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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 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
AVISTA CORPORATION
(Exact name of Registrant as specified in its charter)
Washington 91-0462470
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
Web site: http://www.avistacorp.com
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
Name of Each Exchange
Title of Class on Which Registered
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Common Stock, no par value, together with New York Stock Exchange
Preferred Share Purchase Rights appurtenant thereto Pacific Stock Exchange
7 7/8% Trust Originated Preferred Securities, Series A New York Stock Exchange
$12.40 Preferred Stock, Convertible Series L (depositary shares) New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
--------------
Preferred Stock, Cumulative, Without Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
---------------------------
Yes [X] No [ ]
---------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's outstanding Common Stock, no par
value (the only class of voting stock), held by non-affiliates is
$662,429,812.38, based on the last reported sale price thereof on the
consolidated tape on February 26, 1999.
At February 26, 1999, 40,453,729 shares of Registrant's Common Stock, no par
value (the only class of common stock), were outstanding.
Documents Incorporated By Reference
Part of Form 10-K into Which
Document Document is Incorporated
-------------------------------------- ----------------------------
Proxy Statement to be filed in Part III, Items 10, 11,
connection with the annual meeting 12 and 13
of shareholders to be held May 13, 1999
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AVISTA CORPORATION
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INDEX
<TABLE>
<CAPTION>
Item Page
No. No.
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<S> <C> <C>
Acronyms and Terms................................................... iv
Part I
1. Business............................................................. 1
Company Overview................................................... 1
Energy Delivery.................................................... 4
General............................................................ 4
Electric Operations................................................ 4
Natural Gas Operations............................................. 4
Natural Gas Resources.............................................. 5
Energy Delivery Regulatory Issues.................................. 5
Energy Delivery Operating Statistics............................... 8
Generation and Resources........................................... 10
General............................................................ 10
Electric Requirements.............................................. 10
Electric Resources................................................. 10
Hydroelectric Relicensing.......................................... 11
Generation and Resources Regulatory Issues......................... 11
Generation and Resources Operating Statistics...................... 13
National Energy Trading and Marketing.............................. 14
Avista Energy...................................................... 14
Avista Advantage................................................... 15
Avista Power....................................................... 15
National Energy Trading and Marketing Operating Statistics......... 16
Non-Energy Business................................................ 17
Pentzer............................................................ 17
Other Non-Energy Companies......................................... 17
Industry Restructuring............................................. 18
Federal Level...................................................... 18
State Level........................................................ 18
Experimental Programs.............................................. 19
Environmental Issues............................................... 21
2. Properties........................................................... 22
Energy Delivery.................................................... 22
Generation and Resources........................................... 23
3. Legal Proceedings.................................................... 23
4. Submission of Matters to a Vote of Security Holders.................. 23
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................ 24
6. Selected Financial Data.............................................. 25
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 26
Results of Operations.............................................. 26
Liquidity and Capital Resources.................................... 31
Future Outlook..................................................... 33
7A. Quantitative and Qualitative Disclosure about Market Risk............ 41
8. Financial Statements and Supplementary Data.......................... 41
Independent Auditors' Report....................................... 42
Financial Statements............................................... 43
Notes to Financial Statements...................................... 49
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... *
Part III
10. Directors and Executive Officers of the Registrant................... 70
11. Executive Compensation............................................... 71
12. Security Ownership of Certain Beneficial Owners and Management....... 71
13. Certain Relationships and Related Transactions....................... 71
</TABLE>
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<TABLE>
<CAPTION>
Item Page
No. No.
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<S> <C> <C>
Part IV
14. Financial Statements, Financial Statement Schedules,
Exhibits and Reports on Form 8-K................................... 72
Signatures........................................................... 73
Independent Auditors' Consent........................................ 74
Exhibit Index........................................................ 75
</TABLE>
* = not an applicable item in the 1998 calendar year for the Company
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ACRONYMS AND TERMS
(The following acronyms and terms
are found in multiple locations within the document)
<TABLE>
<CAPTION>
Acronym/Term Meaning
<S> <C>
aMW - Average Megawatt - a measure of electrical energy over time
AFUCE - Allowance for Funds Used to Conserve Energy; a carrying charge
similar to AFUDC (see below) for conservation-related capital
expenditures
AFUDC - Allowance for Funds Used During Construction; represents the
cost of both the debt and equity funds used to finance utility
plant additions during the construction period
Avista Corp. - Avista Corporation, the Company
Avista Capital - Parent company to the Company's non-regulated businesses
BPA - Bonneville Power Administration
Capacity - a measure of the rate at which a particular generating source
produces electricity
Centralia - the coal fired Centralia Power Plant in western Washington State
Colstrip - the coal fired Colstrip Generating Project in southeastern Montana
CPUC - California Public Utilities Commission
CT - combustion turbine; a natural gas fired unit used primarily
for peaking needs
DSM - Demand Side Management - the process of helping customers
manage their use of energy resources
Energy - a measure of the amount of electricity produced from a
particular generating source over time
FERC - Federal Energy Regulatory Commission
IPUC - Idaho Public Utilities Commission
KV - Kilovolt - a measure of capacity on transmission lines
KW, KWH - Kilowatt, kilowatthour, 1000 watts or 1000 watt hours
MW, MWH - Megawatt, megawatthour, 1000 KW or 1000 KWH
OPUC - Public Utility Commission of Oregon
Pentzer - Pentzer Corporation, a wholly owned subsidiary of the Company
which is the parent company to the majority of the Company's
non-energy businesses
Therm - Unit of measurement for natural gas; a therm is equal to one
hundred cubic feet (volume) or 100,000 BTUs (energy)
Watt - Unit of measurement for electricity; a watt is equal to the
rate of work represented by a current of one ampere under a
pressure of one volt
WUTC - Washington Utilities and Transportation Commission
</TABLE>
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AVISTA CORPORATION
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PART I
This Form 10-K contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. Forward-looking statements should be
read with the cautionary statements and important factors included in this Form
10-K at Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Safe Harbor Forward-Looking Statements."
Forward-looking statements are all statements other than statements of
historical fact, including without limitation those that are identified by the
use of the words "will," "anticipates," "seeks to," "estimates," "expects,"
"intends," "plans," "predicts," and similar expressions.
ITEM 1. BUSINESS
COMPANY OVERVIEW
Avista Corporation (Avista Corp., or the Company), formerly known as The
Washington Water Power Company, was incorporated in the State of Washington in
1889, and is a diversified energy services company. The name change to Avista
Corporation became effective on January 1, 1999. At December 31, 1998, the
Company's employees included 1,536 people in its utility operations and
approximately 2,153 people in its majority-owned non-regulated businesses
(energy and non-energy). The Company's corporate headquarters are in Spokane,
Washington (Spokane), which serves as the Inland Northwest's center for
manufacturing, transportation, health care, education, communication,
agricultural and service businesses.
Regulatory, economic and technological changes have brought about the
accelerating transformation of the electric utility industry from a vertically
integrated monopoly to separate market driven businesses. Changes underway in
the utility and energy industries are creating new opportunities to expand the
Company's businesses and serve new markets. In pursuing such opportunities, the
Company is shifting its strategic direction to growth in order to achieve its
goal of becoming a diversified North American energy company. The Company's
strategies are described below.
The Company seeks to strengthen its position of leadership in energy delivery
and generation as well as energy trading and marketing on a local, regional and
national basis. The Company will seek to increase its asset and customer base
through a focus on acquisitions and strategic alliances in all parts of its
business. The Company intends to focus on growing its core energy business by
seeking to acquire control of physical assets, specifically power generation
assets and electric and natural gas transmission and distribution assets. The
Company expects that initial growth will come at a local and regional level,
with national growth to follow. Key strengths of the Company today include its
position as one of the lowest cost producers of power in the nation, expertise
in hydroelectric and power system management, plus capabilities in trading and
wholesale and retail marketing of natural gas and electric energy.
Locally. The Company is a long-standing leader in the Northwest region of the
United States, providing some of the lowest cost energy to its customers. The
Company's strategy is to add selectively to its already strong foundation of
state-regulated utility assets to solidify its position as a leading supplier of
low-cost electric and natural gas energy services.
Regionally. The Company intends to add to its regulated and non-regulated assets
on a regional basis and participate in industry consolidation to further
optimize its assets and create greater economies of scale. In addition to energy
delivery and generation, the Company plans to concentrate on growing its energy
trading and marketing business. The strong growth in this business is expected
to be driven by the Company's significant base of knowledge and experience in
the operation of physical systems - for both natural gas and electric energy -
in the region, as well as its relationship-focused approach to the customer. The
Company will also focus on expanding its telecommunications business through its
newest subsidiary, Avista Communications. (See Non-Energy business for
additional information.)
Nationally. The Company's strong regional energy trading and marketing skills
serve as a platform for the Company's growing national presence. The Company
will seek to expand its customer base through Internet-based specialty billing
and information services and relationships with other energy providers outside
the Northwest, thereby leveraging its existing trading and marketing skills. On
February 1, 1999, Avista Energy, Inc., (Avista Energy) a national energy trading
and marketing subsidiary of Avista Corp. acquired Vitol Gas & Electric LLC, one
of the top 20 energy marketing companies in the United States. (See National
Energy Trading and Marketing for additional information.)
The Company conducts the majority of its Non-energy business through its wholly
owned subsidiary, Pentzer Corporation (Pentzer). Pentzer's business strategy is
to acquire controlling interests in a broad range of middle market companies,
facilitate improved productivity and growth, and ultimately sell such companies
to the public or a strategic buyer.
The Company's growth strategy will expose the Company to risks associated with
rapid expansion, challenges in recruiting and retaining qualified personnel,
risks associated with acquisitions, joint ventures and increasing competition.
In addition, growth in the energy and trading and marketing business will expose
the Company to increased financial and credit risks associated with commodity
trading activities. The Company believes however, that its extensive experience
in the electric and natural gas business, coupled with its strong management
team, will allow the Company to effectively manage its transition to a
diversified North American energy company.
In order to implement its growth strategies, the Company has reorganized its
operations into four lines of business - Energy Delivery, Generation and
Resources, National Energy Trading and Marketing and Non-energy. The regulated
utility
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AVISTA CORPORATION
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operations fall within Energy Delivery and Generation and Resources. The
Energy Delivery business includes retail electric and natural gas distribution
and transmission services. The Generation and Resources business includes
generation and production, resource optimization, electric and natural gas
commodity trading and wholesale marketing. Both the Energy Delivery and
Generation and Resources lines of business fall within Avista Utilities, an
operating division of Avista Corp. Avista Capital, which is a wholly-owned
subsidiary of Avista Corp., owns all of the companies engaged in the National
Energy Trading and Marketing and Non-energy lines of Business. The National
Energy Trading and Marketing line of business includes Avista Advantage, Inc.
(Avista Advantage), Avista Energy, Inc. (Avista Energy) and Avista Power, Inc.
(Avista Power). See Item 1. Business - National Energy Trading and Marketing and
Notes 1, 3 and 4 of Notes to Financial Statements for additional information. As
of December 31, 1998 the Company had common equity investments of $216.6 million
($493.4 million including convertible securities) and $271.8 million in Avista
Utilities and Avista Capital, respectively. The Non-energy line of business,
also owned by Avista Capital, includes Avista Fiber, Inc. (Avista Fiber), Avista
Development, Inc. (Avista Development), Avista Labs, Inc. (Avista Labs), Avista
Communications, Inc. (Avista Communications) and Pentzer Corporation, which is
the parent company to the majority of the Company's non-energy businesses. See
Item 1. Business - Non-energy Business and Notes 1 and 17 of Notes to Financial
Statements for additional information.
Below is the list of major companies owned by Avista Capital:
Avista Energy - An electricity and natural gas marketing and trading
company.
Avista Advantage - A leading provider of Internet-based specialty billing
and information services.
Avista Power - Created in December 1998 to develop and own generation
assets, primarily in support of Avista Energy.
Pentzer - A wholly owned subsidiary of Avista Capital and the
parent company for a majority of Avista Corp.'s
Non-energy subsidiaries.
Avista Fiber - Designs, builds and manages metropolitan area fiber
optic cable networks.
Avista Development - Real-estate and other investments.
Avista Labs - The developer of proton exchange membrane fuel cell
technology.
Avista Communications - Created in January 1999 to provide local high-speed
telecommunications services to under- served Northwest
communities.
The Company's lines of business are illustrated below:
[FLOW CHART]
[ ] - denotes a business entity.
o - denotes an operating division or line of business.
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For the twelve months ended December 31, 1998, 1997 and 1996, respectively, the
Company derived operating revenues and income/(loss) from operations in the
following proportions:
<TABLE>
<CAPTION>
Income/(Loss) from
Operating Revenues Gross Margins Operations (pre-tax)
-------------------- -------------------- --------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Energy Delivery 11% 29% 40% 70% 69% 67% 68% 60% 48%
Generation and Resources 18% 39% 45% 18% 27% 33% 15% 34% 45%
National Energy Trading and Marketing 65% 19% -- 12% 4% 0% 12% 1% (1%)
Non-energy 6% 13% 15% N/A N/A N/A 5% 5% 8%
</TABLE>
N/A - Not Applicable
Gross margin is calculated by subtracting resource costs from operating
revenues. (See Schedule of Information by Business Segments for further
information).
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AVISTA CORPORATION
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ENERGY DELIVERY
GENERAL
Energy Delivery provides electricity and natural gas distribution and
transmission services in a 26,000 square mile area in eastern Washington and
northern Idaho with a population of approximately 825,000. Energy Delivery also
provides natural gas service in a 4,000 square mile area in northeast and
southwest Oregon and in the South Lake Tahoe region of California, with the
population in these areas approximating 495,000.
At the end of 1998, retail electric service was supplied to approximately
305,000 customers in eastern Washington and northern Idaho; retail natural gas
service was supplied to approximately 262,000 customers in parts of Washington,
Idaho, Oregon and California.
The Company expects economic growth to continue in its eastern Washington and
northern Idaho service area. The Company, along with others in the service area,
is continuing its efforts to facilitate expansion of existing businesses and
attract new businesses to the Inland Northwest. Agriculture, mining and lumber
were the primary industries for many years, but health care, education,
electronic and other manufacturing, tourism and the service sectors have become
increasingly important industries that operate in the Company's service area.
The Company also anticipates moderate economic growth to continue in its Oregon
service area.
The Company anticipates residential and commercial electric load growth to
average approximately 2.3% annually for the next five years primarily due to
increases in both population and the number of businesses in its service
territory. The number of electric customers is expected to increase and the
average annual usage by residential customers is expected to remain steady on a
weather-adjusted basis.
The Company anticipates natural gas load growth, including transportation
volumes, in its Washington and Idaho service area to average approximately 2.7%
annually for the next five years. The Oregon and South Lake Tahoe, California
service areas are anticipated to realize 3.1% growth annually during that same
period. Refer to Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations: Results of Operations: Future Outlook for
additional information.
ELECTRIC OPERATIONS
Energy Delivery currently receives all of its electric supply from Generation
and Resources. (See Generation and Resources - Electric Resources for additional
information.)
Challenges facing the retail electric business include cost management,
self-generation and fuel switching by commercial and industrial customers, the
costs of increasingly stringent environmental laws and the potential for
stranded or non-recoverable utility assets. In April 1996, the Federal Energy
Regulatory Commission (FERC) issued Orders No. 888 and No. 889 which require
electric utility companies to provide third-party access to their transmission
systems and to establish an Open Access Same-time Information System (OASIS) to
provide transmission customers with information about available transmission
capacity, prices and other information, by electronic means. In addition, state
legislatures in the Company's service territory are continuing to evaluate
restructuring the retail electric business to full competition. When electric
utility companies are required to provide retail wheeling service, which is the
transmission of electric power from another supplier to a customer located
within such utility's service area, the Company believes it will face minimal
risk for stranded generation, transmission or distribution assets due to its low
cost structure. However, the Company cannot predict the potential impact, if
any, of restructuring the electric utility industry on the Company's future
financial condition and results of operations. (See Industry Restructuring and
Note 1 of Notes to Financial Statements for additional information.)
NATURAL GAS OPERATIONS
Natural gas remains competitively priced compared to alternative fuel sources
for residential, commercial and industrial customers. Because of abundant
supplies and competitive markets, natural gas should sustain its market
advantage. The Company continues to advise electric customers as to the cost
advantages of converting space and water heating needs to natural gas.
Significant growth has occurred in the Company's natural gas business in recent
years due to increased demand for natural gas in new construction. The Company
also makes sales and provides transportation service directly to large natural
gas customers and makes non-retail sales to marketers and producers where points
of delivery are outside the Company's retail distribution area.
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Most of the Company's large industrial customers purchase their own natural gas
requirements through gas marketers. For these customers, the Company provides
transportation from the Company's pipeline interconnection to the customer's
plant. The Company has numerous special contracts for natural gas transportation
service, most of which contain negotiated rates for Company distribution service
based on the customer's competitive alternatives. Seven of the Company's largest
natural gas customers are provided natural gas transportation service by the
Company under special contracts. These negotiated contracts were entered into to
retain these customers who can either by-pass the Company's distribution system
or have competitive alternative fuel capability. All special contracts are
subject to regulatory review and approval. The competitive nature of the spot
natural gas market results in savings in the cost of purchased natural gas,
which encourages large customers with fuel-switching capabilities to continue to
utilize natural gas for their energy needs. The total volume transported on
behalf of transportation customers for 1998, 1997 and 1996 was approximately
226.1, 245.1 and 237.9 million therms, which represented approximately 39%, 43%
and 40% of the Company's total system deliveries. In addition, the Company sells
firm transportation to third parties when it is not needed to serve the
Company's customers.
NATURAL GAS RESOURCES
Natural Gas Supply A diverse portfolio of resources allows the Company to
capture market opportunities that benefit the Company's natural gas customers.
Natural gas supplies are available from both domestic and Canadian sources
through both long- and short-term, or spot market, purchases. The Company holds
capacity on six pipelines and owns natural gas storage facilities which allow
the Company to optimize its available resources.
Firm natural gas supplies are purchased by the Company through negotiated
agreements having terms ranging between one month and seven years. During 1998,
approximately one-third of the Company's purchases were in the short-term
market, with contracts on a month-to-month basis. Approximately 14% of the
natural gas supply was obtained from domestic sources, with the remaining 86%
from Canadian sources. Nearly all natural gas purchased from Canadian sources is
contracted in U.S. dollar denominations, limiting any foreign currency exchange
exposure. The Company does not consider Canadian natural gas supplies to be at
greater risk of non-delivery than U.S. supplies.
The Company holds capacity on six natural gas pipelines, Northwest Pipeline
Company (NWP), Pacific Gas Transmission (PGT), Paiute Pipeline (Paiute),
Tuscarora Gas Transmission Company (Tuscarora), NOVA Pipeline, Ltd. (NOVA) and
Alberta Natural Gas Co. Ltd. (ANG), which provide the Company access to both
domestic and Canadian natural gas supplies. In 1998, the Company obtained gas
from over 25 different suppliers.
The Company contracts with NWP for three types of firm service (transportation,
liquefied natural gas storage and underground storage), with Paiute for firm
transportation and liquefied natural gas storage and with PGT, Tuscarora, NOVA
and ANG for firm transportation only.
Jackson Prairie Natural Gas Storage Project (Storage Project) The Company owns a
one-third interest in the Storage Project, which is an underground natural gas
storage field located near Chehalis, Washington. The role of the Storage Project
in providing flexible natural gas supplies is increasingly important to the
Company's natural gas operations. It enables the Company to place natural gas
into storage when prices are low or to meet minimum natural gas purchasing
requirements, as well as to withdraw natural gas from storage when spot prices
are high or as needed to meet high demand periods. The Company is in the process
of increasing the capacity at the Storage Project. The increased capacity will
be optimized by Avista Energy for the next 10 years, and in return, Avista
Energy will be responsible for the capital costs related to the project
expansion. The Company has contracted to release some of its Storage Project
capacity to two other utilities until 2000 and 2001, with a provision under one
of the releases to partially recall the released capacity if the Company
determines additional natural gas is required for its own system supply.
ENERGY DELIVERY REGULATORY ISSUES
The Company, as a regulated public utility, is currently subject to regulation
by state utility commissions with respect to prices, accounting, the issuance of
securities and other matters. The retail electric operations are subject to the
jurisdiction of the Washington Utilities and Transportation Commission (WUTC),
the Idaho Public Utilities Commission (IPUC) and the Montana Public Service
Commission (MPSC). The retail natural gas operations are subject to the
jurisdiction of the WUTC, the IPUC, the Oregon Public Utility Commission (OPUC)
and the California Public Utilities Commission (CPUC). The Company is also
subject to the jurisdiction of the FERC for its (wholesale) natural gas rates
charged for the release of capacity from the Jackson Prairie Storage Project.
In each regulatory jurisdiction, the price the Company may charge for retail
electric and natural gas services (other than specially negotiated retail rates
for industrial or large commercial customers, which are subject to regulatory
review and approval) is currently determined on a "cost of service" basis and is
designed to provide, after recovery of allowable
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operating expenses, an opportunity to earn a reasonable return on "rate base."
"Rate base" is generally determined by reference to the original cost (net of
accumulated depreciation) of utility plant in service, subject to various
adjustments for deferred taxes and other items (see Note 1 of Notes to Financial
Statements for additional information about regulation, depreciation and
deferred taxes). Over time, rate base is increased by additions to utility plant
in service and reduced by depreciation of utility plant. As the energy business
is restructured, traditional "cost of service" ratemaking may evolve into some
other form of ratemaking. Rates for transmission services are based on the "cost
of service" principles and are set forth in tariffs on file with the FERC. (See
Industry Restructuring for additional information.)
General Rate Cases The Company's last general electric rate cases were effective
in March 1987 for the State of Washington and September 1986 for the State of
Idaho; both allowed a return on equity of 12.90%.
On December 18, 1998, the Company filed for a general electric rate increase of
$14,223,000 or 11.56% with the IPUC. The Company is requesting a return on
equity of 12.00%. An order is expected in the latter part of 1999. The Company
anticipates filing for a retail increase in the State of Washington later in
1999.
On June 27, 1997, the Company filed a general natural gas rate increase of $7.87
million with the WUTC. A settlement agreement resulted in a $5 million, or 7.5%,
increase effective January 1, 1998. Included in the settlement agreement was a
stated return on equity of 10.75%. However, the agreements reached in the
settlement do not set a precedent for future rate filings. The Company's last
general natural gas rate cases involving litigated cost of capital resulted in
allowed return on equity of 12.90% for the State of Washington, effective August
1990 and 12.75% for the State of Idaho, effective October 1989.
