<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
------
THE WASHINGTON WATER POWER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0462470
- - --------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
- - --------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
----------------------
None
----------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
At August 1, 1994, 53,689,206 shares of Registrant's Common Stock, no par value
(the only class of common stock), were outstanding.
<PAGE> 2
THE WASHINGTON WATER POWER COMPANY
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - Six Months Ended
June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets - June 30, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Capitalization - June 30, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 7
Schedule of Information by Business Segments -
Three Months Ended June 30, 1994 and 1993 . . . . . . . . . . . 8
Schedule of Information by Business Segments -
Six Months Ended June 30, 1994 and 1993 . . . . . . . . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 14
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 20
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 21
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
For the Three Months Ended June 30
Thousands of Dollars
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 147,173 $ 126,876
--------- ---------
OPERATING EXPENSES:
Operations and maintenance . . . . . . . . . . . . . . . . . . . . . . 71,398 57,354
Administrative and general . . . . . . . . . . . . . . . . . . . . . . 16,685 13,148
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 14,937 14,765
Taxes other than income taxes . . . . . . . . . . . . . . . . . . . . 10,138 11,377
--------- ---------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 113,158 96,644
--------- ---------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 34,015 30,232
--------- ---------
INTEREST EXPENSE AND (OTHER INCOME):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,113 11,977
Interest capitalized and AFUCE . . . . . . . . . . . . . . . . . . . . (1,418) (749)
Other (income) deductions-net . . . . . . . . . . . . . . . . . . . . (3,721) (2,338)
--------- ---------
Total interest expense and other income-net . . . . . . . . . . . . 7,974 8,890
--------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . 26,041 21,342
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,345 5,577
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,696 15,765
DEDUCT-Preferred stock dividend requirements . . . . . . . . . . . . . . 2,149 2,079
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . . . . . . . . $ 13,547 $ 13,686
========= =========
Average common shares outstanding (thousands) . . . . . . . . . . . . . . 53,316 51,492
EARNINGS PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . $ 0.25 $ 0.27
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . $ 0.31 $ 0.31
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
For the Six Months Ended June 30
Thousands of Dollars
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . $338,070 $339,853
-------- --------
OPERATING EXPENSES:
Operations and maintenance . . . . . . . . . . . . . . . . . . . . . . 169,208 163,756
Administrative and general . . . . . . . . . . . . . . . . . . . . . . 30,379 25,630
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 29,494 28,759
Taxes other than income taxes . . . . . . . . . . . . . . . . . . . . 23,285 24,068
-------- --------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 252,366 242,213
-------- --------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 85,704 97,640
-------- --------
INTEREST EXPENSE AND (OTHER INCOME):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,435 24,577
Interest capitalized and AFUCE . . . . . . . . . . . . . . . . . . . . (2,807) (1,328)
Other (income) deductions-net . . . . . . . . . . . . . . . . . . . . (5,310) (3,467)
-------- --------
Total interest expense and other income-net . . . . . . . . . . . . 17,318 19,782
-------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . 68,386 77,858
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,999 26,062
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,387 51,796
DEDUCT-Preferred stock dividend requirements . . . . . . . . . . . . . . 4,219 4,178
-------- --------
INCOME AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . . . . . . . . $ 38,168 $ 47,618
======== ========
Average common shares outstanding (thousands) . . . . . . . . . . . . . . 53,114 51,282
EARNINGS PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . $ 0.72 $ 0.93
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.62
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
Thousands of Dollars
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
ASSETS:
PROPERTY:
Utility plant in service-net . . . . . . . . . . . . . . . . . $1,701,724 $1,667,778
Construction work in progress . . . . . . . . . . . . . . . . 64,531 55,191
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,766,255 1,722,969
Less: Accumulated depreciation and amortization . . . . . . . 486,225 468,978
---------- ----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . 1,280,030 1,253,991
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net . . . . . . . . . . . . . . 91,570 94,383
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . 97,319 79,376
---------- ----------
Total other property and investments . . . . . . . . . . . . 188,889 173,759
---------- ----------
CURRENT ASSETS:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . 19,041 33,718
Accounts and notes receivable-net . . . . . . . . . . . . . . 45,280 63,649
Materials and supplies, fuel stock and natural gas stored . . 23,043 19,548
Prepayments and other . . . . . . . . . . . . . . . . . . . . 4,912 5,832
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . 92,276 122,747
---------- ----------
DEFERRED CHARGES:
Investment in terminated nuclear project-net . . . . . . . . . 3,496 4,829
Regulatory assets for deferred income tax . . . . . . . . . . 175,447 177,786
Conservation programs . . . . . . . . . . . . . . . . . . . . 61,459 47,612
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . 65,313 57,114
---------- ----------
Total deferred charges . . . . . . . . . . . . . . . . . . . 305,715 287,341
---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $1,866,910 $1,837,838
========== ==========
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of Capitalization) . $1,441,374 $1,416,608
---------- ----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 27,443 40,169
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . 24,149 19,957
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . 9,894 10,046
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,488 44,548
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 114,974 114,720
---------- ----------
DEFERRED CREDITS:
Investment tax credits . . . . . . . . . . . . . . . . . . . . 2,407 2,456
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 293,696 288,905
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,422 14,126
---------- ----------
Total deferred credits . . . . . . . . . . . . . . . . . . . 309,525 305,487
---------- ----------
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 1,037 1,023
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 3)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $1,866,910 $1,837,838
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
Thousands of Dollars
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- -----------
<S> <C> <C>
COMMON EQUITY: (Note 2)
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1994-53,584,407; 1993-52,757,545 . . . . . . . . . . . . $ 558,521 $ 544,609
Note receivable from employee stock ownership plan . . . . . . . . . . . . . (12,518) (12,756)
Capital stock expense and other paid in capital . . . . . . . . . . . . . . . (9,964) (9,898)
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,802 112,424
---------- ----------
Total common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 653,841 634,379
---------- ----------
PREFERRED STOCK-CUMULATIVE: (Note 2)
10,000,000 shares authorized:
Not subject to mandatory redemption:
Flexible Auction Series J; 500 shares outstanding ($100,000 stated value) . 50,000 50,000
---------- ----------
Total not subject to mandatory redemption . . . . . . . . . . . . . . . . 50,000 50,000
---------- ----------
Subject to mandatory redemption:
$8.625, Series I; 500,000 shares outstanding ($100 stated value) . . . . . . 50,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value) . . . . . . 35,000 35,000
---------- ----------
Total subject to mandatory redemption . . . . . . . . . . . . . . . . . . 85,000 85,000
---------- ----------
LONG-TERM DEBT: (Note 2)
First Mortgage Bonds:
4 5/8% due March 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000
7 1/8% due December 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . 66,700 66,700
7 2/5% due December 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . 17,000 17,000
Secured Medium-Term Notes Series A
4.72% to 8.06% due 1996 through 2023 . . . . . . . . . . . . . . . . . . . 246,000 225,000
Secured Medium-Term Notes Series B
7.95% due 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 -
---------- ----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . 344,700 318,700
---------- ----------
Pollution Control Bonds:
6% Series due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% - maturing 1995 through 2007 . . . . . . . . . . . 100,000 100,000
Series B - 5.50% to 8.55% - maturing 1995 through 2023 . . . . . . . . . . . 150,000 150,000
---------- ----------
Total unsecured medium-term notes . . . . . . . . . . . . . . . . . . . . 250,000 250,000
---------- ----------
Notes payable (due within one year) and commercial paper to be refinanced . . 42,500 68,001
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,233 6,428
---------- ----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 652,533 647,229
---------- ----------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,441,374 $1,416,608
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
For the Six Months Ended June 30
Thousands of Dollars
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,387 $ 51,796
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 34,501 32,268
Provision for deferred income taxes . . . . . . . . . . . . . . . . 4,714 6,952
Allowance for equity funds used during construction . . . . . . . . (951) (559)
Power and natural gas cost deferrals and amortization . . . . . . . 1,055 (4,536)
Deferred revenues and other-net . . . . . . . . . . . . . . . . . . (1,271) 1,670
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net . . . . . . . . . . . . . . . 18,483 21,248
Materials & supplies, fuel stock and natural gas stored . . . . . (3,523) (4,607)
Payables and other accrued liabilities . . . . . . . . . . . . . (7,975) (15,531)
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,411 2,908
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . 92,831 91,609
-------- ---------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) . . . . . . . (53,624) (41,270)
Other capital requirements . . . . . . . . . . . . . . . . . . . . . . (14,840) (12,963)
(Increase) decrease in other noncurrent balance sheet items-net . . . (16,969) (10,977)
Assets acquired and investments in subsidiaries (Note 4) . . . . . . . (9,671) (1,579)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . (95,104) (66,789)
-------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in commercial paper, notes payable
and bank borrowings-net . . . . . . . . . . . . . . . . . . . . . . (25,501) 53,913
Sale of unsecured medium-term notes . . . . . . . . . . . . . . . . . - 25,000
Redemption and maturity of unsecured medium-term notes . . . . . . . . - (10,000)
Sale of secured medium-term notes (a series of first mortgage bonds) . 26,000 76,500
Redemption of mortgage bonds . . . . . . . . . . . . . . . . . . . . . - (150,000)
Redemption premiums . . . . . . . . . . . . . . . . . . . . . . . . . - (9,511)
Sale of common stock - Net of ESOP note receivable . . . . . . . . . . 8,444 11,717
Miscellaneous-net . . . . . . . . . . . . . . . . . . . . . . . . . . 9,901 (2,242)
-------- ---------
NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS . . . . . . . . . . . . . 18,844 (4,623)
Less cash dividends paid . . . . . . . . . . . . . . . . . . . . . (31,248) (30,702)
-------- ---------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . (12,404) (35,325)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS . . . . . . . . . . . . . (14,677) (10,505)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . 33,718 34,500
-------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 19,041 $ 23,995
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,643 $ 24,461
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,379 $ 18,489
Non-cash financing and investing activities . . . . . . . . . . . . . $ 2,875 $ 5,401
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
<PAGE> 8
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
For the Three Months Ended June 30
Thousands of Dollars
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,120 $ 96,040
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 26,290 20,938
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 19,763 9,898
---------- ----------
Total operating revenues . . . . . . . . . . . . . . . . . . $ 147,173 $ 126,876
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased . . . . . . . . . . . . . . . . . . . . . . $ 16,354 $ 18,440
Fuel for generation . . . . . . . . . . . . . . . . . . . . 7,115 3,692
Other electric . . . . . . . . . . . . . . . . . . . . . . . 15,333 16,447
Natural gas:
Natural gas purchased for resale . . . . . . . . . . . . . . 15,402 10,775
Other natural gas . . . . . . . . . . . . . . . . . . . . . 3,774 3,753
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 13,420 4,247
---------- ----------
Total operations and maintenance expenses . . . . . . . . . $ 71,398 $ 57,354
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,524 $ 7,989
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 2,688 2,255
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 4,473 2,904
---------- ----------
Total administrative and general expenses . . . . . . . . . $ 16,685 $ 13,148
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,108 $ 11,594
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 2,090 2,236
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 739 935
---------- ----------
Total depreciation and amortization expenses . . . . . . . . $ 14,937 $ 14,765
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,442 $ 28,789
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 679 8
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 894 1,435
---------- ----------
Total income from operations . . . . . . . . . . . . . . . . $ 34,015 $ 30,232
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . . . . . . $ 11,557 $ 9,609
Non-utility operations . . . . . . . . . . . . . . . . . . . . 1,990 4,077
---------- ----------
Total income available for common stock . . . . . . . . . . $ 13,547 $ 13,686
========== ==========
ASSETS: (1993 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,395,562 $1,354,258
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 235,484 229,538
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 24,803 36,157
Other utility assets . . . . . . . . . . . . . . . . . . . . . 61,391 81,699
Non-utility assets . . . . . . . . . . . . . . . . . . . . . . 149,670 136,186
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $1,866,910 $1,837,838
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,955 $ 18,560
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 8,511 7,118
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 5,083 5,589
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 1,708 748
---------- ----------
Total capital expenditures . . . . . . . . . . . . . . . . . $ 32,257 $ 32,015
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
8
<PAGE> 9
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
For the Six Months Ended June 30
Thousands of Dollars
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 226,046 $ 246,012
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 79,779 69,550
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 32,245 24,291
---------- ----------
Total operating revenues . . . . . . . . . . . . . . . . . . $ 338,070 $ 339,853
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased . . . . . . . . . . . . . . . . . . . . . . $ 46,257 $ 63,393
Fuel for generation . . . . . . . . . . . . . . . . . . . . 18,521 15,069
Other electric . . . . . . . . . . . . . . . . . . . . . . . 30,446 31,865
Natural gas:
Natural gas purchased for resale . . . . . . . . . . . . . . 46,097 34,984
Other natural gas . . . . . . . . . . . . . . . . . . . . . 6,779 7,006
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 21,108 11,439
---------- ----------
Total operations and maintenance expenses . . . . . . . . . $ 169,208 $ 163,756
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,103 $ 15,509
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 5,584 4,784
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 6,692 5,337
---------- ----------
Total administrative and general expenses . . . . . . . . . $ 30,379 $ 25,630
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,083 $ 22,617
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 4,025 4,368
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 1,386 1,774
---------- ----------
Total depreciation and amortization expenses . . . . . . . . $ 29,494 $ 28,759
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,546 $78,880
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 12,641 13,770
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 2,517 4,990
---------- ----------
Total income from operations . . . . . . . . . . . . . . . . $ 85,704 $ 97,640
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . . . . . . $ 34,559 $ 40,707
Non-utility operations . . . . . . . . . . . . . . . . . . . . 3,609 6,911
---------- ----------
Total income available for common stock . . . . . . . . . . $ 38,168 $ 47,618
========== ==========
ASSETS: (1993 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,395,562 $1,354,258
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 235,484 229,538
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 24,803 36,157
Other utility assets . . . . . . . . . . . . . . . . . . . . . 61,391 81,699
Non-utility assets . . . . . . . . . . . . . . . . . . . . . . 149,670 136,186
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $1,866,910 $1,837,838
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,132 $ 31,810
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 13,580 11,616
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 9,082 8,627
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 5,967 983
---------- ----------
Total capital expenditures . . . . . . . . . . . . . . . . . $ 65,761 $ 53,036
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
9
<PAGE> 10
THE WASHINGTON WATER POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of The Washington Water Power Company
(Company) for the interim periods ended June 30, 1994 and 1993 are unaudited
but, in the opinion of management, reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations for those interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year. These financial statements do not contain the detail or
footnote disclosure concerning accounting policies and other matters which
would be included in full fiscal year financial statements; therefore, they
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
NOTE 1. RECLASSIFICATIONS
Certain prior year amounts related to segment information have been
reclassified due to a current year change in the allocation method for common
plant, plant-related costs and administrative and general expenses.
NOTE 2. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 3. COMMITMENTS AND CONTINGENCIES
SUPPLY SYSTEM PROJECT 3
In 1985, the Company and the Bonneville Power Administration (BPA) reached a
settlement surrounding litigation related to the suspension of construction of
Washington Public Power Supply System (Supply System) Project 3. Project 3 is
a partially constructed 1,240 MW nuclear generating plant in which the Company
has a 5% interest. Under the settlement agreement, the Company receives power
deliveries from BPA from 1987 to 2017 in proportion to the Company's investment
in Project 3.
The settlement with BPA and other parties does not affect the Company's
obligations under the Ownership Agreement among the owners of Project 3. BPA
proposed termination of Projects 1 and 3 and the Supply System has voted to
invoke the termination procedures under the Ownership Agreement. The Company
would be reimbursed for the cost of termination under the settlement with BPA.
The only material claim against the Company arising out of the Company's
involvement in Project 3, which is still pending in the United States District
Court for the Western District of Washington (District Court), is the claim of
Chemical Bank, as bond fund trustee for Supply System Projects 4 and 5, against
all owners of Projects 1, 2 and 3 for unjust enrichment in the allocation of
certain costs of common services and facilities among the Supply System's five
nuclear projects. Projects 4 and 5 were being constructed adjacent to Projects
1 and 3, respectively, under a plan to share certain costs. Chemical Bank is
seeking a reallocation of $495 million in costs (plus interest since
commencement of construction in 1976) originally allocated to Projects 4 and 5.
On October 7, 1992, the District Court issued an order ruling in favor of the
defendants, including the Company, that the "proportional" allocation
methodology actually employed by the Supply System was permitted by the
Projects 4 and 5 bond resolution. This ruling does not resolve all cost
reallocation claims pending in the District Court, including whether the Supply
System correctly followed its methodology. Chemical Bank has indicated its
intent to assert claims for cost reallocations based upon other theories which
have not been litigated. The case is now in the discovery phase on those
claims, as settlement talks were not successful.
The Company cannot predict whether Chemical Bank will ultimately be successful
in its claim for reallocation of any of the costs of Supply System projects,
nor can the Company predict any amounts which might be reallocated to Project 3
or to the Company due to its 5% ownership interest therein. The Company also
has claims pending against the Supply System and Chemical Bank with respect to
a subordinated loan made by the Company to Projects 4 and 5 in 1981, in the
amount of approximately $11 million including interest. The District Court has
yet to rule on the Company's motion to set-off the amount due on the loan,
including interest, against any recovery by
10
<PAGE> 11
THE WASHINGTON WATER POWER COMPANY
Chemical Bank on its cost reallocation claims. The District Court appointed a
Settlement Master to explore settlement of some or all of the issues, and
preliminary meetings have been held with him. Meanwhile, the District Court
set a trial date for July 15, 1995, for the litigation of all remaining issues
affecting the Company. The Company intends to continue to defend this suit
vigorously. Since the discovery is not yet complete, the Company is unable to
assess the likelihood of an adverse outcome in this litigation, or estimate an
amount or range of potential loss in the event of an adverse outcome.
NEZ PERCE TRIBE
On December 6, 1991, the Nez Perce Tribe filed an action against the Company in
U. S. District Court for the District of Idaho alleging, among other things,
that two dams formerly operated by the Company, the Lewiston Dam on the
Clearwater River and the Grangeville Dam on the South Fork of the Clearwater
River, provided inadequate passage to migrating anadromous fish in violation of
rights under treaties between the Tribe and the United States made in 1855 and
1863. The Lewiston and Grangeville Dams, which had been owned and operated by
other utilities under hydroelectric licenses from the Federal Power Commission
(FPC, predecessor of the Federal Energy Regulatory Commission (FERC)) prior to
acquisition by the Company, were acquired by the Company in 1937 with the
approval of the FPC, but were dismantled and removed in 1973 and 1963,
respectively. The Tribe initially indicated through expert opinion disclosures
that they were seeking actual and punitive damages of $208 million. However,
supplemental disclosures reflect allegations of actual loss under different
assumptions of between $425 million and $650 million. Discovery in this case
has been stayed pending a decision by the Court on a case involving some
similar issues between Idaho Power Company and the Nez Perce Tribe. The case
is not yet set for trial. The Company intends to vigorously defend against the
Tribe's claims. Since the discovery is not yet complete, the Company is unable
to assess the likelihood of an adverse outcome in this litigation, or estimate
an amount or range of potential loss in the event of an adverse outcome.
LITTLE FALLS PROJECT
Pending before the U. S. District Court in the Eastern District of Washington
is the case of Spokane Tribe of Indians v. WWP. This matter involves a claim
of the Spokane Tribe of Indians for damages arising out of the Company's Little
Falls Hydroelectric Development that was constructed on the Spokane River
pursuant to a 1905 Act of Congress. The Tribe is claiming the Company's dam
interfered with Indian fishing rights. The Tribe is also seeking a declaratory
judgment and quiet title to part of the property comprising the Little Falls
Hydroelectric Development. Discovery conducted by the Company revealed that
should this case go to trial the Tribe may seek damages in the range of $100
million to $1.4 billion, to compensate them for the alleged loss of fishing
rights, alleged lost opportunity to develop the properties, and alleged damage
to the Tribe's cultural heritage. The trial of these matters is currently
scheduled for November, 1994 in the United States District Court for the
Eastern District of Washington, in Spokane, Washington. However, a settlement
agreement has been negotiated and is awaiting approval by various federal
departments, which is expected by the end of the third quarter. The settlement
agreement provides for an initial payment of $1.0 million to the Tribe. An
additional $3.2 million will be paid over the next five years for fish and
wildlife enhancement projects. An accrual of $4.2 million was made during June
1994 and is reflected in the Company's financial statements. Thereafter,
annual payments will also be made to the Tribe, which will be tied to
generation at the Little Falls Project and escalate at the rate of 4.1 percent
per year, with the first installment of $375,000 to be made by January 31,
1995.
