Disclosure
Schedule accurate and complete.
(xi) Any other modifications that Buyer and Seller
jointly reasonably deem necessary or appropriate in order to make the Stock
Purchase Agreement applicable to the transaction contemplated by the Option.
The Parties shall include the possible sale of the Philippine Subsidiaries in
their respective filings with respect to this Agreement under the
Hart-Scott-Rodino Act.
In the event that Buyer exercises the Option, and Seller is precluded from
consummating the transaction contemplated by the Option due to Seller's
inability to obtain any third party consents, approvals, or waivers, or the
exercise of any right of refusal or similar right, Seller shall notify Buyer,
and shall reimburse Buyer for costs incurred by Buyer after the date hereof and
prior to such notice which are directly related to the due diligence on the
Philippine Subsidiaries and the underlying projects of the Philippine
Subsidiaries, and Seller shall have no further obligation under this Section
6(h).
In the event that Seller exercises the Option, this Agreement shall be
automatically amended (i) to increase the aggregate ceiling under Section 8(b)
by $4,250,000; and (ii) to increase the Aggregate Deductible specified in
Section 1 by the sum of $170,000, and claims made under the indemnity provisions
of such Stock Purchase Agreement and this Agreement shall be considered in
determining the applicability of the aggregate ceiling and aggregate deductible
under each Agreement.
7. Conditions to Obligation to Close.
7(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date, except for such
breaches and inaccuracies (without regard to any materiality standard
set forth in such representations or warranties) which do not,
individually or in the aggregate, have a Material Adverse Effect;
(ii) the Seller shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement;
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<PAGE> 39
(iv) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above
in Section 7(a)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties, the Company, and its
Subsidiaries shall have received all other authorizations, consents,
and approvals of governments and governmental agencies referred to in
Section 3(a)(ii), Section 3(b)(ii), and Section 4(c) above and all
third party consents and approvals which Buyer has requested Seller to
obtain pursuant to the first sentence of Section 5(b);
(vi) the Buyer shall have received from counsel to the
Seller an opinion in form and substance as set forth in Exhibit B
attached hereto, addressed to the Buyer, and dated as of the Closing
Date;
(vii) all actions to be taken by the Seller in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer;
(viii) Seller has completed the transfer of the Overseas
Operations and Pacific Kinston Energy, Inc. to Seller or an Affiliate
of Seller as contemplated by Sections 5(i) and 5(j);
(ix) the Buyer shall have received from PacifiCorp a
letter in a form and substance as set forth in Exhibit E; and
(x) the Seller shall have delivered to Buyer written
documentation reasonably satisfactory to Buyer that establishes that
the representation contained in Section 4(j)(xi) is accurate as of the
Closing Date, except that delivery of written documentation pursuant to
Section 4(j)(xi) with respect to Energy Investors Fund L.P. or Project
Finance Fund III, L.P. shall not be a condition to closing, and
notwithstanding this subsection or other subsections of this Section
7(a), the accuracy of the representations in Section 4(j)(xi) insofar
as they pertain to Energy Investors Fund L.P. or Project Finance Fund,
L.P., shall not be a condition to Closing. (Nothing in this clause
shall be deemed to waive a breach of the representation in Section
4(j)(xi).
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
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7(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties, the Company, and its
Subsidiaries shall have received all other authorizations, consents,
and approvals of governments, governmental agencies and third parties
referred to in Section 3(a)(ii), Section 3(b)(ii), and Section 4(c)
above;
(vi) the Seller shall have received from counsel to the
Buyer an opinion in form and substance as set forth in Exhibit C
attached hereto, addressed to the Seller, and dated as of the Closing
Date;
(vii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller;
(viii) the Buyer shall have obtained releases of Seller
from the Seller Obligations, or alternatively, in Seller's sole
discretion, Buyer shall have made arrangements satisfactory to Seller
to indemnify, defend and hold harmless Seller from the Seller
Obligations and provided security satisfactory to Seller to support
such indemnity; and
(ix) Seller has completed the transfer of the Overseas
Operations to Seller or Affiliates of Seller as contemplated by Section
5(i).
The Seller may waive any condition specified in this Section 7(b) if it executes
a writing so stating at or prior to the Closing.