Power Cost Adjustment (PCA) The Company has a PCA in Idaho which tracks changes
in hydroelectric generation, surplus energy prices, related changes in thermal
generation and the Public Utility Regulatory Policies Act of 1978 (PURPA)
contracts, but not changes in revenues or costs associated with other wheeling
or power contracts. Rate changes are triggered when the deferred balance reaches
$2.2 million, provided no more than two surcharges or rebates are in effect at
the same time. See Note 1 of Notes to Financial Statements for additional
information.
Service Territory Agreement In August 1998, the Company executed a new electric
service territory agreement with Inland Power and Light Company. Inland Power
and Light is an electric cooperative serving approximately 30,000 customers in
various suburban and rural areas of Eastern Washington, including areas around
Spokane. The Company had an existing service territory agreement with Inland
Power and Light that was due to expire in December 1998. The Company entered
into the new agreement in order to protect service provided to existing
customers and to establish rules for service to new customers. Under the
agreement, generally, the utility with the closest electric facilities will
serve a new customer. However, new customers with loads larger than 3 megawatts
can choose their service provider. The agreement is for a fifteen year term and
was approved by the WUTC on October 9, 1998.
Purchased Gas Adjustment (PGA or Natural Gas Trackers) Natural gas trackers are
supplemental tariffs filed with state regulatory commissions which are designed
to pass through changes in purchased natural gas costs and therefore, do not
normally result in any changes in net income to the Company. On September 30,
1998, the Company filed a PGA with the WUTC. This filing requested a net revenue
reduction of $42,000 or .06%. On December 1, 1998, a modified version of the
original filing became effective with rates subject to change based on the
WUTC's continuing audit. In January 1999, the audit was concluded with no
adjustment to rates, and in February 1999, the Commission closed the
investigation. In November 1998, the OPUC approved a $1.1 million, or 2.25%
decrease effective December 1, 1998. In October 1998, the Company filed a
natural gas tracker with the IPUC requesting a $1.1 million, or 4.0%, increase
which was approved, effective December 7, 1998.
Natural Gas Benchmark Mechanism
On December 1, 1998, the Company filed a proposal with the WUTC and IPUC to
eliminate gas procurement operations within Avista Utilities and consolidate gas
procurement operations under Avista Energy. A smaller natural gas staff would
remain in Avista Utilities to prepare load forecasts and support regulatory
activities. The ownership of the natural gas assets would remain with Avista
Utilities, but would be managed by Avista Energy through an agency agreement.
Consolidation of natural gas procurement operations under Avista Energy would
allow the Company to gain synergies and better manage its risk by combining and
operating the two portfolios as one portfolio and to gain efficiencies by
eliminating duplicate functions. The proposal to state regulators includes a Gas
Benchmark mechanism that is designed to provide certain guaranteed benefits to
retail customers as well as provide Avista Corp. the opportunity to improve
earnings, i.e., a performanced-based mechanism.
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The Idaho Gas Benchmark mechanism sets three separate benchmarks or targets:
commodity, pipeline capacity and Jackson Prairie storage. To the extent that
Avista Energy optimizes these three components of gas costs, Avista Energy will
retain the benefits. Likewise, if Avista Energy incurs costs in excess of the
targets, it will absorb the loss.
The Gas Benchmark Mechanism was approved by the IPUC on February 1, 1999. The
proposal is currently pending before the WUTC and the Company is currently
working with WUTC staff to resolve issues in the proceeding. The Company is
preparing a similar proposal for its Oregon natural gas procurement operations.
The Company plans to file with the OPUC in March 1999.
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ENERGY DELIVERY OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
RETAIL ELECTRIC OPERATIONS
ELECTRIC OPERATING REVENUES (Thousands of Dollars):
Residential ....................................... $ 157,019 $ 160,411 $ 160,345
Commercial ........................................ 149,767 144,952 144,717
Industrial ........................................ 64,662 58,391 62,067
Public street and highway lighting ................ 3,387 3,352 3,359
--------- --------- ---------
Total retail electric revenue .................. 374,835 367,106 370,488
Transmission revenues ............................. 19,455 19,503 11,907
Other revenues .................................... 6,636 8,685 6,740
Transfer to Generation and Resources(1) ........... (184,381) (180,544) (180,018)
--------- --------- ---------
Total electric energy delivery revenues ........ $ 216,545 $ 214,750 $ 209,117
========= ========= =========
ELECTRIC ENERGY SALES (Thousands of MWhs):
Residential ....................................... 3,217 3,270 3,220
Commercial ........................................ 2,810 2,716 2,674
Industrial ........................................ 1,878 1,759 1,839
Public street and highway lighting ................ 24 24 24
--------- --------- ---------
Total retail energy sales ...................... 7,929 7,769 7,757
========= ========= =========
ELECTRIC AVERAGE HOURLY LOAD (aMW) ................... 971 954 973
========= ========= =========
NUMBER OF ELECTRIC CUSTOMERS (Average for Period):
Residential ....................................... 265,891 261,873 257,726
Commercial ........................................ 34,407 33,681 33,043
Industrial ........................................ 1,169 1,145 1,133
Public street and highway lighting ................ 383 371 363
--------- --------- ---------
Total retail electric customers ................ 301,850 297,070 292,265
========= ========= =========
ELECTRIC RESIDENTIAL SERVICE AVERAGES:
Annual use per customer (KWh) ..................... 12,099 12,489 12,493
Revenue per KWh (in cents) ....................... 4.88 4.90 4.98
Annual revenue per customer ....................... $ 590.54 $ 612.55 $ 622.15
NATURAL GAS OPERATIONS
NATURAL GAS OPERATING REVENUES (Thousands of Dollars):
Residential ....................................... $ 92,614 $ 81,855 $ 85,904
Commercial ........................................ 49,539 42,731 51,006
Industrial - firm ................................. 3,685 3,563 3,949
Industrial - interruptible ........................ 1,639 512 1,131
--------- --------- ---------
Total retail natural gas revenues .............. 147,477 128,661 141,990
Non-retail sales .................................. 24,846 19,559 9,862
Transportation .................................... 12,100 12,678 12,154
Other revenues .................................... 8,715 4,884 7,305
--------- --------- ---------
Total natural gas energy delivery revenues ..... $ 193,138 $ 165,782 $ 171,311
========= ========= =========
THERMS DELIVERED (Thousands of Therms):
Residential ....................................... 187,571 182,037 183,927
Commercial ........................................ 122,263 118,494 132,744
Industrial - firm ................................. 11,494 12,509 12,757
Industrial - interruptible ........................ 6,053 3,217 4,174
--------- --------- ---------
Total retail sales ............................. 327,381 316,257 333,602
Non-retail sales .................................. 126,522 105,297 67,656
Transportation .................................... 226,139 245,139 237,894
Interdepartmental sales and Company use ........... 32,647 2,087 22,215
--------- --------- ---------
Total therms - sales and transportation ........ 712,689 668,780 661,367
========= ========= =========
</TABLE>
(1) Transfer to Generation and Resources represents the portion of revenues
collected by Energy Delivery from retail customers attributable to the sale
of the electric energy commodity delivered by Energy Delivery.
8
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<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
SOURCES OF NATURAL GAS SUPPLY (Thousands of Therms):
Purchases ............................................. 491,100 431,646 422,194
Storage - injections .................................. (32,023) (31,288) (26,260)
Storage - withdrawals ................................. 32,917 22,183 24,572
Natural gas for transportation ........................ 226,139 245,139 237,894
Distribution system gains (losses) .................... (5,444) 1,100 2,967
--------- --------- ---------
Total supply ....................................... 712,689 668,780 661,367
========= ========= =========
NET SYSTEM MAXIMUM CAPABILITY (Thousands of Therms):
Net system maximum demand (winter) .................... 3,284 3,134 3,273
Net system maximum firm contractual capacity (winter) . 4,220 4,220 4,210
NUMBER OF NATURAL GAS CUSTOMERS (Average for Period):
Residential ........................................... 226,165 214,927 203,245
Commercial ............................................ 28,236 27,171 25,747
Industrial - firm ..................................... 310 306 300
Industrial - interruptible ............................ 26 25 28
--------- --------- ---------
Total retail customers ............................. 254,737 242,429 229,320
Non-retail sales ...................................... 19 17 7
Transportation ........................................ 119 111 93
--------- --------- ---------
Total natural gas customers ........................ 254,875 242,557 229,420
========= ========= =========
NATURAL GAS RESIDENTIAL SERVICE AVERAGES:
Washington and Idaho
Annual use per customer (therms) ................... 861 927 1,007
Revenue per therm (in cents) ....................... 44.97 40.44 41.90
Annual revenue per customer ........................ $ 387.17 $ 374.90 $ 421.91
Oregon and California
Annual use per customer (therms) .................. 772 703 724
Revenue per therm (in cents) ...................... 58.32 55.71 58.55
Annual revenue per customer ........................ $ 450.13 $ 391.56 $ 424.00
HEATING DEGREE DAYS: ..................................... (1)
Spokane, WA
Actual ............................................. 5,951 6,510 7,477
30 year average .................................... 6,842 6,842 6,842
% of average ....................................... 87% 95% 109%
Medford, OR
Actual ............................................. 4,421 4,144 4,088
30 year average .................................... 4,611 4,611 4,611
% of average ....................................... 96% 90% 89%
INCOME FROM ENERGY DELIVERY OPERATIONS (After tax) ........... $ 86,676 $ 77,788 $ 64,345
========= ========= =========
</TABLE>
(1) Heating degree days are the measure of the coldness of weather experienced,
based on the extent to which the average of high and low temperatures for a
day falls below 65 degrees Fahrenheit (annual degree days below historic
average indicate warmer than average temperatures).
9
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GENERATION AND RESOURCES
GENERAL
The Generation and Resources line of business manages the Company's natural gas
and electric energy resource portfolio, which is used to serve Energy Delivery's
retail customers and Generation and Resources' wholesale customers. The primary
business focus of Generation and Resources is to optimize the availability and
operation of generation resources. The Company owns and operates eight
hydroelectric projects, a wood-waste fueled generating station and two natural
gas combustion turbine (CT) peaking units. See Item 2. Properties Generation and
Resources for additional information. The Company also owns a 15% share in two
coal-fired generating facilities and leases two additional gas CT peaking units.
With this diverse energy resource portfolio, the Company remains one of the
nation's lowest-cost producers and sellers of electric energy services.
The Company's wholesale marketing and trading business units within the
Generation and Resources line of business are a secondary, but very important
part of the Company's overall business strategy. Since 1987, the Company has
entered into a number of long-term power sales contracts that have increased its
wholesale electric revenues, and the Company is continuing to actively pursue
electric wholesale marketing and energy trading business opportunities. Energy
trading includes short-term sales and purchases such as next hour, next day and
monthly blocks of energy. Wholesale marketing includes sales and purchases under
long-term contracts with one-year and longer terms. Wholesale sales are affected
by weather and streamflow conditions and may eventually be affected by the
restructuring of the electric utility industry. (See Industry Restructuring for
additional information.)
Generation and Resources competes in the wholesale electric market with other
western utilities, federal marketing agencies and power marketers. The Company's
participation in the wholesale electric market allows the Company to maintain
presence in and knowledge of the market, resulting in maximum optimization of
the Company's resources. The wholesale electric market has changed significantly
over the last few years with respect to market participants, level of activity,
variability of prices, and per-unit margins. These changes have contributed to
the increased liquidity of the market, which in turn has increased transactional
volumes in the market. It is expected that competition in the wholesale power
market will remain vigorous.
Challenges facing Generation and Resources include evolving technologies, which
provide alternate energy supplies and deregulation of the retail electric
market. The Company believes it faces minimal risk for stranded generation
assets resulting from deregulation due to its low cost generation portfolio.
However, in a deregulated environment, evolving technologies which provide
alternate energy supplies could affect the market price of power, and certain
generating assets could have operating costs above the adjusted market price.
The Company continues to assess the costs and operation of its generation
portfolio in order to optimize the resources of the Company.
ELECTRIC REQUIREMENTS
The Company's 1998 annual peak requirements, including long-term and short-term
contractual obligations, were 4,765 MW. This peak occurred on December 21, 1998,
at which time the maximum capacity available from the Company's generating
facilities, including long-term and short-term purchases, was 4,991 MW. The
electric requirements include both Energy Delivery's electric needs and
Generation and Resources' wholesale short-term and long-term commitments, which
limits the amount of excess capacity available to support Generation and
Resources energy trading business.
ELECTRIC RESOURCES
The Company's diverse resource mix of hydroelectric projects, thermal generating
facilities and power purchases and exchanges, combined with strategic access to
regional electric transmission systems, enables the Company to remain one of the
nation's lowest-cost producers and sellers of electric energy services. At
December 31, 1998, the Company's total owned resources available were 58%
hydroelectric and 42% thermal. See Generation and Resources Operating Statistics
on page 13 for the Company's energy resource statistics.
Hydroelectric Resources Hydroelectric generation is the Company's lowest cost
source of electricity and the availability of hydroelectric generation has a
significant effect on the Company's total energy costs. Under average operating
conditions, the Company meets about one-third of its total energy requirements
(both retail and long-term wholesale), with its own hydroelectric generation and
long-term hydroelectric contracts. The streamflows to Company-owned
hydroelectric projects were 94%, 172% and 145% of normal in 1998, 1997 and 1996,
respectively. Total hydroelectric resources provide 524 aMW annually.
Thermal Resources The Company has a 15% interest in each of two twin-unit
coal-fired facilities - the Centralia Power Plant in western Washington and
Units 3 and 4 of the Colstrip Generating Project in southeastern Montana. In
addition, the Company owns a wood-waste-fired facility known as the Kettle Falls
Generating Station in northeastern Washington and two natural gas-fired CTs,
located in Spokane, used for peaking needs. The Company also operates and leases
two natural gas-fired CTs in northern Idaho, used for peaking needs. Total
thermal resources provide 339 aMW annually.
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AVISTA CORPORATION
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Centralia, which is operated by PacifiCorp, is supplied with coal under both a
fuel supply agreement in effect through December 2020 and various spot market
purchases. In 1998, 1997 and 1996, Centralia provided approximately 37%, 38% and
46%, respectively, of the Company's thermal generation. (See Environmental
Issues for additional information.)
Colstrip is supplied with fuel under coal supply and transportation agreements
in effect through December 2019 from adjacent coal reserves. The Montana Power
Company is the operator of Colstrip. In 1998, 1997 and 1996, Colstrip provided
approximately 46%, 47% and 34% of the Company's thermal generation,
respectively.
Kettle Falls' primary fuel is wood-waste generated as a by-product from forest
industry operations within one hundred miles of the plant. Natural gas may be
used as an alternate fuel. A combination of long-term contracts plus spot
purchases provides the Company the flexibility to meet expected future fuel
requirements for the plant. In 1998, 1997 and 1996, Kettle Falls provided
approximately 9%, 11% and 10% of the Company's thermal generation, respectively.
The four CTs are natural gas-fired units, primarily used for peaking needs. Two
CTs have access to domestic and Canadian natural gas supplied through PGT. In
1998, 1997 and 1996, these four units provided approximately 8%, 4% and 10%,
respectively, of the Company's thermal generation. Thermal generation from CTs
during 1997 was lower than other years primarily due to the cost of natural gas
as compared to alternative energy supplies.
Purchases, Exchanges and Sales In 1998, the Company had various long-term
purchase contracts with non-coincidental peak (peak that does not occur during
the same hour) equating to 457 MW, with an average remaining life of 5.3 years.
Additionally, long-term hydro purchase contracts of 197 MW peak were available
with an average remaining contract life of 12.8 years. The Company also enters
into a significant number of short-term sales and purchases with durations of up
to one year. Energy purchases and exchanges for the years 1998, 1997 and 1996
provided approximately 70%, 65% and 54%, respectively, of the Company's total
electric energy requirements, which reflects increased wholesale trading and
resource optimization activity.
Under PURPA, the Company is required to purchase generation from qualifying
facilities, including small hydroelectric and cogeneration projects, at avoided
cost rates adopted by the WUTC and the IPUC. The Company purchased approximately
563,000 MWH, or about 2% of the Company's total energy requirements, from these
sources at a cost of approximately $27 million in 1998. These contracts expire
in 1999-2022.
HYDROELECTRIC RELICENSING
The Company is a licensee under the Federal Power Act, which regulates certain
of the Company's generation resources and is administered by the FERC, and its
licensed projects are subject to the provisions of Part I of that Act. These
provisions include payment for headwater benefits, condemnation of licensed
projects upon payment of just compensation and take-over of such projects after
the expiration of the license upon payment of the lesser of "net investment" or
"fair value" of the project, in either case plus severance damages. All but one
of the Company's hydroelectric plants are regulated by the FERC through project
licenses issued for 30-50 year periods. See Item 2. Properties - Generation and
Resources for additional information.
The Cabinet Gorge and Noxon Rapids plants are currently in the process of
relicensing with licenses expiring February 2001. The Company filed a Notice of
Intent to relicense in 1996 and has since consulted with resource agencies,
Native American tribes, special interest groups and the general public regarding
its relicensing.
The Company's approach to relicensing departed significantly from the
conventional FERC process. Early FERC involvement and Environmental Impact
Statement scoping occurred prior to the application and the consultation process
was expanded to a comprehensive collaborative process including all
stakeholders. The collaborative process used by the Company is nationally
recognized as the model for FERC's alternative approach to relicensing.
The Company reached a settlement agreement with all parties on January 28, 1999
that resolved all environmental, tribal, and operational issues regarding
relicensing of Cabinet Gorge and Noxon Rapids. As part of the agreement, Avista
Corp. committed to early implementation of protection, mitigation, and
enhancement measures beginning in March 1999. Measures in the agreement which
will cost approximately $4.7 million annually, address fisheries, water quality,
wildlife, recreation, land use, cultural resources and erosion, and represents
the results of studies and interests of over 40 organizations and 100
individuals. See Item 2. Properties - Generation and Resources and Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations: Future Outlook for additional information.
The license application for Cabinet Gorge and Noxon Rapids was filed with FERC
on February 18, 1999 and included the settlement agreement signed by 27 parties
and a collaboratively written environmental assessment report. For hydroelectric
projects of this size, it is unprecedented to have reached settlement two years
before the license expires, while preserving the projects economic peaking and
load following operations.
GENERATION AND RESOURCES REGULATORY ISSUES
The Company, with respect to Generation and Resources, is subject to the
jurisdiction of the FERC for its accounting procedures and its wholesale
electric rates. Some wholesale electric rates are determined on a
"cost-of-service" basis in a
11
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AVISTA CORPORATION
- --------------------------------------------------------------------------------
manner similar to retail rates. See Energy Delivery - Regulatory Issues for
additional information. Generally, rates for wholesale electric sales by the
Company for terms up to five years are based on market prices.
12
<PAGE> 17
AVISTA CORPORATION
- --------------------------------------------------------------------------------
GENERATION AND RESOURCES OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
ELECTRIC ENERGY RESOURCES (Thousands of MWhs):
Hydro generation (from Company facilities) ... 3,860 4,863 5,045
Thermal generation (from Company facilities) . 3,522 2,627 2,764
Purchased power - long-term hydro ............ 910 1,212 1,170
Purchased power - other ...................... 19,405 16,038 10,641
Power exchanges .............................. 26 178 102
--------- --------- ---------
Total power resources .................... 27,723 24,918 19,722
Energy losses and Company use ................ (579) (739) (790)
--------- --------- ---------
Total energy resources (net of losses) ... 27,144 24,179 18,932
========= ========= =========
ELECTRIC ENERGY REQUIREMENTS (Thousands of MWhs):
Energy Delivery .............................. 7,929 7,769 7,757
Long-term wholesale .......................... 3,680 4,307 4,507
Short-term wholesale ......................... 15,535 12,103 6,668
--------- --------- ---------
Total energy requirements ................ 27,144 24,179 18,932
========= ========= =========
RESOURCE AVAILABILITY at time of system peak (MW):
Total requirements (winter) (1) .............. 4,765 4,226 3,180
Total resource availability (winter) ......... 4,991 4,684 3,340
Total requirements (summer) (2) .............. 5,093 4,345 2,978
Total resource availability (summer) ......... 5,340 4,766 3,357
ELECTRIC OPERATING REVENUES (Thousands of Dollars):
Long-term wholesale .......................... $ 102,189 $ 138,730 $ 139,116
Short-term wholesale ......................... 349,674 187,190 91,443
Other revenues ............................... 3,285 4,669 7,989
Transfer from Energy Delivery (3) ............ 184,381 180,544 180,018
--------- --------- ---------
Total electric energy trading revenues ... $ 639,529 $ 511,133 $ 418,566
========= ========= =========
NUMBER OF ELECTRIC CUSTOMERS (Average for Period):
Wholesale customers .......................... 85 91 60
========= ========= =========
INCOME FROM GENERATION AND RESOURCES OPERATIONS
(After tax) .................................. $ 21,148 $ 47,737 $ 65,048
========= ========= =========
</TABLE>
(1) Includes long-term contract obligations of 663 MW, 1,022 MW and 744 MW
and 2,401 MW, 1,688 MW and 725 MW of short-term sales in 1998, 1997 and
1996, respectively.
(2) Includes long-term contract obligations of 780 MW, 1,011 MW and 839 MW
in 1998, 1997 and 1996, respectively, and short-term sales of 2,792 MW,
1,966 MW and 739 MW in 1998, 1997 and 1996, respectively.
(3) Transfer from Energy Delivery represents the portion of revenues
collected by Energy Delivery from retail customers attributable to the
sale of the electric energy commodity delivered by Energy Delivery.
13
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AVISTA CORPORATION
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NATIONAL ENERGY TRADING AND MARKETING
The companies within the National Energy Trading and Marketing line of business
are Avista Energy, Avista Advantage and Avista Power, each of which is a
wholly-owned subsidiary of Avista Capital. Avista Capital's total equity
investment in this line of business was approximately $104.6 million on December
31, 1998.