STEAM HEAT PLANT
The Company recently completed an updated investigation of an oil spill that
occurred several years ago in downtown Spokane at the site of the Company's
steam heat plant. The Company purchased the plant in 1916 and operated it as a
non-regulated plant until it was deactivated in 1986 in a business decision
unrelated to the leak. After the Bunker C fuel oil spill, initial studies
suggested that the oil was being adequately contained by both geological
features and man-made structures. The Washington State Department of Ecology
(DOE) concurred with these findings. However, more recent tests confirm that
the oil has migrated beyond the steam plant property. On December 6, 1993, the
Company asked the DOE to enter into negotiations for a Consent Decree which
will provide for additional remedial investigation and a feasibility study.
The public comment period on the Consent Decree has been extended to September
27, 1994. In December 1993, the Company established a reserve of $2.0 million,
which is the current best estimate of mitigation costs.
11
<PAGE> 12
THE WASHINGTON WATER POWER COMPANY
FIRESTORM
On October 16, 1991, gale-force winds struck a five-county area in eastern
Washington and a seven-county area in northern Idaho. These winds were
responsible for causing 92 separate wildland fires, resulting in two deaths and
the loss of 114 homes and other structures, some of which were located in the
Company's service territory. On October 13, 1993, three separate class action
lawsuits were filed by private individuals in the Superior Court of Spokane
County in connection with fires occurring in the Midway, Nine Mile and
Chattaroy regions of eastern Washington. Service of these suits, together with
a fourth suit, occurred on January 7, 1994. The Company was served with a
fifth suit on April 22, 1994, relating to the same occurrences. Complainants
allege various theories of tortious conduct, including negligence, creation of
a public nuisance, strict liability and trespass. The lawsuits seek recovery
for property damage, emotional and mental distress, lost income and punitive
damages, but do not specify the amount of damages being sought. The Superior
Court has yet to certify these lawsuits as class actions. The Company intends
to vigorously defend against all such pending claims. Since the discovery is
not yet complete, the Company is unable to assess the likelihood of an adverse
outcome in this litigation, or estimate an amount or range of potential loss in
the event of an adverse outcome.
OTHER CONTINGENCIES
The Company has long-term contracts related to the purchase of fuel for thermal
generation, natural gas and hydroelectric power. Terms of the natural gas
purchase contracts range from one month to five years and the majority provide
for minimum purchases at the then effective market rate. The Company also has
various agreements for the purchase, sale or exchange of power with other
utilities, cogenerators, small power producers and government agencies.
NOTE 4. ACQUISITIONS
On February 15, 1994, the Company announced it had reached agreement to acquire
the northern Idaho electric properties of Pacific Power & Light Company, an
operating division of PacifiCorp. The adjusted cash purchase price will be
approximately $30 million, subject to adjustments upon closing. The
approximate book value of the assets is $23.1 million. Pacific Power's
northern Idaho electric system currently serves approximately 9,600 customers.
Approval of the acquisition was received from the FERC on July 22, 1994. The
purchase is also subject to regulatory approval by the Idaho Public Utilities
Commission (IPUC). Hearings were held before the IPUC on July 18 and 19, 1994.
Closing of the transaction is proposed to occur during the third quarter of
1994. The Company believes this acquisition will not have a material impact on
its financial position or its results of operations.
In June 1994, Pentzer Corporation (Pentzer), the Company's wholly-owned private
investment firm, acquired Safety Speed Cut Manufacturing Company, Inc., a
designer and manufacturer of panel saws, panel routers and accessories.
NOTE 5. PROPOSED MERGER
As previously reported in the Company's Current Report on Form 8-K dated June
27, 1994 (Form 8-K), the Company, Sierra Pacific Resources (SPR), Sierra
Pacific Power Company (SPPC), a subsidiary of SPR, and a newly-formed
subsidiary of the Company, WPM Corp. (renamed Resources West Energy
Corporation (Resources West) on August 1, 1994), entered into an Agreement and
Plan of Reorganization and Merger, dated as of June 27, 1994, (Merger
Agreement) providing for the combination of the Company, SPR and SPPC.
Pursuant to the Merger Agreement, each of the Company, SPR and SPPC will be
merged with and into Resources West, with Resources West being the surviving
corporation.
The merger is subject to certain customary closing conditions,
including, without limitation, the receipt of all necessary governmental
approvals, including the approval of FERC and approvals of the state utility
commissions of Washington, Idaho, Oregon, California, Nevada and Montana.
Approvals from the common and preferred shareholders of the merging companies
will be sought at shareholder meetings, which will be convened as soon as
practicable and are expected to be held in the fourth quarter of 1994.
Applications seeking approval of the merger were filed with FERC on August 4,
1994 and with five of the states on August 10, 1994. A Montana application
seeking a disclaimer of jurisdiction is expected to be filed by the end of
August. The approval and implementation process is expected to take
approximately twelve (12) to eighteen (18) months.
12
<PAGE> 13
THE WASHINGTON WATER POWER COMPANY
The merger will be accounted for using the pooling-of-interests method of
accounting. A net cost savings of $450 million is estimated to be achieved in
the ten-year period following the consummation of the merger.
See the Form 8-K for additional details relating to the terms of the proposed
merger and the Merger Agreement.
13
<PAGE> 14
THE WASHINGTON WATER POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is primarily engaged as a utility in the generation, purchase,
transmission, distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas. Natural gas operations
are affected to a significant degree by weather conditions and customer growth.
The Company's electric operations are highly dependent upon hydroelectric
generation for its power supply. As a result, the electric operations of the
Company are significantly affected by weather and streamflow conditions, and to
a lesser degree, by customer growth. Revenues from the sale of surplus energy
to other utilities and the cost of power purchases vary from year to year
depending on streamflow conditions and the wholesale power market. The
wholesale power market in the Northwest region is affected by several factors,
including the availability of water for hydroelectric generation, the
availability of base load plants in the region and the demand for power from
the Southwest region. Usage by retail customers varies from year to year
primarily as a result of weather conditions, the economy in the Company's
service area, customer growth and conservation.
The Company will continue to emphasize the efficient use of energy by its
customers, increase efforts to grow its customer base, especially natural gas,
and continue to manage its operating costs, increase revenues and improve
margins. The Company will also pursue resource opportunities through system
upgrades, purchases, demand side management and other options that will result
in obtaining electric power and natural gas supplies at the lowest possible
cost.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the second quarter of 1994 decreased to $0.25
from $0.27 in 1993. Total earnings per share for the first six months of 1994
decreased to $0.72 from $0.93 for the same period in 1993. The year-to-date
change was primarily the result of unfavorable weather conditions and decreased
electric wholesale sales during the first quarter of 1994. Weather in the
first half of 1994 was 17% warmer than for the comparable period in 1993, which
reduced customer usage and had a significant impact on electric and natural gas
revenues. The 1993 year-to-date results also reflect a large short-term
wholesale sale of energy during the first quarter of 1993 that increased
wholesale revenues for that period.
Utility income available for common stock contributed $0.21 to earnings per
share for the second quarter of 1994 compared to $0.19 in the second quarter of
1993. Non-utility income available for common stock contributed $0.04 to
earnings per share for the second quarter of 1994 compared with $0.08 for the
same period in 1993. For the first half of 1994, utility income available for
common stock contributed $0.65 to earnings per share compared to $0.79 during
1993. Non-utility income available for common stock contributed $0.07 to
earnings per share for the first six months of 1994 compared with $0.14 in
1993. The year-to-date decline in utility earnings is primarily due to
unfavorable weather conditions and decreased electric wholesale sales during
the first quarter of 1994, as discussed above. The decrease in non-utility
results is primarily due to transactional gains recorded by Pentzer in 1993.
In the first quarter of 1993, a transactional gain of $1.4 million, after-tax,
from the sale of gas turbines was recorded. A $0.8 million after-tax gain due
to the sale of Pentzer's interest in Itronix and a $2.2 million income tax
benefit from tax loss carryforwards were recorded during the second quarter of
1993.
See "Liquidity and Capital Resources" for information regarding a recent
re-evaluation and reduction of the Company's utility capital expenditure
forecast.
14
<PAGE> 15
THE WASHINGTON WATER POWER COMPANY
ELECTRIC OPERATIONS
Operating income summary
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 Change June 30 Change
------------------ ------------- ------------------- ---------------
1994 1993 Amount % 1994 1993 Amount %
-------- ------- ------- --- -------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . $101,120 $96,040 $ 5,080 5 $226,046 $246,012 $(19,966) (8)
Operating Expenses:
Purchased power . . . . . . . . . . . . 16,354 18,440 (2,086) (11) 46,257 63,393 (17,136) (27)
Fuel for generation . . . . . . . . . . 7,115 3,692 3,423 93 18,521 15,069 3,452 23
Other operating and maintenance . . . 15,333 16,447 (1,114) (7) 30,446 31,865 (1,419) (4)
Administrative and general . . . . . 9,524 7,989 1,535 19 18,103 15,509 2,594 17
Depreciation and amortization . . . . 12,108 11,594 514 4 24,083 22,617 1,466 6
Taxes other than income . . . . . . . 8,244 9,089 (845) (9) 18,090 18,679 (589) (3)
-------- ------- ------- -------- -------- --------
Total operating expenses . . . . . 68,678 67,251 1,427 2 155,500 167,132 (11,632) (7)
-------- ------- ------- -------- -------- --------
Income from operations . . . . . . . . 32,442 28,789 3,653 13 70,546 78,880 (8,334) (11)
Electric operating income taxes. . . 9,197 7,845 1,352 17 20,441 22,906 (2,465) (11)
-------- ------- ------- -------- -------- --------
Net operating income (1) . . . . . . $ 23,245 $20,944 $ 2,301 11 $ 50,105 $ 55,974 $ (5,869) (10)
======== ======= ======= ======== ======== ========
</TABLE>
(1) Does not include interest expense or other income.
________________________________________________________________________________
Total electric revenues increased $5.1 million in the second quarter of 1994
over 1993. Commercial and industrial revenues rose by a combined $1.4 million
due to increased kWh sales. Commercial customers grew by nearly 675 customers,
a 2% increase, in the second quarter of 1994 as compared to second quarter
1993. Wholesale revenues increased by $3.9 million, or 20%, as wholesale kWh
sales increased by 11% and average prices rose by 8%. Residential customers
increased by approximately 6,300, or 3%, but it was not enough to offset the
impact of weather that was 5% warmer in the second quarter of 1994, compared to
the same period in 1993, that led to decreased residential kWh sales.
Year-to-date, revenues decreased in all classes except for commercial revenues
for 1994 as compared to 1993. Weather 17% warmer than in 1993 contributed to a
$9.1 million, or 11%, decrease in residential revenues. Wholesale revenues
decreased by $14.9 million, or 24%, during the first half of 1994 when compared
to the same period in 1993, due primarily to a large sale of surplus energy
over a six-week period in the first quarter of 1993 which was not repeated in
1994.
ELECTRIC REVENUES AND KWH SALES BY SERVICE CLASS
<TABLE>
<CAPTION>
Class Increase (Decrease) from prior year
------------------------- -----------------------------------
Three months ended June 30, 1994 Six months ended June 30, 1994
-------------------------------------- ----------------------------------------
REVENUE KWH SALES REVENUE KWH SALES
-------------- -------------- ---------------- ---------------
(Dollars and kWhs in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential . . . . . . $(1.1) (4)% (17.1) (3)% $ (9.1) (11)% (152.7) (9)%
Commercial . . . . . . . 1.0 4 22.4 4 0.5 1 14.2 1
Industrial . . . . . . . 0.4 3 13.3 3 (1.1) (4) 13.8 2
Other utilities . . . . 3.9 20 80.8 11 (14.9) (24) (181.9) (10)
</TABLE>
________________________________________________________________________________
Fuel costs increased $3.4 million in the second quarter of 1994, while
purchased power expense decreased by $2.1 million. Hydroelectric generation
was down significantly due to low streamflows, which resulted in additional
generation at the thermal plants. In addition, fuel expense was higher in the
second quarter of 1994 due to unscheduled shutdowns at thermal generation
plants from mid-March to late June in 1993 which reduced fuel expense in that
period. Other operating and maintenance expenses decreased in the second
quarter of 1994 over 1993 due primarily to increased expenses in 1993 for
repairs to the shutdown thermal plants. Also, annual maintenance was
15
<PAGE> 16
THE WASHINGTON WATER POWER COMPANY
performed during the second quarter of 1993, but has not yet been done in 1994
as a result of the additional generation required from the plants this year.
In October 1989, the Idaho Public Utilities Commission (IPUC) approved a power
cost adjustment mechanism (PCA) which allows the Company to change rates to
recover or rebate a portion of the difference between actual and allowed net
power supply costs. The impact of the PCA on other operating and maintenance
expenses in the second quarter of 1994 was $0.5 million less than the
comparable period of 1993, as a result of the low streamflows and higher
wholesale market prices in 1993. Administrative and general expenses increased
by $1.5 million in the second quarter of 1994 as a result of labor-related
costs.
Purchased power decreased by $17.1 million in the first six months of 1994 and
fuel expense increased $3.5 million. Purchased power expense declined
primarily due to the purchase of energy to complete a large sale of wholesale
energy in the first quarter of 1993 that was not repeated in 1994. Fuel
expense increased from 1993 due to increased generation from thermal plants due
to low streamflows in 1994 and shutdowns at thermal plants in 1993. Decreased
transmission costs resulting from decreased purchased power in the first half
of 1994 as compared to the same period in 1993 resulted in lower other
operating and maintenance expenses. Administrative and general expenses
increased by $2.6 million in the first six months of 1994 primarily due to
labor-related costs.
NATURAL GAS OPERATIONS
Operating income summary
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 Change June 30 Change
------------------ ------------- ------------------- ------------
1994 1993 Amount % 1994 1993 Amount %
------- ------- ------ --- ------- ------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . $26,290 $20,938 $5,352 26 $79,779 $69,550 $10,229 15
Operating Expenses:
Natural gas purchased . . . . . . . . 15,402 10,775 4,627 43 46,097 34,984 11,113 32
Other operating and maintenance . . . 3,774 3,753 21 1 6,779 7,006 (227) (3)
Administrative and general . . . . . 2,688 2,255 433 19 5,584 4,784 800 17
Depreciation and amortization . . . . 2,090 2,236 (146) (7) 4,025 4,368 (343) (8)
Taxes other than income . . . . . . . 1,657 1,911 (254) (13) 4,653 4,638 15 -
------- ------- ------ ------- ------- -------
Total operating expenses . . . . . 25,611 20,930 4,681 22 67,138 55,780 11,358 20
------- ------- ------ ------- ------- -------
Income from operations . . . . . . . . 679 8 671 - 12,641 13,770 (1,129) (8)
Natural gas oper. income taxes. . . . (253) (465) 212 (46) 3,718 3,764 (46) (1)
------- ------- ------ ------- ------- -------
Net operating income (1) . . . . . . . $ 932 $ 473 $ 459 97 $ 8,923 $10,006 $(1,083) (11)
======= ======= ====== ======= ======= =======
Actual Heating Degree Days (2) . . . . 891 935 (44) (5) 3,506 4,202 (696) (17)
Historical Heating Degree Days (3) . . 1,056 1,055 3,934 4,035
Actual Degree Days as a Percent
of Historical Degree Days . . . . . . 84% 89% 89% 104%
</TABLE>
(1) Does not include interest expense or other income.
(2) Heating degree days information is for Spokane area.
(3) Historical degree days represent the 30-year average.
________________________________________________________________________________
Total natural gas revenues increased in nearly all revenue classes in second
quarter 1994 from the second quarter of 1993. WPNG revenues (Oregon and
California) increased by $0.4 million, or 5%, in the second quarter of 1994 as
compared to the same period in 1993. Natural gas revenues from WWP (Washington
and Idaho) operations increased by $5.0 million, or 39% in the second quarter
of 1994. In each service area, the revenue increase was due to customer growth
and higher average prices than last year, which offset the effect of cooler
weather in the second quarter of 1994 as compared to 1993. The average number
of customers increased in both areas in the residential and commercial classes
in the second quarter of 1994 as compared to 1993. WPNG residential customers
increased by approximately 5,100 or 9%, while WWP residential customers rose
12,200, or 12%. WPNG commercial customers rose by over 300, or 4%, and WWP
commercial customers increased by approximately 500, or 4%. Beginning in June
1994, the Company realized revenues from sales of natural gas to other
utilities (see table on next page). The revenues were offset by like increases
in purchased gas expense. These sales will be an ongoing component of the
16
<PAGE> 17
THE WASHINGTON WATER POWER COMPANY
Company's natural gas business. Margins from these transactions will be
credited back to customers through rate changes for the cost of gas.
Total natural gas revenues increased during the first six months of 1994 over
the same time period in 1993. WPNG revenues increased by $2.2 million, or 9%,
while revenues from WWP operations increased by $8.0 million, or 18%, during
the first six months of 1994 compared to the same period in 1993. Revenues
increased due to customer growth and higher average prices than last year,
which offset the impact of temperatures 17% warmer than in the first six months
of 1993. WPNG and WWP residential and commercial customers grew by the same
percentages described above during the first six months of 1994 compared to the
same period in 1993. Customer growth in the WWP service area during the three
and six-month periods ended June 30, 1994 was primarily the result of the
Company's emphasis on conversions from electric service to natural gas. Recent
revisions in the Company's demand side management programs may lessen the pace
of conversions in the future.
<TABLE>
<CAPTION>
NATURAL GAS REVENUES AND THERM SALES BY SERVICE CLASS
-------------------------------------------------------------
Class Increase (Decrease) from prior year
- - ------------------------------- -----------------------------------
Three months ended June 30, 1994 Six months ended June 30, 1994
---------------------------------- -----------------------------------
REVENUE THERM SALES REVENUE THERM SALES
-------------- ---------------- -------------- -----------------
(Dollars and therms in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential . . . . . . . $2.0 21% 1.5 7% $5.4 15% (2.4) (3)%
Commercial . . . . . . . . 2.0 34 3.6 24 4.6 21 1.7 3
Industrial - firm . . . . 0.1 10 - - - - (1.5) (17)
Industrial - interruptible (0.2) (23) (1.0) (34) (0.6) (25) (3.1) (40)
Other utilities . . . . . 1.0 - 6.1 - 1.0 - 6.1 -
Transportation . . . . . . 0.3 13 (2.2) (4) - - (5.9) (6)
</TABLE>
________________________________________________________________________________
Natural gas purchased expense increased $4.6 million, or 43%, in the second
quarter of 1994 as compared to second quarter 1993. The increased cost was
primarily the result of an increase in therm sales of 8.0 million, or 9%.
Administrative and general costs increased 19% primarily due to labor-related
costs.
Natural gas purchased expense increased $11.1 million, or 32% in the first six
months of 1994. The higher purchased gas costs resulted primarily from
increased prices. There was a decrease in therm sales of 5.7 million therms,
or 2%. Administrative and general costs increased 17% primarily due to
labor-related costs.
NON-UTILITY OPERATIONS
Operating income summary
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 Change June 30 Change
------------------ -------------- ------------------- ------------
1994 1993 Amount % 1994 1993 Amount %
------- ------- ------- --- ------- ------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . $19,763 $ 9,898 $ 9,865 100 $32,245 $24,291 $ 7,954 33
Operating expenses . . . . . . . . . . 18,869 8,463 10,406 123 29,728 19,301 10,427 54
------- ------- ------- ------- ------- -------
Operating income . . . . . . . . . . . 894 1,435 (541) (38) 2,517 4,990 (2,473) (50)
Other income - net . . . . . . . . . . 2,458 1,030 1,428 139 2,939 1,379 1,560 113
------- ------- ------- ------- ------- -------
Income before income taxes . . . . . . 3,352 2,465 887 36 5,456 6,369 (913) (14)
Income tax provision (benefit) . . . . 1,362 (1,612) 2,974 - 1,847 (542) 2,389 -
------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . $ 1,990 $ 4,077 $(2,087) (51) $ 3,609 $ 6,911 $(3,302) (48)
======= ======= ======= ======= ======= =======
</TABLE>
Non-utility operations include the results of Pentzer and three other minor
subsidiary companies. Pentzer's business strategy is to acquire controlling
interests in a broad range of middle-market companies, to help these companies
grow through internal development and strategic acquisitions, and to sell the
portfolio investments to the public or to strategic buyers when it becomes most
advantageous in meeting Pentzer's return on invested capital objectives.