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8. Remedies for Breaches of This Agreement.
8(a) Survival of Representations and Warranties. All of the
representations and warranties of the Seller contained in Section 3 above shall
survive the Closing hereunder indefinitely. The representations and warranties
of the Buyer contained in Section 3 above shall survive the Closing hereunder
indefinitely. All of the representations and warranties of Seller contained in
Section 4 shall survive the Closing hereunder, and continue in full force and
effect for a period of two (2) years thereafter, except for the representations
and warranties contained in Section 4(j), which shall continue until the
expiration of the applicable statutes of limitation to which the liabilities
relate, and the representations and warranties in Section 4(o), which shall
survive the Closing hereunder and continue in full force and effect for a period
of five (5) years thereafter.
8(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its
representations, warranties, and covenants contained herein (other than
the covenants in Section 2(a) above and the representations and
warranties in Section 3(a) above), and, if there is an applicable
survival period pursuant to Section 8(a) above, provided that the Buyer
makes a written claim for indemnification against Seller pursuant to
Section 11(g) below within such survival period, then the Seller agrees
to indemnify the Buyer from and against any Adverse Consequences the
Buyer shall suffer resulting from, arising out of, or caused by such
breach; provided, however, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse
Consequences caused by the breach of any representation or warranty of
the Seller contained in Section 4 above (A) until the Buyer has
suffered Adverse Consequences by reason of all such breaches in excess
of the Aggregate Deductible, or thereafter (B) to the extent the
Adverse Consequences the Buyer has suffered exceeds a $66,650,000
aggregate ceiling (after which point the Seller will have no obligation
to indemnify the Buyer from and against further such Adverse
Consequences).
(ii) In the event the Seller breaches any of its
covenants in Section 2(a) above or Article 9 below or any of its
representations and warranties in Section 3(a) above, and, if there is
an applicable survival period pursuant to Section 8(a) above, provided
that the Buyer makes a written claim for indemnification against the
Seller pursuant to Section 11(g) below within such survival period,
then the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer shall suffer any Adverse
Consequences the Buyer shall suffer resulting from, arising out of, or
caused by such breach.
(iii) Seller agrees to indemnify Buyer from and against
any Adverse Consequences the Buyer shall suffer resulting from, or
arising out of, any Discontinued Operation. As used herein, a
Discontinued Operation is: (a) a corporation, partnership, or limited
liability company which was at one time owned,
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<PAGE> 42
directly or indirectly, by Company, but is not owned, directly or
indirectly, by the Company on the date of this Agreement, or which was
liquidated or has filed for dissolution prior to the date of this
Agreement; (b) a property or asset which was owned, directly or
indirectly, by Company, but is not owned, directly or indirectly, by
the Company on the date of this Agreement; (c) any project development
activity of the Company or its Subsidiaries which was terminated prior
to the date of this Agreement; or (d) the Overseas Operations, the
Company's beneficial ownership of the stock of Pacific Kinston Energy,
Inc. or the Company's beneficial ownership in Carolina Energy Limited
Partnership. Notwithstanding the foregoing, no indemnity shall be
provided under this paragraph with respect to: (1) properties, assets,
projects, or entities as to which Seller's indirect ownership was
through the ownership of an interest in the Energy Investors Fund, LP
or Project Finance Fund Ill, LP; and (2) if the Option is exercised,
the Philippine Subsidiaries, and the assets and operations of the
Philippine Subsidiaries.
(iv) Seller agrees to indemnify Buyer from and
against any Adverse Consequences the Buyer, the Company, or any
Subsidiary shall suffer resulting from or arising out of any Company,
Subsidiary, or Operated Entity violation of any federal, state or local
law or regulation (of any type or kind) governing employment, labor
relations, wages, benefits, or discrimination in employment to the
extent asserted by (i) those employees on the Employee List, or (ii)
those employees of the Company, any Subsidiary or Operated Entity whose
employment was terminated (either voluntarily or involuntarily) prior
to the Closing Date.
8(c) Indemnification Provisions for Benefit of the Seller. In
the event the Buyer breaches any of its representations, warranties, and-
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8(a) above, provided that the Seller makes a written claim
for indemnification against the Buyer pursuant to Section 11(g) below within
such survival period, then the Buyer agrees to indemnify the Seller from and
against the entirety of any Adverse Consequences the Seller shall suffer
resulting from, arising out of, or caused by such breach.