Avista Energy
Avista Energy is one of the nation's fastest growing electricity and natural gas
marketing and trading companies. Avista Energy's headquarters are in Spokane,
Washington with offices in Houston, Texas; Boston, Massachusetts; Vancouver,
British Columbia, Canada; and Portland, Oregon. Avista Energy is in the business
of buying and selling natural gas and electricity. Avista Energy purchases
natural gas and electricity directly from producers and other trading companies,
and Avista Energy's customers include commercial and industrial end-users,
electric utilities, natural gas distribution companies and other trading
companies. Avista Energy also trades natural gas and electricity derivative
financial instruments, including futures, options, swaps and other contractual
arrangements on national exchanges and through other unregulated exchanges and
brokers from whom these commodity derivatives are available. In 1998, Avista
Energy sold approximately 54.4 million MWh of electric energy and 424.2 million
dekatherms of natural gas. This compares with approximately 4.5 million MWh of
electric energy and 67.3 million dekatherms of natural gas during five months of
operations in 1997.
Avista Energy's business is affected by several factors, including:
o the demand for and availability of energy throughout the United States,
o lower unit margins on new sales contracts,
o fewer long-term power contracts being entered into, resulting in a
heavier reliance on short-term power contracts which have lower margins
than long-term contracts,
o marginal fuel prices, and
o deregulation of the electric utility industry
Avista Energy operates in North America, principally within the West and
Mid-West United States and Western Canada. Avista Energy seeks to strengthen its
position of leadership in energy trading and marketing on a regional and
national basis through a focus on acquisitions and strategic alliances. Avista
Energy has entered new markets throughout North America, and will continue to
strategically acquire additional assets and customers.
Effective February 1, 1999, Avista Energy purchased Vitol Gas & Electric, LLC,
one of the top 20 energy marketing companies in the United States. With this
acquisition, Avista Energy now has an additional platform from which it can
further grow its national presence. The combined operation expands Avista
Energy's successful coast-to-coast commercial energy platform to the eastern
seaboard.
On December 16, 1998, Avista Energy Canada, Ltd., a wholly-owned subsidiary of
Avista Energy, acquired Coast Pacific Management, Inc. (Coast Pacific), a
natural gas marketing company based in Vancouver, British Columbia, Canada.
Coast Pacific manages and transports approximately 70,000 MMBtu of natural gas
per day to some 70 large and medium size industrial customers throughout British
Columbia. Coast Pacific acts as gas manager for more than 40 percent of the
large industrial market in the interior of British Columbia. The Coast Pacific
acquisition strengthened Avista Energy's Canadian operations with more access to
end-use customers, ties with British Columbia natural gas producers and expanded
Avista Energy's presence in Pacific Northwest natural gas markets.
In April 1997, Avista Energy contracted with Chelan County Public Utility
District (Chelan PUD), located in Washington State. The terms of the alliance
made this announcement the first of its kind in the Northwest. The agreement
allows the Company to market, on a "real-time" basis, a portion of the
significant output from Chelan PUD's hydroelectric resources and to jointly
market energy products and services to other utilities in the region.
Twenty-eight percent or 557 megawatts of total generated capacity of the dams
are available for real-time scheduling and resource optimization. The two
entities offer a variety of products, all designed to help smaller utilities
adjust to the emerging energy market. On October 20, 1997, a complaint for
declaratory and injunctive relief was filed in Chelan County Superior Court by
James A. Brown, a taxpayer and ratepayer of the District, in order to determine
whether the joint marketing and real-time scheduling efforts of Chelan PUD and
Avista Energy are within Chelan PUD's lawful authority to undertake. Avista
Energy and Chelan PUD continue to operate under the contractual alliance. The
outcome of this litigation is still pending and Avista Energy is unable to
assess the likelihood of an adverse outcome or estimate an amount or range of
potential loss in the event of an adverse outcome.
In June 1997, Avista Energy formed an alliance with Energy West Incorporated, a
diversified energy and retail propane company in Montana, to develop and
implement a direct access, retail power marketing business in Montana. The
alliance has not been active since its formation and both companies have agreed
to discontinue the alliance in 1999.
Effective November 30, 1998, Avista Energy sold its 50% ownership interest in
Howard/Avista Energy, LLC to H&H Star Energy, Inc. The sales price, which
represented Avista Energy's equity investment, was $25 million in the form of a
short term unsecured note receivable from H&H Star Energy, Inc. The Note is
guaranteed by H&H Star Energy, Inc.'s parent
14
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AVISTA CORPORATION
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company, Howard Publications, Inc and is due April 30, 1999.
In 1997, Avista Energy entered into a contract with Mock Energy Services to form
Avista/Mock Energy, LLC to provide integrated energy services to customers
throughout the state of California. Avista Energy agreed to the dissolution of
Avista/Mock Energy, LLC and affairs were wound up November 30, 1998. Avista/Mock
Energy, LLC conducted no business. All related costs of this investment were
recognized in 1998.
The participants in the emerging wholesale energy market are public utility
companies and, increasingly, power marketers which may or may not be affiliated
with public utility companies or other entities. The participants in this market
trade not only electricity and natural gas as commodities but also derivative
commodity instruments such as futures, forwards, swaps, options and other
instruments. This market is largely unregulated and most transactions are
conducted on an "over-the-counter" basis, there being no central clearing
mechanism (except in the case of specific instruments traded on the commodity
exchanges). Power marketers, whether or not affiliated with other entities,
generally do not own production facilities and are not subject to net capital or
other requirements of any regulatory agency.
Avista Energy is subject to the various risks inherent in commodity trading
including, particularly, market risk and credit risk.
Avista Capital provides guarantees for Avista Energy's line of credit agreement,
and in the course of business may provide guarantees to other parties with whom
Avista Energy may be doing business.
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: Results of Operations: National Energy Trading and
Marketing Operations and Notes 1, 3 and 4 of Notes to Financial Statements for
additional information regarding the market and credit risks inherent in the
energy trading business, the Company's and Avista Energy's risk management
policies and procedures, accounting practices and positions held at December 31,
1998.
Avista Advantage
Avista Advantage is a leading provider of Internet-based specialty billing and
information services. Avista Advantage has established itself as a leader in the
development and implementation of customer-focused, non-traditional energy
solutions.
Avista Advantage has developed a distinctive line of services that starts with a
proprietary customer information system. The system impacts the customer's
bottom line by providing four valuable tools in one: a consolidated billing
tool; an accounting/auditing tool; an energy management tool; and a deregulation
tool. Avista Advantage conveniently delivers all of these services through the
Internet using the ACIS (Advantage Customer Internet Site) system. The ACIS
product creates a flexible paperless reporting system. Avista Advantage offers
consolidated bill payment and analytical services for customers' maintenance and
repair bills. Avista Advantage is the only company in the energy services
industry to offer its customers this service.
Avista Power
Avista Power was created in December 1998 to develop and own generation assets,
primarily in support of Avista Energy's commodity trading activities. Avista
Power and Cogentrix Energy, Inc. have entered into an agreement to jointly build
and/or buy interests in natural gas-fired electric generation plants in the
Pacific Northwest states of Washington, Oregon and Idaho. The first project
under the new agreement is an approximately 270 megawatt facility to be located
in Rathdrum, Idaho. The total cost of the project is estimated at $150 million;
Avista Power's share of the costs is approximately $75 million.
15
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NATIONAL ENERGY TRADING AND MARKETING OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1998 1997
--------- -------
<S> <C> <C>
AVISTA ENERGY
REVENUES (Thousands of Dollars):
Natural gas marketing ....................... 743,386 135,684
Electric power marketing .................... 1,665,348 111,344
--------- -------
Total revenues ........................... 2,408,734 247,028
========= =======
VOLUMES:
Natural gas (Thousands of Therms) ........... 424,152 67,319
Electricity (Thousands of MWhs) ............. 54,430 4,540
</TABLE>
16
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NON-ENERGY BUSINESS
Pentzer, which is a wholly-owned subsidiary of Avista Capital, is the dominant
company in the Non-energy line of business. At December 31, 1998, Avista
Capital's total equity investment in this line of business was approximately
$167.2 million, of which $140.1 million related to Pentzer.
Pentzer
Pentzer is the parent company for a majority of Avista Corp.'s non-utility
subsidiaries. Pentzer's portfolio of investments includes companies involved in
consumer product promotion, store fixtures, specialty tool manufacturing, metal
fabrication, financial services and electronic technology.
Pentzer's current investment profile focuses on manufacturers and distributors
of industrial and consumer products as well as service businesses. The Company
seeks businesses with above average records of earnings growth in industries
that are not cyclical or dependent upon high levels of research and development.
Emphasis is placed on leading companies with strong market franchises, dominant
or proprietary product lines or other significant competitive advantages.
Pentzer is particularly interested in companies serving niche markets. Total
equity investment in any one company is generally limited to $15 million, and
control of the acquired company's board of directors is generally required.
Pentzer's business strategy is to acquire controlling interest 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
either 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 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. Transactional gains arise from a one-time event
or a specific transaction, such as the sale of an investment or individual
company from Pentzer's portfolio of investments. Non-transactional earnings
arise out of the ongoing operations of the individual portfolio companies.
Accordingly, although the income stream is expected to be positive, it is not
predictable from year to year and may be uneven.
Other Non-Energy Companies
Other non-energy subsidiaries under Avista Capital include Avista Development,
Avista Labs, Avista Communications and Avista Fiber. Avista Development manages
and markets the corporation's community investments, including real-estate and
other assets. Avista Labs develops fuel cells and multiple fuel processing
approaches using propane, methane and methanol as base fuels to integrate into
its fuel cell subsystem. In September 1998, Avista Labs was awarded a $2.0
million technology development grant from the Department of Commerce's National
Institute of Standards and Technology Advanced Technology Program to fund
continuing research in alternate power solutions. Avista Communications, formed
in January 1999, is the newest of the non-energy subsidiaries. It will provide
local high-speed telecommunications services to under-served Northwest
communities. Avista Communications is a sister company to Avista Fiber, which
focuses on building high-speed local dark fiber networks in Northwest
communities.
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: Results of Operations: Non-Energy Operations and Notes 1
and 21 of Notes to Financial Statements for additional information.
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INDUSTRY RESTRUCTURING
FEDERAL LEVEL
Industry restructuring to remove certain barriers to competition in the electric
utility industry was initially promoted by federal legislation. The Energy
Policy Act of 1992 (Energy Act) confers expanded authority upon the FERC to
issue orders requiring electric utilities to transmit power and energy to or for
wholesale purchasers and sellers, and to require electric utilities to enlarge
or construct additional transmission capacity for the purpose of providing these
services.
The FERC issued its final rule in Order No. 888 in April 1996. That order
requires public utilities operating under the Federal Power Act to provide
access to their transmission systems to third parties pursuant to the terms and
conditions of the FERC's pro-forma open access transmission tariff. Utilities
were required to file an open access tariff, allowing only limited variations to
the pro-forma tariff to reflect regional operating practices. Utilities were
also required to take transmission service under this same tariff. The Company
filed its open access tariff with the FERC in July 1996 and subsequently began
providing transmission service under the tariff. The FERC issued its initial
order accepting the non-rate terms and conditions of the Company's tariff in
November 1996.
In the FERC's Order No. 889, the companion rule to Order No. 888, the FERC
required public utilities to establish a system, OASIS, to provide transmission
customers with information about available transmission capacity, prices and
other information, by electronic means. This enables customers to obtain
transmission service in a non-discriminatory fashion. The final rule requires
each public utility subject to the rule to functionally separate its
transmission and wholesale power merchant functions, and prescribed standards of
conduct under which it assures that the utility's wholesale power merchant
function and competitors obtain information about its transmission system in the
same manner. The Company filed its "Procedures for Implementing Standards of
Conduct under FERC Order No. 889" with the FERC in December 1996 and adopted
these Procedures effective January 3, 1997. FERC Orders No. 888 and No. 889 have
not had a significant material effect on the operating results of the Company.
The Company and various Northwest utilities began investigating the feasibility
of transferring certain operational responsibilities associated with a regional
transmission grid to an independent grid operator. In November 1997, the Company
withdrew from the effort to establish an independent grid operator in the
Northwest because the costs were greater than the perceived benefits. The
Company is exploring other regional transmission alternatives intended to help
facilitate a competitive electric power market, including the development of an
independent grid scheduling entity which might provide quantifiable efficiencies
in administering access to the Northwest transmission system in a
non-discriminatory fashion.
The North American Electric Reliability Council and the WSCC have undertaken
initiatives to establish a series of security coordinators to oversee the
reliable operation of the regional transmission system. Accordingly, the
Company, in cooperation with other utilities in the Pacific Northwest, has
established the Pacific Northwest Security Coordinator (PNSC) which will oversee
daily and short-term operations of the northwest sub-regional transmission grid,
and have limited authority to direct certain actions of control area operators
in the case of a pending transmission system emergency. The Company executed its
service agreement with the PNSC in September 1998. The PNSC is currently
operating in a limited fashion and is expected to be fully operational by May
1999.
STATE LEVEL
Further competition may be introduced by state action. Competition for retail
customers is not generally allowed in the Company's service territory. While the
Energy Act precludes the FERC from mandating retail wheeling, state regulators
and legislators could open service territories to full competition at the retail
level. Legislative action at the state level would be required for full retail
wheeling to occur in Washington and Idaho.
During 1997, the Idaho Legislature enacted legislation requiring the IPUC to
compile utilities' costs separately by generation, transmission and
distribution. Early in 1998, the IPUC opened individual cases for each of the
investor owned utilities and pursued audits of their cost of service studies,
including results of operations, methodology, and allocations. In August 1998,
the Commission ordered the cases closed, concluding that these studies met the
legislative requirement and that further examination of unbundled costs would be
more appropriate in general rate proceedings.
Two restructuring "study bills" were adopted in the 1998 Washington Legislative
session covering examination of cost unbundling, development and disclosure of
consumer protection policies, and studies of deregulation and system
reliability. The first study bill, known as "ESSHB2831", was implemented by the
WUTC as a collaborative effort, including stakeholders, to examine unbundling
and related issues. Unbundling would require utilities to compile costs
separately by generation, transmission and distribution. In September 1998,
unbundled cost filings were submitted by Washington's investor-owned utilities
and by various public utilities that met certain size or customer density
parameters. The WUTC staff and the State Auditor jointly reviewed the studies
and prepared a report presenting the results of the individual utilities'
studies. The report was prepared in a format intended to allow the legislature
to analyze the potential impacts of restructuring and deregulation. The WUTC
staff summary report did not include recommendations for restructuring, it
merely presented pros and cons of restructuring on an issue by issue basis. From
this, the legislature will determine whether or not to pursue changes in the
laws governing the industry.
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The second study bill "ESSB 6560" called for the examination of potential
quality of service, public purposes (e.g. conservation) and reliability issues
resulting from electric restructuring. The WUTC and the Washington Department of
Community, Trade and Economic Development launched the study, which was intended
to assist in the determination of appropriate reliability measures and the
feasibility of statewide compliance standards. Direct recommendations to the
legislature for implementation were not included, rather the focus was on a
"macro" analysis of the utilities' existing operations and theoretical impacts
on customer service quality and system reliability (generation, transmission,
and distribution) under various restructuring scenarios.
In 1998, the WUTC closed its Electric Industry Restructuring Inquiry initiated
in December 1995. The WUTC issued eight guiding principles including, a
directive that future WUTC regulatory oversight will balance such issues as
reliability, pricing responsive to customers needs and selected public policy
concerns.
The Company has developed a model offering broader customer choice to small
customers. The Portfolio Access Model (PA Model) was developed as a transition
to full direct access. Under the PA Model, large-use customers would receive
direct access; small-use customers would be provided a menu of services priced
at market rates such as monthly and annual pricing, as well as optional "green
rates" for renewable power. The PA Model has served as a regional proposal under
discussion by legislative committees and work groups in Washington, Idaho and
Oregon. More Options for Power Services II (MOPS II) is the Company's PA Model
regulatory pilot. (See Experimental Programs below for additional information.)
On December 31, 1997, the Company filed an application for exemption from the
California Public Utilities Commission's Affiliate Transaction Rules. These
rules require that a utility's energy marketing affiliates follow detailed
operating and reporting protocols as well as full separation from the regulated
entity for any business activity in California. On January 20, 1999, the CPUC
granted the Company a full exemption to these rules, providing that the Company
complies with its voluntary agreement that none of its affiliates will
participate in its South Lake Tahoe service territory. The Company will also
provide periodic reports from an independent auditor verifying that its
affiliates have not participated within this service territory.
EXPERIMENTAL PROGRAMS
To assess impacts of competition and customer choice, the Company implemented
the following experimental programs: Direct Access and Delivery Service Tariff
(DADS), More Options for Power Services (MOPS) tariff and More Options for Power
Services II (MOPS II) tariff. The Company has received regulatory approval to
defer all costs incurred from implementing the MOPS and MOPS II pilot programs.
In each case, the Company may lose some margin. However, the Company experienced
a margin gain of $250,000 in 1998, due to electric market prices.
Direct Access and Delivery Service Tariff (DADS) To proactively respond to the
potential regulatory change of customer choice in the electric business, the
Company filed the DADS tariff to better understand how customer choice could
affect the Company and its large industrial customers. The Company concluded its
Direct Access and Delivery Service pilot (DADS-Schedule 26) in August 1998,
which was one of the first open-access pilots in the U.S. The pilot was a
two-year experiment that allowed twenty-six of the Company's largest customers
to purchase up to one-third of their energy requirements from an energy supplier
other than Avista Corp. Ten of the fifteen eligible Washington customers and
five of the eleven eligible Idaho customers participated in the pilot. The
Company agreed to absorb any of the resulting lost margin on the commodity no
longer supplied by the Company. The pilot provided useful information to the
company, participants, suppliers and other interested parties. As echoed in the
responses to the customer surveys, even many of the Company's largest customers
are not ready to embrace an open-access environment because of concerns
regarding reliability and potential price volatility.
More Options for Power Services (MOPS) A MOPS experimental tariff was filed in
February 1997 with the WUTC and IPUC to help the Company assess the potential
benefits of direct access for its electric residential and commercial customers
and to collect information that will assist in the transition to customer choice
for those classes of customers. The pilot allows only the customers in the towns
of Odessa and Harrington, Washington to participate. This trial tariff is
effective through June 30, 1999. Since its implementation date of July 1, 1997,
25% of the 980 eligible customers have elected Grant County PUD as their
supplier. This represents a bill savings of approximately 6% - 10% to customers.
Originally, six power marketers signed up to participate; all but Grant County
PUD withdrew upon California's announcement of full direct access by January 1,
1998.
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More Options for Power Services II (MOPS II) While MOPS allowed customers to
purchase from alternative energy suppliers, MOPS II provides access to the
Company's portfolio of traditional service, monthly market, annual market and
renewable resource pricing. (See PA Model above for additional information.)
Approximately 7,300 customers in the towns of Deer Park, Washington and Hayden,
Idaho were able to elect alternative energy service from the Company as of July
1998. The Company received approval on this program on December 31, 1997 and
January 27, 1998 from the WUTC and IPUC, respectively. This trial tariff is
effective through mid-2000.
Avista Utilities' average production cost for a Washington residential customer
is 2.37 cents/kWh. For customers to save money under MOPS II, the average
monthly or annual market prices would need to be below this rate. During the
first eight months of MOPS II implementation, electric market rates were above
Avista Utilities' average retail rate in every month except February 1999. Thus,
participation in the annual and monthly market options has been low, with only
69 customers. Participation in the renewable resource offerings was also low.
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ENVIRONMENTAL ISSUES
The Company is subject to environmental regulation by federal, state and local
authorities. The generation, transmission, distribution, service and storage
facilities in which the Company has an ownership interest have been designed to
comply with all environmental laws presently applicable. Furthermore, the
Company conducts periodic reviews of all its facilities and operations to
anticipate emerging environmental issues. The Company's Board of Directors has
an Environmental Committee to deal specifically with these issues.
Air Quality. The Company continues to assess both the potential and actual
impact of the 1990 Clean Air Act Amendments (CAAA) on the thermal generating
plants in which it maintains an ownership interest. Centralia, which is
operated by PacifiCorp, is classified as a "Phase II" coal-fired plant under
the CAAA and, as such, will be required to reduce sulfur dioxide (SO2)
emissions. Centralia is also impacted by "visibility impairment" issues related
to Mt. Rainier National Park in southwestern Washington, which requires
additional reductions in emissions. A RACT (Reasonably Available Control
Technology) order was issued by SWAPCA (Southwest Washington Air Pollution
Control Agency) which requires a reduction in SO2 emissions of approximately
90% by the year 2000. The standards in the RACT order were established by a
collaborative decision-making group consisting of representatives from federal
and state agencies and the plant owners. The owners of the Centralia project
have collectively offered the plant for sale through an auction process. Bids
are being accepted until April 19, 1999. Should the owners not accept any bid,
the remaining options include bringing the units into compliance with
provisions of the CAAA through adding scrubbers or some other SO2 removal
process. Plant closure will be another option if economics prove it to be a
viable option. The Company's estimated share of this option would be incurred
over several years and is currently estimated to be $35 million of capital
costs. These estimates of future obligations are included in the projected
Total Company Cash Requirements in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations: Liquidity.
Colstrip, which is also a "Phase II" coal-fired plant and is operated by Montana
Power, is not expected to be required to implement any additional SO2 mitigation
in the foreseeable future in order to continue operations. Reduction in nitrogen
oxides (NOX) will be required at both Centralia and Colstrip prior to the year
2000. The anticipated share of costs for NOX compliance are not expected to have
a major economic impact on the Company.
The Company's other thermal projects also are subject to various CAAA standards.
Every five years each project requires an updated operating permit (known as a
Title V permit) which addresses, among other things, the compliance of the plant
with the CAAA. The permit for the Spokane CTs was received in 1995. The permit
for the Company's Kettle Falls plant was issued in 1996. The operating permit
application for the Rathdrum CTs in northern Idaho received approval and was
issued in 1997.
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: Future Outlook and Note 20 to Financial Statements for
additional information.
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ITEM 2. PROPERTIES
ENERGY DELIVERY
Electric Distribution and Transmission Plant
The Company operates approximately 12,200 miles of primary and secondary
distribution lines in its electric system in addition to a transmission system
of approximately 550 miles of 230 kV line and 1,550 miles of 115 kV line. The
Company also owns a 10% interest in 495 miles of a 500 kV line between Colstrip,
Montana and Townsend, Montana, and a 15% interest in three miles of a 500 kV
line from Centralia, Washington to the nearest Bonneville Power Administration
(Bonneville) interconnection.