Pentzer's goal is to produce financial returns for the Company's shareholders
that, over the long term, should be
17
<PAGE> 18
THE WASHINGTON WATER POWER COMPANY
higher than that of the utility operations. From time to time, a significant
portion of Pentzer's earnings contributions may be the result of transactional
gains. Accordingly, although the income stream is expected to be positive, it
may be uneven from year to year.
Pentzer's earnings for the second quarter of 1994 were less than 1993 by $2.0
million primarily due to the recognition in 1993 of an income tax benefit of
$2.2 million due to tax loss carryforwards in a subsidiary and an after-tax
gain of $0.8 million from the sale of its interest in Itronix. The second
quarter 1994 non-transactional earnings from its portfolio of investments
exceeded 1993 by $0.5 million.
Pentzer's earnings for the first six months of 1994 were less than 1993 by $3.2
million primarily due to the impact in 1993 of a transactional gain of $1.4
million, after-tax, from the sale of gas turbines and the recognition in 1993
of an income tax benefit of $2.2 million due to tax loss carryforwards in a
subsidiary and a transactional gain of $0.8 million, after-tax, from the sale
of its interest in Itronix. The year-to-date 1994 non-transactional earnings
from its portfolio of investments exceeded 1993 by $0.8 million.
In March 1994, Pentzer acquired The Form House, Inc., a bindery services
company that serves customers in the advertising, printing, publishing and
direct mail industries. In June 1994, Pentzer acquired Safety Speed Cut
Manufacturing Co., Inc., a designer and manufacturer of panel saws, routers and
accessories.
18
<PAGE> 19
THE WASHINGTON WATER POWER COMPANY
LIQUIDITY AND CAPITAL RESOURCES.
UTILITY
On May 19, 1994, the Company issued $21 million of Secured Medium Term Notes,
Series A (Series A) with maturities ranging from 10 to 11 years and rates
varying from 7.98% to 8.06%. $4 million remains of the original $250 million
Series A authorization.
In January 1994, the Company received authorization to issue $250 million in
new First Mortgage Bonds, which will be issued in the form of Secured Medium
Term Notes, Series B (Series B). On May 23, 1994, $5 million of Series B was
issued with an 11 year maturity and 7.95% coupon rate.
On August 4 and 9, 1994, respectively, $5 million of 8.95% and $2.5 million of
8.90% Unsecured Medium Term Notes, Series A Due 1999 were redeemed at 100% of
their principal amount.
The Company has a number of common stock ownership plans which provide
additional equity to fund the Company's capital expenditure program. These
include a Dividend Reinvestment and Stock Purchase Plan, a Periodic Offering
Program, and an Investment and Employee Stock Ownership Plan. During the first
six months of 1994, the Company issued and sold over 850,000 shares of Common
Stock for proceeds of over $14 million under these plans.
Capital expenditures are financed on an interim basis with short-term debt.
The Company has $160 million in committed lines of credit, a portion of which
backs up a $50 million commercial paper facility. In addition, the Company may
borrow up to $60 million through other borrowing arrangements with banks. As
of June 30, 1994, $42.5 million was outstanding under the other short-term
borrowing arrangements but there was no outstanding balance under either the
committed lines of credit or the commercial paper facility.
As discussed in the Company's Annual Report on Form 10-K for the year 1993 in
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Significant Trends", load growth on the Company's electric
system is anticipated to average 0.4% annually for the period 1994-1998. While
the economy in general and the number of retail electric customers are expected
to continue to grow (although at a slower pace than in the period 1990-1993),
load growth will be slowed by the impact of demand side management programs,
the impact of new energy efficiency technology and construction codes, and
appliance efficiency standards, among other factors. In addition, the Company
continues to emphasize control of all costs in response to the increasingly
competitive environment in the electric utility industry. In light of the
foregoing, the Company has recently completed a re-evaluation of its capital
expenditure forecast and has revised its estimates of utility capital
expenditures for the period 1994-1997 as set forth below:
<TABLE>
<CAPTION>
Original Forecast (1) Revised Forecast (1)
------------------------------------------- -------------------------------------------
1994 1995 1996 1997 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Utility Capital Expenditures: $122 $104 $108 $110 $124 $82 $72 $72
Internally Generated Cash as a
% of Capital Expenditures: 59% 58% 65% 60% 30% 60% 100% 115%
</TABLE>
(1) Excludes $66 million for the combustion turbine project under
construction in Rathdrum, Idaho; the Company has obtained
separate construction and long-term lease financing for
this project. Also excludes $30 million for the proposed
acquisition of the northern Idaho properties of Pacific
Power and Light, an operating division of PacifiCorp.
Based on the revised estimates, internally-generated funds are expected to
provide 30% of the funds for the capital expenditure program during 1994 due to
lower operating income as detailed in Management's Discussion and
Analysis-Results of Operation. However, internally-generated funds are
expected to provide approximately 92% of the funds required for the Company's
capital expenditure program for the 1995-1997 period (excluding the combustion
turbine construction and northern Idaho properties acquisition detailed above).
External financing will be required to fund maturing long-term debt, preferred
stock sinking fund requirements and the remaining portion of capital
expenditures.
NON-UTILITY
The non-utility operations have $44 million in short-term borrowing
arrangements available ($21 million in current liabilities outstanding at June
30, 1994) to fund capital expenditures and other corporate requirements on
19
<PAGE> 20
THE WASHINGTON WATER POWER COMPANY
an interim basis. At June 30, 1994, the non-utility operations had $25 million
in cash and marketable securities and $14 million in long-term debt
outstanding.
The 1994-1996 non-utility capital expenditures are expected to be $8 million,
and $1 million in debt maturities will also occur. During the next three
years, internally-generated cash and other debt obligations are expected to
provide the majority of the funds for the non-utility capital expenditure
requirements.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1994 Annual Meeting of Shareholders of the Company was held on May 12,
1994. Three matters were voted upon at the meeting: (1) the re-election of
directors with expiring terms, (2) the approval of a Company proposal to
increase the number of shares of authorized Common Stock, no par value, from
100,000,000 to 200,000,000, and (3) the rejection of a shareholder proposal to
establish a paid advisory committee to the Board of Directors on issues of
Executive Compensation. 53,139,711 shares of Common Stock were issued and
outstanding as of March 17, 1994, the proxy record date, with 48,055,814 shares
represented at said meeting. The details of the voting are shown below:
<TABLE>
<CAPTION>
Against
For or Withheld Abstain
---------- ----------- ---------
<S> <C> <C> <C> <C>
(1) Re-election of Directors
Robert S. Jepson, Jr. 47,036,865 1,018,949 -
General H. Norman Schwarzkopf 46,592,592 1,463,222 -
B. Jean Silver 47,027,837 1,027,977 -
Larry A. Stanley 47,088,859 966,955 -
R. John Taylor 47,096,134 959,680 -
(2) Increase number of shares of authorized
Common Stock, no par value 41,335,284 4,775,984 1,944,546
(3) Establish a paid advisory committee on
Executive Compensation issues 5,878,608 29,876,521 2,979,982
</TABLE>
ITEM 5. OTHER INFORMATION.
On June 28, 1994, the Company announced that it had entered into a proposed
merger agreement with SPR, SPPC and Resources West. See Note 5 to Financial
Statements contained in Item 1 of Part I of this Report for additional
information.
REGULATORY PROCEEDINGS.
On July 18 and 19, 1994, hearings were conducted by the IPUC regarding the
Company's proposed acquisition of the northern Idaho properties of Pacific
Power & Light Company. See Note 4 to Financial Statements for additional
information.
Natural Gas Service
In mid-July, the Company filed natural gas trackers with the Washington
Utilities and Transportation Commission (WUTC) and the California Public
Utilities Commission (CPUC) primarily to reflect changes in the cost of
purchased natural gas during the past year. The trackers in Washington and
California reflect approximately a 9% increase but will result in no additional
net income to the Company. At the same time a natural gas tracker was filed
with the IPUC for a 4% decrease primarily due to a change in cost determination
methodology which resulted in an over-collection of past purchased natural gas
costs. The WUTC and IPUC applications are expected to be approved effective
September 1, 1994 and the CPUC application is expected to be approved effective
January 1, 1995.
20
<PAGE> 21
THE WASHINGTON WATER POWER COMPANY
Electric Service
On July 18, 1994, the IPUC approved an indefinite extension of the Company's
Power Cost Adjustment (PCA) mechanism with minor modifications beginning August
1, 1994. The PCA had been due to expire on June 30, 1994 but had been extended
to July 31 to allow for the timely consideration of this new application. The
modifications sought by the Company included elimination of the contract
tracker portion, which was approved by the Commission, and inclusion of
incremental costs of combustion turbine resources, which was rejected by the
Commission at this time.
ADDITIONAL FINANCIAL DATA.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
<TABLE>
<CAPTION>
12 Months Ended
---------------------------
June 30, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Ratio of Earnings to Fixed Charges 3.23(x) 3.45(x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 2.57(x) 2.77(x)
</TABLE>
The Company has long-term purchased power arrangements with various Public
Utility Districts, with interest on these contracts included in purchased power
expenses. These amounts do not have a material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4(a) Restated Articles of Incorporation
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
(b) Reports on Form 8-K.
Report dated June 27, 1994.
21
<PAGE> 22
THE WASHINGTON WATER POWER COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON WATER POWER COMPANY
(Registrant)
Date: August 12, 1994 /s/ J. E. Eliassen
--------------------------------------
J. E. Eliassen
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
22
<PAGE> 1
EXHIBIT 4(a)
RESTATED ARTICLES
OF INCORPORATION
OF
The Washington Water Power
Company
<PAGE> 2
RESTATED
ARTICLES OF INCORPORATION OF "THE WASHINGTON WATER POWER COMPANY"
Know all men by these presents that we have this day voluntarily associated
ourselves together for the purpose of forming, and we do hereby form and agree
to become a Corporation, under and by virtue of the laws of the Territory of
Washington, and for such purpose we do hereby certify:-
FIRST: That the name of said Corporation is "The Washington Water Power
Company."
SECOND: The objects and purposes for which the Corporation is formed are:
To acquire, buy, hold, own, sell, lease, exchange, dispose of, finance,
deal in, construct, build, equip, improve, use, operate, maintain and work
upon:
(a) Any and all kinds of plants and systems for the manufacture,
production, storage, utilization, purchase, sale, supply,
transmission, distribution or disposition of electric energy, natural
or artificial gas, water or steam, or power produced thereby, or of
ice and refrigeration of any and every kind;
(b) Any and all kinds of telephone, telegraph, radio, wireless and other
systems, facilities and devices for the receipt and transmission of
sounds and signals, any and all kinds of interurban, city and street
railways and bus lines for the transportation of passengers and/or
freight, transmission lines, systems, appliances, equipment and
devices and tracks, stations, buildings and other structures and
facilities;
(c) Any and all kinds of works, power plants, manufactories, structures,
substations, systems, tracks, machinery, generators, motors, lamps,
poles, pipes, wires, cables, conduits, apparatus, devices, equipment,
supplies, articles and merchandise of every kind pertaining to or in
anywise connected with the construction, operation or maintenance of
telephone, telegraph, radio, wireless and other systems, facilities
and devices for the receipt and transmission of sounds and signals, or
of interurban city and street railways and bus lines, or in anywise
connected with or pertaining to the manufacture, production, purchase,
use, sale, supply, transmission, distribution, regulation, control or
application of electric energy, natural or artificial gas, water,
steam, ice, refrigeration and power or any other purpose;
To acquire, buy, hold, own, sell, lease, exchange, dispose of, transmit,
distribute, deal in, use, manufacture, produce, furnish and supply street and
interurban railway and bus service, electric energy, natural or artificial gas,
light, heat, ice, refrigeration, water and steam in any form and for any
purposes whatsoever; and any power or force, or energy in any form and for any
purposes whatsoever;
To manufacture, produce, buy or in any other manner acquire, and to sell,
furnish, dispose of and distribute steam for heating or other purposes, and to
purchase, lease or otherwise acquire, build, construct, erect, hold, own,
improve, enlarge, maintain, operate, control, supervise and manage and to sell,
lease or otherwise dispose of plants, works and facilities, including
distribution systems, mains, pipes, conduits and meters, and all other
necessary apparatus and appliances used or useful or convenient for use in the
business of manufacturing, producing, selling, furnishing, disposing of and
distributing steam for heating or for any other purposes;
To acquire, organize, assemble, develop, build up and operate constructing
and operating and other organizations and systems, and to hire, sell, lease,
exchange, turn over, deliver and dispose of such organizations and systems in
whole or in part and as going organizations and systems and otherwise, and to
enter into and perform contracts, agreements and undertakings of any kind in
connection with any or all of the foregoing powers;
2
<PAGE> 3
To do a general contracting business;
To purchase, acquire, develop, mine, explore, drill, hold, own, sell and
dispose of lands, interest in and rights with respect to lands and waters and
fixed and movable property;
To plan, design, construct, alter, repair, remove or otherwise engage in
any work upon bridges, dams, canals, piers, docks, wharfs, buildings,
structures, foundations, mines, shafts, tunnels, wells, waterworks and all
kinds of structural excavations and subterranean work and generally to carry on
the business of contractors and engineers;
To manufacture, improve and work upon and to deal in, purchase, hold, sell
and convey minerals, metals, wood, oils and other liquids, gases, chemicals,
animal and plant products or any of the products and by-products thereof or any
article or thing into the manufacture of which any of the foregoing may enter;
To manufacture, improve, repair and work upon and to deal in, purchase,
hold, sell and convey any and all kinds of machines, instruments, tools,
implements, mechanical devices, engines, boilers, motors, generators, rails,
cars, ships, boats, launches, automobiles, trucks, tractors, airships,
aeroplanes, articles used in structural work, building materials, hardware,
textiles, clothing, cloth, leather goods, furs and any other goods, wares and
merchandise of whatsoever kind;
To construct, erect and sell buildings and structures in and on any lands
for any use or purpose; to equip and operate warehouses, office buildings,
hotels, apartment houses, apartment hotels and restaurants, or any other
buildings and structures of whatsoever kind;
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or
otherwise dispose of the shares of the capital stock of, or any bonds,
securities or evidences of indebtedness created by any other corporation or
corporations of the state of Washington or of any other state or government
and, while the owner of such stock, to exercise all the rights, powers and
privileges of individual ownership with respect thereto, including the right to
vote thereon, and to consent and otherwise act with respect thereto;
To aid in any manner any corporation or association, domestic or foreign,
or any firm or individual, any shares of stock in which or any bonds,
debentures, notes, securities, evidence of indebtedness, contracts or
obligations of which are held by or for the Corporation or in which or in the
welfare of which the Corporation shall have any interest, and to do any acts
designed to protect, preserve, improve or enhance the value of any property at
any time held or controlled by the Corporation, or in which it may be
interested at any time; and to organize or promote or facilitate the
organization of subsidiary companies;
To purchase from time to time any of its stock outstanding (so far as may
be permitted by law) at such price as may be fixed by its Board of Directors or
Executive Committee and accepted by the holders of the stock purchased, and to
resell any stock so purchased at such price as may be fixed by its said Board
of Directors or Executive Committee;
In any manner to acquire, enjoy, utilize and to sell or otherwise dispose
of patents, copyrights and trademarks and any licenses or other rights or
interests therein and thereunder;
To purchase, acquire, hold, own and sell or otherwise dispose of
franchises, concessions, consents, privileges and licenses;
To borrow money and contract debts, to issue bonds, promissory notes, bills
of exchange, debentures and other obligations and evidences of indebtedness
payable at a specified time or times or payable
3
<PAGE> 4
upon the happening of a specified event or events, whether secured by mortgage,
pledge or otherwise or unsecured, for money borrowed or in payment for property
purchased or acquired or any other lawful objects; all as may be determined
from time to time by the Board of Directors or Executive Committee of the
Corporation, pursuant to the authority hereby conferred;
To create mortgages or deeds of trust which shall cover and create a lien
upon all or any part of the property of the Corporation of whatsoever kind and
wheresoever situated, then owned or thereafter acquired, and to provide in any
such mortgage or deed of trust that the amount of bonds or other evidences of
indebtedness to be issued thereunder and to be secured thereby shall be limited
to a definite amount or limited only by the conditions therein specified and to
issue or cause to be issued by the Corporation the bonds or other evidences of
indebtedness to be secured thereby; all as may be determined from time to time
by the Board of Directors or Executive Committee of the Corporation pursuant to
the authority hereby conferred;
To do all and everything necessary and proper for the accomplishment of the
objects enumerated in these Articles of Incorporation or any amendment thereof
or necessary or incidental to the protection and benefit of the Corporation,
and in general to carry on any lawful business necessary or incidental to the
attainment of the objects of the Corporation whether or not such business is
similar in nature to the objects set forth in these Articles of Incorporation
or any amendment thereof;
To do any or all things herein set forth, to the same extent and as fully
as natural persons might or could do, and in any part of the world, and as
principal, agent, contractor or otherwise, and either alone or in conjunction
with any other persons, firms, associations or corporations;
To conduct its business in any or all its branches in the state of
Washington, other states, the District of Columbia, the territories and
colonies of the United States, and any foreign countries, and to have one or
more offices out of the state of Washington.
THIRD:
(a) The amount of capital with which the Corporation will begin to carry
on business hereunder shall be FIVE MILLION FIVE HUNDRED DOLLARS
($5,000,500).
(b) The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is 210,000,000 shares, divided into
10,000,000 shares of Preferred Stock without nominal or par value,
issuable in series as hereinafter provided, and 200,000,000 shares of
Common Stock without nominal or par value.
(c) A statement of the preferences, limitations and relative rights of
each class of capital stock of the Corporation, namely, the Preferred
Stock without nominal or par value and the Common Stock without
nominal or par value, of the variations in the relative rights and
preferences as between series of the Preferred Stock insofar as the
same are fixed by these Articles of Incorporation, and of the
authority vested in the Board of Directors of the Corporation to
establish series of Preferred Stock and to fix and determine the
variations in the relative rights and preferences as between series
insofar as the same are not fixed by these Articles of Incorporation
and as to which there may be variations between series is as follows:
(d) The shares of the Preferred Stock may be divided into and issued in
series. Each series shall be so designated as to distinguish the
shares thereof from the shares of all other series of the Preferred
Stock and all other classes of capital stock of the Corporation. To
the extent that these Articles of Incorporation shall not have
established series of the Preferred Stock and fixed and determined the
variations in the relative rights and preferences as between series,
the Board of Directors shall have authority, and is hereby expressly
vested with authority, to divide the Preferred Stock into series and,
within the limitations set forth in these Articles
4
<PAGE> 5
of Incorporation and such limitations as may be provided by law, to
fix and determine the relative rights and preferences of any series of
the Preferred Stock so established. Such action by the Board of
Directors shall be expressed in a resolution or resolutions adopted by
it prior to the issuance of shares of each series, which resolution or
resolutions shall also set forth the distinguishing designation of the
particular series of the Preferred Stock established thereby. Without
limiting the generality of the foregoing, authority is hereby
expressly vested in the Board of Directors so to fix and determine,
with respect to any series of the Preferred Stock:
(1) the rate or rates of dividend, if any, which may be expressed in
terms of a formula or other method by which such rate or rates
shall be calculated from time to time, and the date or dates on
which dividends may be payable;
(2) whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
(3) the amount payable upon shares in event of voluntary and
involuntary liquidation;
(4) sinking fund provisions, if any, for the redemption or purchase
of shares; and
(5) the terms and conditions, if any, on which shares may be
converted.