8(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly (and in any event within five business
days after receiving notice of the Third Party Claim) notify each
Indemnifying Party thereof in writing. The failure to give such notice
on a timely basis shall not affect the indemnification provided herein
except to the extent the Indemnifying Party has actually been
prejudiced as a result of such failure.
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(ii) Any Indemnifying Party will have the right to assume
and thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party;
provided, however, that the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages which are covered
in full by the indemnity and does not impose an injunction or other
equitable relief upon the Indemnified Party; provided further, however,
with respect to claims for indemnity under Section 8(b)(i) that during
the period in which the cumulative amount of the Adverse Consequences
for which indemnity is being sought is less than the Aggregate
Deductible, the Indemnified Party will have the right to assume the
defense of a Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnifying Party; provided, however, that the
Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (not to be
unreasonably withheld).
(iii) Unless and until an Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section 8(d)(ii) above,
however, the Indemnified Party may defend against the Third Party Claim
in any manner it reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to
the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Parties which consent shall not be withheld unreasonably.
8(e) Determination of Adverse Consequences. The Parties shall
make appropriate adjustments for tax benefits and insurance coverage and take
into account the time cost of money (using the Applicable Rate as the discount
rate) in determining Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.
8(f) Certain Environmental Matters. Buyer (for itself and its
successors and assigns) acknowledges and agrees that Seller is not and never has
been an `owner or operator' (as that term is defined and used in any
Environmental Law) of any of the properties or facilities of the Company or the
Subsidiaries or the Projects; and Buyer (for itself and its successors and
assigns) releases Seller (and Seller's directors, officers, employees, and
affiliates) from any claims that Buyer (or its successors or assigns) might
otherwise assert on the grounds that Seller is or has been such owner or
operator, provided that nothing herein shall release Seller from its indemnity
obligations with respect to representations and warranties set forth in Section
4 of this Agreement.
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8(g) Tax Indemnification. Notwithstanding any other provision
of this Agreement to the contrary, Seller shall indemnify Buyer and its
Affiliates (including the Company and its Subsidiaries) from and against
liability for Taxes (including any liabilities or obligations pursuant to any of
the tax indemnifications, cross indemnity agreements and/or tax allocation
policies described in Section 4(j) of the Disclosure Schedule) of the Company,
its Subsidiaries and/or Operated Entities of which the Company or a Subsidiary
is tax matters partner for all taxable periods ending on or before the Closing
Date and the portion up to and including the Closing Date of any taxable period
that includes but does not end on the Closing Date, including any liability for
Taxes imposed upon the Company and/or its Subsidiaries pursuant to Treasury
Regulations Section 1.1502-6 (or any comparable provision of applicable state,
local or foreign law) as a result of being a member of the Affiliated Group the
common parent of which is PacifiCorp, or any combined or unitary group including
PacifiCorp, to the extent such Taxes are not reflected in the balance sheets of
the Company, its Subsidiaries or Operated Entities of which the Company or a
Subsidiary is tax matters partner which are utilized to compute the Purchase
Price adjustment under Section 2(c). In the case of a taxable period including,
but not ending on, the Closing Date, the Taxes for the period up to and
including the Closing Date shall be computed as if such taxable period ended on
and including the Closing Date.
9. Tax Matters.
9(a) Section 338(h)(10) Election. Seller will join, and will
cause its eligible Subsidiaries and the Affiliated Group the common parent of
which is PacifiCorp to join, with Buyer in making an election pursuant to Code
Section 338(h)(10) and any corresponding elections pursuant to state, local and
foreign law (collectively a "Section 338(h)(l0) Election") with respect to
purchase and sale of the stock of the Company hereunder, and with respect to its
eligible Subsidiaries, will take all actions necessary and appropriate to effect
and preserve a timely Section 338(h)(10) Election. Seller will pay any Tax
(including for this purpose federal, state, local and foreign income tax)
attributable to the making of the Section 338(h)(10) Election and will indemnify
Buyer, the Company and its subsidiaries from and against any failure to pay such
Tax. The Purchase Price and the liabilities of the Company and its Subsidiaries
(plus other relevant items) will be allocated among the assets of the Company
and its Subsidiaries for all purposes (including Tax, federal tax, and financial
accounting purposes) in a manner consistent with Treasury Regulations Section 1
.338(b)-2T. Buyer shall timely prepare a proposed allocation for review and
approval by Seller, which approval shall not unreasonably be withheld. Buyer,
the Company and its Subsidiaries, and Seller will file, or cause to be filed,
all Tax Returns (including for this purpose all federal, state, local and
foreign income tax returns and including amended returns and claims for refund)
in a manner consistent with the Section 338(h)(10) Election and with such
allocation.