The 230 kV lines are used to transmit power from the Company's Noxon Rapids and
Cabinet Gorge hydroelectric generating stations to major load centers in the
Company's service area as well as to transfer power between points of
interconnection with adjoining electric transmission systems. These lines
interconnect with Bonneville at five locations and at one location each with
PacifiCorp, Montana Power and Idaho Power Company. The Bonneville
interconnections serve as points of delivery for power from the Colstrip and
Centralia generating stations as well as for the interchange of power with
entities outside the Pacific Northwest. The interconnection with PacifiCorp is
used to integrate Mid-Columbia hydroelectric generating facilities to the
Company's loads as well as for the interchange of power with entities within the
Pacific Northwest.
The 115 kV lines provide for transmission of energy as well as providing for the
integration of the Spokane River hydroelectric and Kettle Falls wood-waste
generating stations with service area load centers. These lines interconnect
with Bonneville at nine locations, Grant County Public Utility District (PUD),
Seattle City Light and Tacoma City Light at two locations and one
interconnection each with Chelan County PUD, PacifiCorp and Montana Power.
Natural Gas Plant
The Company has natural gas distribution mains of approximately 3,897 miles in
Washington and Idaho and 1,755 miles in Oregon and California, as of December
31, 1998.
The Company, NWP and Puget Sound Energy each own a one-third undivided interest
in the Storage Project, which has a total peak day deliverability of 5.7 million
therms, with a total working natural gas inventory of 155.2 million therms.
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GENERATION AND RESOURCES
The Company's electric generation properties, located in the States of
Washington, Idaho and Montana, include the following:
Generating Plant
<TABLE>
<CAPTION>
Nameplate Present Year of
No. of Rating Capability FERC License
Units (MW)(1) (MW)(2) Expiration
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Hydroelectric Generating Stations (River)
Washington:
Long Lake (Spokane) 4 70.0 83.0 2007
Little Falls (Spokane) 4 32.0 36.0 N/A
Nine Mile (Spokane) 4 26.4 29.0 2007
Upper Falls (Spokane) 1 10.0 10.2 2007
Monroe Street (Spokane) 1 14.8 14.8 2007
Meyers Falls (Colville) 2 1.2 1.3 2023(6)
Idaho:
Cabinet Gorge (Clark Fork) 4 221.9 236.0 2001(3)
Post Falls (Spokane) 6 14.8 18.0 2007
Montana:
Noxon Rapids (Clark Fork) 5 466.2 528.0 2001(3)
------- ------
Total Hydroelectric 857.3 956.3
Thermal Generating Stations
Washington:
Centralia(4) 2 199.5 201.0
Kettle Falls 1 50.7 48.0
Northeast (Spokane) CT(5) 2 61.2 69.0
Idaho:
Rathdrum CT(5) 2 167.0 176.0
Montana:
Colstrip (Units 3 and 4)(4) 2 233.4 222.0
------- -------
Total Thermal 711.8 716.0
Total Generation Properties 1,569.1 1,672.3
======= =======
</TABLE>
N/A Not applicable.
(1) Nameplate Rating, also referred to as "installed capacity", is the
manufacturer's assigned power rating under specified conditions.
(2) Capability is the maximum generation of the plant without exceeding
approved limits of temperature, stress and environmental conditions.
(3) The formal relicensing process began in September 1995 for Cabinet Gorge
and Noxon Rapids. (See Generation and Resources - Hydroelectric
Relicensing for additional information.)
(4) Jointly owned; data above refers to Company's respective 15% interests.
(5) Used primarily for peaking needs.
(6) Sold in early 1999.
ITEM 3. LEGAL PROCEEDINGS
In December 1996, the Company filed a Complaint for declaratory relief and money
damages against Underwriters at Lloyds of London (Lloyds) in Spokane County
Superior Court. The purpose of this action was to seek a declaration of the
insurance policies issued to the Company by Lloyds with respect to any
liabilities of the Company for environmental damage associated with the oil
spill at the Central Steam Plant and other environmental remediation efforts.
The policies at issue were in effect during the period between 1926 and 1966;
thereafter, the Company maintained its policies with another underwriter, Aegis.
The Company's Complaint sought money damages in excess of $16 million. On March
10, 1999, Avista Corp. and Lloyds signed a settlement agreement resolving the
claim.
Refer to Note 20 of Notes to Financial Statements and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, Future
Outlook: Other for additional information on this and other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Outstanding shares of Common Stock are listed on the New York and Pacific Stock
Exchanges. As of February 26, 1999, there were approximately 23,758 registered
shareholders of the Company's no par value Common Stock.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: Future Outlook for additional information about common
stock dividends.
Refer to Notes 1 and 17 of Notes to Financial Statements for additional
information. For high and low stock price information, refer to Note 23 of Notes
to Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Thousands of Dollars except Per Share Data and Ratios)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Energy Delivery and
Generation and Resources * ....... $ 1,041,716 $ 890,516 $ 798,994 $ 661,216 $ 608,067
National Energy Trading and Marketing 2,409,920 247,646 116 -- --
Non-energy ........................... 232,348 164,010 145,847 93,793 62,698
----------- ----------- ----------- ----------- -----------
Total ................................ 3,683,984 1,302,172 944,957 755,009 670,765
Operating Income/(Loss):
Energy Delivery and
Generation and Resources * ....... 143,153 178,289 173,658 176,344 149,051
National Energy Trading and Marketing 19,922 2,191 (1,801) -- --
Non-energy ........................... 9,745 8,984 15,064 13,496 6,407
----------- ----------- ----------- ----------- -----------
Total ................................ 172,820 189,464 186,921 189,840 155,458
Net Income/(Loss):
Energy Delivery and
Generation and Resources * ......... 56,297 100,777(3) 62,404 72,310 63,567
National Energy Trading and Marketing 12,064 2,488 (1,161) -- --
Non-energy ........................... 9,778 11,532 22,210 14,811 13,630
----------- ----------- ----------- ----------- -----------
Total ................................ 78,139 114,797 83,453 87,121 77,197
Preferred Stock Dividend Requirements .. 8,399(1) 5,392 7,978 9,123 8,656
Income Available for Common Stock ...... 69,740 109,405(3) 75,475 77,998 68,541
Outstanding Common Stock (000s):
Weighted Average ..................... 54,604(1) 55,960 55,960 55,173 53,538
Year-End ............................. 40,454(1) 55,960 55,960 55,948 54,421
Book Value per Share ................... $ 12.07(1) $ 13.36 $ 12.70 $ 12.82 $ 12.45
Earnings per Share:
Energy Delivery and
Generation and Resources ........... 0.88 1.71(3) 0.97 1.14 1.03
National Energy Trading and Marketing 0.22 0.04 (0.02) -- --
Non-energy ........................... 0.18 0.21 0.40 0.27 0.25
----------- ----------- ----------- ----------- -----------
Total, Basic and Diluted ............. 1.28(1) 1.96(3) 1.35 1.41 1.28
Dividends Paid per Common Share ...... 1.05(2) 1.24 1.24 1.24 1.24
Total Assets at Year-End:
Energy Delivery and
Generation and Resources ........... 2,004,935 1,926,739 1,921,429 1,869,180 1,817,815
National Energy Trading and Marketing 957,421 214,630 899 -- --
Non-energy ........................... 291,280 270,416 254,970 229,722 176,438
----------- ----------- ----------- ----------- -----------
Total .................................. 3,253,636 2,411,785 2,177,298 2,098,902 1,994,253
Long-term Debt at Year-End ............. 730,022 762,185 764,526 738,287 721,146
Company-Obligated Mandatorily
Redeemable Preferred Trust Securities 110,000 110,000 -- -- --
Preferred Stock Subject to Mandatory
Redemption at Year-End ............... 35,000 45,000 65,000 85,000 85,000
Convertible Preferred Stock ............ 269,227(1) -- -- -- --
Ratio of Earnings to Fixed Charges ..... 2.66 3.49 2.97 3.22 3.24
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements ........ 2.25 3.12 2.50 2.61 2.59
</TABLE>
* Energy Delivery and Generation and Resources figures contain some minor
consolidating intersegment eliminations.
(1) The change from 1997 was affected by the conversion of shares of common
stock for Convertible Preferred Stock. The 1998 earnings per share would
have been $1.35 had the conversion occurred on January 1, 1998. (See
Notes 14 and 18 of Notes to Financial Statements for additional
information.)
(2) The Company reduced its common stock dividend from the $0.31 per share
paid in each of the first three quarters of the year to $0.12 per share
in the fourth quarter of 1998.
(3) Includes the $41.4 million after-tax effect of the income tax recovery
(see Note 8 of Notes to Financial Statements for additional
information).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Avista Corporation (Avista Corp. or the Company), formerly The Washington Water
Power Company, operates as a regional utility providing electric and natural gas
sales and services and as a national entity providing both energy and non-energy
products and services. The utility portion of the Company, doing business as
Avista Utilities, consists of two lines of business which are subject to state
and federal price regulation -- (1) Energy Delivery and (2) Generation and
Resources. The national businesses are conducted under Avista Capital, which is
the parent company to the Company's subsidiaries.
The Energy Delivery line of business includes transmission and distribution
services for retail electric operations, all utility natural gas operations, and
other energy products and services. Costs associated with electric energy
commodities, such as purchased power expense, as well as the revenues
attributable to the recovery of such costs from retail customers, have been
eliminated from the Energy Delivery line of business and are reflected in the
results of the Generation and Resources line of business. The results of all
natural gas operations are included in the Energy Delivery line of business
because natural gas trackers allow natural gas costs to pass through within this
line of business without the commodity prices having a material income effect.
Usage by retail customers varies from year to year primarily as a result of
weather conditions, customer growth and the economy in the Company's service
area. Other factors which may influence long-term energy usage include
conservation efforts, appliance efficiency and other technology.
The Generation and Resources line of business includes the generation and
production of electric energy, and short- and long-term electric and natural gas
sales trading and wholesale marketing, primarily to other utilities and power
brokers in the Western Systems Coordinating Council (WSCC). Energy trading
includes short-term sales and purchases, such as next hour, next day and monthly
blocks of energy. Wholesale marketing includes sales and purchases under
long-term contracts with one-year and longer terms. Generation and Resources
manages the Company's electric energy resource portfolio, which is used to serve
Energy Delivery's retail electric customers and Generation and Resources'
wholesale electric customers. In managing the electric energy resource
portfolio, Generation and Resources seeks to optimize the availability and
operations of generation resources. Revenues and the cost of electric power
purchases vary from year to year depending on the electric wholesale power
market, which is affected by several factors, including the availability of
water for hydroelectric generation, the availability of base load plants in the
region, marginal fuel prices and the demand for power in other areas of the
country. Other factors affecting the wholesale power market include lower unit
margins on new sales contracts than were realized in the past, fewer long-term
power contracts being entered into, deregulation of the electric utility
industry and competition from low cost generation being developed by independent
power producers.
Avista Capital is the parent company to the National Energy Trading and
Marketing and Non-energy businesses. In order to proactively respond to
deregulation, the Company created the National Energy Trading and Marketing line
of business, which is comprised of Avista Energy, Avista Advantage and Avista
Power. Avista Energy focuses on commodity trading, energy marketing and other
related businesses on a national basis, which includes conducting business
within the WSCC. Avista Energy's business is affected by several factors,
including the demand for and availability of power throughout the United States,
lower unit margins on new sales contracts, fewer long-term power contracts being
entered into, marginal fuel prices and deregulation of the electric utility
industry. Avista Advantage provides a variety of energy-related products and
services to commercial and industrial customers on a national basis. Its primary
product lines include consolidated billing, resource accounting, energy analysis
and load profiling. Avista Power was formed in December 1998 to develop and own
generation assets primarily in support of Avista Energy. See Liquidity and
Capital Resources: Energy Trading Business and Risk Management.
The Non-energy business is conducted primarily by Pentzer Corporation (Pentzer),
which is the parent company to the majority of the Company's Non-energy
businesses. Pentzer's business strategy is such that its earnings result from
both transactional and non-transactional earnings. Transactional gains arise
from a one-time event or a specific transaction, such as the sale of an
investment or individual company from Pentzer's portfolio of investments.
Non-transactional earnings arise out of the ongoing operations of the individual
portfolio companies.
Changes underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting its strategic direction to
growth in order to achieve its goal of becoming a diversified North American
energy company.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
1998 COMPARED TO 1997
Overall reported earnings per share for 1998 were $1.28, compared to $1.96 in
1997. The primary factors causing the decrease from 1997 were an income tax
recovery, net of associated items, which increased 1997 earnings per share by
$0.49, and decreased operating income from the Generation and Resources line of
business in 1998. In addition, in December 1998, the Company exchanged
15,404,595 shares of its common stock for shares of
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Convertible Preferred Stock (see Notes 14 and 18 of Notes to Financial
Statements for additional information about the new Convertible Preferred Stock
and earnings per share). If these shares had been exchanged at the beginning of
the year, basic and diluted earnings per share for 1998 would have been $1.39
and $1.35, respectively.
Net income available for common stock decreased $39.7 million in 1998 from 1997.
The 1998 results primarily reflect hydroelectric generation 21% lower than 1997
and increased purchased power prices and volumes, partially offset by improved
earnings at Avista Energy. In addition, the 1997 results include the impact of
$41.4 million, after-tax, in an income tax recovery from the Internal Revenue
Service, which was partially offset by $14.0 million, after-tax, in
environmental reserves and non-recurring adjustments (see below and Note 8 of
Notes to Financial Statements for additional information about the income tax
recovery). Excluding these items, utility (Energy Delivery and Generation and
Resources) income available for common stock decreased $20.2 million, or 30%, in
1998, contributing $0.88 to earnings per share in 1998, compared to $1.22 in
1997. National Energy Trading and Marketing income available for common stock
increased $9.6 million, contributing $0.22 to earnings per share in 1998 as
compared to $0.04 in 1997 when there were only 5 months of operations.
Non-energy operating income available for common stock decreased $1.8 million,
or 15%, in 1998 and contributed $0.18 to earnings per share in 1998, compared to
$0.21 in 1997. Transactional gains recorded by Pentzer totaled $4.3 million, or
$0.08 per share, and $7.3 million, or $0.13 per share, in 1998 and 1997,
respectively.
Interest expense increased $2.8 million in 1998, as compared to 1997, primarily
due to higher levels of outstanding debt during the year. During 1998, $84.0
million of long-term debt was issued, while $14.0 million of long-term debt
matured or was redeemed. At December 31, 1998, there was no short-term debt
outstanding, compared to $108.5 million at December 31, 1997. Long-term debt
outstanding at December 31, 1998 was $32.2 million lower than at the end of
1997.
Income taxes decreased $17.7 million, or 29%, in 1998 from 1997, primarily due
to higher taxes in 1997 on the interest income received as a part of the income
tax recovery, partially offset by adjustments related to revised estimates on
certain tax issues.
Preferred stock dividend requirements increased $3.0 million in 1998 over 1997
due to the exchange of shares of common stock for shares of $12.40 Convertible
Preferred Stock, Series L, which occurred in December 1998. This was partially
offset by the redemption of $10 million in Preferred Stock, Series I in June
1998.
1997 COMPARED TO 1996
Overall earnings per share for 1997 were $1.96, compared to $1.35 in 1996. The
1997 results include the receipt of $41.4 million, after-tax, in an income tax
recovery from the Internal Revenue Service, which was partially offset by
environmental reserves and non-recurring adjustments (see below and Note 8 of
Notes to Financial Statements for additional information about the income tax
recovery). The 1996 results reflect $11.1 million in after-tax operating
expenses related to storm damage on the electric distribution system and the
expensing of $10.3 million in after-tax non-operating costs related to the
terminated proposed merger between the Company and Sierra Pacific Resources (see
Note 22 of Notes to Financial Statements for additional information about the
merger termination). The 1996 results also reflect transactional gains totaling
$15.1 million recorded by Pentzer primarily as a result of the sale of property
by one of its subsidiary companies and the sale of stock in Itron, Inc. (Itron).
Excluding all of these unusual items, earnings per share in 1997 would have been
$1.47 as compared to $1.73 for 1996.
Net income available for common stock increased $33.9 million, or 45%, in 1997
over 1996. In 1997, the income tax recovery resulted in an increase of $0.74 in
earnings per share for 1997, which was offset by $0.25 per share in
environmental reserves and other miscellaneous non-recurring adjustments. The
ice storm (see below) and merger-related expenses resulted in decreases of $0.20
and $0.18, respectively, in earnings per share for 1996. Utility income
contributed $1.71 in 1997, compared to $0.97 in 1996. National Energy Trading
and Marketing income available for common stock increased $3.6 million in 1997,
contributing $0.04 to earnings per share in 1997 compared to a loss of $0.02 in
1996. Non-energy operating income available for common stock decreased $10.7
million, or 48%, in 1997 and contributed $0.20 to earnings per share in 1997 and
$0.40 in 1996. Transactional gains recorded by Pentzer totaled $7.3 million, or
$0.13 per share, in 1997, and $15.1 million, or $0.27, in 1996.
Interest expense increased $3.0 million in 1997, as compared to 1996, primarily
due to higher levels of outstanding debt and new Preferred Trust Securities
issued during the year. In 1997 and 1996, $70 million and $20 million,
respectively, in preferred stock was redeemed, which resulted in higher levels
of short-term borrowings. In addition, a total of $110 million in Preferred
Trust Securities were issued in January and June 1997, distributions on which
are included in interest expense. (See Note 15 of Notes to Financial Statements
and Liquidity and Capital Resources for additional information.) During 1997 and
1996, $51.5 million and $38.0 million, respectively, of long-term debt matured
or was redeemed, while $20.0 million in long-term debt was issued in 1997. At
December 31, 1997, there was $108.5 million of short-term debt outstanding,
compared to $85.0 million at December 31, 1996. Long-term debt outstanding at
December 31, 1997 was $2.3 million lower than at the end of 1996.
In June 1997, the Company received $81 million from the Internal Revenue Service
(IRS) to settle an income tax claim relating to its investment in the terminated
nuclear project 3 of the Washington Public Power Supply System (WNP3). The $81
million recovery included $34 million in income taxes the Company overpaid in
prior years plus
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$47 million in accrued interest, which in total contributed $41.4 million, or
$0.74 per share, to net income. (See Note 8 of Notes to Financial Statements for
additional information about the income tax recovery.)
Income taxes increased $11.6 million, or 23%, in 1997 over 1996. The increased
taxes in 1997 were primarily due to the taxes on the interest income received as
a part of the income tax recovery, partially offset by an $11.4 million income
tax benefit associated with the income tax recovery and adjustments related to
revised estimates on certain tax issues.
Preferred stock dividend requirements decreased $2.6 million in 1997 from 1996
due to the redemption of $20 million in Preferred Stock, Series I in June 1997
and the redemption of the entire $50 million Flexible Auction Preferred Stock,
Series J in August 1997. These securities were redeemed with a portion of the
proceeds of the Preferred Trust Securities which were issued in January and June
1997. However, as described above, distributions on the Preferred Trust
Securities are accounted for in interest expense, not preferred dividends.
ENERGY DELIVERY
1998 COMPARED TO 1997
Energy Delivery's income from operations increased $3.2 million in 1998 over
1997 primarily due to increased revenues in 1998. Energy Delivery's operating
revenues increased $29.2 million, while operating expenses increased $26.0
million during 1998 as compared to 1997.
Total electric retail revenues increased $1.8 million in 1998 as compared to
1997, primarily as a result of increased commercial and industrial revenues,
partially offset by decreased revenues from residential customers. Total natural
gas revenues increased $27.4 million in 1998 over 1997, primarily due to a
combination of 4.4% customer growth, increased natural gas prices approved by
the Washington Utilities and Transportation Commission (WUTC), effective in
January 1998, and an increase in non-retail sales, partially offset by decreased
customer usage as a result of weather 13% warmer than normal in 1998 as compared
to 5% warmer than normal in 1997.
Natural gas purchased costs increased $15.3 million in 1998 due to increased
sales volumes as a result of customer growth and higher non-retail sales.
Administrative and general expenses increased $7.0 million due primarily to
executive changes, corporate name change expenses and incentives. Depreciation
and amortization increased $2.0 million due to higher amounts of
plant-in-service.
1997 COMPARED TO 1996
Energy Delivery's income from operations increased $24.3 million, or 27%, in
1997 over 1996 primarily due to $17.1 million in pre-tax expenses associated
with the storm damage on the Company's electric distribution system in 1996.
Energy Delivery's operating revenues increased $0.1 million, while expenses
decreased $24.2 million during 1997 as compared to 1996.
On November 19, 1996, the eastern Washington and northern Idaho region
experienced an ice storm that resulted in damage to the Company's electric
transmission and distribution system. The Company's service area was affected by
continuing snow and rain, which hampered the Company's efforts to restore
electric service to some customers until December 1, 1996. Initially, over
one-third, or 100,000, of the Company's retail electric customers were without
electric service. Repairing the damage to the Company's system cost
approximately $21.8 million, of which $17.1 million (pre-tax) was attributable
to operations and maintenance expenses, including labor and materials, for the
repair of damaged lines, transformers and other equipment. The remainder of the
cost represents capital expenditures to replace poles and other equipment
damaged beyond repair.
Total electric retail revenues increased $5.6 million in 1997 as compared to
1996, primarily as a result of increased transmission revenues, partially offset
by decreased revenues from retail electric customers. Transmission revenues
increased $7.6 million in 1997 over 1996 due to increased wholesale electric
sales. Electric retail revenues decreased $3.4 million, primarily due to
decreased industrial sales as a result of the DADS tariff and other adjustments,
partially offset by a 1.6% growth in retail customers during 1997. Total natural
gas revenues decreased $5.5 million in 1997 from 1996, primarily due to
decreased therm sales as a result of weather 5% warmer than normal in 1997,
compared to 9% colder than normal in 1996, and decreased natural gas prices,
partially offset by an increase in non-retail sales and 5.7% customer growth.
Operating and maintenance expenses decreased $21.4 million in 1997 from 1996
primarily due to the $17.1 million in expenses recorded in 1996 related to the
storm damage on the Company's electric distribution system. Natural gas
purchased expense decreased $2.7 million in 1997 from 1996 primarily due to
lower therm sales as a result of warmer weather.
GENERATION AND RESOURCES
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1998 COMPARED TO 1997
Generation and Resources' income from operations decreased $38.4 million, or
59%, in 1998 from 1997. The decrease was due to hydroelectric generation 21%
lower than 1997, which resulted in increased purchased power costs due to both
increased prices and volumes. Generation and Resources' operating revenues and
expenses increased $128.4 million and $166.8 million, respectively, during 1998
as compared to 1997.