All shares of the Preferred Stock of the same series shall be
identical except that shares of the same series issued at different
times may vary as to the dates from which dividends thereon shall be
cumulative; and all shares of the Preferred Stock, irrespective of
series, shall constitute one and the same class of stock, shall be of
equal rank, and shall be identical except as to the designation
thereof, the date or dates from which dividends on shares thereof
shall be cumulative, and the relative rights and preferences set forth
above in clauses (1) through (5) of this subdivision (d), as to which
there may be variations between different series. Except as may be
otherwise provided by law, by subdivision (j) of this Article THIRD,
or by the resolutions establishing any series of Preferred Stock in
accordance with the foregoing provisions of this subdivision (d),
whenever the written consent, affirmative vote, or other action on the
part of the holders of the Preferred Stock may be required for any
purpose, such consent, vote or other action shall be taken by the
holders of the Preferred Stock as a single class irrespective of
series and not by different series.
(e) Out of any funds legally available for the payment of dividends, the
holders of the Preferred Stock of each series shall be entitled, in
preference to the holders of the Common Stock, to receive, but only
when and as declared by the Board of Directors, dividends at the rate
or rates fixed and determined with respect to each series in
accordance with these Articles of Incorporation, and no more, payable
as hereinafter provided. Such dividends shall be cumulative so that if
for all past dividend periods and the then current dividend periods
dividends shall not have been paid or declared and set apart for
payment on all outstanding shares of each series of the Preferred
Stock, at the dividend rates fixed and determined for the respective
series, the deficiency shall be fully paid or declared and set apart
for payment before any dividends on the Common Stock shall be paid or
declared and set apart for payment; provided, however, that nothing in
this subdivision (e) or elsewhere in these Articles of Incorporation
shall prevent the simultaneous declaration and payment of dividends on
both the Preferred Stock and the Common Stock if there are sufficient
funds legally available to pay all dividends concurrently. Dividends
on all shares of the Preferred Stock of each series shall be
cumulative from the date of issuance of shares of such series. If
more than one series of the Preferred Stock shall be outstanding and
if dividends on each series shall not have been paid or declared and
set apart for payment, at the dividend rate or rates fixed and
determined for such series, the shares of the Preferred Stock of each
series shall share ratably in the payment of dividends including
accumulations, if any, in accordance with
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<PAGE> 6
the sums which would be payable on such shares if all dividends were
declared and paid in full. As to all series of Preferred Stock, the
dividend payment dates for regular dividends shall be the fifteenth
day of March, June, September and December in each year, unless other
dividend payment dates shall have been fixed and determined for any
series in accordance with subdivision (d) of this Article THIRD, and
the dividend period in respect of which each regular dividend shall be
payable in respect of each series shall be the period commencing on
the next preceding dividend payment date for such series and ending on
the day next preceding the dividend payment date for such dividend.
No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments which may be in arrears.
(f) Subject to the limitations set forth in paragraph (e) or elsewhere in
these Articles of Incorporation (and subject to the rights of any
class of stock hereafter authorized), dividends may be paid on the
Common Stock when and as declared by the Board of Directors out of any
funds legally available for the payment of dividends, and no holder of
shares of any series of the Preferred Stock as such shall be entitled
to share therein.
(g) In the event of any voluntary dissolution, liquidation or winding up
of the Corporation, before any distribution or payment shall be made
to the holders of the Common Stock, the holders of the Preferred Stock
of each series then outstanding shall be entitled to receive out of
the net assets of the Corporation available for distribution to its
stockholders the respective amounts per share fixed and determined in
accordance with these Articles of Incorporation to be payable on the
shares of such series in the event of voluntary liquidation, and no
more, and in the event of any involuntary dissolution, liquidation or
winding up of the Corporation, before any distribution or payment
shall be made to the holders of the Common Stock, the holders of the
Preferred Stock of each series then outstanding shall be entitled to
receive out of the net assets of the Corporation available for
distribution to its stockholders the respective amounts per share
fixed and determined in accordance with these Articles of
Incorporation to be payable on the shares of such series in the event
of involuntary liquidation, and no more. If upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, the net assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the
holders of all outstanding shares of Preferred Stock of all series the
full amounts to which they shall be respectively entitled as
aforesaid, the entire net assets of the Corporation available for
distribution shall be distributed ratably to the holders of all
outstanding shares of Preferred Stock of all series in proportion to
the amounts to which they shall be respectively so entitled. For the
purposes of this and the next succeeding subdivision, and without
limiting the right of the Corporation to distribute its assets or to
dissolve, liquidate or wind up in connection with any sale, merger or
consolidation, the sale of all or substantially all of the property of
the Corporation, or the merger or consolidation of the Corporation
into or with any other corporation or corporations, shall not be
deemed to be a distribution of assets or a dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary.
(h) Subject to the limitations set forth in subdivision (g) of this
Article THIRD or elsewhere in these Articles of Incorporation (and
subject to the rights of any class of stock hereafter authorized) upon
any dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, any net assets of the Corporation available
for distribution to its stockholders shall be distributed ratably to
holders of the Common Stock.
(i) The Preferred Stock may be redeemed in accordance with the following
provisions of this subdivision (i):
(1) Each series of the Preferred Stock which has been determined to
be redeemable as permitted by subdivision (d) of this Article
THIRD may be redeemed in whole or in part by the Corporation, at
its election expressed by resolution of the Board of Directors,
at
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<PAGE> 7
any time or from time to time, at the then applicable redemption
price fixed and determined with respect to each series, subject
however, to any terms and conditions specified in respect of any
series of the Preferred Stock in accordance with subdivision (d)
of this Article THIRD. If less than all of the shares of any
series are to be redeemed, the redemption shall be made either
pro rata or by lot in such manner as the Board of Directors
shall determine.
(2) In the event the Corporation shall so elect to redeem shares of
the Preferred Stock, notice of the intention of the Corporation
to do so and of the date and place fixed for redemption shall be
mailed not less than thirty nor more than ninety days before the
date fixed for redemption to each holder of shares of the
Preferred Stock to be redeemed at his address as it shall appear
on the books of the Corporation, and on and after the date fixed
for redemption and specified in such notice (unless the
Corporation shall default in making payment of the redemption
price), such holders shall cease to be stockholders of the
Corporation with respect to such shares and shall have no
interest in or claim against the Corporation with respect to
such shares, excepting only the right to receive the redemption
price therefor from the Corporation on the date fixed for
redemption, without interest, upon endorsement, if required, and
surrender of their certificates for such shares.
(3) Contemporaneously with the mailing of notice of redemption of
any shares of the Preferred Stock as aforesaid or at any time
thereafter on or before the date fixed for redemption, the
Corporation may, if it so elects, deposit the aggregate
redemption price of the shares to be redeemed with any bank or
trust company doing business in the City of New York, New York,
or Spokane, Washington, having a capital and surplus of at least
$5,000,000, named in such notice, payable on the date fixed for
redemption in the proper amounts to the respective holders of
the shares to be redeemed, upon endorsement, if required, and
surrender of their certificates for such shares, and on and
after the making of such deposit such holders shall cease to be
stockholders of the Corporation with respect to such shares and
shall have no interest in or claim against the Corporation with
respect to such shares, excepting only the right to exercise
such redemption or exchange rights, if any, on or before the
date fixed for redemption as may have been provided with respect
to such shares or the right to receive the redemption price of
their shares from such bank or trust company on the date fixed
for redemption, without interest, upon endorsement, if required,
and surrender of their certificates for such shares.
(4) If the Corporation shall have so elected to deposit the
redemption moneys with a bank or trust company, any moneys so
deposited which shall remain unclaimed at the end of six years
after the redemption date shall be repaid to the Corporation,
and upon such repayment holders of Preferred Stock who shall not
have made claim against such moneys prior to such repayment
shall be deemed to be unsecured creditors of the Corporation for
an amount, without interest, equal to the amount they would
theretofore have been entitled to receive from such bank or
trust company. Any redemption moneys so deposited which shall
not be required for such redemption because of the exercise,
after the date of such deposit, of any right of conversion or
exchange or otherwise, shall be returned to the Corporation
forthwith. The Corporation shall be entitled to receive any
interest allowed by any bank or trust company on any moneys
deposited with such bank or trust company as herein provided,
and the holders of any shares called for redemption shall have
no claim against any such interest.
(5) Nothing herein contained shall limit any legal right of the
Corporation to purchase or otherwise acquire any shares of the
Preferred Stock.
(j) The holders of the Preferred Stock shall not have any right to vote
for the election of Directors or for any other purpose except as
otherwise provided by law and as set forth below
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<PAGE> 8
in this subdivision of this Article THIRD or elsewhere in these
Articles of Incorporation. Holders of Preferred Stock shall be
entitled to notice of each meeting of stockholders at which they shall
have any right to vote but except as may be otherwise provided by law
shall not be entitled to notice of any other meeting of stockholders.
(1) Whenever and as often as, at any date, dividends payable on any
shares of the Preferred Stock shall be in arrears in an amount
equal to the aggregate amount of dividends accumulated on such
shares of the Preferred Stock over the eighteen-month period
ended on such date, the holders of the Preferred Stock of all
series, voting separately and as a single class, shall be
entitled to vote for and to elect a majority of the Board of
Directors, and the holders of the Common Stock, voting
separately and as a single class, shall be entitled to vote for
and to elect the remaining Directors of the Corporation. The
right of the holders of the Preferred Stock to elect a majority
of the Board of Directors shall, however, cease when all
defaults in the payment of dividends on their stock shall have
been cured and such dividends shall be declared and paid out of
any funds legally available therefor as soon as in the judgment
of the Board of Directors is reasonably practicable. The terms
of office of all persons who may be Directors of the Corporation
at the time the right to elect Directors shall accrue to the
holders of the Preferred Stock as herein provided shall
terminate upon the election of their successors at a meeting of
the stockholders of the Corporation then entitled to vote. Such
election shall be held at the next Annual Meeting of
Shareholders or may be held at a special meeting of shareholders
but shall be held upon notice as provided in the Bylaws of the
Corporation for a special meeting of the shareholders. Any
vacancy in the Board of Directors occurring during any period
when the Preferred Stock shall have elected representatives on
the Board shall be filled by a majority vote of the remaining
Directors representing the class of stock theretofore
represented by the Director causing the vacancy. At all
meetings of the shareholders held for the purpose of electing
Directors during such times as the holders of the Preferred
Stock shall have the exclusive right to elect a majority of the
Board of Directors of the Corporation, the presence in person or
by proxy of the holders of a majority of the outstanding shares
of Preferred Stock of all series shall be required to substitute
a quorum of such class for the election of Directors, and the
presence in person or by proxy of the holders of a majority of
the outstanding shares of Common Stock shall be required to
constitute a quorum of such class for the election of Directors;
provided, however, that the absence of a quorum of the holders
of stock of either class shall not prevent the election at any
such meeting, or adjournment thereof, of Directors by the other
class if the necessary quorum of the holders of stock of such
class is present in person or by proxy at such meeting; and
provided further, that, in the absence of a quorum of the
holders of stock of either class, a majority of those holders of
such stock who are present in person or by proxy shall have the
power to adjourn the election of those Directors to be elected
by that class from time to time without notice, other than
announcement at the meeting, until the requisite amount of
holders of stock of such class shall be present in person or by
proxy.
(2) So long as any shares of the Preferred Stock shall be
outstanding, the Corporation shall not, without the affirmative
vote of the holders of at least a majority of the shares of the
Preferred Stock at the time outstanding, adopt any amendment to
these Articles of Incorporation if such amendment would:
(i) create or authorize any new class of stock ranking prior
to or on a parity with the Preferred Stock as to dividends
or upon dissolution, liquidation or winding up;
(ii) increase the authorized number of shares of the Preferred
Stock; or
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<PAGE> 9
(iii) change any of the rights or preferences of the Preferred
Stock at the time outstanding provided, however, that if
any proposed change of any of the rights or preferences of
any outstanding shares of the Preferred Stock would affect
the holders of shares of one or more, but not all, series
of the Preferred Stock then outstanding, only the
affirmative vote of the holders of at least a majority of
the total number of outstanding shares of all series so
affected shall be required; and provided further, that
nothing herein shall authorize the adoption of any
amendment to these Articles of Incorporation by the vote
of the holders of a lesser number of shares of the
Preferred Stock, or of any other class of stock, or of all
classes of stock, than is required for such an amendment
by the laws of the state of Washington at the time
applicable thereto.
(3) So long as any shares of the Preferred Stock shall be
outstanding, the Corporation shall not, without the affirmative
vote of the holders of at least a majority of the shares of the
Preferred Stock at the time outstanding, issue any shares of the
Preferred Stock, or of any other class of stock ranking prior to
or on a parity with the Preferred Stock as to dividends or upon
dissolution, liquidation or winding up, unless the net income of
the Corporation available for the payment of dividends for a
period of twelve consecutive calendar months within the fifteen
calendar months immediately preceding the issuance of such
shares (including, in any case in which such shares are to be
issued in connection with the acquisition of new property, the
net income of the property so to be acquired, computed on the
same basis as the net income of the Corporation) is at least
equal to one and one-half times the annual dividend requirements
on all shares of the Preferred Stock, and on all shares of all
other classes of stock ranking prior to or on a parity with the
Preferred Stock, as to dividends or upon dissolution,
liquidation or winding up, which will be outstanding immediately
after the issuance of such shares, including the shares proposed
to be issued; provided, however, that if the shares of any
series of the Preferred Stock or any such prior or parity stock
shall have a variable dividend rate, the annual dividend
requirement on the shares of such series shall be determined by
reference to the weighted average dividend rate on such shares
during the twelve-month period for which the net income of the
Corporation available for the payment of dividends shall have
been determined; and provided, further, that if the shares of
the series to be issued are to have a variable dividend rate,
the annual dividend requirement on the shares of such series
shall be determined by reference to the initial dividend rate
upon the issuance of such shares. In any case where it would be
appropriate, under generally accepted accounting principles to
combine or consolidate the financial statements of any parent or
subsidiary of the Corporation with those of the Corporation, the
foregoing computation may be made on the basis of such combined
or consolidated financial statements.
(k) Subject to the limitations set forth in subdivision (j) of this
Article THIRD (and subject to the rights of any class of stock
hereafter authorized), and except as may be otherwise provided by law,
the holders of the Common Stock shall have the exclusive right to vote
for the election of Directors and for all other purposes. At each
meeting of stockholders, each holder of stock entitled to vote thereat
shall be entitled to one vote for each share of such stock held by him
and recorded in his name on the record date for such meeting, and may
vote and otherwise act in person or by proxy; provided, however, that
at each election for Directors every stockholder entitled to vote at
such election shall have the right to vote the number of shares held
by him for as many persons as there are Directors to be elected and
for whose election he has the right to vote, or to cumulate his votes
by giving one candidate as many votes as the number of such Directors
multiplied by the number of his shares shall equal, or by distributing
such votes on the same principle among any number of such candidates.
(l) Subject to the limitations set forth in subdivision (j) of this
Article THIRD (and subject to the rights of any class of stock
hereafter authorized), and except as may be otherwise provided by
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<PAGE> 10
law, upon the vote of a majority of all of the Directors of the
Corporation and of the holders of record of two-thirds of the total
number of shares of the Corporation then issued and outstanding and
entitled to vote (or, if the vote of a larger number or different
proportion of shares is required by the laws of the state of
Washington, notwithstanding the above agreement of the stockholders of
the Corporation to the contrary, then upon the vote of the holders of
record of the larger number or different proportion of shares so
required) the Corporation may from time to time create or authorize
one or more other classes of stock with such preferences,
designations, rights, privileges, powers, restrictions, limitations
and qualifications as may be determined by said vote, which may be the
same or different from the preferences, designations, rights,
privileges, powers, restrictions, limitations and qualifications of
the classes of stock of the Corporation then authorized and/or the
Corporation may increase or decrease the number of shares of one or
more of the classes of stock then authorized.
(m) All stock of the Corporation without nominal or par value whether
authorized herein or upon subsequent increases of capital stock or
pursuant to any amendment hereof may be issued, sold and disposed of
by the Corporation from time to time for such consideration in labor,
services, money or property as may be fixed from time to time by the
Board of Directors and authority to the Board of Directors so to fix
such consideration is hereby granted by the stockholders. The
consideration received by the Corporation from the issuance and sale
of new or additional shares of capital stock without par value shall
be entered in the capital stock account.
(n) No holder of any stock of the Corporation shall be entitled as of
right to purchase or subscribe for any part of any stock of the
Corporation authorized herein or of any additional stock of any class
to be issued by reason of any increase of the authorized capital stock
of the Corporation or of any bonds, certificates of indebtedness,
debentures or other securities convertible into stock of the
Corporation but any stock authorized herein or any such additional
authorized issue of any stock or of securities convertible into stock
may be issued and disposed of by the Board of Directors to such
persons, firms, corporations or associations upon such terms and
conditions as the Board of Directors in their discretion may determine
without offering any thereof on the same terms or any terms to the
stockholders then of record or to any class of stockholders.
(o) (1) SERIES I. There is hereby established a ninth series of the
Preferred Stock of the Corporation which shall have, in addition
to the general terms and characteristics of all of the
authorized shares of Preferred Stock of the Corporation, the
following distinctive terms and characteristics:
(a) The ninth series of Preferred Stock of the Corporation
shall consist of 500,000 shares and be designated as
"$8.625 Preferred Stock, Series I."
(b) Said ninth series shall have a dividend rate of $8.625 per
share per annum.
(c) The amount payable upon the shares of said ninth series in
the event of dissolution, liquidation or winding up of the
Corporation shall be $100.00 per share plus an amount
equivalent to the accumulated and unpaid dividends
thereon, if any, to the date of such dissolution,
liquidation or winding up.
(d) (i) As and for a sinking fund for the redemption of
shares of said ninth series, on June 15, 1996 and
each June 15 thereafter until all shares of said
ninth series shall have been retired, the
Corporation shall redeem 100,000 shares of said
ninth series at the price of $100.00 per share plus
an amount equivalent to the accumulated and unpaid
dividends thereon, if any, to the date fixed for
redemption. The Corporation shall be entitled, at
its option, on June 15, 1996 and each June 15
thereafter, to redeem up to 100,000 shares of said
ninth
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series, in addition to the shares otherwise
required to be redeemed on such date, at $100.00
per share plus an amount equivalent to the
accumulated and unpaid dividends thereon, if any,
to the date fixed for redemption; provided,
however, that the option of the Corporation to so
redeem up to 100,000 additional shares of the ninth
series on each such sinking fund redemption date
shall not be cumulative and shall not reduce the
sinking fund requirements of this subparagraph (d)
in any subsequent year. In the case of any
redemption pursuant to this paragraph (d), the
shares to be redeemed shall be selected by lot
among the holders of the shares of said ninth
series then outstanding in such manner as the
appropriate Officers of the Corporation shall
determine to result in a random selection. The
shares of said ninth series shall not be redeemable
at the option of the Corporation except as set
forth in this subparagraph (d).
(ii) The sinking fund requirement of the Corporation to
redeem shares of said ninth series pursuant to this
subparagraph (d) shall be subject to any applicable
restrictions of law and such redemption shall be
made only out of funds legally available therefor.
(iii) The sinking fund requirement of the Corporation to
redeem shares of said ninth series pursuant to this
subparagraph (d) shall be cumulative. If at any
time the Corporation shall not have satisfied in
full the cumulative sinking fund requirement to
redeem shares of said ninth series, the Corporation
shall not pay or declare and set apart for payment
any dividends upon, or make any other distribution
with respect to, or redeem, purchase or otherwise
acquire any shares of, the Common Stock or any
other class of stock ranking as to dividends and
distributions of assets junior to the Preferred
Stock.
(iv) If at any time the Corporation shall not have
satisfied in full the cumulative sinking fund
requirement to redeem shares of said ninth series
pursuant to this subparagraph (d), and if at such
time the Corporation shall be required pursuant to
a sinking or similar fund to redeem or purchase
shares of any other series of the Preferred Stock
or any other class of stock ranking as to dividends
and distributions of assets on a parity with the
Preferred Stock, any funds of the Corporation
legally available for the purpose shall be
allocated among all such sinking or similar funds
for series of the Preferred Stock and such parity
stock in proportion to the respective amounts then
required for the satisfaction thereof.