9(b) Tax Sharing Agreements. Any Tax sharing agreement between
PacifiCorp and any of the Company and its Subsidiaries is terminated as of the
Closing Date
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and will have no further effect for any taxable year (whether the current year,
a future year, or a past year).
9(c) Tax Returns. The Company and its Subsidiaries will
furnish Tax information to PacifiCorp for inclusion in Tax Returns for the
period that ends on and includes the Closing Date in accordance with the
Company's past custom and practice. Seller will allow Buyer an opportunity to
review and comment upon such Tax Returns (including any amended returns) to the
extent that they relate to the Company and its Subsidiaries. Seller will cause
PacifiCorp to take no position on such Tax Returns, including any amended
returns, that relate to the Company and its Subsidiaries that would adversely
affect the Company and its Subsidiaries after the Closing Date, unless such
position would be reasonable in the case of a Person that owned the Company and
its Subsidiaries both before and after the Closing Date. Taxes of the Company
and its Subsidiaries will be apportioned to the period up to and including the
Closing Date and the period after the Closing Date by closing the books of the
Company and its Subsidiaries as of the end of the Closing Date. Buyer will
prepare all Tax Returns for Tax periods including, but not ending on, the
Closing Date.
9(d) Audits. Seller shall, or shall cause PacifiCorp to keep
the Company informed of the status of any audits of PacifiCorp Tax Returns to
the extent that such returns relate to the Company and its Subsidiaries. Seller
will not, and will cause PacifiCorp not to, settle any such audit in a manner
that would adversely affect the Company and its Subsidiaries after the Closing
Date unless such settlement would be reasonable in the case of a Person that
owned the Company and its Subsidiaries both before and after the Closing Date.
Buyer will keep Seller informed of the status of any audits of Tax Returns that
include Buyer to the extent such returns relate to the Company and its
Subsidiaries. Buyer will not settle any such audit in a manner which would
adversely affect the Company and its Subsidiaries prior to the Closing Date
unless such settlement would be reasonable in the case of a Person that owned
the Company and its Subsidiaries both before and after the Closing Date.
9(e) Carrybacks. Seller will, or will cause PacifiCorp to,
immediately pay to the Buyer any Tax refund (or reduction in Tax liability)
resulting from a carryback of a post-acquisition Tax attribute of any of the
Company and its Subsidiaries into the Seller or PacifiCorp Tax Return, when such
refund or reduction is realized by Seller or the PacifiCorp group, but only if
the Company and its Subsidiaries cannot elect to waive the carryback, Seller
will, or will cause PacifiCorp to, cooperate with the Company and its
Subsidiaries in obtaining such refunds (or reduction in Tax liability),
including through the filing of amended Tax Returns or refund claims, provided
that Seller will not be required to participate in obtaining any refund (or
reduction in Tax liability) for which Seller, or its employee responsible for
Taxes, believes in good faith there is not substantial authority. The Buyer
agrees to indemnify Seller and PacifiCorp for any Taxes resulting from the
disallowance of such post-acquisition Tax attribute on audit or otherwise, or
from cooperation with the Company and its Subsidiaries, for example, by filing
an amended Tax Return.
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9(f) Indemnification for Post-Closing Transactions. Buyer
agrees to indemnify Seller and PacifiCorp for any additional Tax owed by Seller
or PacifiCorp (including Tax owed by Seller due to this indemnification payment)
resulting from any transaction not in the Ordinary Course of Business occurring
on the Closing Date after Buyer's purchase of the Company stock, other than any
Tax liabilities attributable to the Section 338(h)(10) Election.