Generation and Resources' revenues increased 25% in 1998 over 1997, primarily
due to increased short-term sales; however, this was more than offset by
increased purchased power and fuel costs. Revenues from short-term sales
increased $163.2 million, while long-term revenues decreased $35.8 million in
1998 as compared to 1997. Total sales volumes during 1998 increased 17% over
1997. Short-term sales volumes increased 3.4 million mwhs, or 28%, while
long-term sales decreased 0.6 million mwhs.
Increased short-term sales volumes and prices 30% higher than the previous year
resulted in a $160.4 million, or 52%, increase in electric purchased power
expense in 1998 over 1997, which accounts for the majority of the increase in
Generation and Resources' operating expenses. Fuel costs increased $9.8 million
in 1998 compared to 1997 as a result of increased generation at the thermal
generating plants to meet the demand for energy.
1997 COMPARED TO 1996
Generation and Resources' income from operations decreased $19.6 million, or
23%, in 1997 from 1996. The decrease was due to an $11.8 million decrease from
the expiration of older sales contracts with higher margins, lower unit margins
on new sales contracts and higher transmission expenses due to increased sales.
Generation and Resources' operating revenues and expenses increased $92.6
million and $112.2 million, respectively, during 1997 as compared to 1996.
Results from this business segment included activities for the first seven
months of 1997 that as of August 1997 were conducted by Avista Energy.
Generation and Resources' revenues increased 22% in 1997 over 1996, primarily
due to increased short-term sales. Revenues from short-term sales increased
$99.8 million, while long-term revenues decreased $0.4 million in 1997 as
compared to 1996. Total sales volumes during 1997 increased 47% over 1996.
Short-term sales volumes increased 5.4 million mwhs, or 82%, while long-term
sales decreased 0.2 million mwhs.
Increased short-term sales resulted in a $119.4 million, or 63%, increase in
electric purchased power expense in 1997 over 1996. Fuel costs decreased $6.1
million in 1997 compared to 1996 as a result of economic dispatch of the thermal
generating plants.
NATIONAL ENERGY TRADING AND MARKETING
National Energy Trading and Marketing includes the results of Avista Energy, the
national energy marketing subsidiary, Avista Advantage, the energy services
subsidiary, and Avista Power, which was formed in December 1998 to develop and
own generation assets primarily in support of Avista Energy. Avista Power
operations had no impact on 1998 earnings. Although Avista Energy and Avista
Advantage began incurring start-up costs during 1996, Avista Energy only became
operational in July 1997 and began trading operations in August 1997. Year to
year results are not comparable since 1997 only represents five months of
operations. Avista Energy maintains a trading portfolio which it marks to fair
market value on a daily basis (mark-to-market accounting), and which may cause
earnings variability in the future.
1998 COMPARED TO 1997
National Energy Trading and Marketing's income available for common stock
increased $9.6 million over 1997, while income from operations increased $17.7
million in 1998 over 1997, primarily due to a full year of operations at Avista
Energy. This increase was partially offset by a loss from the energy services
business, due to customers and revenue streams that did not materialize as
expected and a longer than anticipated sales cycle. National Energy Trading and
Marketing's operating revenues and expenses increased $2.16 billion and $2.14
billion, respectively, during 1998 as compared to 1997 when the Company only had
five months of operations.
Avista Energy provided positive results in 1998 despite the price volatility
experienced in power markets in the Midwest and East during various periods of
the year. The company was well-positioned in its market, which allowed net gains
in its portfolio during periods of high volatility. Avista Energy expected high
volatility in Eastern electric markets in the summer of 1998 based on expected
demand and the high probability of a weather-related impact on energy prices. As
a result, Avista Energy established positions in anticipation of volatile market
swings, and in turn experienced positive earnings in its portfolio during this
period. However, there is no guarantee that positive results can or will always
be achieved. For additional information about market risk and credit risk, see
Liquidity and Capital Resources: Risk Management.
National Energy Trading and Marketing's total assets and liabilities increased
by approximately $739.9 million from December 31, 1997 to December 31, 1998.
This increase resulted primarily from the increased volume of
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transactions, as well as the impact of the market's price volatility on forward
price curves, which increased the valuation of Avista Energy's mark-to-market
assets and liabilities.
1997 COMPARED TO 1996
National Energy Trading and Marketing's income from operations increased $4.0
million in 1997 over 1996. This increase was primarily due to Avista Energy
becoming operational, partially offset by continued start-up costs at both
Avista Energy and Avista Advantage and, for the energy services business,
customers and revenue streams that did not materialize as expected and a longer
than anticipated sales cycle. National Energy Trading and Marketing's operating
revenues and expenses increased $247.5 million and $243.5 million, respectively,
during 1997 as compared to 1996.
NON-ENERGY
1998 COMPARED TO 1997
Non-energy income available for common stock for 1998 was $9.8 million, which
was a $1.8 million decrease from 1997 earnings. Transactional gains decreased to
$4.3 million in 1998 from $7.3 million in 1997, while non-transactional earnings
from Pentzer's portfolio companies increased $2.2 million. The non-transactional
earnings included an approximate $4.4 million after-tax loss in the fourth
quarter at a Pentzer operating company due to a business repositioning and an
inventory adjustment.
Income from operations totaled $9.7 million, which was a $0.8 million increase
over 1997. Non-energy operating revenues and expenses increased $68.3 million
and $67.5 million, respectively, primarily as a result of acquisitions and
increased business activity from several of Pentzer's portfolio companies.
1997 COMPARED TO 1996
Non-energy net income for 1997 was $11.5 million, which represents a $10.7
million, or 48%, decrease from 1996. The decrease in 1997 earnings primarily
resulted from transactional gains recorded by Pentzer in 1997 totaling $7.3
million, from the sale of Itron stock and the sale of a portfolio company,
compared to transactional gains during 1996 totaling $15.1 million, net of taxes
and other adjustments, as a result of the sale of property by one of its
subsidiary companies and the sale of stock in Itron.
Operating income decreased $6.1 million in 1997 from 1996 primarily as a result
of lower earnings contributions from Pentzer portfolio companies. Non-energy
operating revenues and expenses increased $18.2 million and $24.2 million,
respectively, primarily as a result of acquisitions.
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LIQUIDITY AND CAPITAL RESOURCES
Overall Operations
Operating Activities Cash from operating activities less cash dividends paid
provided all funds needed for capital expenditures in 1998, 1997 and 1996. Net
cash provided by operating activities in 1998 increased over 1997 due primarily
to the $143.4 million provided by the monetization of a contract (see below and
Note 1 of Notes to Financial Statements for additional information). In
addition, changes in various working capital components, such as receivables and
payables, caused cashflows to decrease by $44.6 million from 1997, primarily due
to the growth in Avista Energy's operations.
Investing Activities Net cash used in investing activities decreased in 1998
from 1997 primarily due to the sale of marketable securities held for investing
activities by Pentzer, compared to the sale of subsidiary assets by Pentzer in
1997. Utility operations' capital expenditures, excluding Allowance for Funds
Used During Construction (AFUDC) and Allowance for Funds Used to Conserve Energy
(AFUCE, a carrying charge similar to AFUDC for conservation-related capital
expenditures), were $268 million for the 1996-1998 period.
Financing Activities Net cash used in financing activities totaled $108.7
million in 1998 compared to $66.2 million in 1997. In 1998, $84.0 million of
proceeds were received from the issuance of Medium-Term Notes. These proceeds,
plus cash provided from operating activities, were used to retire $14.0 million
of long-term debt, redeem $10 million of preferred stock and pay down $108.5
million of short-term debt. In 1997, $110 million of preferred trust securities
were issued (see Note 15 of Notes to Financial Statements for additional
information), the proceeds of which, along with an additional $20.0 million from
the issuance of Secured Medium-Term Notes, were used for the maturity and
redemption of $70.0 million of preferred stock and $51.5 million of long-term
debt. During the 1996-1998 period, $203.5 million of long-term debt and
preferred stock matured, was mandatorily redeemed or was optionally redeemed and
refinanced at a lower cost.
During 1998, the Company entered into an agreement that increased the amount of
customer accounts receivable the Company could sell from $40 million to $80
million to provide additional funds for capital expenditures, maturing long-term
debt and preferred stock sinking fund requirements. At December 31, 1998, $25.0
million in receivables had been sold pursuant to the agreement.
In August 1998, the Company announced a dividend restructuring plan that reduced
the Company's annual common stock dividend from $1.24 per share to $0.48 per
share, a 61% reduction, which was effective with the payment of the common stock
dividend paid on December 15, 1998. At the same time, an exchange offer was made
whereby shareholders were provided the opportunity to exchange their shares of
common stock for mandatorily convertible preferred shares, each of which pays an
annual dividend of $1.24 per share for a period of about three years. After
three years, the new-issue preferred shares will automatically convert back to
common stock, based on the shares converted. The Company has the option of
converting some or all of the new-issue shares to common stock prior to the end
of the three-year period. Shareholders who chose not to participate in the
exchange plan retained their ownership in Avista Corporation common stock. The
annual savings resulting from the dividend restructuring are approximately $30
million for the next three years, increasing to about $42 million annually once
the convertible preferred shares are converted back to common stock, which will
assist in funding a portion of the Company's capital expenditures, maturing
long-term debt and preferred stock sinking fund requirements. See Note 14 of
Notes to Financial Statements for additional information about the new
convertible preferred stock.
ENERGY DELIVERY AND GENERATION AND RESOURCES OPERATIONS
The Company funds capital expenditures with a combination of
internally-generated cash and external financing. The level of cash generated
internally and the amount that is available for capital expenditures fluctuates
annually. Cash provided by operating activities remains the Company's primary
source of funds for operating needs, dividends and capital expenditures.
Capital expenditures are financed on an interim basis with notes payable (due
within one year). The Company has $200 million in committed lines of credit. In
addition, the Company may currently borrow up to $100 million through other
borrowing arrangements with banks. As of December 31, 1998, there were no
outstanding borrowings under the committed lines of credit or the other
short-term borrowing arrangements.
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From time to time the Company enters into sale/leaseback arrangements for
various long-term assets which provide additional sources of funds. See Note 12
of Notes to Financial Statements for additional information.
In December 1998, the Company assigned and transferred certain rights under a
long-term power sales contract to a funding trust. In return, the Company
received approximately $143.4 million, representing the present value of the
cash flows for the majority of the remaining payments due under the long-term
sales contract. The Company utilized the funds to repay short-term bank
borrowings and other debt.
The Company is restricted under various agreements as to the additional
securities it can issue. Under the most restrictive test of the Company's
Mortgage, an additional $623 million of First Mortgage Bonds could be issued as
of December 31, 1998. As of December 31, 1998, under its Restated Articles of
Incorporation, approximately $715 million of additional preferred stock could be
issued at an assumed dividend rate of 6.95%.
During the 1999-2001 period, utility capital expenditures are expected to be
$283 million, and $127.5 million will be required for long-term debt maturities
and preferred stock sinking fund requirements. During this three-year period,
the Company estimates that internally-generated funds will provide approximately
80% of the funds needed for its capital expenditure program. External financing
will be required to fund a portion of capital expenditures, maturing long-term
debt and preferred stock sinking fund requirements. Sources of funds would
include, but are not necessarily limited to, cash flows from the reduction in
the Company's common stock dividend, sales of certain assets, additional
long-term debt, leasing or other equity securities. These estimates of capital
expenditures are subject to continuing review and adjustment. Actual capital
expenditures may vary from these estimates due to factors such as changes in
business conditions, construction schedules and environmental requirements.
See Notes 2, 10, 11, 12, 13, 14, 15, 16 and 17 of Notes to Financial Statements
for additional details related to financing activities.
NATIONAL ENERGY TRADING AND MARKETING OPERATIONS
During 1998, the Company invested $65.1 million in the common equity of Avista
Capital. Avista Capital utilized the majority of the proceeds from this
investment to increase its total investment in the common equity of Avista
Energy to $106.7 million. Avista Energy funds its ongoing operations with a
combination of internally-generated cash and external financing. The Company
expects continued significant growth in Avista Energy's national energy trading
and marketing business activities. This rapid growth will require increased
capital investment, as well as an increased need for credit and financial
support.
Effective December 23, 1998, Avista Energy arranged for an increase in its
credit facility with a commercial bank from $50 million to $100 million. The
credit agreement expires April 1, 1999. The facility provides capital resources
to accommodate growth, principally in the form of letters of credit used to
enhance credit for natural gas and electricity purchases. The credit facility
also provides Avista Energy liquidity in the form of short-term borrowings used
to finance inventory and receivables. The maximum cash component of credit
extended by the bank is $30 million, with availability of up to $100 million in
the issuance of letters of credit. The credit agreement may be terminated by the
bank at any time and all extension of credit under the agreement are payable
upon demand, in either case at the bank's sole discretion. The facility is
guaranteed by Avista Capital and is secured by substantially all of Avista
Energy's assets. At December 31, 1998 and 1997, there were no cash advances
(demand notes payable) outstanding. Letters of credit outstanding under the
facility totaled approximately $20.2 million and $2.8 million at December 31,
1998 and 1997, respectively. See Note 11 of Notes to Financial Statements for
additional information.
At December 31, 1998, the National Energy Trading and Marketing operations had
$38.0 million in cash and cash equivalents and $0.9 million in long-term debt
outstanding.
The 1999-2001 National Energy Trading and Marketing capital expenditures are
expected to be $10.1 million.
NON-ENERGY OPERATIONS
Capital expenditures for the non-energy operations were $28.0 million for the
1996-1998 period. During this period, $45.5 million of debt was repaid and
capital expenditures were partially financed by the $62.6 million in proceeds
from new long-term debt.
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The non-energy operations have $54.0 million in short-term borrowing
arrangements ($21.4 million outstanding as of December 31, 1998) to fund
corporate requirements on an interim basis. At December 31, 1998, the non-energy
operations had $18.0 million in cash and marketable securities with $54.0
million in long-term debt outstanding.
The 1999-2001 non-energy capital expenditures are expected to be $17.8 million,
and $32.3 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-energy capital expenditure
requirements.
Avista Labs, a subsidiary of Avista Capital, recently announced the receipt of a
$2 million technology development award from the Department of Commerce's
National Institute of Standards and Technology Advanced Technology Program. The
Company will contribute another $1.22 million over a two-year period. Avista
Labs plans to work on technology that will increase the energy density of its
fuel cell design and develop multiple fuel processing approaches using propane,
methane and methanol as base fuels to integrate into its fuel cell subsystem.
<TABLE>
<CAPTION>
TOTAL COMPANY CASH REQUIREMENTS
- -------------------------------
(Millions of Dollars)
Actual Projected
------------------------ ------------------------
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Utility operations:
Avista Utilities capital expenditures(1) $ 89 $ 87 $ 92 $ 92 $108 $103
Debt and preferred stock maturities(2) 63 121 24 47 55 40
---- ---- ---- ---- ---- ----
Total utility 152 208 116 139 163 143
---- ---- ---- ---- ---- ----
Avista Capital operations:
Capital expenditures 2 12 14 16 6 6
Investments 4 59 53 40 41 56
Debt maturities 10 12 18 12 11 9
---- ---- ---- ---- ---- ----
Total Avista Capital 16 83 85 68 58 71
---- ---- ---- ---- ---- ----
Total Company $168 $291 $201 $207 $221 $214
==== ==== ==== ==== ==== ====
</TABLE>
(1) Capital expenditures exclude AFUDC and AFUCE.
(2) Excludes notes payable (due within one year).
The Company's total common equity decreased $260.8 million to $488.0 million at
the end of 1998. The 1998 decrease was primarily due to the exchange of shares
of common stock for shares of $12.40 Convertible Preferred Stock, Series L (see
Note 14 of Notes to Financial Statements for additional information). The
Company's consolidated capital structure at December 31, 1998, was 45% debt, 25%
preferred securities (including the Preferred Trust Securities) and 30% common
equity as compared to 46% debt, 9% preferred securities (including the Preferred
Trust Securities) and 45% common equity at year-end 1997. Had the convertible
preferred stock been converted back to common stock, the Company's consolidated
capital structure at December 31, 1998, would have been 45% debt, 9% preferred
securities (including the Preferred Trust Securities) and 46% common equity.
ADDITIONAL FINANCIAL DATA
At December 31, 1998, the total long-term debt of the Company and its
consolidated subsidiaries, as shown in the Company's consolidated financial
statements, was approximately $730.0 million. Of such amount, $237.5 million
represents long-term unsecured and unsubordinated indebtedness of the Company,
and $449.3 million represents secured indebtedness of the Company. The balance
of $43.2 million represents indebtedness of the subsidiaries. Consolidated
long-term debt does not include the Company's subordinated indebtedness held by
the issuers of Company-obligated preferred trust securities.
FUTURE OUTLOOK
Business Strategy
Changes underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting its strategic direction to
growth in order to achieve its goal of becoming a diversified North American
energy company.
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The Company's growth strategy will expose the Company to risks associated with
rapid expansion, challenges in recruiting and retaining qualified personnel,
risks associated with acquisitions and joint ventures and increasing
competition. In addition, growth in the energy trading and marketing business
will expose the Company to increased financial and credit risks associated with
commodity trading activities. The Company believes that its extensive experience
in the electric and natural gas business, coupled with its strong management
team, will allow the Company to effectively manage its transition to a
diversified North American energy company.
Energy
The Company seeks to strengthen its position of leadership in energy delivery
and generation as well as energy trading and marketing on a local, regional and
national basis. The Company will seek to increase its asset and customer base
through a focus on acquisitions and strategic alliances in all parts of its
business. The Company intends to focus on growing its core energy business by
seeking to acquire control of physical assets, specifically power generation
assets and electric and natural gas transmission and distribution assets. The
Company expects that initial growth will come at a local and regional level,
with national growth to follow. Key strengths of the Company today include its
position as one of the lowest cost producers of power in the nation, expertise
in hydroelectric and power system management, plus capabilities in trading and
wholesale and retail marketing of natural gas and electric energy. The Company
is also continuing to develop a unique approach to commercialization of fuel
cell technology.
Locally. The Company is a long-standing leader in the Northwest region of the
United States, providing some of the lowest cost energy to its customers. The
Company's strategy is to add selectively to its already strong foundation of
state-regulated utility assets to solidify its position as a leading supplier of
low-cost electric and natural gas energy services.
Regionally. The Company intends to add to its regulated and non-regulated assets
on a regional basis and participate in industry consolidation to further
optimize its assets and create greater economies of scale. In addition to energy
delivery and generation, the Company plans to concentrate on growing its energy
trading and marketing business. The strong growth in this business is driven by
the Company's significant base of knowledge and experience in the operation of
physical systems - for both natural gas and electric energy in the region, as
well as its relationship-focused approach to the customer. The Company will also
focus on expanding its telecommunications business through its newest
subsidiary, Avista Communications. (See Note 21 of Notes to Financial Statements
for additional information about this subsidiary.)
Nationally. The Company's strong regional energy trading and marketing skills
serve as a platform for the Company's growing national presence. The Company
will seek to expand its customer base through relationships with other energy
providers outside the Company's Northwest stronghold, thereby leveraging its
existing trading and marketing skills, as well as through its Internet-based
specialty billing and information services.
Non-Energy
The Company conducts the majority of its non-energy business through Pentzer,
its wholly owned subsidiary. Pentzer's business strategy is to acquire
controlling interests in a broad range of middle market companies, facilitate
improved productivity and growth, and ultimately sell such companies to the
public or a strategic buyer.
Competition and Business Risk
The Company continues to compete for new retail electric customers with various
rural electric cooperatives and public utility districts in and adjacent to its
service territories. Challenges facing the retail electric business include
evolving technologies that provide alternate energy supplies, the cost of the
energy supplied, the potential for retail wheeling, self-generation and fuel
switching by commercial and industrial customers and increasingly stringent
environmental laws. When electric utility companies are required to provide
retail wheeling service, the Company believes it will be in a position to
benefit since it is committed to remaining one of the country's lowest-cost
providers of electric energy. Consequently, the Company believes it faces
minimal risk for stranded generation, transmission or distribution assets due to
its low cost structure. The Company's need for new future electric resources to
serve retail loads is expected to remain very minimal.
Natural gas remains priced competitively compared to other alternative fuel
sources for residential, commercial and industrial customers and is projected to
remain so into the future due to abundant supplies and competition. Challenges
facing the Company's retail natural gas business include the potential for
customers to by-pass the Company's natural gas system. To reduce the potential
for such by-pass, the Company prices its natural gas services,
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including transportation contracts, competitively and has varying degrees of
flexibility to price its transportation and delivery rates by means of special
contracts. The Company has long-term transportation contracts with seven of its
largest industrial customers which reduces the risks of these customers
by-passing the Company's system in the foreseeable future.
Generation and Resources and Avista Energy continue to compete in the wholesale
electric market with other utilities, federal marketing agencies and power
marketers. It is expected that competition to sell capacity will remain
vigorous, and that prices will remain depressed for at least the next several
years, due to increased competition and surplus capacity in the western United
States. Competition related to the sale of capacity and energy is influenced by
many factors, including the availability of capacity in the western United
States, the availability and prices of natural gas and oil, spot energy prices
and transmission access. Business challenges affecting the Generation and
Resources and National Energy Trading and Marketing lines of business include
competition from low-cost generation being developed by independent power
producers, declining margins due to a greater reliance on short-term sales,
evolving technologies that provide alternate energy supplies and deregulation of
electric and natural gas markets.
The Company's energy-related businesses are exposed to risks relating to changes
in certain commodity prices and counterparty performance. In order to manage the
various risks relating to these exposures, the Company utilizes electric,
natural gas and related commodity derivatives, and has established risk
management oversight for these risks for each area of the Company's
energy-related business. The Company has implemented procedures to manage such
risk and has established a comprehensive Risk Management Committee, separate
from the units that create such risk exposure and overseen by the Audit and
Finance Committee of the Company's Board of Directors, to monitor compliance
with the Company's risk management policies and procedures.
Economic and Load Growth
The Company expects economic growth to continue in its eastern Washington and
northern Idaho service area. The Company, along with others in the service area,
is continuing its efforts to facilitate expansion of existing businesses and
attract new businesses to the Inland Northwest. Agriculture, mining and lumber
were the primary industries for many years, but health care, education,
electronic and other manufacturing, tourism and the service sectors have become
increasingly important industries that operate in the Company's service area.