(e) The shares of said ninth series shall not, by their terms,
be convertible.
(2) SERIES J. There is hereby established a tenth series of the
Preferred Stock of the Corporation which shall have, in addition
to the general terms and characteristics of all of the
authorized shares of Preferred Stock of the Corporation, the
following distinctive terms and characteristics:
PART I
(a) The tenth series of Preferred Stock of the Corporation
shall consist of 500 shares and be designated as "Flexible
Auction Preferred Stock, Series J" (hereafter referred to
as the "Auction Preferred Stock").
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<PAGE> 12
(b) As used in this paragraph 2 the following terms shall have
the following meanings, whether used in the singular or
plural, unless the context or use indicates another or
different meaning or intent:
"Affiliate" means any Person known to the Trust Company to
be controlled by, in control of or under common control
with the Corporation.
"Applicable 'AA' Composite Commercial Paper Rate" means,
as of any date and with respect to any Dividend Period,
(i) in the case of any Dividend Period having a term less
than 70 days, the interest equivalent of the 60-day rate,
(ii) in the case of any Dividend Period having a term 70
days or more but less than 85 days, the arithmetic average
of the interest equivalents of the 60-day and 90-day
rates, (iii) in the case of any Dividend Period having a
term 85 days or more but not less than 120 days, the
interest equivalent of the 90-day rate, (iv) in the case
of any Dividend Period having a term of 120 days or more
but less than 148 days, the arithmetic average of the
interest equivalents of the 90-day and 180-day rates and
(v) in the case of any Dividend Period having a term 148
days or more but less than or equal to 182 days, the
interest equivalent of the 180-day rate, on commercial
paper placed on behalf of corporate issuers the bonds of
which are rated "AA" by Standard & Poor's or "Aa" by
Moody's, or the equivalent of either or both of such
ratings by such agencies or another rating agency, as such
rates are made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business
Day immediately preceding such date, or, in the event that
the Federal Reserve Bank of New York does not make
available any such rate, then the arithmetic average of
the interest equivalents of such rates, as quoted on a
discount basis or otherwise, by the Commercial Paper
Dealers to the Trust Company for the close of business on
the Business Day next preceding such date. If any
Commercial Paper Dealer does not quote a rate required to
determine the Applicable "AA" Composite Commercial Paper
Rate, the Applicable "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotation
furnished by the remaining Commercial Paper Dealer. For
the purpose of this definition, any arithmetic average
shall be rounded to the nearest one-thousandth (.001) of
one percent.
"Applicable Rate" means the rate per annum in effect from
time to time at which dividends on the Auction Preferred
Stock are payable during Dividend Periods subsequent to
the Initial Dividend Period, as provided in section
(c)(ii) hereof.
"Auction" means each periodic implementation of the
Auction Procedures.
"Auction Date" means the Business Day next preceding the
first day of each Dividend Period after the Initial
Dividend Period.
"Auction Procedures" means the procedures for conducting
Auctions set forth in Part II.
"Business Day" means a day on which The New York Stock
Exchange, Inc. is open for trading and which is not a day
on which banking institutions in The City of New York are
authorized or required by law or executive order to remain
closed.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commercial Paper Dealer" means any commercial paper
dealer, the principal office of which is located in New
York City which is a nationally recognized
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<PAGE> 13
leading dealer in the domestic commercial paper market and
which is designated by the Corporation as a "Commercial
Paper Dealer' in an instrument delivered to the Trust
Company; provided that no such dealer may be an affiliate
of the Corporation. On the Date of Original Issue, the
Corporation shall designate two Commercial Paper Dealers.
The Corporation may change any such designation, at any
time and from time to time, in an instrument delivered to
the Trust Company.
"Corporation" means The Washington Water Power Company, a
corporation of the state of Washington, or its successors.
"Date of Original Issue" means the date on which the
Corporation originally issues the Auction Preferred Stock.
"Designator" means any member of the National Association
of Security Dealers which is a nationally recognized
leading dealer in the domestic commercial paper market and
a nationally recognized leading dealer in the market for
obligations of the United States and which has entered
into an agreement with the Corporation to perform the
functions of the Designator specified herein, a copy of
which shall have been delivered to the Trust Company.
"Dividend Payment Date" has the meaning set forth in
section (c)(i)(F) below.
"Dividend Period" has the meaning set forth in section
(c)(i)(G) below.
"Dividend Period Days" has the meaning set forth in
section (c)(i)(E) below.
"Dividend Quarter" has the meaning set forth in section
(c)(i)(F) below.
"Dividend Rate" means the rate per annum in effect from
time to time at which dividends on the Auction Preferred
Stock are payable as provided in sections (c)(i) and (ii)
hereof.
"Dividends-Received Deduction" has the meaning set forth
in section (c)(i)(D) below.
"Holder" means a Person in the name of which any shares of
the Auction Preferred Stock are registered in the Stock
Books of the Corporation.
"Initial Dividend Payment Date" means the date specified
as set forth in section (c)(i)(G) below.
"Initial Dividend Period" has the meaning set forth in
section (c)(i)(G) below.
"Interest Equivalent" of a rate stated on a discount basis
(a "discount rate") for commercial paper of a given days
maturity means the quotient (rounded to the nearest
one-thousandth (.001) of one percent (1%)) of (A) such
discount rate divided by (B) the difference between (x)
1.00 and (y) a fraction the numerator of which shall be
the product of the discount rate times the number of days
in the original term of such commercial paper and the
denominator of which shall be 360; and the "interest
equivalent" of a rate stated on a basis other than a
discount or interest basis for commercial paper shall be
determined by the Trust Company in accordance with
accepted financial practice after consultation with the
Corporation.
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"Long-Term Dividend Period" means any Dividend Period
designated by the Designator pursuant to section (c)(i)(H)
below consisting of a number of days evenly divisible by 7
which is greater than 49 days (or such number of days as
shall result from the adjustment set forth in section
(c)(i)(E) hereof) but is not in excess of 182 days.
"Market Conditions" means, as of the time of any
designation by the Designator of a Long-Term Dividend
Period, conditions prevailing generally in world financial
markets including without limitation, to the extent
relevant in the judgment of the Designator:
(i) the yield on Comparable Securities determined on
the basis of (A) the periodic implementation of
auction or other remarketing procedures at
intervals of approximately the then current length
of a Short-Term Dividend Period and (B) the
periodic implementation of auction or other
remarketing procedures at intervals approximately
equal to, or the retirement of shares through a
sinking or other fund producing an average life
approximately equal to, the length of the Long-Term
Dividend Period proposed to be designated;
(ii) the Dividend Rate on the Auction Preferred Stock
for the Dividend Period during which such
designation is made, the length of such Dividend
Period and other results of the Auction next
preceding such designation;
(iii) the financial condition and results of operations
of the Corporation and economic, financial and
other conditions in the electric and gas utility
industries;
(iv) current and projected yields on, and current and
projected market supply and demand for, (A)
preferred stock the holders of which are entitled
to the Dividends-Received Deduction (taking into
consideration permanent fixed rate stock, stock
subject to a sinking or other fund for the
retirement thereof and stock subject to periodic
auction or other remarketing procedures) and (B)
short-term and long-term corporate and United
States government obligations;
(v) other financial market indicators including without
limitation (A) publicly available indices of yields
on preferred stock and obligations described in
clause (iv) above including any such indices
regularly published by any entity acting as the
Designator or a Broker-Dealer or a Commercial Paper
Dealer and (B) rates on certificates of deposit,
commercial bank prime or base rates, federal funds
rates and interbank offered rates for United States
dollar deposits in foreign financial centers; and
(vi) such other financial or statistical information as,
in the judgment of the Designator, may be
necessary, desirable or appropriate in determining
whether or not a Long-Term Dividend Period should
be designated in accordance with section (c)(i)(I)
and, if so, the duration thereof.
As used in this definition, "Comparable Securities" means
preferred stock (x) the holders of which are entitled to
the Dividends-Received Deduction and (y) which has the
same "prevailing rating" (as such term is defined in the
definition of the term "Rate Multiple") as the Auction
Preferred Stock.
14
<PAGE> 15
"Maximum Applicable Rate" means, as of any date, a per
annum rate equal to the product of the Applicable "AA"
Composite Commercial Paper Rate as of such date multiplied
by the Rate Multiple as of such date.
"Minimum Holding Period" has the meaning set forth in
section (c)(i)(D) below.
"Moody's" means Moody's Investors Service, Inc., or its
successor, so long as such agency (or successor) is in the
business of rating securities of the type of the Auction
Preferred Stock.
"Nonpayment Event" has the meaning set forth in section
(c)(ii) below.
"Nonpayment Rate" has the meaning set forth in section
(c)(ii) below.
"Normal Dividend Payment Date" has the meaning set forth
in section (c)(i)(A) below.
"Notice of Long-Term Dividend Period" has the meaning set
forth in section (c)(i)(H) below.
"Notice of Revocation" has the meaning set forth in
section (c)(i)(H) below.
"Person" shall mean an individual, a corporation, a
partnership, an association, a joint stock company, a
trust, any unincorporated organization, or a government or
political subdivision thereof.
"Preferred Stock" means the shares of Preferred Stock
without par value, of the Corporation authorized by
Article THIRD of the Restated Articles.
"Rate Multiple" means, as of any date and with respect to
shares of Auction Preferred Stock, the percentage set
forth below opposite the prevailing rating of the Auction
Preferred Stock in effect at the close of business on the
Business Day immediately preceding such date:
<TABLE>
<CAPTION>
RATE
PREVAILING RATING MULTIPLE
----------------- --------
<S> <C>
AA/aa or Above........................................................... 110%
A/a...................................................................... 125%
BBB/baa.................................................................. 150%
BB/ba.................................................................... 200%
Below BB/ba.............................................................. 250%
</TABLE>
For purposes of this definition, the "prevailing rating"
of Auction Preferred Stock shall be (i) AA/aa or Above, if
the Auction Preferred Stock has a rating of AA- or better
by Standard & Poor's and aa3 or better by Moody's or the
equivalent of both of such ratings by such agencies or a
Substitute Rating Agency or Substitute Rating Agencies
selected as provided below, (ii) if not AA/aa or Above,
then A/a, if the Auction Preferred Stock has a rating of
A- or better by Standard & Poor's and a3 or better by
Moody's or the equivalent of both of such ratings by such
agencies or a Substitute Rating Agency or Substitute
Rating Agencies selected as provided below, (iii) if not
AA/aa or Above or A/a, then BBB/baa, if the Auction
Preferred Stock has a rating of BBB- or better by Standard
& Poor's and baa3 or better by Moody's or the equivalent
of both of such ratings by such agencies or a Substitute
Rating Agency
15
<PAGE> 16
or Substitute Rating Agencies selected as provided below,
(iv) if not AA/aa or Above, A/a or BBB/baa, then BB/ba, if
the Auction Preferred Stock has a rating of BB- or better
by Standard & Poor's and ba3 or better by Moody's or the
equivalent of both of such ratings by such agencies or a
Substitute Rating Agency or Substitute Rating Agencies as
provided below, and (v) if not AA/aa or Above, A/a,
BBB/baa or BB/ba, then Below BB/ba. The Corporation shall
take all reasonable action necessary to enable Standard &
Poor's and Moodys to provide a rating for the Auction
Preferred Stock. If either Standard & Poor's or Moody's
shall not make such a rating available, or neither
Standard & Poor's nor Moody's shall make such a rating
available, the Corporation shall select a nationally
recognized statistical rating organization (as that term
is used in the rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of
1934, as amended) or two such organizations to act as
Substitute Rating Agency or Substitute Rating Agencies, as
the case may be.
"Rating Agencies" means Moody's and Standard & Poor's.
"Redemption Price" means, as of any date and with respect
to a share of Auction Preferred Stock, an amount equal to
the sum of (i) the amount payable upon such share in the
event of liquidation as set forth in section (e) below and
(ii) an amount equivalent to all accumulated and unpaid
dividends on such share to but excluding such date.
"Restated Articles" means the Restated Articles of
Incorporation of the Corporation, as heretofore amended
and restated and as amended by the inclusion hereof.
"Securities Depository" means the Depository Trust Company
and its successors and assigns, or any other securities
depository selected by the Corporation which agrees to
follow the procedures required to be followed by such
securities depository in connection with shares of Auction
Preferred Stock.
"Seven-Day Dividend Period" means a Dividend Period
arising under the circumstances set forth in section
(c)(i)(J) below.
"Short-Term Dividend Period" has the meaning set forth in
section (c)(i)(G) below.
"Standard & Poor's" means Standard & Poor's Corporation,
or its successor, so long as such agency (or successor) is
in the business of rating securities of the type of the
Auction Preferred Stock.
"Stock Books" means the stock transfer books of the
Corporation relating to the Auction Preferred Stock
maintained by the Trust Company.
"Substitute Rating Agency" means a nationally recognized
statistical rating organization (as that term is used in
the rules and regulations of the Securities Exchange
Commission promulgated under the Securities Exchange Act
of 1934) which is designated by the Corporation as a
"Substitute Rating Agency" in an instrument delivered to
the Trust Company, so long as such agency is in the
business of rating securities of the type of the Auction
Preferred Stock.
"Trust Company" means Bankers Trust Company, unless or
until another bank or trust company has been appointed as
such by the Board of Directors of the Corporation.
16
<PAGE> 17
(c) (i) The rate of dividend per annum on said tenth
series of Preferred Stock is hereby fixed and
determined at the Dividend Rate from time to
time in effect as provided in subsection (ii)
of this section (c).
(A) Dividends which accumulate during a
Short-Term Dividend Period shall be
payable commencing on the Initial
Dividend Payment Date and thereafter,
except as provided below in section
(c)(i)(B), on each seventh Thursday
following the preceding Dividend Payment
Date. Dividends which accumulate during
a Long-Term Dividend Period shall be
payable, except as provided below in
section (c)(i)(C), on the Business Day
next succeeding the last day of such
Long-Term Dividend Period and, if
occurring prior to the last day of such
Long-Term Dividend Period, on the first
Thursday of the fourth calendar month
after the commencement of such Long-Term
Dividend Period. Dividends which
accumulate during a Seven-Day Dividend
Period occurring in connection with an
Auction (whether or not held) pursuant to
section (c)(i)(J) shall be payable,
except as provided below in section
(c)(i)(B), on the seventh day following
the Dividend Payment Date next succeeding
the date of such Auction (or, as the case
may be, the date on which such Auction
was to have been held). Each day on
which dividends would be payable as
determined as set forth in this
subsection (A) but for the provisions set
forth below in this section (c)(i) is
referred to herein as a "Normal Dividend
Payment Date."
(B) In the case of dividends payable on
shares with a Short-Term Dividend Period
or a Seven-Day Dividend Period, if:
(1) (x) the Securities Depository
shall then make available to its
members and participants the
amounts due as dividends on shares
of Auction Preferred Stock in
next-day funds on the dates on
which such dividends are payable
and (y) a Normal Dividend Payment
Date is not a Business Day, or the
day next succeeding such Normal
Dividend Payment Date is not a
Business Day, then dividends shall
be payable on the first Business
Day preceding such Normal Dividend
Payment Date that is next
succeeded by a Business Day; or
(2) (x) the Securities Depository
shall then make available to its
members and participants the
amounts due as dividends on shares
of Auction Preferred Stock in
immediately available funds on the
dates on which such dividends are
payable (and the Securities
Depository shall have so advised
the Trust Company) and (y) a
Normal Dividend Payment Date is
not a Business Day, then dividends
shall be payable on the first
Business Day following such Normal
Dividend Payment Date.
(C) In the case of dividends payable on the
shares with a Long-Term Dividend Period,
if:
(1) (x) the Securities Depository
shall then make available to its
members and participants the
amounts due as dividends on
17
<PAGE> 18
shares of Auction Preferred Stock
in next-day funds on the dates on
which such dividends are payable
and (y) a Normal Dividend Payment
Date is not a Business Day, or the
day next succeeding such Normal
Dividend Payment Date is not a
Business Day, then dividends shall
be payable on the first Business
Day following such Normal Dividend
Payment Date that is next
succeeded by a Business Day; or
(2) (x) the Securities Depository
shall then make available to its
members and participants the
amounts due as dividends on shares
of Auction Preferred Stock in
immediately available funds on the
dates on which such dividends are
payable (and the Securities
Depository shall have so advised
the Trust Company) and (y) a
Normal Dividend Payment Date is
not a Business Day, then dividends
shall be payable on the first
Business Day following such Normal
Dividend Payment Date.
(D) Notwithstanding clauses (A), (B) and (C)
above, if the date on which the dividends
on the Auction Preferred Stock would be
payable as determined as set forth in
clauses (A), (B) or (C) above is a day
that would result in the number of days
between successive Auction Dates
(determined by excluding the first
Auction Date and including the second
Auction Date) not being at least equal to
the then current minimum holding period
(which minimum holding period, as of
November 1, 1990, is set forth in Section
246(c) of the Code) (the "Minimum Holding
Period") required for taxpayers to be
entitled to the dividends-received
deduction on preferred stock held by
non-affiliated corporations (which
deduction, as of November 1, 1990, is
allowed by Section 243(a) of the Code)
("Dividends-Received Deduction"), then,
unless the second such Auction Date
occurs on the Business Day next preceding
the last day of a Seven-Day Dividend
Period, dividends on such shares shall be
payable, if either clause (B)(1) or
(C)(1) above would be applicable, on the
first Business Day following such date on
which dividends would be so payable that
is next succeeded by a Business Day or,
if either clause (B)(2) or (C)(2) above
would be applicable, on the first
Business Day following such day on which
dividends would be so payable, that in
either case results in the number of days
between such successive Auction Dates
(determined as set forth above) being at
least equal to the then current Minimum
Holding Period.
(E) Notwithstanding clauses (A), (B), (C) and
(D) above, in the event of a change in
law altering the Minimum Holding Period,
the period of time between Dividend
Payment Dates shall, without further act,
be automatically adjusted so that the
number of days (such number of days,
without giving effect to the provisions
in sections (c)(i)(B) and (C), being
hereinafter referred to as "Dividend
Period Days") in Dividend Periods
commencing after the date of such change
in law shall equal the lowest multiple of
seven which is not less than the then
current Minimum Holding Period; provided,
however, that the maximum number of
Dividend Period Days shall in no event
exceed 98; and provided, further,
18
<PAGE> 19
that this clause (E) shall not apply to a
Seven-Day Dividend Period except to the
extent that the Minimum Holding Period,
as altered by such change in law, exceeds
the aggregate number of Dividend Period
Days in such Seven-Day Dividend Period
and the next preceding Dividend Period.
Upon any such change in the number of
Dividend Period Days as a result of such
a change in law, the Corporation shall
mail notice of such change by first-class
mail, postage prepaid, to the Trust
Company and to each Holder at such
Holder's address as the same appears on
the Stock Books of the Corporation, to
each Broker-Dealer and to the Designator
and to the Securities Depository.
(F) Each date on which dividends on the
shares shall be payable as determined as
set forth above shall be referred to
herein as a "Dividend Payment Date." The
period from (and including) a Dividend
Payment Date to (but excluding) the next
succeeding Dividend Payment Date with
respect to a Long-Term Dividend Period is
herein referred to as a "Dividend
Quarter." Although any particular
Dividend Payment Date may not occur on
the originally scheduled Normal Dividend
Payment Date because of the foregoing
provisions, each succeeding Dividend
Payment Date shall be, subject to such
provisions, the date determined as set
forth in clause (A) above as if all
preceding Dividend Payment Dates had
occurred on their respective originally
scheduled Normal Dividend Payment Dates.