9(g) Post-Closing Transactions not in the Ordinary Course.
Buyer and Seller agree to report all transactions not in the Ordinary Course of
Business occurring on the Closing Date, other than any deemed transactions as a
result of the Section 338(h)(10) Election, after Buyer's purchase of the Company
stock on Buyer's federal income tax return to the extent permitted by Treasury
Regulations Section 1. 1502-76(b)(1)(ii)(B).
10. Termination.
10(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the
Closing;
(ii) either the Buyer or the Seller may terminate this
Agreement by giving written notice to the other at any time prior
to the Closing in the event (A) the Seller has within the then
previous five business days given the Buyer any notice pursuant to
Section 5(e)(i) above which relates to events or occurrences after
the date of this Agreement; and (B) the development that is the
subject of the notice has, individually or in the aggregate with
all the developments with respect to events or occurrences after
the date of this Agreement for which notice was given pursuant to
Section 5(e)(i) above, had a Material Adverse Effect;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing (A)
in the event Seller has breached any material representation,
warranty, or covenant contained in this Agreement (other than the
representations and warranties in Section 4 above) in any material
respect, the Buyer has notified the Seller of the breach, and the
breach has continued without cure for a period of 10 days after
the notice of breach or (B) if the Closing shall not have occurred
on or before December 31, 1997, by reason of the failure of any
condition precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this
Agreement); and
(iv) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A)
in the event the Buyer has breached
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any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Seller has notified
the Buyer of the breach, and the breach has continued without cure
for a period of ten days after the notice of breach or (B) if the
Closing shall not have occurred on or before December 31, 1997, by
reason of the failure of any condition precedent under Section
7(b) hereof (unless the failure results primarily from any of the
Seller itself breaching any representation, warranty, or covenant
contained in this Agreement).
10(b) Effect of Termination. If any Party terminates
this Agreement pursuant to Section 10(a) above, all rights and
obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except for any
liability of any Party then in breach, unless the termination was
pursuant to Section 10(a)(ii)); provided, however, that the
confidentiality provisions contained in the Confidentiality
Agreement shall survive termination.
11. Miscellaneous.
11(a) Press Releases and Public Announcements. No Party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Seller; provided, however, that any Party may make
any public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will use its reasonable best efforts to advise
the other Parties prior to making the disclosure).
11(b) No Third Party Beneficiaries. This Agreement shall
not confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns, provided that PacifiCorp is
an intended third party beneficiary of the provisions of Section 9 above.
11(c) Entire Agreement. This Agreement (including the
documents referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they have related in any way
to the subject matter hereof.
11(d) Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other party, provided that Buyer may assign its
rights hereunder to a wholly owned subsidiary of Buyer, provided (i) that such
assignment shall not release Buyer of any of its obligations hereunder; and (ii)
such Assignee shall, in a writing reasonably satisfactory to Seller, assume and
agree to perform all of Buyer's obligations hereunder.
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11(e) Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
11(f) Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
11(g) Notices. All notices, requests, demands, claims,
and other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given if
(and then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Seller: PacifiCorp Holdings, Inc.
825 NE Multnomah, Suite 775
Portland, Oregon 97232
Attn: Michael Henderson
with a copy, which shall not constitute notice, to:
Stoel Rives LLP
900 SW Fifth Avenue
Suite 2300
Portland, OR 97204
Attn: Mark Norby
If to the Buyer: NRG Energy, Inc.
1221 Nicollet Mall
Suite 700
Minneapolis, Minnesota 55403-2443
Attn: Mr. James Bender
Vice President and General Counsel
with a copy, which shall not constitute notice, to:
Gray Plant Mooty
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Joseph Kinning
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall
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be deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
11(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Oregon without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Oregon or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Oregon. Each Party submits
to the jurisdiction and venue of the United States District Court for the
District of Oregon in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in such court.
11(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11(j) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
11(k) Expenses. Each Party will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
11(l) Construction. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
11(m) Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
****
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
NRG ENERGY, INC.
By: /s/ David H. Peterson
-------------------------------
Title: Chairman, Pres. & CEO
----------------------------
PACIFICORP HOLDINGS, INC.
By: /s/ Michael C. Henderson
-------------------------------
Title: President & CEO
----------------------------
45