The Company also anticipates moderate economic growth to continue in its Oregon
service area.
The Company anticipates residential and commercial electric load growth to
average approximately 2.3% annually for the next five years primarily due to
increases in both population and the number of businesses in its service
territory. The number of electric customers is expected to increase and the
average annual usage by residential customers is expected to remain steady on a
weather-adjusted basis. A Public Utility Regulatory Policies Act of 1978 (PURPA)
contract with the Company's largest customer expires in 2002. The customer is
expected to self-generate at that time, which will reduce the load to this
customer by the amount the Company has been purchasing and then reselling to
them. Although it will have no material impact on loads, it will reduce the
Company's costs since the PURPA contract is at above-market prices. Overall, the
load growth, adjusted for this situation, is 2.4% annually.
The Company anticipates natural gas load growth, including transportation
volumes, in its Washington and Idaho service area to average approximately 2.7%
annually for the next five years. The Oregon and South Lake Tahoe, California
service areas are anticipated to realize 3.1% growth annually during that same
period.
The forward-looking projections set forth above regarding retail sales growth
are based, in part, upon publicly available population and demographic studies
conducted independently. The Company's expectations regarding retail sales
growth are also based upon various assumptions including, without limitation,
assumptions relating to weather and economic and competitive conditions and an
assumption that the Company will incur no material loss of retail customers due
to self-generation or retail wheeling. Changes in the underlying assumptions can
cause actual experience to vary significantly from forward-looking projections.
Environmental Issues
Since December 1991, a number of species of fish in the Northwest, including the
Snake River sockeye salmon and chinook salmon, the Kootenai River white
sturgeon, the upper Columbia River steelhead and the bull trout have been listed
as threatened or endangered under the Federal Endangered Species Act (ESA). A
listing of the upper Columbia River spring chinook is anticipated by mid-1999.
Thus far, measures which have been adopted and implemented to save the Snake
River sockeye salmon and chinook salmon have not directly impacted generation
levels at any of the
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Company's hydroelectric dams. The Company does, however, purchase power from
four projects on the Columbia River that are being directly impacted by ongoing
mitigation measures for spring chinook, salmon and steelhead. The reduction in
generation at these projects is relatively minor, resulting in minimal economic
impact on the Company at this time. It is currently not possible to accurately
predict the likely economic costs to the Company resulting from all future
actions.
The Company is currently in the process of relicensing the Cabinet Gorge and
Noxon Rapids hydroelectric projects on the Clark Fork River in northern Idaho
and western Montana. The restoration of native salmonid fish, in particular bull
trout, is a principal focus for the members of the collaborative relicensing
team. Bull trout are native to this area and a "threatened" listing for bull
trout occurred in 1998 under the ESA. The Company is working closely with the
U.S. Fish and Wildlife Service, Native American tribes and the states of Idaho
and Montana to institute coordinated recovery measures on the lower Clark Fork
River. A settlement agreement reached in conjunction with the filing in February
1999 for new FERC licenses establishes a plan for bull trout restoration,
including annual budget estimates.
Relicensing studies in 1997 and 1998 indicated very high levels of atmospheric
gas supersaturation below Cabinet Gorge Dam during periods of heavy spill. The
settlement agreement provides for additional studies to identify what, if any,
effects there are to aqueous resources and whether abatement measures, and what
type, will be required at Cabinet Gorge.
See Note 20 of Notes to Financial Statements for additional information.
YEAR 2000
The Company continues to move forward with a comprehensive program to address
areas of risk associated with the Year 2000. Systems and programs that may be
affected by the Year 2000 problem have been identified and activities are
underway to make these systems Year 2000 ready. At this time, it is the
Company's belief that all identified modifications that are within the Company's
operating control will be made within the required time frames.
State of Readiness
In order to address Year 2000 issues, several project activity teams were
created and a comprehensive readiness plan was developed to bring the Company's
business critical systems into Year 2000 readiness by the middle of 1999. The
Company defines business critical systems as systems that directly affect the
Company's ability to deliver energy services to customers. The Company's Year
2000 project was originally divided into four major categories of activities:
Desktop Computer Systems, Business Systems, Supply Chain and Embedded Systems.
Contingency Planning developed into its own category in late 1998.
Desktop Computer Systems All desktop computer hardware has been Year 2000 tested
and an inventory and assessment of desktop resident third-party software has
been completed. The Company expects hardware remediation to be completed by
mid-1999. All non-compliant third-party software programs and critical business
desktop applications are expected to be upgraded, converted, tested and made
Year 2000 ready by the middle of 1999.
Business Systems Many of the Company's critical business systems would not have
operated correctly in the year 2000 and beyond, and thus have been or are in the
process of being re-programmed, upgraded or replaced. Key business systems have
been inventoried and assessed. The Company has completed remediating all
mainframe computer code that required fixing to address the Year 2000 issue and
testing has been completed on all but two of the Company's mainframe computer
business systems. Testing of the two remaining mainframe business systems is
scheduled to be completed before the end of April 1999. Implementation of a new
Materials Management system is scheduled for late 1999. The Company is in the
process of developing alternative plans in the unlikely event the Company is
unable to implement the new Materials Management System before the year 2000. A
failure of these systems would not jeopardize the Company's ability to deliver
energy services to customers, but might affect its ability to perform selected
accounting and business-related functions. The Company has completed testing and
remediation of approximately 85% of its business critical systems.
Supply Chain The Company recognizes its dependence on outside suppliers of goods
and services and is working to assure that the necessary products and services
are available. To address these issues, the Company has communicated with
suppliers and identified critical suppliers in order to investigate their
efforts to become Year 2000 ready. In addition, the Company has made site visits
to select key suppliers and will be reviewing their contingency plans.
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Embedded Systems The Embedded System team is responsible for locating,
assessing, testing, fixing or replacing microprocessor-controlled devices.
Inventory and assessment is 99 percent complete, and to date very few embedded
systems have been found that require remediation. None of these requiring
remediation would have caused a disruption in service to customers. Remediation
and testing is complete at all eleven of the Company's generation sites and
these sites are Year 2000 ready.
The Company's Supervisory Control and Data Acquisition (SCADA) system, which
monitors and controls the majority of the Company's generating and substation
equipment and the transmission system, was run "in the Year 2000" for three days
without incident. Testing of electric metering and devices in the Company's
transmission and distribution substations systems has been completed and full
testing of selected substations is in process and scheduled to be completed by
mid-1999.
Contingency Planning
The Company has developed contingency plans for the Company's electric and
natural gas services and has also participated in the development of region-wide
contingency plans for electric service through the Company's electric
reliability region - the Western Systems Coordinating Council (WSCC).
A major Year 2000 project activity for the Company during 1999 will be the
development and implementation of detailed operational plans to support the
Company's contingency plans. Key activities in 1999 include the assignment of
resources to key locations for the evening of December 31, 1999 and the morning
of January 1, 2000, training of personnel, testing of backup procedures and the
completion of tasks that support the Company's contingency plans. The Company
will continue to participate in the further development and testing of the
region-wide contingency plans. This includes region-wide drills coordinated by
the WSCC scheduled for April 9, 1999 and September 9, 1999.
Costs
The Company estimates that the cost of its Year 2000 project will be
approximately $6-7 million in incremental costs during the 1997-1999 time
period. Through December 31, 1998, the Company has spent $3.5 million in
incremental costs. These costs are being funded through operating cashflows. The
Company does not expect costs associated with the Year 2000 project to
materially affect the Company's earnings in any one year.
Risks
Based upon information to date, the Company believes that, in the most
reasonably likely worst-case scenario, Year 2000 issues could result in abnormal
operating conditions, such as short-term interruption of generation,
transmission and distribution functions, as well as Company-wide loss of system
monitoring and control functions and loss of voice communications. These
conditions, along with disruptions in natural gas service caused by failures of
gas suppliers or interstate gas pipelines coupled with power outages due to the
possible instability of the regional electric transmission grid, could result in
the possible temporary interruption of service to customers. The Company does
not believe the overall impact of this scenario will have a material impact on
its financial condition or operations due to the anticipated short-term nature
of interruptions.
The Company believes the primary areas of Year 2000 risk to be internal business
systems, which are discussed above, and external factors, which include the
regional electric transmission grid and natural gas pipelines. There can be no
guarantee that systems of other companies on which the Company's systems rely
will be timely converted. A failure to convert by another company or a
conversion that is incompatible with the Company's systems could have an effect
on the Company's ability to provide energy services.
Electric The Company is working with the other energy suppliers in the area to
address risks related to the regional electric transmission grid, which consists
of the interconnected transmission systems of each utility within the WSCC. Such
interconnected systems are critical to the reliability of each interconnected
electric service provider, as the failure of one such interconnected provider to
achieve Year 2000 compliance could disrupt the others from providing electric
services. Should the regional electric transmission grid become unstable, power
outages may occur. The Company cannot assure Year 2000 compliance or assess the
effect of non-compliance by systems or parties that the Company does not
control.
In addition to the traditional electric utility operations of the Company, the
energy trading business conducted by Avista Energy is subject to Year 2000 risk.
Most of Avista Energy's internal business systems do not require any
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significant upgrading and those that do are being addressed. However, if any of
Avista Energy's counterparties experience Year 2000 problems (including, but not
limited to, problems arising out of failures in the generation or transmission
systems of utilities or other energy suppliers), such problems could impair the
ability of Avista Energy or any of its counterparties to fulfill their
contractual obligations. Avista Energy is in the process of contacting its
counterparties to assess their Year 2000 readiness and of developing contingency
plans. See "Energy Trading Business".
Natural Gas The Company has performed an inventory and assessment of the
equipment in its natural gas distribution systems and believes that there are no
devices in the systems that will cause a disruption in the delivery of natural
gas to customers due to a Year 2000 problem. However, the Company depends on
natural gas pipelines which it does not own or control, and if one or more of
the pipelines is unable to deliver natural gas, the Company in turn will be
unable to deliver natural gas to customers. In order to address this issue, the
Company has contacted each of the natural gas pipeline companies with which it
has contracts to assess their Year 2000 readiness efforts and will continue to
take reasonable steps to ensure that these suppliers are addressing any Year
2000 related problems that would result in a disruption in natural gas services
to customers.
ENERGY TRADING BUSINESS
The participants in the emerging wholesale energy market are public utility
companies and, increasingly, power marketers which may or may not be affiliated
with public utility companies or other entities. The participants in this market
trade not only electricity and natural gas as commodities but also derivative
commodity instruments such as futures, forwards, swaps, options and other
instruments. This market is largely unregulated and most transactions are
conducted on an "over-the-counter" basis, there being no central clearing
mechanism (except in the case of specific instruments traded on the commodity
exchanges). Power marketers, whether or not affiliated with other entities,
generally do not own production facilities and are not subject to net capital or
other requirements of any regulatory agency.
The Company (to the extent that the Generation and Resources segment conducts
energy trading) and Avista Energy are subject to the various risks inherent in
commodity trading including, particularly, market risk and credit risk.
Market risk is, in general, the risk of fluctuation in the market price of the
commodity being traded and is influenced primarily by supply (in the case of
electricity, adequacy of generating reserve margins as well as scheduled and
unscheduled outages of generating facilities) and demand (extreme variations in
the weather, whether or not predicted). Market risk includes the risk of
fluctuation in the market price of associated derivative commodity instruments.
All market risk is influenced to the extent that the performance or
non-performance by market participants of their contractual obligations and
commitments affect the supply of, or demand for, the commodity.
Credit risk relates to the risk of loss that the Company (to the extent of
Generation and Resources' trading activities) and/or Avista Energy would incur
as a result of non-performance by counterparties of their contractual
obligations under the various instruments with the Company or Avista Energy, as
the case may be. Credit risk may be concentrated to the extent that one or more
groups of counterparties have similar economic, industry or other
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in market or other conditions. In addition,
credit risk includes not only the risk that a counterparty may default due to
circumstances relating directly to it, but also the risk that a counterparty may
default due to circumstances which relate to other market participants which
have a direct or indirect relationship with such counterparty. The Company and
Avista Energy seek to mitigate credit risk (and concentrations thereof) by
applying specific eligibility criteria to prospective counterparties. However,
despite mitigation efforts, defaults by counterparties occur from time to time.
To date, no such default has had a material adverse effect on the Company or
Avista Energy.
Avista Capital provides guarantees for Avista Energy's line of credit agreement,
and in the course of business may provide guarantees to other parties with whom
Avista Energy may be doing business. The Company's investment in Avista Capital
totaled $271.8 million at December 31, 1998.
RISK MANAGEMENT
The risk management process established by the Company is designed to measure
both quantitative and qualitative risk in the business. The Company and Avista
Energy have adopted policies and procedures to manage the risks inherent in
their businesses and have established a comprehensive Risk Management Committee,
separate from the units that
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create the risk exposure and overseen by the Audit and Finance Committee of the
Company's Board of Directors, to monitor compliance with the Company's risk
management policies and procedures on a regular basis. Nonetheless, adverse
changes in interest rates, commodity prices and foreign currency exchange rates
may result in losses in earnings, cash flow and/or fair values.
The forward-looking information presented below provides only estimates of what
may occur in the future, assuming certain adverse market conditions, due to
reliance on model assumptions. As a result, actual future results may differ
materially from those presented. These disclosures are not indicators of
expected future losses, but only indicators of reasonably possible losses.
Interest Rate Risk The Company is subject to the risk of fluctuating interest
rates in the normal course of business. The fair value of the Company's cash and
short-term investment portfolio and the fair value of notes payable at December
31, 1998 approximated carrying value. Given the short-term nature of these
instruments, market risk, as measured by the change in fair value resulting from
a hypothetical change in interest rates, is immaterial.
The Company manages interest rate risk by taking advantage of market conditions
when timing the issuance of long-term financings and optional debt redemptions
and through the use of fixed rate long-term debt with varying maturities. A
portion of the Company's capitalization consists of floating rate
Company-Obligated Mandatorily Redeemable Preferred Trust Securities, of which
the interest portion of the $50 million Series B resets on a quarterly basis,
reflecting current market conditions. As of December 31, 1998, a hypothetical
15% change in interest rates would result in an immaterial change in the
Company's cash flows related to the increased interest expense associated with
these floating rate securities.
Commodity Price Risk The Company and Avista Energy are exposed to market
fluctuations in the price and transportation costs of electric and natural gas
commodities and, therefore, enter into contracts to hedge the impact of these
fluctuations on their energy-related assets, liabilities, and other contractual
arrangements. In addition, Avista Energy enters into these contracts for trading
purposes to take advantage of market opportunities. At times this may create a
net open position in its portfolio that could result in material losses if
prices do not move in the manner or direction anticipated. The Company and
Avista Energy's risk management program and policies are designed to manage the
risks associated with market fluctuations in the price of electricity and
natural gas commodities (see Note 3 of Notes to Financial Statements for
additional information).
Avista Energy measures the risk in its derivative commodity portfolio on a
daily basis utilizing a Value-at-Risk (VAR) model and monitors its risk in
comparison to established thresholds. VAR measures the worst expected loss over
a given time interval under normal market conditions at a given confidence
level. The Company and Avista Energy also use other measures to monitor the risk
in their derivative commodity portfolios on a monthly, quarterly and annual
basis.
The VAR computations are based on an historical simulation, which utilizes price
movements over a specified period to simulate forward price curves in the energy
markets to estimate the unfavorable impact of one-day's price movement in the
existing portfolio. The quantification of market risk using VAR provides a
consistent measure of risk across diverse energy markets and products. VAR
represents an estimate of reasonably possible net losses in earnings that would
be recognized on its portfolio assuming hypothetical movements in future market
rates and is not necessarily indicative of actual results that may occur.
Avista Energy's VAR computations utilize several key assumptions, including a
95% confidence level for the resultant price movement and a one-day holding
period. The calculation includes derivative commodity instruments held for
trading purposes and excludes the effects of written and embedded physical
options in the trading portfolio.
At December 31, 1998, Avista Energy's estimated potential one-day unfavorable
impact on gross margin was $3.3 million, as measured by VAR, related to its
commodity trading and marketing business. The average daily VAR for 1998 was
$3.0 million. Changes in markets inconsistent with historical trends or
assumptions used could cause actual results to exceed predicted limits. Market
risks associated with derivative commodity instruments held for purposes other
than trading were not material at December 31, 1998.
In addition to commodity price risk, the Company's commodity positions are also
subject to operational and event risks including, among others, increases in
load demand, transmission or transport disruptions, fuel quality specifications
and forced outages at generating plants.
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Foreign Currency Risk The Company has investments in several Canadian companies
through Pentzer's acquisition of Universal Showcase, Inc. and Avista Energy
Canada, Ltd. and its acquisition of Coast Pacific Management, Inc. (see Note 21
for additional information about these acquisitions). The Company's exposure to
foreign currency risk and other foreign operations risk was immaterial to the
Company's consolidated results of operations and financial position in 1998 and
is not expected to change materially in the near future.
OTHER
On July 28, 1998, the United States District Court for the District of Idaho
issued its finding that the Coeur d' Alene Tribe of Idaho (Tribe) owns the bed
and banks of the Coeur d' Alene Lake and the St. Joe River lying within the
current boundaries of the Coeur d' Alene Reservation. The disputed bed and banks
comprise approximately the southern one-third of the Coeur d' Alene Lake. This
action had been brought by the United States on behalf of the Tribe against the
State of Idaho. The decision has been appealed by the State of Idaho to the
Ninth Circuit. While the Company is not a party to this action, it is meeting
with the Tribe to evaluate the impact of this decision on storage rights on the
reservoir and operation of the Company's hydroelectric facilities on the Spokane
River, downstream of the Coeur d' Alene Lake, which is the reservoir for these
plants.
The Board of Directors considers the level of dividends on the Company's common
stock on a continuing basis, taking into account numerous factors including,
without limitation, the Company's results of operations and financial condition,
as well as general economic and competitive conditions. The Company's net income
available for dividends is derived from its retail electric and natural gas
utility operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Form 10-K to
make applicable and to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions (many of which are based, in
turn, upon further assumptions) and are all statements which are other than
statements of historical fact, including without limitation those that are
identified by the use of the words "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," and similar expressions. From time to time, the
Company may publish or otherwise make available forward-looking statements of
this nature. All such subsequent forward-looking statements, whether written or
oral and whether made by or on behalf of the Company, are also expressly
qualified by these cautionary statements.
Forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that the Company's expectations, beliefs or
projections will be achieved or accomplished. Furthermore, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances that occur after the date on which
such statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the Company's business or the extent to which any such factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statement.
Energy Delivery and Generation and Resources Operations -
In addition to other factors and matters discussed elsewhere herein, some
important factors that could cause actual results or outcomes for the Company
and its Energy Delivery and Generation and Resources operations to differ
materially from those discussed in forward-looking statements include prevailing
legislative developments, governmental policies and regulatory actions with
respect to allowed rates of return, financings, or industry and rate structures,
weather conditions, wholesale and retail competition (including but not limited
to electric retail wheeling and transmission cost), availability of economic
supplies of natural gas, present or prospective natural gas distribution or
transmission competition (including but not limited to prices of alternative
fuels and system deliverability costs), recovery of purchased power and
purchased gas costs, present or prospective generation, operations and
construction
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of plant facilities, and acquisition and disposal of assets or facilities.
National Energy Trading and Marketing Operations -
In addition to other factors and matters discussed elsewhere herein, some
important factors that could cause actual results or outcomes for the National
Energy Trading and Marketing operations to differ materially from those
discussed in forward-looking statements include further industry restructuring
evolving from federal and/or state legislation, regulatory actions by state
utility commissions, demand for and availability of energy throughout the
country, wholesale competition, availability of economic supplies of natural
gas, margins on purchased power, and the formation of additional alliances or
entities.
Non-Energy Operations -
Certain important factors which could cause actual results or outcomes for the
Company's non-energy operations to differ materially from those discussed in
forward-looking statements include competition from other companies, the ability
to obtain new customers and retain old ones, reliability of customer orders,
business acquisitions, disposal of assets, the ability to obtain funds from
operations, debt or equity, research and development findings and the
availability of economic expansion or development opportunities.