(G) The Initial Dividend Payment Date for the
Auction Preferred Stock shall be January
10, 1991 (the "Initial Dividend Payment
Date"), and the Initial Dividend Period
shall have a number of Dividend Period
Days equal to the number of days from
(and including) the Date of Original
Issue to (but excluding) the Initial
Dividend Payment Date (the "Initial
Dividend Period"). After the Initial
Dividend Period, each subsequent Dividend
Period shall (except for the adjustments
provided in clauses (B), (C) and (D)
above) be 49 days (each such 49-day
period, subject to any adjustment as a
result of a change in law lengthening the
Minimum Holding Period as provided in
section (c)(i)(E) above, being referred
to herein as a "Short-Term Dividend
Period"), unless, as provided in section
(c)(i)(H) below, the Designator
designates any such subsequent Dividend
Period as a Long-Term Dividend Period and
unless, as provided in section (c)(i)(J)
below, any Dividend Period shall be a
Seven-Day Dividend Period (each such
Short-Term Dividend Period, Long-Term
Dividend Period and Seven-Day Dividend
Period, together with the Initial
Dividend Period, being referred to herein
as a "Dividend Period"). After the
Initial Dividend Period, each successive
Dividend Period shall commence on, and
include, a Dividend Payment Date and
shall end (1) in the case of a Short-Term
Dividend Period or a Seven-Day Dividend
Period, on the day next preceding the
next succeeding Dividend Payment Date and
(2) in the case of a Long-Term Dividend
Period, on the last day of the Long-Term
Dividend Period specified by the
Designator in the related Notice of
Long-Term Dividend Period.
19
<PAGE> 20
(H) In the event that the Designator shall,
in accordance with the terms of section
(c)(i)(I) below, designate any Dividend
Period as a Long-Term Dividend Period, it
shall give notice of such designation,
stating the duration of such Long-Term
Dividend Period, on or prior to the tenth
day, but not earlier than the twentieth
day, prior to the Auction Date next
preceding the first day of such Dividend
Period, by telephonic and written notice
(a "Notice of Long- Term Dividend
Period") to the Corporation, the Trust
Company and the Securities Depository;
provided, however, that after the initial
Auction, such Notice of Long-Term
Dividend Period shall be null and void
and the designation of a Long-Term
Dividend Period shall be of no force or
effect unless Sufficient Clearing Bids
were made in the Auction next preceding,
and full cumulative dividends have been
paid in full to the Dividend Payment Date
next preceding, the date of such Notice
of Long-Term Dividend. Any Notice of
Long-Term Dividend Period may be revoked
by the Designator in its sole discretion
on or prior to the third Business Day
prior to the related Auction Date by
telephonic and written notice (a "Notice
of Revocation") to the Corporation, the
Trust Company and the Securities
Depository. If the Designator does not
give a Notice of Long-Term Dividend
Period with respect to any Dividend
Period or gives a Notice of Revocation
with respect thereto, each succeeding
Dividend Period (subject to the exception
stated in clause (J)(2) below) shall be a
Short-Term Dividend Period. Unless a
Notice of Revocation shall be duly and
timely given with respect to a Notice of
Long-Term Dividend Period or the
provisions of clause (J) below shall be
applicable, the term specified in any
such Notice of Long-Term Dividend Period
shall, except to the extent inconsistent
with any other express provision herein,
be conclusive and binding on the
Corporation and the Holders of shares of
Auction Preferred Stock with respect to
the next succeeding Dividend Period.
(I) The Designator shall designate a Dividend
Period as a Long-Term Dividend period of
a specified duration if the Designator
shall have concluded, in its sole
judgment based upon its evaluation of
Market Conditions, that the establishment
of such Long-Term Dividend Period would
minimize the cost of capital to the
Corporation in respect of the Auction
Preferred Stock for the duration of such
designated Long-Term Dividend Period.
(J) In the event that (1) Sufficient Clearing
Bids are not made in an Auction in
respect of which a Notice of Long-Term
Dividend Period shall have been given by
the Designator in accordance with section
(c)(i)(H) above, (x) the Dividend Period
next succeeding such Auction shall,
notwithstanding such Notice of Long-Term
Dividend Period, be a period of 7 days
commencing on the Dividend Payment Date
next succeeding such Auction Date (a
"Seven-Day Dividend Period") and (y) such
Notice shall be null and void and the
designation of a Long-Term Dividend
Period shall be of no force or effect,
and the Designator may not again give a
Notice of Long-Term Dividend Period until
Sufficient Clearing Bids have been made
in a subsequent Auction with respect to a
Short-Term Dividend Period, and (2) an
Auction is not held on an Auction Date
20
<PAGE> 21
for any reason other than the
discontinuation of Auctions due to the
occurrence of a Nonpayment Event or the
prior call for redemption of all the
shares of Auction Preferred Stock then
outstanding, the next succeeding Dividend
Period shall be a Seven-Day Dividend
Period. The Dividend Period next
succeeding a Seven-Day Dividend Period
shall be a Short-Term Dividend Period
unless an Auction is not held on the
Auction Date included within such
Seven-Day Dividend Period for the reasons
specified in clause (J)(2) above, in
which case the next succeeding Dividend
Period shall be a Seven-Day Dividend
Period.
(K) Dividends on the Auction Preferred Stock,
if any and to the extent declared, shall
be paid on each Dividend Payment Date in
funds available on such date. The
Corporation shall on or prior to each
Dividend Payment Date deposit with the
Trust Company funds sufficient to pay
dividends then payable on such Dividend
Payment Date with irrevocable
instructions to the Trust Company to make
such payment to the Holders.
(L) Dividends on the Auction Preferred Stock,
if and to the extent declared, shall be
paid to the Holders thereof as such
Holders' names appear on the Stock Books
on the record date relating to each
Dividend Payment Date, which shall be the
opening of business on the Business Day
immediately preceding such Dividend
Payment Date.
(ii) The Dividend Rate on the Auction Preferred
Stock (A) for the Initial Dividend Period shall
be 7.50% per annum and (B) for each subsequent
Dividend Period shall be the Applicable Rate
for such Dividend Period. The "Applicable
Rate" for each such Dividend Period shall be
the rate per annum determined pursuant to Part
II below. Notwithstanding the foregoing, (1)
in the event shares of Auction Preferred Stock
are duly called for redemption, the Dividend
Rate on such shares until the redemption date
shall be the Applicable Rate in effect on the
date the notice of redemption is given; (2) the
Applicable Rate on the Auction Preferred Stock
during any Seven-Day Dividend Period shall be
(x) if such Seven-Day Dividend Period occurs
pursuant to section (c)(i)(J)(1) above, the
greatest of (I) the Maximum Applicable Rate for
a Short-Term Dividend Period as of the Auction
Date next preceding such Seven-Day Dividend
Period, (II) the Maximum Applicable Rate for a
Long-Term Dividend Period having a term equal
to the term specified in the Notice of
Long-Term Dividend Period given in respect of
such Auction Date and (III) the Applicable Rate
in effect for the Dividend Period during which
such Auction Date occurred, and (y) if such
Seven-Day Dividend Period occurs pursuant to
section (c)(i)(J)(2) above, the Maximum
Applicable Rate for a Short-Term Dividend
Period as of the Auction Date next preceding
such Seven-Day Dividend Period; and (3) in the
event and during the continuance of any
Nonpayment Event, (x) Auctions will be
discontinued, (y) if the dividends in respect
of which such Nonpayment Event occurred were to
be paid in respect of, or the redemption in
respect of which such Nonpayment Event occurred
was to have occurred on a redemption date
during a Long-Term Dividend Period, such
Long-Term Dividend Period shall cease and a
Short-Term Dividend Period shall be deemed to
have commenced on the Dividend Payment Date or
redemption
21
<PAGE> 22
date, as the case may be, in respect of which
such Nonpayment Event occurred, and (z) the
Applicable Rate on the Auction Preferred Stock
for each succeeding Short-Term Dividend Period
(including without limitation a Short-Term
Dividend Period which occurs pursuant to clause
(y) above) shall be the Nonpayment Rate. With
respect to any Nonpayment Event, the
"Nonpayment Rate" shall be the higher of (I)
250% of the Applicable "AA" Composite
Commercial Paper Rate as of the Business Day
next preceding the date on which such
Nonpayment Event occurred and (II)(x) if such
Nonpayment Event first occurred by reason of
nonpayment of dividends, the Applicable Rate in
effect for the Dividend Period in respect of
which such Nonpayment Event first occurred or
(y) if such Nonpayment Event first occurred by
reason of nonpayment of the Redemption Price of
shares called for redemption, the Applicable
Rate in effect on the date the notice of
redemption is given. For purposes of the
foregoing, a "Nonpayment Event" shall be deemed
to occur upon the nonpayment by the Corporation
to the Trust Company (aa) on any Dividend
Payment Date, of the full amount of any
dividends accumulated and unpaid on the Auction
Preferred Stock to such Dividend Payment Date
or (bb) on any redemption date, of the full
amount of the Redemption Price to be paid on
such redemption date for any share with respect
to which a notice of redemption has been given.
Notwithstanding the foregoing, a Nonpayment
Event shall be deemed not to have occurred if
on or prior to the first Business Day next
succeeding any such nonpayment, the Corporation
shall have paid to the Trust Company (I) in the
case of a nonpayment of dividends, the full
amount of the dividends accumulated and unpaid
on the Auction Preferred Stock to the Dividend
Payment Date in respect of which such
nonpayment occurred or (II) in the case of a
nonpayment of the Redemption Price, the full
amount of the aggregate Redemption Price of all
shares with respect to which the notice of
redemption was given. A Nonpayment Event shall
continue until there shall occur an Auction
Date on which the full amount of all dividends
payable on each Dividend Payment Date prior to
such Auction Date, and the full amount of any
Redemption Price then or theretofore due, shall
have been paid to the Trust Company, and
thereupon Auctions shall be resumed on such
Auction Date on the terms stated herein for
Dividend Periods commencing after such Auction
Date.
The amount of dividends per share of the
Auction Preferred Stock payable for each
Dividend Period (or for each Dividend Quarter
during any Long-Term Dividend Period) shall be
computed by multiplying the Dividend Rate for
each Dividend Period by a fraction, the
numerator of which shall be the number of days
in the Dividend Period (or Dividend Quarter, as
the case may be) such share was outstanding and
the denominator of which shall be 360 and
multiplying the amount so obtained by $100,000.
(d) The shares of said tenth series may, at the option of
the Corporation, be redeemed, as a whole or in part
on the last Dividend Payment Date in respect of any
Dividend Period, at the Redemption Price payable on
the date of such redemption. In the event of
redemption of less than all the outstanding shares of
Auction Preferred Stock, the shares to be redeemed
shall be selected by lot among the Holders of the
shares of said tenth series then outstanding in such
manner as the appropriate Officers of the Corporation
shall determine to result in a random selection. The
shares of said tenth series shall not be
22
<PAGE> 23
redeemable at the option of the Corporation except as
set forth in this section (d).
(e) The amount payable upon the shares of said tenth
series in the event of dissolution, liquidation or
winding up of the Corporation shall be $100,000 per
share plus an amount equivalent to the accumulated
and unpaid dividends thereon, if any, to the date of
such dissolution, liquidation or winding up.
(f) There shall be no sinking fund provisions for the
redemption or purchase of the shares of said tenth
series.
(g) The shares of said tenth series shall not, by their
terms, be convertible.
PART II
(a) Certain Definitions. Capitalized terms not defined in
this Part II shall have the respective meanings specified
in Part I above. As used in this Part II, the following
terms shall have the following meanings, unless the
context otherwise requires:
(i) "Affiliate" shall mean any Person known to the
Trust Company to be controlled by, in control
of or under common control with the
Corporation.
(ii) "Agent Member" shall mean the member of or
participant in the Securities Depository that
will act on behalf of a Bidder and is
identified as such in such Bidder's Master
Purchaser's Letter.
(iii) "Auction" shall mean the periodic
implementation of the procedures set forth in
this Part II.
(iv) "Auction Date" shall mean the Business Day next
preceding the first day of each Dividend Period
after the Initial Dividend Period.
(v) "Auction Preferred Stock" shall mean shares of
Flexible Auction Preferred Stock, Series J, of
the Corporation subject to an Auction on any
Auction Date.
(vi) "Available Auction Preferred Stock" shall have
the meaning specified in section (d)(i) below.
(vii) "Bid" shall have the meaning specified in
section (b)(i) below.
(viii) "Bidder" shall have the meaning specified in
section (b)(i) below.
(ix) "Bid Excess" shall have the meaning specified
in section (c)(iv)(B)(1) below.
(x) "Broker-Dealer" shall mean any broker-dealer or
other entity permitted by law to perform the
functions required of a Broker-Dealer in this
Part II that has been selected by the
Corporation to perform such functions and has
entered into a Broker-Dealer Agreement with the
Trust Company that remains effective.
23
<PAGE> 24
(xi) "Broker-Dealer Agreement" shall mean an
agreement between the Trust Company and a
Broker-Dealer pursuant to which such
Broker-Dealer agrees to follow the procedures
specified in this Part II.
(xii) "Existing Holder," when used with respect to
shares of Auction Preferred Stock, shall mean a
Person who has signed a Master Purchaser's
Letter and is listed as the beneficial owner of
such shares of Auction Preferred Stock in the
records of the Trust Company.
(xiii) "Hold Order" shall have the meaning specified
in section (b)(i) below.
(xiv) "Master Purchaser's Letter" shall mean a letter
addressed to the Corporation, the Trust
Company, a Broker-Dealer and others in which a
Person agrees, among other things, to offer to
purchase, purchase, offer to sell and/or sell
shares of Auction Preferred Stock as set forth
in this Part II.
(xv) "Order" shall have the meaning specified in
section (b)(i) below.
(xvi) "Outstanding " shall, for purposes of this Part
II, mean, as of any date, shares of Auction
Preferred Stock theretofore issued by the
Corporation except, without duplication, (A)
any shares of Auction Preferred Stock
theretofore cancelled or delivered to the Trust
Company for cancellation, or redeemed by the
Corporation or as to which a notice of
redemption shall have been given by the
Corporation, (B) any shares of Auction
Preferred Stock as to which the Corporation or
any Affiliate thereof (other than an Affiliate
which is a Broker-Dealer) shall be an Existing
Holder and (C) any shares of Auction Preferred
Stock represented by any certificate in lieu of
which a new certificate has been executed and
delivered by the Corporation.
(xvii) "Person" shall mean and include an individual,
a partnership, a corporation, a trust, an
unincorporated association, a joint venture or
other entity or a government or any agency or
political subdivision thereof.
(xviii) "Potential Holder" shall mean any Person,
including any Existing Holder, (A) who shall
have executed a Master Purchaser's Letter and
(B) who may be interested in acquiring shares
of Auction Preferred Stock (or, in the case of
an Existing Holder, additional shares of
Auction Preferred Stock).
(xix) "Securities Depository" shall mean The
Depository Trust Company and its successors and
assigns or any other securities depository
selected by the Corporation which agrees to
follow the procedures required to be followed
by such securities depository in connection
with shares of Auction Preferred Stock.
(xx) "Sell Excess" shall have the meaning specified
in section (c)(iv)(C)(1) below.
(xxi) "Sell Order" shall have the meaning specified
in section (b)(i) below.
(xxii) "Submission Deadline" shall mean 12:30 p.m.,
New York City time, on any Auction Date or such
other time on any Auction Date by which
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<PAGE> 25
Broker-Dealers are required to submit Orders to
the Trust Company as specified by the Trust
Company with the consent of the Company from
time to time.
(xxiii) "Submitted Bid" shall have the meaning
specified in section (d)(i) below.
(xxiv) "Submitted Hold Order" shall have the meaning
specified in section (d)(i) below.
(xxv) "Submitted Order" shall have the meaning
specified in section (d)(i) below.
(xxvi) "Submitted Sell Order" shall have the meaning
specified in section (d)(i) below.
(xxvii) "Sufficient Clearing Bids" shall have the
meaning specified in section (d)(i) below.
(xxviii) "Winning Bid Rate" shall have the meaning
specified in section (d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) Prior to the Submission Deadline on each Auction
Date:
(A) each Existing Holder may submit to a
Broker-Dealer information as to:
(1) the number of Outstanding shares, if any,
of Auction Preferred Stock held by such
Existing Holder which such Existing
Holder desires to continue to hold
without regard to the Applicable Rate for
the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any,
of Auction Preferred Stock that such
Existing Holder desires to continue to
hold, provided that the Applicable Rate
for the next succeeding Dividend Period
shall not be less than the rate per annum
specified by such Existing Holder; and/or
(3) the number of Outstanding shares, if any,
of Auction Preferred Stock held by such
Existing Holder which such Existing
Holder offers to sell without regard to
the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential
Holders that shall be maintained by such
Broker- Dealer in good faith for the purpose
of conducting a competitive Auction, shall
contact Potential Holders, including Persons
that are not Existing Holders, on such list to
determine the number of shares, if any, of
Auction Preferred Stock that each such
Potential Holder offers to purchase, provided
that the Applicable Rate for the next
succeeding Dividend Period shall not be less
than the rate per annum specified by such
Potential Holder.
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<PAGE> 26
For the purposes hereof, the communication to
a Broker-Dealer of the information referred to
in this section (b)(i) is hereinafter referred
to as an "Order" and each Existing Holder and
each Potential Holder placing an Order is
hereinafter referred to as a "Bidder"; an
Order containing the information referred to
in clause (A)(1) of this section (b)(i) is
hereinafter referred to as a "Hold Order"; an
Order containing the information referred to
in clause (A)(2) or (B) of this section (b)(i)
is hereinafter referred to as a "Bid"; and an
Order containing the information referred to
in clause (A)(3) of this section (b)(i) is
hereinafter referred to as a "Sell Order."
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to sell:
(1) the number of Outstanding shares of
Auction Preferred Stock specified in such
Bid if the Applicable Rate determined on
such Auction Date shall be less than the
rate per annum specified in such Bid;
(2) the number of Outstanding shares of
Auction Preferred Stock specified in such
Bid or a lesser number of Outstanding
shares of Auction Preferred Stock to be
determined as set forth in section
(e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be
equal to the rate per annum specified in
such Bid; or
(3) the number of Outstanding shares of
Auction Preferred Stock specified in such
Bid or a lesser number of Outstanding
shares of Auction Preferred Stock to be
determined as set forth in section
(e)(ii)(C) if the rate per annum
specified in such Bid shall be higher
than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of
Auction Preferred Stock specified in such
Sell Order; or
(2) the number of Outstanding shares of
Auction Preferred Stock specified in such
Sell Order or a lesser number of
Outstanding shares of Auction Preferred
Stock to be determined as set forth in
section (e)(ii)(C) if Sufficient Clearing
Bids do not exist.
(C) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(1) the number of Outstanding shares of
Auction Preferred Stock specified in such
Bid if the Applicable Rate determined on
such Auction Date shall be higher than
the rate per annum specified in such Bid;
or
(2) the number of Outstanding shares of
Auction Preferred Stock specified in such
Bid or a lesser number of Outstanding
Shares of Auction Preferred Stock to be
determined as set forth in section
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<PAGE> 27
(e)(i)(E) if the Applicable Rate determined on
such Auction Date shall be equal to the rate
per annum specified in such Bid.
(iii) On each Auction Date, the Trust Company will
determine the Applicable "AA" Composite Commercial
Paper Rate, and the Maximum Applicable Rate and
will notify each Broker-Dealer of each such rate
not later than 9:30 A.M., New York City time on
such Auction Date (or such other time on such
Auction Date as specified by the Trust Company).
(c) Submission of Orders by Broker-Dealers to Trust Company.
(i) Each Broker-Dealer shall submit in writing to the
Trust Company prior to the Submission Deadline on
each Auction Date all Orders obtained by such
Broker-Dealer and shall specify with respect to
each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of shares of Auction
Preferred Stock that are the subject of such
Order;
(C) to the extent that such Bidder is an Existing
Holder:
(1) the number of shares, if any, of Auction
Preferred Stock subject to any Hold Order
placed by such Existing Holder;
(2) the number of shares, if any, of Auction
Preferred Stock subject to any Bid placed
by such Existing Holder and the rate
specified in such Bid; and
(3) the number of shares, if any, of Auction
Preferred Stock subject to any Sell Order
placed by such Existing Holder; and
(D) to the extent that such Bidder is a Potential
Holder, the rate and the number of shares of
Auction Preferred Stock specified in such
Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than
three figures to the right of the decimal point,
the Trust Company shall round such rate up to the
next higher one thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the
Outstanding shares of Auction Preferred Stock held
by an Existing Holder is not submitted to the Trust
Company prior to the Submission Deadline, the Trust
Company shall deem a Hold Order to have been
submitted on behalf of such Existing Holder
covering the number of Outstanding shares of
Auction Preferred Stock held by such Existing
Holder and not subject to Orders submitted to the
Trust Company.
(iv) If one or more Orders submitted by an Existing
Holder covering in the aggregate more than the
number of Outstanding shares of Auction Preferred
Stock held by an Existing Holder are submitted to
the Trust Company, such Orders shall be considered
valid as follows and in the following order of
priority:
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<PAGE> 28
(A) any Hold Order submitted on behalf of such
Existing Holder shall be considered valid up
to and including the number of Outstanding
shares of Auction Preferred Stock held by such
Existing Holder; provided that if more than
one Hold Order is submitted on behalf of such
Existing Holder and the number of shares of
Auction Preferred Stock subject to such Hold
Orders exceeds the number of Outstanding
shares of Auction Preferred Stock held by such
Existing Holder, the number of shares of
Auction Preferred Stock subject to such Hold
Orders shall be reduced pro rata so that such
Hold Orders shall cover the number of
Outstanding shares of Auction Preferred Stock
held by such Existing Holder.
(B) (1) any Bid shall be considered valid up to
and including the excess (the "Bid
Excess") of the number of Outstanding
shares of Auction Preferred Stock held by
such Existing Holder over the number of
shares of Auction Preferred Stock subject
to Hold Orders referred to in section
(c)(iv)(A); and
(2) subject to clause (1) above, if more than
one Bid with the same rate is submitted
on behalf of such Existing Holder and the
number of Outstanding shares of Auction
Preferred Stock subject to such Bids is
greater than the Bid Excess, the number
of shares of Auction Preferred Stock
subject to such Bids shall be reduced pro
rata so that such Bids shall cover the
number of shares of Auction Preferred
Stock equal to the Bid Excess; and
(3) subject to clause (1) above, if more than
one Bid with different rates is submitted
on behalf of such Existing Holder, such
Bids shall be considered valid in the
ascending order of their respective rates
up to and including the Bid Excess, and
in any such event the number, if any, of
such Outstanding shares subject to Bids
not valid under this clause (B) shall be
treated as the subject of a Bid by a
Potential Holder; and
(C) (1) any Sell Order shall be considered valid
up to and including the excess (the "Sell
Excess") of the number of Outstanding
shares of Auction Preferred Stock held by
such Existing Holder over the number of
shares of Auction Preferred Stock subject
to Hold Orders referred to in section
(c)(iv)(A) and Bids referred to in
section (c)(iv)(B); and
(2) subject to clause (1) above, if more than
one Sell Order is submitted on behalf of
such Existing Holder and the number of
Outstanding shares of Auction Preferred
Stock subject to such Sell Orders is
greater than the Sell Excess, the number
of shares of Auction Preferred Stock
subject to such Sell Orders shall be
reduced pro rata so that such Sell Orders
shall cover the number of shares of
Auction Preferred Stock equal to the Sell
Excess.
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a
separate Bid with the rate and number of shares of
Auction Preferred Stock therein specified.
(d) Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate.
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<PAGE> 29
(i) Not earlier than the Submission Deadline on each
Auction Date, the Trust Company shall assemble all
Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or
deemed submitted by a Broker-Dealer being
hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid," or a
"Submitted Sell Order," as the case may be, or as a
"Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding
shares of Auction Preferred Stock over the
number of Outstanding shares of Auction
Preferred Stock that are the subject of
Submitted Hold Orders (such excess being
hereinafter referred to as the "Available
Auction Preferred Stock");
(B) from the Submitted Orders whether the number
of Outstanding shares of Auction Preferred
Stock that are the subject of Submitted Bids
by Potential Holders specifying one or more
rates equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum
of:
(x) the number of Outstanding shares of
Auction Preferred Stock that are the
subject of Submitted Bids by Existing
Holders specifying one or more rates
higher than the Maximum Applicable Rate;
and
(y) the number of Outstanding shares of
Auction Preferred Stock that are subject
to Submitted Sell Orders (if such excess
or such equality exists (other than
because the number of shares of Auction
Preferred Stock in clauses (x) and (y) is
each zero because all of the Outstanding
shares of Auction Preferred Stock are the
subject of Submitted Hold Orders), such
Submitted Bids by Potential Holders being
hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest
rate specified in the Submitted Bids (the
"Winning Bid Rate") which if the Trust Company
accepted:
(1) each Submitted Bid from Existing Holders
specifying such lowest rate and all other
Submitted Bids from Existing Holders
specifying rates lower than such lowest
rate, and
(2) each Submitted Bid from Potential Holders
specifying such lowest rate and all other
Submitted Bids from Potential Holders
specifying rates lower than such lowest
rate,
would result in such Existing Holders
continuing to hold an aggregate number of
Outstanding shares of Auction Preferred Stock
that, when added to the number of Outstanding
shares of Auction Preferred Stock to be
purchased by such Potential Holders, would
equal not less than the Available Auction
Preferred Stock.
(ii) Promptly after the Trust Company has made the
determinations pursuant to section (d)(i), the
Trust Company shall advise the Corporation of the
Applicable Rate for the next succeeding Dividend
Period as follows:
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<PAGE> 30
(A) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding
Dividend Period shall be equal to the Winning
Bid Rate so determined;
(B) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding
shares of Auction Preferred Stock are the
subject of Submitted Hold Orders), then (a)
if the Designator has not given a Notice of
Long-Term Dividend Period with respect to the
next succeeding Dividend Period or has given
a Notice of Revocation with respect thereto,
that the Applicable Rate for such next
succeeding Dividend Period will be the
Maximum Applicable Rate on the Auction Date
for a Short-Term Dividend Period and (b) if
the Designator has given a Notice of
Long-Term Dividend Period with respect to the
next succeeding Dividend Period and has not
given a Notice of Revocation with respect
thereto, that such next succeeding Dividend
Period will, notwithstanding such Notice of
Long-Term Dividend Period, be a Seven-Day
Dividend Period, and that the Applicable Rate
for such next succeeding Dividend Period will
be the greatest of (1) the Maximum Applicable
Rate on the Auction Date for a Short-Term
Dividend Period, (2) the Maximum Applicable
Rate on the Auction Date for a Long-Term
Dividend Period having a number of Dividend
Period Days equal to the number of Dividend
Period Days specified in such Notice of
Long-Term Dividend Period, and (3) the
dividend rate in effect for the Dividend
Period during which such Auction occurred; or
(C) if all of the Outstanding shares of Auction
Preferred Stock are the subject of Submitted
Hold Orders, that the Applicable Rate for the
next succeeding Dividend Period shall be
equal to 58% of the Applicable "AA" Composite
Commercial Paper Rate in effect on such
Auction Date.
(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Existing Holders
shall continue to hold shares of Auction Preferred Stock
that are the subject of Submitted Hold Orders and, based
on the determinations made pursuant to section (d)(i), the
Submitted Bids and the Submitted Sell Orders shall be
accepted or rejected and the Trust Company shall take such
other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject
to the provisions of section (e)(iii), Submitted
Bids and Submitted Sell Orders shall be accepted or
rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders
shall be accepted and the Submitted Bid of
each of the Existing Holders specifying any
rate that is higher than the Winning Bid Rate
shall be rejected, thus requiring each such
Existing Holder to sell the shares of Auction
Preferred Stock that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each of the Existing
Holders specifying any rate that is lower
than the Winning Bid Rate shall be accepted,
thus entitling each such Existing Holder to
continue to hold the shares of Auction
Preferred Stock that are the subject of such
Submitted Bid;
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<PAGE> 31
(C) the Submitted Bid of each of the Potential
Holders specifying any rate that is lower
than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing
Holders specifying a rate that is equal to
the Winning Bid Rate shall be accepted, thus
entitling each such Existing Holder to
continue to hold the shares of Auction
Preferred Stock that are the subject of such
Submitted Bid, unless the number of
Outstanding shares of Auction Preferred Stock
subject to all such Submitted Bids shall be
greater than the number of shares of Auction
Preferred Stock ("remaining shares") equal to
the excess of the Available Auction Preferred
Stock over the number of shares of Auction
Preferred Stock subject to Submitted Bids
described in sections (e)(i)(B) and
(e)(i)(C), in which event the Submitted Bids
of each such Existing Holder shall be
rejected and each such Existing Holder shall
be required to sell shares of Auction
Preferred Stock, but only in an amount equal
to the difference between (1) the number of
Outstanding shares of Auction Preferred Stock
then held by such Existing Holder subject to
such Submitted Bid and (2) the number of
shares of Auction Preferred Stock obtained by
multiplying (x) the number of remaining
shares by (y) a fraction, the numerator of
which shall be the number of Outstanding
shares of Auction Preferred Stock held by
such Existing Holder subject to such
Submitted Bid and the denominator of which
shall be the sum of the number of Outstanding
shares of Auction Preferred Stock subject to
such Submitted Bids made by all such Existing
Holders that specified a rate equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential
Holders specifying a rate that is equal to
the Winning Bid Rate shall be accepted, but
only in an amount equal to the number of
shares of Auction Preferred Stock obtained by
multiplying the difference between the
Available Auction Preferred Stock and the
number of shares of Auction Preferred Stock
subject to Submitted Bids described in
sections (e)(i)(B), (e)(i)(C) and (e)(i)(D)
by a fraction, the numerator of which shall
be the number of Outstanding shares of
Auction Preferred Stock subject to such
Submitted Bid and the denominator of which
shall be the sum of the number of Outstanding
shares of Auction Preferred Stock subject to
such Submitted Bids made by all such
Potential Holders that specified rates equal
to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made
(other than because all of the Outstanding shares
of Auction Preferred Stock are subject to Submitted
Hold Orders in an Auction relating to a Short-Term
Dividend Period), subject to the provisions of
sections (e)(iii) and (e)(iv), Submitted Orders
shall be accepted or rejected as follows in the
following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder
specifying any rate that is equal to or lower
than the Maximum Applicable Rate shall be
accepted thus entitling such Existing Holder
to continue to hold the shares of Auction
Preferred Stock that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential Holder
specifying any rate that is equal to or lower
than the Maximum Applicable Rate shall be
accepted,
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<PAGE> 32
thus requiring such Potential Holder to
purchase the shares of Auction Preferred
Stock that are the subject of such Submitted
Bid; and
(C) the Submitted Bids of each Existing Holder
specifying any rate that is higher than the
Maximum Applicable Rate shall be rejected and
the Submitted Sell Orders of each Existing
Holder shall be accepted, in both cases only
in an amount equal to the difference between
(1) the number of Outstanding shares of
Auction Preferred Stock then held by such
Existing Holder subject to such Submitted Bid
or Submitted Sell Order and (2) the number of
shares of Auction Preferred Stock obtained by
multiplying (x) the difference between the
Available Auction Preferred Stock and the
aggregate number of shares of Auction
Preferred Stock subject to Submitted Bids
described in sections (e)(ii)(A) and
(e)(ii)(B) by (y) a fraction, the numerator
of which shall be the number of Outstanding
shares of Auction Preferred Stock held by
such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of
Outstanding shares of Auction Preferred Stock
subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in
section (e)(i) or (e)(ii), any Existing Holder
would be entitled or required to sell, or any
Potential Holder would be entitled or required to
purchase, a fraction of a share of Auction
Preferred Stock on any Auction Date, the Trust
Company shall, in such manner as, in its sole
discretion, it shall determine, round up or down
the number of shares of Auction Preferred Stock to
be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date so that the
number of shares purchased or sold by each Existing
Holder or Potential Holder on such Auction Date
shall be whole shares of Auction Preferred Stock.
(iv) If, as a result of the procedures described in
section (e)(i), any Potential Holder would be
entitled or required to purchase less than a whole
share on any Auction Date, the Trust Company shall,
in such manner as, in its sole discretion, it shall
determine, allocate shares for purchase among
Potential Holders so that only whole shares are
purchased on such Auction Date by any Potential
Holder, even if such allocation results in one or
more of such Potential Holders not purchasing
shares on such Auction Date.
(v) If Sufficient Clearing Bids have not been made
(other than because all of the Outstanding shares
of Auction Preferred Stock are subject to Submitted
Hold Orders) in an Auction relating to a Long-Term
Dividend Period, all Submitted Bids and all
Submitted Sell Orders shall be rejected, thus
requiring each Existing Holder to continue to hold
the shares of Auction Preferred Stock held by such
Existing Holder immediately prior to such Auction.
(vi) If all of the Outstanding shares of Auction
Preferred Stock are the subject of Submitted Hold
Orders, all Submitted Bids shall be rejected.
(vii) Based on the results of each Auction, the Trust
Company shall determine the aggregate number of
shares of Auction Preferred Stock to be purchased
and the aggregate number of shares of Auction
Preferred Stock to be sold by Potential Holders and
Existing Holders on whose behalf each Broker-Dealer
submitted Bids or Sell Orders, and, with respect to
each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such
aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or
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<PAGE> 33
Broker-Dealers acting for one or more purchasers
such Broker-Dealer shall deliver, or from which
other Broker-Dealer or Broker-Dealers acting for
one or more sellers such Broker-Dealer shall
receive, as the case may be, shares of Auction
Preferred Stock.
(f) Miscellaneous (i) The Board of Directors may interpret the
provisions of this Part II to resolve any inconsistency or
ambiguity which may arise or be revealed in connection
with the Auction Procedures provided for herein and their
interpretation shall be binding, (ii) an Existing Holder
(A) may sell, transfer or otherwise dispose of shares of
Auction Preferred Stock only pursuant to a Bid or Sell
Order in accordance with the procedures described in this
Part II to or through a Broker-Dealer or to a Person that
has delivered a signed copy of a Master Purchaser's Letter
to the Trust Company, provided that in the case of all
transfers other than pursuant to Auctions such Existing
Holder, its Broker-Dealer or its Agent Member advises the
Trust Company of such transfer, and (B) shall have the
beneficial ownership of the shares of Auction Preferred
Stock held by it maintained in book-entry form by the
Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Existing
Holder's beneficial ownership. The Company and its
Affiliates shall not submit any Order in any Auction
except as set forth in the next sentence. Any
Broker-Dealer that is an affiliate of the Company may
submit Orders in Auctions but only if such Orders are not
for its own account, except that if such affiliated
Broker-Dealer holds shares of Auction Preferred Stock for
its own account, it must submit a Sell Order in the next
Auction with respect to such shares of Auction Preferred
Stock.
(g) Headings of Subdivisions. The headings of the various
subdivisions of this Part II are for convenience of
reference only and shall not affect the interpretation of
any of the provisions hereof.
(3) SERIES K. There is hereby established an eleventh series of the
Preferred Stock of the Corporation which shall have, in addition
to the general terms and characteristics of all of the
authorized shares of Preferred Stock of the Corporation, the
following distinctive terms and characteristics:
(a) The eleventh series of Preferred Stock of the Corporation
shall consist of 350,000 shares and be designated as
"$6.95 Preferred Stock, Series K."
(b) Said eleventh series shall have a dividend rate of $6.95
per share per annum.
(c) The amount payable upon the shares of said eleventh series
in the event of dissolution, liquidation or winding up of
the Corporation shall be $100.00 per share plus an amount
equivalent to accumulated and unpaid dividends thereon, if
any, to the date of such dissolution, liquidation or
winding up.
(d) (i) As and for a sinking fund for the redemption of
shares of said eleventh series, on September 15,
2002, and on each September 15 thereafter to and
including September 15, 2006, the Corporation shall
redeem 17,500 shares of said eleventh series, and
on September 15, 2007, the Corporation shall redeem
all of the shares of said eleventh series then
outstanding, in each case at the price of $100.00
per share plus an amount equivalent to the
accumulated and unpaid dividends thereon, if any,
to the date fixed for redemption. The Corporation
shall be entitled, at its option, on September 15,
2002, and on each September 15 thereafter to and
including September 15, 2006, to redeem up to
17,500 shares of said eleventh series, in addition
to the shares
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<PAGE> 34
otherwise required to be redeemed on such date, at
the price of $100.00 per share plus an amount
equivalent to the accumulated and unpaid dividends
thereon, if any, to the date fixed for redemption;
provided, however, that the option of the
Corporation to so redeem up to 17,500 additional
shares of the eleventh series on each such sinking
fund redemption date shall not be cumulative and
shall not reduce the sinking fund requirements of
this subparagraph (d) in any subsequent year. The
Corporation shall be entitled, at its option, to
credit against any sinking fund redemption
requirement any shares of said eleventh series
theretofore purchased or otherwise acquired by the
Corporation and not theretofore credited against
any other sinking fund redemption requirement. In
the case of any redemption pursuant to this
subparagraph (d), the shares to be redeemed shall
be selected by lot among the holders of the shares
of said eleventh series then outstanding in such
manner as the appropriate Officers of the
Corporation shall determine to result in a random
selection. The shares of said eleventh series
shall not be redeemable at the option of the
Corporation except as set forth in this
subparagraph (d).
(ii) The sinking fund requirement of the Corporation to
redeem shares of said eleventh series pursuant to
this subparagraph (d) shall be subject to any
applicable restrictions of law and such redemption
shall be made only out of funds legally available
therefor.
(iii) The sinking fund requirement of the Corporation to
redeem shares of said eleventh series pursuant to
this subparagraph (d) shall be cumulative. If at
any time the Corporation shall not have satisfied
in full the cumulative sinking fund requirement to
redeem shares of said eleventh series, the
Corporation shall not pay or declare and set apart
for payment any dividends upon, or make any other
distribution with respect to, or redeem, purchase
or otherwise acquire any shares of, the Common
Stock or any other class of stock ranking as to
dividends and distributions of assets junior to the
Preferred Stock.
(iv) If at any time the Corporation shall not have
satisfied in full the cumulative sinking fund
requirement to redeem shares of said eleventh
series pursuant to this subparagraph (d), and if at
such time the Corporation shall be required
pursuant to a sinking or similar fund to redeem or
purchase shares of any other series of the
Preferred Stock or any other class of stock ranking
as to dividends and distributions of assets on a
parity with the Preferred Stock, any funds of the
Corporation legally available for the purpose shall
be allocated among all such sinking or similar
funds for series of the Preferred Stock and such
parity stock in proportion to the respective
amounts then required for the satisfaction thereof.
(e) The shares of said eleventh series shall not, by their
terms, be convertible.
FOURTH: The duration of the Corporation shall be perpetual.
FIFTH: The number of Directors of the Corporation shall be such number,
not to exceed ten, as shall be specified from time to time by the Board of
Directors in the Bylaws; provided, however, that if the right to elect a
majority of the Board of Directors shall have accrued to the holders of the
Preferred Stock as provided in paragraph (1) of subdivision (j) of Article
THIRD, then, during such period as such holders shall have such right, the
number of directors may exceed ten. The Directors shall be divided into three
classes, as nearly equal in number as possible. Commencing with the directors
elected at the
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1987 Annual Meeting of Shareholders, the term of office of the first class
shall expire at the 1988 Annual Meeting of Shareholders, the term of office of
the second class shall expire at the 1989 Annual Meeting of Shareholders and
the term of office of the third class shall expire at the 1990 Annual Meeting
of Shareholders. At each Annual Meeting of Shareholders thereafter, Directors
elected to succeed those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of Shareholders
after their election. Notwithstanding the foregoing, Directors elected by the
holders of the Preferred Stock in accordance with paragraph (1) of subdivision
(j) of Article THIRD shall be elected for a term which shall expire not later
than the next Annual Meeting of Shareholders. All Directors shall hold office
until the expiration of their respective terms of office and until their
successors shall have been elected and qualified.
Subject to the provisions of paragraph (1) of subdivision (j) of Article
THIRD, (a) any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors and any director so elected to fill a vacancy
shall be elected for the unexpired term of his or her predecessor in office and
(b) any directorship to be filled by reason of an increase in the number of
Directors may be filled by the Board of Directors for a term of office
continuing only until the next election of Directors by the shareholders.
No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
Subject to the provisions of paragraph (1) of subdivision (j) of Article
THIRD and the provisions of the next preceding paragraph of this Article FIFTH,
any Director may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of all of the shares of capital stock of the Corporation entitled
generally to vote in the election of directors (such stock being hereinafter in
these Articles of Incorporation called "Voting Stock"), voting together as a
single class, at a meeting of shareholders called expressly for that purpose;
provided, however, that if less than the entire Board of Directors is to be
removed, no one of the directors may be removed if the votes cast against the
removal of such director would be sufficient to elect such director if then
cumulatively voted at an election of the class of Directors of which such
director is a part.