Factors Common to All Operations -
The business and profitability of the Company are also influenced by economic
risks, changes in and compliance with environmental and safety laws and
policies, weather conditions, population growth rates and demographic patterns,
market demand for energy from plants or facilities, changes in tax rates or
policies, unanticipated project delays or changes in project costs,
unanticipated changes in operating expenses or capital expenditures, labor
negotiation or disputes, changes in credit ratings or capital market conditions,
inflation rates, inability of the various counterparties to meet their
obligations with respect to the Company's financial instruments, changes in
accounting principles and/or the application of such principles to the Company,
changes in technology and legal proceedings.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Results and Operations: Liquidity
and Capital Resources: Risk Management."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditor's Report and Financial Statements begin on the next
page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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INDEPENDENT AUDITORS' REPORT
Avista Corporation
Spokane, Washington
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Avista Corporation and subsidiaries (the Company) as of
December 31, 1998 and 1997, and the related and consolidated statements of
income, comprehensive income and retained earnings, and cash flows for each of
the three years in the period ended December 1998, which included the schedules
of information by business segments. These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
January 29, 1999
(February 1, 1999 as to Note 21 and March 10, 1999 as to Note 20)
42
<PAGE> 47
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND RETAINED EARNINGS
Avista Corporation
- --------------------------------------------------------------------------------
For the Years Ended December 31
Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES $ 3,683,984 $ 1,302,172 $ 944,957
----------- ----------- -----------
OPERATING EXPENSES:
Resource costs ........................................................ 3,021,046 719,905 378,664
Operations and maintenance ............................................ 229,620 176,354 181,298
Administrative and general ............................................ 129,771 96,611 76,972
Depreciation and amortization ......................................... 70,547 69,893 72,097
Taxes other than income taxes ......................................... 60,180 49,945 49,005
----------- ----------- -----------
Total operating expenses ............................................ 3,511,164 1,112,708 758,036
----------- ----------- -----------
INCOME FROM OPERATIONS .................................................... 172,820 189,464 186,921
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense ...................................................... (69,077) (66,275) (63,255)
Interest on income tax recovery ....................................... -- 47,338 --
Net gain on subsidiary transactions ................................... 7,937 11,218 23,953
Merger-related expenses ............................................... -- -- (15,848)
Other income (deductions)-net ......................................... 9,794 (5,873) 1,191
----------- ----------- -----------
Total other income (expense)-net .................................... (51,346) (13,592) (53,959)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ................................................ 121,474 175,872 132,962
INCOME TAXES .............................................................. 43,335 61,075 49,509
----------- ----------- -----------
NET INCOME ................................................................ 78,139 114,797 83,453
DEDUCT-Preferred stock dividend requirements .............................. 8,399 5,392 7,978
----------- ----------- -----------
INCOME AVAILABLE FOR COMMON STOCK ......................................... $ 69,740 $ 109,405 $ 75,475
=========== =========== ===========
Average common shares outstanding (thousands) ............................. 54,604 55,960 55,960
EARNINGS PER SHARE OF COMMON STOCK, BASIC ................................. $ 1.28 $ 1.96 $ 1.35
EARNINGS PER SHARE OF COMMON STOCK, DILUTED (Note 18) .................... $ 1.28 $ 1.96 $ 1.35
Dividends paid per common share ........................................... $ 1.05 $ 1.24 $ 1.24
NET INCOME ................................................................ $ 78,139 $ 114,797 $ 83,453
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation adjustment ............................... (366) -- --
Unrealized investment gains/(losses)-net of reclassification
adjustment ............................................................ (2,052) (3,627) (13,516)
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) ......................................... (2,418) (3,627) (13,516)
----------- ----------- -----------
COMPREHENSIVE INCOME ...................................................... $ 75,721 $ 111,170 $ 69,937
=========== =========== ===========
RETAINED EARNINGS, JANUARY 1 .............................................. $ 171,776 $ 131,301 $ 125,031
NET INCOME ................................................................ 78,139 114,797 83,453
DIVIDENDS DECLARED:
Preferred stock ....................................................... (7,639) (5,339) (8,213)
Common stock .......................................................... (56,898) (69,390) (69,390)
Transfer to Preferred Stock, Series L ..................................... (64,844) -- --
Restricted stock .......................................................... (419) -- --
ESOP dividend tax savings ................................................. 330 407 420
----------- ----------- -----------
RETAINED EARNINGS, DECEMBER 31 ............................................ $ 120,445 $ 171,776 $ 131,301
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
43
<PAGE> 48
CONSOLIDATED BALANCE SHEETS
Avista Corporation
- --------------------------------------------------------------------------------
At December 31
Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 72,836 $ 30,593
Temporary cash investments ............................... 5,786 22,641
Accounts and notes receivable-net ........................ 456,857 176,882
Energy commodity assets .................................. 335,224 76,449
Materials and supplies, fuel stock and natural gas
stored ................................................ 42,140 42,148
Prepayments and other .................................... 55,753 28,130
---------- ----------
Total current assets ................................... 968,596 376,843
---------- ----------
UTILITY PROPERTY:
Utility plant in service-net ............................. 2,095,301 2,031,026
Construction work in progress ............................ 45,391 37,446
---------- ----------
Total .................................................. 2,140,692 2,068,472
Less: Accumulated depreciation and amortization ......... 669,750 635,349
---------- ----------
Net utility plant ...................................... 1,470,942 1,433,123
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net ......................... 62,577 69,013
Non-utility properties and investments-net ............... 206,773 195,046
Energy commodity assets .................................. 236,644 13,103
Other-net ................................................ 26,016 20,065
---------- ----------
Total other property and investments ................... 532,010 297,227
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax ................ 171,037 176,682
Conservation programs .................................... 49,114 53,338
Unamortized debt expense ................................. 28,414 23,978
Prepaid power purchases .................................. 5,273 18,134
Other-net ................................................ 28,250 32,460
---------- ----------
Total deferred charges ................................. 282,088 304,592
---------- ----------
TOTAL ................................................ $3,253,636 $2,411,785
========== ==========
LIABILITIES AND CAPITALIZATION:
CURRENT LIABILITIES:
Accounts payable ......................................... $ 406,457 $ 154,312
Energy commodity liabilities ............................. 330,957 70,135
Taxes and interest accrued ............................... 38,628 35,705
Other .................................................... 88,151 79,586
---------- ----------
Total current liabilities .............................. 864,193 339,738
---------- ----------
NON-CURRENT LIABILITIES AND DEFERRED CREDITS:
Non-current liabilities .................................. 34,815 25,515
Deferred revenue (Note 1) ................................ 145,124 --
Energy commodity liabilities ............................. 207,948 10,556
Deferred income taxes .................................... 357,702 352,749
Other deferred credits ................................... 11,571 17,230
---------- ----------
Total non-current liabilities and deferred credits ..... 757,160 406,050
---------- ----------
CAPITALIZATION (See Consolidated Statements of
Capitalization) ............................................ 1,632,283 1,665,997
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 9, 12 and 20)
TOTAL ................................................ $3,253,636 $2,411,785
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
44
<PAGE> 49
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Avista Corporation
- -------------------------------------------------------------------------------
At December 31
Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
LONG-TERM DEBT:
First Mortgage Bonds:
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 - 5.95% to 8.06% due 2000 through 2023 ................................. 211,500 211,500
Series B - 6.20% to 8.25% due 1999 through 2010 ................................. 150,000 150,000
----------- -----------
Total first mortgage bonds ...................................................... 445,200 445,200
----------- -----------
Pollution Control Bonds:
6% Series due 2023 ................................................................ 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.57% due 1999 through 2007 ................................... 38,500 52,500
Series B - 6.75% to 8.23% due 1999 through 2023 ................................... 115,000 115,000
Series C - 5.99% to 6.88% due 2007 through 2028 ................................... 84,000 --
----------- -----------
Total unsecured medium-term notes ............................................... 237,500 167,500
----------- -----------
Notes payable (due within one year) to be refinanced ................................ -- 108,500
Other ............................................................................... 43,222 36,885
----------- -----------
Total long-term debt .............................................................. 730,022 762,185
----------- -----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED TRUST SECURITIES:
7 7/8%, Series A, due 2037 ........................................................ 60,000 60,000
Floating Rate, Series B, due 2037 ................................................. 50,000 50,000
----------- -----------
Total company-obligated mandatorily redeemable preferred trust
securities .................................................................... 110,000 110,000
----------- -----------
PREFERRED STOCK-CUMULATIVE:
10,000,000 shares authorized:
Subject to mandatory redemption:
$8.625 Series I; 0 and 100,000 shares outstanding ($100 stated value) ............. -- 10,000
$6.95 Series K; 350,000 shares outstanding ($100 stated value) .................... 35,000 35,000
----------- -----------
Total subject to mandatory redemption ........................................... 35,000 45,000
----------- -----------
CONVERTIBLE PREFERRED STOCK:
Not subject to mandatory redemption:
$12.40 Convertible Series L; 1,540,460 shares outstanding ($182.80 stated value)... 269,227 --
----------- -----------
Total convertible preferred stock ............................................... 269,227 --
----------- -----------
COMMON EQUITY:
Common stock, no par value; 200,000,000 shares authorized;
40,453,729 and 55,960,360 shares outstanding ...................................... 381,401 594,852
Note receivable from employee stock ownership plan .................................. (9,295) (9,750)
Capital stock expense and other paid in capital ..................................... (4,176) (10,143)
Other comprehensive income .......................................................... (341) 2,077
Retained earnings ................................................................... 120,445 171,776
----------- -----------
Total common equity ............................................................... 488,034 748,812
----------- -----------
TOTAL CAPITALIZATION .................................................................... $ 1,632,283 $ 1,665,997
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
45
<PAGE> 50
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Avista Corporation
- -------------------------------------------------------------------------------
For the Years Ended December 31
Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................... $ 78,139 $ 114,797 $ 83,453
NON-CASH ITEMS INCLUDED IN NET INCOME:
Depreciation and amortization ................................ 70,547 69,893 72,097
Provision for deferred income taxes .......................... 10,402 37,122 12,505
Allowance for equity funds used during construction .......... (1,283) (1,323) (1,072)
Power and natural gas cost deferrals and amortizations ....... (3,512) (16,470) 666
Monetization of contract
Deferred revenues and other-net .............................. (6,313) (389) (215)
(Increase) decrease in working capital components:
Sale of customer accounts receivables-net .................. (15,000) -- --
Receivables and prepaid expense ............................ (246,873) (39,733) (26,333)
Materials & supplies, fuel stock and natural gas stored .... 9,524 (8,050) 7,741
Payables and other accrued liabilities ..................... 246,208 55,163 21,618
Other ...................................................... (17,336) 13,774 7,103
Monetization of contract ....................................... 143,400 -- --
--------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 267,903 224,784 177,563
--------- ---------- ----------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) ....... (92,942) (89,016) (91,279)
Other capital requirements ..................................... (14,920) (11,696) (1,399)
(Increase) decrease in other noncurrent balance sheet
items-net .................................................... 27,266 (3,765) 18,565
Proceeds from sale of subsidiary investments ................... 16,385 11,606 --
Assets acquired and investments in subsidiaries ................ (52,780) (43,308) (29,225)
--------- ---------- --------
NET CASH USED IN INVESTING ACTIVITIES .............................. (116,991) (136,179) (103,338)
--------- ---------- ----------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings ................... (108,500) 23,500 55,500
Proceeds from issuance of preferred trust securities ........... -- 110,000 --
Proceeds from issuance of long-term debt ....................... 84,000 20,000 --
Redemption and maturity of long-term debt ...................... (14,000) (51,500) (38,000)
Redemption of preferred stock .................................. (10,000) (70,000) (20,000)
Sale (repurchase) of common stock .............................. (1,475) -- 216
Cash dividends paid ............................................ (64,548) (75,329) (77,318)
Other-net ...................................................... 5,854 (22,894) 8,424
--------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES .............................. (108,669) (66,223) (71,178)
--------- ---------- ----------
NET INCREASE IN CASH & CASH EQUIVALENTS ............................ 42,243 22,382 3,047
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 30,593 8,211 5,164
--------- ---------- ----------
CASH & CASH EQUIVALENTS AT END OF PERIOD ........................... $ 72,836 $ 30,593 $ 8,211
========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
Interest ..................................................... $ 64,402 $ 63,608 $ 56,893
Income taxes ................................................. 40,716 29,132 49,447
Noncash financing and investing activities:
Property purchased under capitalized leases .................. 1,209 4,521 4,356
Notes receivable in exchange for land ........................ -- -- 29,913
Net unrealized holding gains (losses) ........................ -- (5,050) (13,680)
Notes receivable for sale of investment ...................... 25,000 -- --
Common stock and retained earnings transfer to preferred
stock........................................................ 276,821 -- --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
46
<PAGE> 51
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
Avista Corporation
- -------------------------------------------------------------------------------
For the Years Ended December 31
Thousands of Dollars
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Energy Delivery .............................. $ 409,683 $ 380,532 $ 380,428
Generation and Resources ..................... 639,529 511,133 418,566
National Energy Trading and Marketing ........ 2,409,920 247,646 116
Non-energy ................................... 232,292 164,010 145,847
Intersegment eliminations .................... (7,440) (1,149) --
----------- ----------- -----------
Total operating revenues ................... $ 3,683,984 $ 1,302,172 $ 944,957
=========== =========== ===========
RESOURCE COSTS:
Energy Delivery:
Natural gas purchased for resale ........... $ 109,182 $ 93,880 $ 96,585
PCA and other .............................. (2,586) (2,050) 1,151
Generation and Resources:
Power purchased ............................ 469,824 309,439 190,040
Fuel for generation ........................ 44,281 34,461 40,578
Other ...................................... 47,675 50,694 50,237
National Energy Trading and Marketing:
Cost of sales .............................. 2,360,110 232,389 --
Intersegment eliminations .................... (7,440) (1,081) --
----------- ----------- -----------
Total resource costs (excluding
Non-energy) .............................. $ 3,021,046 $ 717,732 $ 378,591
=========== =========== ===========
GROSS MARGINS:
Energy Delivery .............................. $ 303,087 $ 288,702 $ 282,692
Generation and Resources ..................... 77,749 116,539 137,711
National Energy Trading and Marketing ........ 49,810 15,257 116
----------- ----------- -----------
Total gross margins (excluding
Non-energy) .............................. $ 430,646 $ 420,498 $ 420,519
=========== =========== ===========
OPERATIONS AND MAINTENANCE EXPENSES:
Energy Delivery .............................. $ 60,847 $ 59,138 $ 74,675
National Energy Trading and Marketing ........ 2,173 2,173 73
Non-energy ................................... 166,600 117,215 106,623
----------- ----------- -----------
Total operations and maintenance expenses .. $ 229,620 $ 178,526 $ 181,371
=========== =========== ===========
ADMINISTRATIVE AND GENERAL EXPENSES:
Energy Delivery .............................. $ 53,643 $ 46,688 $ 47,664
Generation and Resources ..................... 16,050 16,312 15,339
National Energy Trading and Marketing ........ 26,720 10,442 1,844
Non-energy ................................... 33,358 23,169 12,125
----------- ----------- -----------
Total administrative and general expenses .. $ 129,771 $ 96,611 $ 76,972
=========== =========== ===========
DEPRECIATION AND AMORTIZATION EXPENSES:
Energy Delivery .............................. $ 34,436 $ 32,483 $ 33,875
Generation and Resources ..................... 25,102 25,432 27,899
National Energy Trading and Marketing ........ 970 442 --
Non-energy ................................... 10,039 11,536 10,323
----------- ----------- -----------
Total depreciation and amortization
expenses ................................. $ 70,547 $ 69,893 $ 72,097
=========== =========== ===========
INCOME/(LOSS) FROM OPERATIONS (PRE-TAX):
Energy Delivery .............................. $ 116,944 $ 113,745 $ 89,447
Generation and Resources ..................... 26,209 64,613 84,211
National Energy Trading and Marketing ........ 19,922 2,191 (1,801)
Non-energy ................................... 9,745 8,984 15,064
Intersegment eliminations .................... -- (69) --
----------- ----------- -----------
Total income from operations ............... $ 172,820 $ 189,464 $ 186,921
=========== =========== ===========
</TABLE>
47
<PAGE> 52
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AVAILABLE FOR COMMON STOCK:
Energy Delivery and Generation and Resources . $ 47,898 $ 95,385 $ 54,426
National Energy Trading and Marketing ........ 12,064 2,488 (1,161)
Non-energy ................................... 9,778 11,532 22,210
----------- ----------- -----------
Total income available for common stock .... $ 69,740 $ 109,405 $ 75,475
=========== =========== ===========
ASSETS:
Energy Delivery .............................. $ 1,120,323 $ 1,051,585 $ 1,014,451
Generation and Resources ..................... 619,086 620,142 683,599
Other utility ................................ 265,526 255,012 223,379
National Energy Trading and Marketing ........ 957,421 214,630 899
Non-energy ................................... 291,280 270,416 254,970
----------- ----------- -----------
Total assets ............................... $ 3,253,636 $ 2,411,785 $ 2,177,298
=========== =========== ===========
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Energy Delivery .............................. $ 76,587 $ 75,499 $ 80,095
Generation and Resources ..................... 15,708 11,676 8,726
National Energy Trading and Marketing ........ 2,985 4,056 --
Non-energy ................................... 10,990 7,951 2,339
----------- ----------- -----------
Total capital expenditures ................. $ 106,270 $ 99,182 $ 91,160
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
48
<PAGE> 53
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Avista Corporation (Avista Corp. or the Company), formerly The Washington Water
Power Company, was incorporated in the State of Washington in 1889, and operates
as a regional utility providing electric and natural gas sales and services and
as a national entity providing both energy and non-energy products and services.
The utility portion of the Company, doing business as Avista Utilities, consists
of two lines of business which are subject to state and federal price regulation
- -- (1) Energy Delivery and (2) Generation and Resources. The national businesses
are conducted under Avista Capital, which is the parent company to the Company's
subsidiaries.
Changes underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting its strategic direction to
growth in order to achieve its goal of becoming a diversified North American
energy company.
The Company's growth strategy will expose the Company to risks associated with
rapid expansion, challenges in recruiting and retaining qualified personnel,
risks associated with acquisitions and joint ventures and increasing
competition. In addition, growth in the energy trading and marketing business
will expose the Company to increased financial and credit risks associated with
commodity trading activities. The Company believes that its extensive
experience in the electric and natural gas business, coupled with its strong
management team, will allow the Company to effectively manage its transition
to a diversified North American energy company.
The Energy Delivery line of business includes transmission and distribution
services for retail electric operations, all utility natural gas operations, and
other energy products and services. Usage by retail customers varies from year
to year primarily as a result of weather conditions, customer growth, the
economy in the Company's service area, conservation efforts, appliance
efficiency and other technology.
The Generation and Resources line of business includes the generation and
production of electric energy, and short- and long-term electric and natural gas
sales trading and wholesale marketing primarily to other utilities and power
brokers in the western United States. Energy trading includes short-term sales
and purchases, such as next hour, next day and monthly blocks of energy.
Wholesale marketing includes sales and purchases under long-term contracts with
one-year and longer terms. Generation and Resources manages the Company's
electric energy resource portfolio, which is used to serve Energy Delivery's
retail electric customers and Generation and Resources' wholesale electric
customers. In managing the electric energy resource portfolio, Generation and
Resources seeks to optimize the availability and operations of generation
resources. Revenues and the cost of electric power purchases vary from year to
year depending on the electric wholesale power market, which is affected by
several factors, including the availability of water for hydroelectric
generation, the availability of base load plants in the region, marginal fuel
prices and the demand for power in other areas of the country. Other factors
affecting the wholesale power market include lower unit margins on new sales
contracts than were realized in the past, fewer long-term power contracts being
entered into, deregulation of the electric utility industry and competition from
low cost generation being developed by independent power producers.
Avista Capital is the parent company to the National Energy Trading and
Marketing and Non-energy businesses. The National Energy Trading and Marketing
businesses are conducted by Avista Energy, Avista Advantage and Avista Power.
Avista Energy focuses on commodity trading, energy marketing and other related
businesses on a national basis. Avista Energy's business is affected by several
factors, including the demand for and availability of power throughout the
United States, lower unit margins on new sales contracts, fewer long-term power
contracts being entered into, marginal fuel prices and deregulation of the
electric utility industry. Avista Advantage provides a variety of energy-related
products and services to commercial and industrial customers on a national
basis. Its primary product lines include consolidated billing, resource
accounting, energy analysis and load profiling. Avista Power was formed in
December 1998 to develop and own generation assets primarily in support of
Avista Energy. Avista Power operations had no impact on 1998 earnings.
The Non-energy business is conducted primarily by Pentzer Corporation (Pentzer),
which is the parent company to the majority of the Company's Non-energy
businesses. Pentzer's business strategy is such that its earnings result from
both transactional and non-transactional earnings. Transactional gains arise
from a one-time event or a specific transaction, such as the sale of an
investment or individual company from Pentzer's portfolio of investments.
Non-transactional earnings arise out of the ongoing operations of the individual
portfolio companies.
BASIS OF REPORTING
The financial statements are presented on a consolidated basis and, as such,
include the assets, liabilities, revenues and expenses of the Company and its
wholly owned subsidiaries. All material intercompany transactions have been
eliminated in the consolidation. The accompanying financial statements include
the Company's proportionate share of utility plant and related operations
resulting from its interests in jointly owned plants (See Note 6). The financial
activity of each of the Company's lines of business is reported in the "Schedule
of Information by Business
49
<PAGE> 54
AVISTA CORPORATION
- --------------------------------------------------------------------------------
Segments." Such information is an integral part of these financial statements.
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that directly affect the reported amounts of
assets, liabilities, revenues and expenses.
ALLOCATION OF REVENUES AND EXPENSES FOR REPORTING BUSINESS SEGMENTS
A portion of the utility's revenues and expenses have been allocated between the
two business segments in order to report results of operations by the individual
lines of business - (1) Energy Delivery and (2) Generation and Resources. The
Energy Delivery business reports the results of the Company's transmission and
distribution services for retail electric operations and all natural gas
operations. Costs associated with electric energy commodities, such as purchased
power expense, as well as the revenues attributable to the recovery of such
costs from retail customers, have been eliminated from the Energy Delivery line
of business and are reflected in the results of the Generation and Resources
line of business. The transfer of revenues between the two utility lines of
business occurs through the use of a transfer price, primarily based on cost of
production studies, that is associated with the sale of a kilowatthour of
electricity. The results of all natural gas operations are included in the
Energy Delivery line of business because natural gas trackers allow natural gas
costs to pass through within that line of business without the commodity prices
having a material income effect. The Generation and Resources line of business
includes the generation and production of electric energy, and short- and
long-term electric and natural gas commodity trading and wholesale marketing
primarily to other utilities and power brokers in the western United States.
SYSTEM OF ACCOUNTS
The accounting records of the Company's utility operations are maintained in
accordance with the uniform system of accounts prescribed by the Federal Energy
Regulatory Commission (FERC) and adopted by the appropriate state regulatory
commissions.
REGULATION
The Company is subject to state regulation in Washington, Idaho and Montana for
its electric operations. Natural gas operations are regulated in Washington,
Idaho, Oregon and California. The Company is subject to regulation by the FERC
with respect to its wholesale electric transmission rates and the natural gas
rates charged for the release of capacity from the Jackson Prairie Storage
Project.
OPERATING REVENUES
The Company accrues estimated unbilled revenues for electric and natural gas
sales and services provided through month-end. Avista Energy follows the
mark-to-market method of accounting for energy contracts entered into for
trading and price risk management purposes. Avista Energy recognized revenue
based on the change in the market value of outstanding derivative commodity
sales contracts, net of future servicing costs and reserves, in addition to
revenue related to physical and financial contracts that have matured.
OTHER INCOME (DEDUCTIONS)--NET
Other income (deductions)-net is composed of the following items:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Interest income .................... $ 9,560 $ 6,392 $ 5,760
Capitalized interest (debt) ........ 1,592 1,549 1,290
Gain (loss) on property dispositions 12 (1,222) (152)
Minority interest .................. 296 (574) (1,193)
Capitalized interest (equity) ...... 1,283 1,323 1,072
Other .............................. (2,949) (13,341) (5,586)
-------- -------- --------
Total ......................... $ 9,794 $ (5,873) $ 1,191
======== ======== ========
</TABLE>
EARNINGS PER SHARE
Financial Accounting Standard (FAS) No. 128, "Earnings Per Share," became
effective in the fourth quarter of 1997 and requires two presentations of
earnings per share - "basic" and "diluted." Basic earnings per share (EPS) is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if dilutive securities, such as stock
options and convertible stock, were exercised or converted into common stock
that then shared in the earnings of the Company. See Note 18 for more
information regarding the EPS calculations.