Notwithstanding anything contained in these Articles of Incorporation to
the contrary, the provisions of this Article FIFTH shall not be altered,
amended or repealed, and no provision inconsistent therewith shall be included
in these Articles of Incorporation or the Bylaws of the Corporation, without
the affirmative vote of the holders of at least eighty percent (80%) of the
voting power of all of the shares of the Voting Stock, voting together as a
single class.
SIXTH: That the principal place of business of said Corporation shall be
Spokane, Spokane County, Washington.
SEVENTH: The corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by statute or by these Articles of
Incorporation. The Board of Directors shall have power to authorize the
payment of compensation to the Directors for services to the Corporation,
including fees for attendance at meetings of the Board of Directors and other
meetings, and to determine the amount of such compensation and fees.
The Board of Directors shall have power to adopt, alter, amend and repeal
the Bylaws of the Corporation. To the extent provided under the laws of the
state of Washington, any Bylaws adopted by the Directors under the powers
conferred hereby may be repealed or changed by the shareholders.
An Executive Committee may be appointed by and from the Board of Directors
in such manner and subject to such regulations as may be provided in the
Bylaws, which committee shall have and may exercise, when the Board is not in
session, all the powers of said Board which may be lawfully
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delegated subject to such limitations as may be provided in the Bylaws or by
resolutions of the Board. The fact that the Executive Committee has acted
shall be conclusive evidence that the Board was not in session at the time of
such action. Additional committees may be appointed by and from the Board of
Directors in such manner and subject to such regulations as may be provided in
the Bylaws. Any action required or permitted by these Articles of
Incorporation to be taken by the Board of Directors of the Corporation may be
taken by a duly authorized committee of the Board of Directors, except as
otherwise required by law.
No Director shall have any personal liability to the Corporation or its
shareholders for monetary damages for his or her conduct as a Director of the
Corporation; provided, however, that nothing herein shall eliminate or limit
any liability which may not be so eliminated or limited under Washington law,
as from time to time in effect. No amendment, modification or repeal of this
paragraph shall eliminate or limit the protection afforded by this paragraph
with respect to any act or omission occurring prior to the effective date
thereof.
The Corporation shall, to the full extent permitted by applicable law, as
from time to time in effect, indemnify any person made a party to, or otherwise
involved in, any proceeding by reason of the fact that he or she is or was a
Director of the Corporation against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by him or her in connection with such
proceeding. The Corporation shall pay any reasonable expenses incurred by a
Director in connection with any such proceeding in advance of the final
determination thereof upon receipt from such Director of such undertakings for
repayment as may be required by applicable law and a written affirmation by
such director that he or she has met the standard of conduct necessary for
indemnification, but without any prior determination, which would otherwise be
required by Washington law, that such standard of conduct has been met. The
Corporation may enter into agreements with each Director obligating the
Corporation to make such indemnification and advances of expenses as are
contemplated herein. Notwithstanding the foregoing, the Corporation shall not
make any indemnification or advance which is prohibited by applicable law. The
rights to indemnity and advancement of expenses granted herein shall continue
as to any person who has ceased to be a Director and shall inure to the benefit
of the heirs, executors and administrators of such a person.
A Director of the Corporation shall not be disqualified by his office from
dealing or contracting with this Corporation either as a vendor, purchaser or
otherwise, nor shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any Director, or any firm of which any
Director is a member, or any corporation of which any Director is a shareholder
or Director, is in any way interested in such transaction or contract, provided
that such transaction or contract is or shall be authorized, ratified, or
approved, either (1) by vote of a majority of a quorum of the Board of
Directors or of the Executive Committee without counting in such majority or
quorum any Directors so interested, or a member of a firm so interested, or a
shareholder or Director of a corporation so interested; or (2) by the written
consent or by vote at a shareholders' meeting of the holders of record of a
majority in number of all the outstanding shares of capital stock of the
Corporation entitled to vote; nor shall any Director be liable to account to
the Corporation for any profits realized by and from or through any such
transaction or contract of the Corporation authorized, ratified, or approved as
aforesaid by reason of the fact that he, or any firm of which he is a member,
or any corporation of which he is a shareholder or a Director, was interested
in such transaction or contract. Nothing herein contained shall create any
liability in the events above described or prevent the authorization,
ratification or approval of such transaction or contract in any other manner
approved by law.
Shareholders shall have no rights, except as conferred by statute or by the
Bylaws, to inspect any book, paper or account of the Corporation.
Any property of the Corporation not essential to the conduct of its
corporate business may be sold, leased, exchanged, or otherwise disposed of, by
authority of its Board of Directors and the Corporation may sell, lease,
exchange or otherwise dispose of, all of its property and franchises, or any of
its
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property, franchises, corporate rights, or privileges, essential to the conduct
of its corporate business and purposes upon the consent of and for such
consideration and upon such terms as may be authorized by a majority of all of
the Directors and the holders of two-thirds of the issued and outstanding
shares of the Corporation having voting power (or, if the consent or vote of a
larger number or different proportion of the Directors and/or shares is
required by the laws of the state of Washington, notwithstanding the above
agreement of the shareholders of the Corporation to the contrary, then upon the
consent or vote of the larger number or different proportion of the Directors
and/or shares so required) expressed in writing, or by vote at a meeting of
holders of the shares of the Corporation having voting power duly held as
provided by law, or in the manner provided by the Bylaws of the Corporation, if
not inconsistent therewith.
Upon the affirmative vote of the holders of two-thirds of the issued and
outstanding shares of the Corporation having voting power given at a meeting of
the holders of the shares of the Corporation having voting power duly called
for that purpose or when authorized by the written consent of the holders of
two-thirds of the issued and outstanding shares of the Corporation having
voting power and upon the vote of a majority of the Board of Directors, all of
the property, franchises, rights and assets of the Corporation may be sold,
conveyed, assigned and transferred as an entirety to a new company to be
organized under the laws of the United States, the state of Washington or any
other state of the United States, for the purpose of so taking over all the
property, franchises, rights and assets of the Corporation, with the same or a
different authorized number of shares of stock and with the same preferences,
voting powers, restrictions and qualifications thereof as may then attach to
the classes of stock of the Corporation then outstanding so far as the same
shall be consistent with such laws of the United States or of Washington or of
such other state (provided that the whole or any part of such stock or of any
class thereof may be stock with or without a nominal or par value), the
consideration for such sale and conveyance to be the assumption by such new
company of all of the then outstanding liabilities of the Corporation and the
issuance and delivery by the new company of shares of stock (any or all thereof
either with or without nominal or par value) of such new company of the several
classes into which the stock of the Corporation is then divided equal in number
to the number of shares of stock of the Corporation of said several classes
then outstanding. In the event of such sale, each holder of stock of the
Corporation agrees so far as he may be permitted by the laws of Washington
forthwith to surrender for cancellation his certificate or certificates for
stock of the Corporation and to receive and accept in exchange therefor, as his
full and final distributive share of the proceeds of such sale and conveyance
and of the assets of the Corporation, a number of shares of the stock of the
new company of the class corresponding to the class of the shares surrendered
equal in number to the shares of stock of the Corporation so surrendered, and
in such event no holder of any of the stock of the Corporation shall have any
rights or interests in or against the Corporation, except the right upon
surrender of his certificate as aforesaid properly endorsed, to receive from
the Corporation certificates for such shares of said new company as herein
provided. Such new company may have all or any of the powers of the
Corporation and the certificate of incorporation and bylaws of such new company
may contain all or any of the provisions contained in the Articles of
Incorporation and Bylaws of the Corporation.
Upon the written assent, in person or by proxy, or pursuant to the
affirmative vote, in person or by proxy, of the holders of a majority in number
of the shares then outstanding and entitled to vote (or, if the assent or vote
of a larger number or different proportion of shares is required by the laws of
the state of Washington notwithstanding the above agreement of the shareholders
of the Corporation to the contrary, then upon the assent or vote of the larger
number or different proportion of the shares so required) (1) any or every
statute of the state of Washington hereafter enacted, whereby the rights,
powers or privileges of the Corporation are or may be increased, diminished, or
in any way affected, or whereby the rights, powers or privileges of the
shareholders of corporations organized under the law under which the
Corporation is organized are increased, diminished or in any way affected or
whereby effect is given to the action taken by any part less than all of the
shareholders of any such corporation shall, notwithstanding any provision which
may at the time be contained in these Articles of Incorporation or any law,
apply to the Corporation, and shall be binding not only upon the Corporation
but upon every shareholder thereof, to the same extent as if such statute had
been in force at the date of
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the making and filing of these Articles of Incorporation and/or (2) amendments
to said Articles authorized at the time of the making of such amendments by the
laws of the state of Washington may be made; provided, however, that (a) the
provisions of Article THIRD hereof limiting the preemptive rights of
shareholders, requiring cumulative voting in the election of Directors and
regarding entry in the capital stock account of consideration received upon the
sale of shares of capital stock without nominal or par value and all of the
provisions of Article FIFTH hereof shall not be altered, amended, repealed,
waived or changed in any way, unless the holders of record of at least
two-thirds of the number of shares entitled to vote then outstanding shall
consent thereto in writing or affirmatively vote therefor in person or by proxy
at a meeting of shareholders at which such change is duly considered.
Special meetings of the shareholders may be called by the President, the
Chairman of the Board of Directors, a majority of the Board of Directors, any
Executive Committee of the Board of Directors, and shall be called by the
President at the request of the holders of at least two-thirds (2/3) of the
voting power of all of the shares of the Voting Stock, voting together as a
single class. Only those matters that are specified in the call of or request
for a special meeting may be considered or voted upon at such meeting.
Notwithstanding anything contained in these Articles of Incorporation to
the contrary, the paragraph in this Article SEVENTH relating to the adoption,
alteration, amendment, change and repeal of the Bylaws of the Corporation, the
paragraph in this Article SEVENTH relating to the calling and conduct of
special meetings of the shareholders and this paragraph, and the provisions of
the Bylaws of the Corporation relating to procedures for the nomination of
Directors, shall not be altered, amended or repealed, and no provision
inconsistent therewith shall be included in these Articles of Incorporation or
the Bylaws of the Corporation, without the affirmative vote of the holders of
at least eighty percent (80%) of the voting power of all the shares of the
Voting Stock, voting together as a single class.
EIGHTH:
(a) In addition to any affirmative vote required by law or these Articles
of Incorporation, and except as otherwise expressly provided in
subdivision (b) of this Article EIGHTH:
(1) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) any Interested Shareholder (as
hereinafter defined) or (b) any other corporation (whether or
not itself an Interested Shareholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value of $10,000,000
or more; or
(3) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any Interested
Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value
of $10,000,000 or more; or
(4) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
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(5) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested Shareholder or
any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least
80% of the voting power of all of the shares of the Voting
Stock, voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be
required or that the vote of a lower percentage may be
specified, by law or in any agreement with any national
securities exchange or otherwise. The term "Business
Combination" as used in this Article EIGHTH shall mean any
transaction which is referred to in any one or more of
paragraphs (1) through (5) of this subdivision (a).
(b) The provisions of subdivision (a) of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is
required by law and any other provision of these Articles of
Incorporation, if all of the conditions specified in either paragraph
(1) or paragraph (2) below are met:
(1) The Business Combination shall have been approved by a majority
of the Continuing Directors (as hereinafter defined); or
(2) All of the following conditions shall have been met:
(A) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at
least equal to the highest of the following:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Shareholder for any shares of Common
Stock acquired by it (x) within the two-year period
immediately prior to the date of the first public
announcement of the proposal of the Business
Combination (the "Announcement Date") or (y) in the
transaction in which it became an Interested
Shareholder, whichever is higher;
(ii) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Shareholder became an Interested
Shareholder (the "Determination Date"), whichever
is higher; and
(iii) (if applicable) the price per share equal to the
Fair Market Value per share of Common Stock
determined pursuant to clause (A)(ii) above,
multiplied by the ratio of (x) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid
by the Interested Shareholder for any shares of
Common Stock acquired by it within the two-year
period immediately prior to the Announcement Date
to (y) the Fair Market Value per share of Common
Stock on the first day in such two-year period upon
which the Interested Shareholder acquired any
shares of Common Stock.
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(B) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of each class of
outstanding Voting Stock (other than Common Stock and
Institutional Voting Stock [as hereinafter defined]) shall
be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph
(B) shall be required to be met with respect to every
class of outstanding Voting Stock (other than
Institutional Voting Stock), whether or not the Interested
Shareholder has previously acquired any shares of a
particular class of Voting Stock):
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Shareholder for any shares of such class
of Voting Stock acquired by it (x) within the
two-year period immediately prior to the
Announcement Date or (y) in the transaction in
which it became an Interested Shareholder,
whichever is higher;
(ii) (if applicable) the highest preferential amount per
share to which the holders of shares of such class
of Voting Stock are entitled in the event of any
voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
(iii) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(iv) (if applicable) the price per share equal to the
Fair Market Value per share of such class of Voting
Stock determined pursuant to clause (B)(iii) above,
multiplied by the ratio of (x) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid
by the Interested Shareholder for any shares of
such class of Voting Stock acquired by it within
the two-year period immediately prior to the
Announcement Date to (y) the Fair Market Value per
share of such class of Voting Stock on the first
day in such two-year period upon which the
Interested Shareholder acquired any shares of such
class of Voting Stock.
(C) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Shareholder has previously paid for shares of
such class of Voting Stock. If the Interested Shareholder
has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such
class of Voting Stock previously acquired by it.
(D) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination:
(i) except as approved by a majority of the Continuing
Directors, there shall have been no failure to
declare and pay at the regular date therefor full
dividends (whether or not cumulative) on the
outstanding shares of stock of all classes ranking
prior as to dividends to the Common Stock;
(ii) there shall have been (x) no reduction in the
annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of
the
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Common Stock), except as approved by a majority of
the Continuing Directors, and (y) an increase in
such annual rate of dividends as necessary to
reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or
any similar transaction which has the effect of
reducing the number of outstanding shares of the
Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the
Continuing Directors; and
(iii) such Interested Shareholder shall not have become
the beneficial owner of any additional shares of
Voting Stock except as part of the transaction
which results in such Interested Shareholder
becoming an Interested Shareholder.
(E) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have
received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall
be mailed to shareholders of the Corporation at least 30
days prior to the consummation of such Business
Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
(c) For the purposes of this Article EIGHTH:
The terms "Affiliate" and "Associate" have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect
on January 1, 1987.
A person shall be deemed to be a "beneficial owner" of any Voting
Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, or;
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement, arrangement
or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
For the purposes of determining whether a person is an Interested
Shareholder the number of shares of Voting Stock deemed to be
outstanding shall include all shares of which such person is the
beneficial owner in accordance with the foregoing definition but
shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or
otherwise.
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The term "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board of Directors prior to the
time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Continuing Director who is
unaffiliated with the Interested Shareholder and is recommended to
succeed a Continuing Director by a majority of Continuing Directors
then on the Board of Directors.
The term "Fair Market Value" means (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange- Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Continuing
Directors in good faith; and (ii) in the case of property other than
cash or stock, the fair market value of such property on the date in
question as determined by a majority of the Continuing Directors in
good faith.
The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting
Stock; or
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year
period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act
of 1933, as amended.
The term "Institutional Voting Stock" shall mean any class of Voting
Stock which was issued to and continues to be held solely by one or
more insurance companies, pension funds, commercial banks, savings
banks or similar financial institutions or institutional investors.
The term "person" shall mean any individual, firm, corporation or
other entity.
The term "Subsidiary" shall mean any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by
the corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth above, the term
"Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by
the Corporation.
The term "Voting Stock" has the meaning ascribed to such term in
Article FIFTH.
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In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received"
as used in paragraphs 2(A) and 2(B) of subdivision (b) of this
Article EIGHTH shall include the shares of Common Stock and/or the
shares of any other class of outstanding Voting Stock retained by
the holders of such shares.
(d) The Directors of the Corporation shall have the power and duty to
determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry, (A) whether a
person is an Interested Shareholder, (B) the number of shares of
Voting Stock beneficially owned by any person, (C) whether a person
is an Affiliate or Associate of another person, (D) whether a class
of Voting Stock is Institutional Voting Stock, and (E) whether the
assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $10,000,000 or
more.
Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
Notwithstanding anything contained in these Articles of
Incorporation to the contrary, the provisions of this Article EIGHTH
shall not be altered, amended or repealed, and no provision
inconsistent therewith shall be included in these Articles of
Incorporation or the Bylaws of the Corporation, without the
affirmative vote of the holders of at least eighty percent (80%) of
the voting power of all of the shares of the Voting Stock, voting
together as a single class.
43
<PAGE> 44
IN WITNESS WHEREOF, we have set our hands and seals under these presents, this
26th day of July, 1994.
/s/ Paul A. Redmond
-----------------------------------------------------
Paul A. Redmond, Chairman of the Board, President and
Chief Executive Officer
ATTEST:
/s/ Terry L. Syms
-----------------------------------------------------
Terry L. Syms, Corporate Secretary
(SEAL)
STATE OF WASHINGTON
County of Spokane ss.
PAUL A. REDMOND and TERRY L. SYMS, being first duly sworn on oath depose and
say:
(a) That they have been authorized to execute the within Restated Articles
by resolution of the Board of Directors adopted on the 26th day of
July, 1994.
(b) That the Restated Articles correctly set forth the text of the
Articles of Incorporation as amended and supplemented to the date of
the Restated Articles, and
(c) These Restated Articles shall set forth all of the operative
provisions of the Articles of Incorporation as theretofore amended
together. The Restated Articles of Incorporation correctly set forth
without change the provisions of the Articles of Incorporation as
theretofore amended and that the Restated Articles of Incorporation
supersede the original Articles of Incorporation and all amendments
thereto.
/s/ Paul A. Redmond
-------------------------------------
Paul A. Redmond
/s/ Terry L. Syms
-------------------------------------
Terry L. Syms
SUBSCRIBED AND SWORN to before me this 26th day of July, 1994.
/s/ Sue Miner
-------------------------------------
Notary Public in and for the State of
Washington, residing in the County of
Spokane.
(SEAL)
44
<PAGE> 1
EXHIBIT 12
THE WASHINGTON WATER POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividend Requirements (1)
Consolidated
(Thousands of Dollars)
<TABLE>
<CAPTION>
12 Mos. Ended Years Ended December 31
June 30 ---------------------------------------------------------
1994 1993 1992 1991 1990
------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt $ 47,424 $ 47,129 $ 51,727 $ 52,801 $ 56,202
Amortization of debt expense
and premium - net 3,566 3,004 1,814 1,751 1,558
Interest portion of rentals 993 924 1,105 1,018 1,012
--------- --------- --------- --------- ---------
Total fixed charges $ 51,983 $ 51,057 $ 54,646 $ 55,570 $ 58,772
========= ========= ========= ========= =========
Earnings, as defined:
Net income from continuing ops. $ 73,367 $ 82,776 $ 72,267 $ 70,631 $ 72,147
Add (deduct):
Income tax expense 42,440 42,503 41,330 38,086 33,150
Total fixed charges above 51,983 51,057 54,646 55,570 58,772
--------- --------- --------- --------- ---------
Total earnings $ 167,790 $ 176,336 $ 168,243 $ 164,287 $ 164,069
========= ========= ========= ========= =========
Ratio of earnings to fixed charges 3.23 3.45 3.08 2.96 2.79
Fixed charges and preferred
dividend requirements:
Fixed charges above $ 51,983 $ 51,057 $ 54,646 $ 55,570 $ 58,772
Preferred dividend requirements (2) 13,221 12,615 10,716 14,302 12,287
--------- --------- --------- --------- ---------
Total $ 65,204 $ 63,672 $ 65,362 $ 69,872 $ 71,059
========= ========= ========= ========= =========
Ratio of earnings to fixed charges
and preferred dividend requirements 2.57 2.77 2.57 2.35 2.31
</TABLE>
(1) Calculations have been restated to reflect the results from continuing
operations (ie. excluding discontinued coal mining operations).
(2) Preferred dividend requirements have been grossed up to their pre-tax
level.