UTILITY PLANT
The cost of additions to utility plant, including an allowance for funds used
during construction and replacements of units of property and betterments, is
capitalized. Costs of depreciable units of property retired plus costs of
removal less salvage are charged to accumulated depreciation.
50
<PAGE> 55
AVISTA CORPORATION
- --------------------------------------------------------------------------------
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The Allowance for Funds Used During Construction (AFUDC) represents the cost of
both the debt and equity funds used to finance utility plant additions during
the construction period. In accordance with the uniform system of accounts
prescribed by regulatory authorities, AFUDC is capitalized as a part of the cost
of utility plant and is credited currently as a noncash item to Other Income
(see Other Income above). The Company generally is permitted, under established
regulatory rate practices, to recover the capitalized AFUDC, and a fair return
thereon, through its inclusion in rate base and the provision for depreciation
after the related utility plant has been placed in service. Cash inflow related
to AFUDC does not occur until the related utility plant investment is placed in
service.
The effective AFUDC rate was 10.67% in 1998, 1997 and 1996. The Company's AFUDC
rates do not exceed the maximum allowable rates as determined in accordance with
the requirements of regulatory authorities.
DEPRECIATION
For utility operations, depreciation provisions are estimated by a method of
depreciation accounting utilizing unit rates for hydroelectric plants and
composite rates for other properties. Such rates are designed to provide for
retirements of properties at the expiration of their service lives. The rates
for hydroelectric plants include annuity and interest components, in which the
interest component is 6%. For utility operations, the ratio of depreciation
provisions to average depreciable property was 2.60% in 1998, 2.59% in 1997 and
2.58% in 1996.
The average service lives and remaining average service lives, respectively, for
the following broad categories of property are: electric thermal production - 35
and 18 years; hydroelectric production - 100 and 80 years; electric transmission
- - 60 and 29 years; electric distribution - 40 and 32 years; and natural gas
distribution property - 44 and 31 years.
CASH AND CASH EQUIVALENTS
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers all temporary investments with an initial maturity of three months or
less to be cash equivalents.
TEMPORARY INVESTMENTS
Investments in debt and marketable equity securities are classified as
"available for sale" and are recorded at fair value. Investments totaling $4.3
million and $5.8 million are included on the Consolidated Balance Sheets at
December 31, 1998 as other property and investments and current assets,
respectively. Investments totaling $28.2 million and $22.6 million are included
on the Consolidated Balance Sheets at December 31, 1997 as other property and
investments and current assets, respectively. Unrealized investment gains, as of
December 31, 1998 and 1997, of $0.02 million and $2.1 million, respectively, net
of taxes, are reflected as a component of other comprehensive income.
DEFERRED CHARGES AND CREDITS
The Company prepares its financial statements in accordance with the provisions
of FAS No. 71, "Accounting for the Effects of Certain Types of Regulation." A
regulated enterprise can prepare its financial statements in accordance with FAS
No. 71 only if (i) the enterprise's rates for regulated services are established
by or subject to approval by an independent third-party regulator, (ii) the
regulated rates are designed to recover the enterprise's cost of providing the
regulated services and (iii) in view of demand for the regulated services and
the level of competition, it is reasonable to assume that rates set at levels
that will recover the enterprise's costs can be charged to and collected from
customers. FAS No. 71 requires a cost-based, rate-regulated enterprise to
reflect the impact of regulatory decisions in its financial statements. In
certain circumstances, FAS No. 71 requires that certain costs and/or obligations
(such as incurred costs not currently recovered through rates, but expected to
be so recovered in the future) be reflected in a deferral account in the balance
sheet and not be reflected in the statement of income or loss until matching
revenues are recognized. If at some point in the future the Company determines
that it no longer meets the criteria for continued application of FAS No. 71 to
all or a portion of the Company's regulated operations, the Company could be
required to write off its regulatory assets and could be precluded from the
future deferral in the Consolidated Balance Sheet of costs not recovered through
rates at the time such costs were incurred, even if such costs were expected to
be recovered in the future.
The Company's primary regulatory assets include Investment in Exchange Power,
conservation programs, deferred income taxes, the provision for postretirement
benefits and debt issuance and redemption costs. Those items without a specific
line on the Consolidated Balance Sheets are included in Deferred Charges -
Other-net. Deferred credits include natural gas deferrals, unrecovered purchased
gas costs and the gain on the general office building sale/leaseback which is
being amortized over the life of the lease, and are included on the Consolidated
Balance Sheets as Non-current Liabilities and Deferred Credits - Other Deferred
Credits.
DEFERRED REVENUES
In December 1998, the Company received cash proceeds of $143.4 million from the
monetization of a contract in which the Company assigned and transferred certain
rights under a long-term power sales contract to a funding trust. The proceeds
were recorded as deferred revenue and are being amortized into revenues over the
16-year period of the long-term sales contract.
51
<PAGE> 56
AVISTA CORPORATION
- --------------------------------------------------------------------------------
POWER AND NATURAL GAS COST ADJUSTMENT PROVISIONS
The Company has a power cost adjustment mechanism (PCA) in Idaho which allows
the Company to modify electric rates to recover or rebate a portion of the
difference between actual and allowed net power supply costs. The PCA tracks
changes in hydroelectric generation, secondary prices, related changes in
thermal generation and Public Utility Regulatory Policies Act of 1978 (PURPA)
contracts. Rate changes are triggered when the deferred balance reaches $2.2
million. A $3.1 million (2.7%) rebate was effective February 1, 1999, which will
expire January 31, 2000. The following surcharges and rebates were in effect
during the past three years: a $2.7 million (2.4%) rebate effective June 1,
1998, which will expire May 31, 1999; a $2.6 million (2.3%) rebate effective
September 1, 1997, which expired August 31, 1998; a $2.6 million (2.4%) rebate
effective June 1, 1997, which expired May 31, 1998; a $2.5 million (2.3%) rebate
effective September 1, 1996, which expired August 31, 1997; and a $2.3 million
(2.4%) surcharge effective September 1, 1995, which expired August 31, 1996. The
rebates balance and the deferred balance are included in the Current Liabilities
- - Other and Non-Current Liabilities and Deferred Credits - Other Deferred
Credits lines, respectively, on the Consolidated Balance Sheets.
Under established regulatory practices, the Company is also allowed to adjust
its natural gas rates from time to time to reflect increases or decreases in the
cost of natural gas purchased. Differences between actual natural gas costs and
the natural gas costs allowed in rates are deferred and charged or credited to
expense when regulators approve inclusion of the cost changes in rates. In
Oregon, regulatory provisions include a sharing of benefits and risks associated
with changes in natural gas prices, as well as a sharing of benefits if certain
threshold earnings levels are exceeded. The balance is included on the
Consolidated Balance Sheets as Non-current Liabilities and Deferred Credits -
Other Deferred Credits.
INCOME TAXES
The Company and its eligible subsidiaries file consolidated federal income tax
returns. Subsidiaries are charged or credited with the tax effects of their
operations on a stand-alone basis. The Company's federal income tax returns have
been examined with all issues resolved, and all payments made, through the 1994
return.
STOCK-BASED COMPENSATION
Compensation cost for stock options is measured as the excess of the quoted
market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Restricted stock is recorded as
compensation cost over the requisite vesting periods based on the market value
on the date of grant. The Company accounts for its stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" rather than using the
fair-value-based method of accounting for stock-based employee compensation
plans as prescribed under FAS No. 123, "Accounting for Stock-Based
Compensation." However, the Company has adopted the disclosure requirements of
FAS No. 123. See Note 20 for more information about the Company's stock-based
compensation plans.
OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted FAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive income (net income plus all other changes in net assets from
nonowner sources) and its components. The adoption had no impact on the
Company's net income or stockholders' equity. Prior year financial statements
have been reclassified to conform to these requirements. The following table
reflects the accumulated balances of other comprehensive income:
<TABLE>
<CAPTION>
Foreign
Unrealized Currency
Investment Translation Comprehensive
Gain/(Loss) Adjustment Income
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 $19,220 $ 19,220
Unrealized investment gain/(loss), net of tax
of $4,769 (8,856) (8,856)
Less: reclassification adjustment, net of
tax of $2,510 (4,660) (4,660)
- -----------------------------------------------------------------------------------------
Balance at December 31, 1996 5,704 5,704
Unrealized investment gain/(loss), net of tax
of $810 1,504 1,504
Less: reclassification adjustment, net of
tax of $2,762 (5,131) (5,131)
- -----------------------------------------------------------------------------------------
Balance at December 31, 1997 2,077 2,077
Unrealized investment gain/(loss), net of tax
of $1,105 (2,052) (2,052)
Foreign currency translation adjustment (366) (366)
- -----------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 25 $ (366) $ (341)
=========================================================================================
</TABLE>
52
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AVISTA CORPORATION
- --------------------------------------------------------------------------------
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Assets and liabilities of one of Pentzer's portfolio companies are denominated
in Canadian dollars and translated to U. S. dollars at exchange rates in effect
on the balance sheet date. Revenues, costs and expenses for the company are
translated using an average rate. Cumulative translation adjustments resulting
from this process are reflected as a component of other comprehensive income in
the shareholders' equity section in the Consolidated Statements of
Capitalization.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued FAS No. 132, entitled
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
is effective for fiscal years beginning after December 15, 1997. This statement
revises disclosures, but does not change the measurement or recognition of the
plans. The Company adopted FAS No. 132 in 1998 and the required disclosure can
be found in Note 7.
The FASB issued FAS No. 133, entitled "Accounting for Derivative Instruments and
Hedging Activities" which will be effective for fiscal years beginning after
June 15, 1999. The statement requires that all derivative financial instruments
be recognized as either assets or liabilities on the company's balance sheets at
fair value. The accounting for changes in the fair value of a derivative will
depend on the intended use of the derivative and the resulting designation.
Avista Energy currently accounts for derivative commodity instruments entered
into for trading purposes using the mark-to-market method of accounting, in
compliance with EITF 98-10, "Accounting for Energy Trading and Risk Management
Activities." The Company is in the process of researching the statement and its
possible impact on the Company's financial position and results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
statement format. These reclassifications were made for comparative purposes and
have not affected previously reported total net income or common shareholders'
equity.
NOTE 2. ACCOUNTS RECEIVABLE SALE
In July 1997, WWP Receivables Corp. (WWPRC) was incorporated as a wholly owned,
bankruptcy-remote subsidiary of the Company for the purpose of acquiring or
purchasing interests in certain accounts receivable, both billed and unbilled,
of the Company. Subsequently, WWPRC and the Company have entered into an
agreement whereby WWPRC can sell without recourse, on a revolving basis, up to
$80.0 million in those receivables. WWPRC is obligated to pay fees which
approximate the purchaser's cost of issuing commercial paper equal in value to
the interests in receivables sold. On a consolidated basis, the amount of such
fees is included in operating expenses of the Company. At December 31, 1998 and
1997, $25.0 million and $40.0 million, respectively, in receivables had been
sold pursuant to the agreement, which qualify as sales of assets under FAS No.
125.
NOTE 3. ENERGY COMMODITY TRADING
The Company's energy-related businesses are exposed to risks relating to changes
in certain commodity prices and counterparty performance. In order to manage the
various risks relating to these exposures, the Company utilizes electric,
natural gas and related derivative commodity instruments, such as forwards,
futures, swaps and options, and Avista Energy engages in the trading of such
instruments. The Company and Avista Energy have adopted policies and procedures
to manage the risks inherent these activities and have established a
comprehensive Risk Management Committee, separate from the units that create
such risk exposure and overseen by the Audit and Finance Committee of the
Company's Board of Directors, to monitor compliance with the Company's risk
management policies and procedures.
GENERATION AND RESOURCES
The Company protects itself against price fluctuations on electric energy and
natural gas by limiting the aggregate level of net open positions which are
exposed to market price changes and through the use of electric, natural gas and
related derivative commodity instruments for hedging purposes. The net open
position is actively managed with strict policies designed to limit the exposure
to market risk and which require daily and weekly reporting to management of
potential financial exposure. The Risk Management Committee has limited the
types of commodity instruments the Company may trade to those related to
electricity and natural gas commodities and those instruments are to be used for
hedging price fluctuations associated with the management of resources.
Commodity instruments are not generally held by the Company for speculative
trading purposes. Gains and losses related to derivative commodity instruments
which qualify as hedges are recognized in the Consolidated Statements of Income
when the underlying hedged physical transaction closes (the deferral method) and
are included in the same category as the hedged item (natural gas purchased or
purchased power expense, as the case may be). At December 31, 1998 and 1997, the
Company's derivative commodity instruments outstanding were immaterial.
53
<PAGE> 58
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NATIONAL ENERGY TRADING AND MARKETING
Avista Energy purchases natural gas and electricity directly from producers and
other trading companies, and its customers include commercial and industrial
end-users, electric utilities, natural gas distribution companies, and other
trading companies. Avista Energy's marketing and energy risk management services
are provided through the use of a variety of derivative commodity contracts to
purchase or supply natural gas and electric energy at specified delivery points
and at specified future dates. Avista Energy also trades natural gas and
electricity derivative financial instruments on national exchanges and through
other unregulated exchanges and brokers from whom these commodity derivatives
are available, and therefore experiences net open positions in terms of price,
volume, and specified delivery point.
The open position exposes Avista Energy to the risk that fluctuating market
prices may adversely impact its financial position or results of operations.
However, the net open position is actively managed with strict policies designed
to limit the exposure to market risk and which require daily reporting to
management of potential financial exposure. These policies include statistical
risk tolerance limits using historical price movements to calculate daily
earnings at risk as well as total Value-at-Risk (VAR) measurement.
Derivative commodity instruments sold and purchased by Avista Energy include:
forward contracts, involving physical delivery of an energy commodity; futures
contracts, which involve the buying or selling of natural gas, electricity or
other energy-related commodities at a fixed price; over-the-counter swap
agreements which require Avista Energy to receive or make payments based on the
difference between a specified price and the actual price of the underlying
commodity; and options, which mitigate price risk by providing for the right,
but not the requirement, to buy or sell energy-related commodities at a fixed
price.
Foreign currency risks associated with the fair value of the energy commodity
portfolio are managed using a variety of financial instruments, including
forward rate agreements.
Avista Energy's trading activities are subject to mark-to-market accounting,
under which changes in the market value of outstanding electric, natural gas and
related derivative commodity instruments are recognized as gains or losses in
the period of change. Gains and losses on electric, natural gas and related
derivative commodity instruments utilized for trading are recognized in income
on a current basis (the mark-to-market method) and are included on the
Consolidated Statements of Income in operating revenues or resource costs, as
appropriate, and on the Consolidated Balance Sheets as current or non-current
energy commodity assets or liabilities. Contracts in a receivable position, as
well as the options held, are reported as assets. Similarly, contracts in a
payable position, as well as options written, are reported as liabilities.
Cashflows are recognized during the period of settlement.
Contract Amounts and Terms Under Avista Energy's derivative instruments, Avista
Energy either (i) as "fixed price payor," is obligated to pay a fixed price or
amount and is entitled to receive the commodity (or currency) or a variable
amount or (ii) as "fixed price receiver," is entitled to receive a fixed price
or amount and is obligated to deliver the commodity (or currency) or pay a
variable amount. The contract or notional amounts and terms of Avista Energy's
derivative commodity investments outstanding at December 31, 1998 are set forth
below (volumes in thousands of mmBTUs and MWhs, dollars in thousands):
<TABLE>
<CAPTION>
Fixed Price Fixed Price Maximum
Payor Receiver Terms in Years
----------- ----------- --------------
<S> <C> <C> <C>
Energy commodities (volumes)
Natural gas 755,714,915 792,456,145 5
Electric 70,921,632 62,018,852 10
Financial products
Foreign currency -- $ 15,691 5
</TABLE>
At December 31, 1998, Avista Energy also had sales and purchase commitments
associated with contracts based on market prices totaling 898,316,063 mmBTUs,
with terms extending up to 12 years. Fixed index electric transactions totaled
1,875,576 MWhs, with terms extending up to 10 years.
Contract or notional amounts reflect the volume of transactions, but do not
necessarily represent the amounts exchanged by the parties to the derivative
instruments. Accordingly, contract or notional amounts do not accurately
measure Avista Energy's exposure to market or credit risks. The maximum terms
in years detailed above are not indicative of likely future cash flows as these
positions may be offset in the markets at any time in response to Avista
Energy's risk management needs.
54
<PAGE> 59
AVISTA CORPORATION
- --------------------------------------------------------------------------------
Fair Value The fair value of Avista Energy's derivative commodity instruments
outstanding at December 31, 1998, and the average fair value of those
instruments held during the year are set forth below (dollars in thousands):
<TABLE>
<CAPTION>
Fair Value Average Fair Value for the
as of December 31, 1998 year ended December 31, 1998
--------------------------------------- ---------------------------------------
Current Long-term Current Long-term Current Long-term Current Long-term
Assets Assets Liabilities Liabilities Assets Assets Liabilities Liabilities
-------- --------- ----------- ----------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Natural gas $139,400 $102,271 $143,201 $ 92,161 $ 94,918 $ 35,326 $ 95,959 $ 31,982
Electric 195,824 134,373 187,756 115,787 123,053 110,170 116,593 99,754
-------- --------- ----------- ----------- -------- --------- ----------- -----------
Total $335,224 236,644 $330,957 $207,948 $217,971 $145,496 $212,552 $131,736
</TABLE>
The weighted average term of Avista Energy's natural gas and related derivative
commodity instruments as of December 31, 1998 was approximately three months.
The weighted average term of Avista Energy's electric derivative commodity
instruments at year-end was approximately ten months. The change in the fair
value position of Avista Energy's energy commodity portfolio, net of the
reserves for credit and market risk from December 31, 1997 to December 31, 1998
was $22.8 million and is included on the Consolidated Statements of Income in
operating revenues.
MARKET RISK
The Company manages, on a portfolio basis, the market risks inherent in its
activities subject to parameters established by its Risk Management Committee.
Market risks are monitored by the Risk Management Committee to ensure compliance
with the Company's stated risk management policies. The Company measures the
risk in its portfolio on a daily basis in accordance with value-at-risk and
other risk methodologies established by the Risk Management Committee. The
quantification of market risk using value-at-risk provides a consistent measure
of risk across diverse energy markets and products.
CREDIT RISK
The Company is exposed to credit risk in the event of nonperformance by
customers or counterparties of their contractual obligations. The concentration
of customers and/or counterparties may impact overall exposure to credit risk,
either positively or negatively, in that the counterparties may be similarly
affected by changes in economic, regulatory or other conditions. However, the
Company maintains credit policies with regard to their customers and
counterparties that management believes significantly minimize overall credit
risk. These policies include an evaluation of potential customers' and
counterparties' financial condition and credit rating, collateral requirements
or other credit enhancements such as letters of credit or parent company
guarantees, and the use of standardized agreements which allow for the netting
or offsetting of positive and negative exposures associated with a single
counterparty. The Company maintains credit reserves which are based on
management's evaluation of the credit risk of the overall portfolio. Based on
these policies, exposures and the credit reserves, the Company does not
anticipate a materially adverse effect on financial position or results of
operations as a result of customer or counterparty nonperformance. New York
Mercantile Exchange traded futures and option contracts are financially
guaranteed by the Exchange and have nominal credit risk.
Avista Energy has concentrations of suppliers and customers in the electric and
natural gas industries, including electric utilities, natural gas distribution
companies and other energy marketing and trading companies. In addition, Avista
Energy has concentrations of credit risk related to geographic location. Avista
Energy operates in North America, principally within the West and Mid-West
United States and Western Canada. These concentration of counterparties and
concentrations of geographic location may impact Avista Energy's overall
exposure to credit risk, either positively or negatively, in that the
counterparties may be similarly affected by changes in economic, regulatory or
other conditions.
NOTE 4. NATIONAL ENERGY TRADING AND MARKETING EQUITY INVESTMENT
Effective November 30, 1998, Avista Energy sold its 50% ownership interest in
Howard/Avista Energy LLC to H&H Star Energy, Inc. The sales price, which
represented Avista Energy's equity investment, was $25 million in the form of a
short-term unsecured note receivable from H&H Star Energy, Inc., and is
guaranteed by H&H Star Energy, Inc.'s parent company, Howard Publications, Inc.
The note is due April 30, 1999.
The Company's initial equity investment in Howard/Avista Energy, LLC was $25
million and the investment in the net assets of the unconsolidated subsidiary
amounted to $26.8 million at December 31, 1997. Dividends of $0.7 million were
received from Howard/Avista Energy, LLC in 1998. Avista Energy's pre-tax equity
in earnings of Howard/Avista Energy LLC were $(1.0) million and $1.8 million for
the eleven months ended November 30, 1998 and the five months ended December 31,
1997, respectively.
55
<PAGE> 60
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The year-end balances of the major classifications of property, plant and
equipment are detailed in the following table (thousands of dollars):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Energy Delivery:
Electric distribution ........................ $ 593,787 $ 567,552
Electric transmission ........................ 266,344 262,393
Natural gas underground storage .............. 18,732 18,646
Natural gas distribution ..................... 352,332 329,232
Natural gas transmission ..................... 3,217 3,059
Construction work in progress (CWIP) and other 176,022 163,949
---------- ----------
Energy Delivery total ...................... 1,410,434 1,344,831
---------- ----------
Generation and Resources:
Electric production .......................... 709,144 702,092
CWIP and other ............................... 21,114 21,549
---------- ----------
Generation and Resources total ............. 730,258 723,641
---------- ----------
Total utility ................................. 2,140,692 2,068,472
National Energy Trading and Marketing ......... 7,304 4,345
Non-energy .................................... 37,749 44,831
---------- ----------
Total ......................................... $2,185,745 $2,117,648
========== ==========
</TABLE>
National Energy Trading and Marketing's and Non-energy's plant, property and
equipment under capital leases totaled $13.3 million and $12.9 million and the
associated accumulated depreciation totaled $2.8 million and $2.6 million in
1998 and 1997, respectively.
NOTE 6. JOINTLY OWNED ELECTRIC FACILITIES
The Company has investments in jointly owned generating plants. Financing for
the Company's ownership in the projects is provided by the Company. The
Company's share of related operating and maintenance expenses for plants in
service is included in corresponding accounts in the Consolidated Statements of
Income. See Note 17 for additional information related to potential impacts of
Clean Air Act Amendments on these plants. The following table indicates the
Company's percentage ownership and the extent of the Company's investment in
such plants at December 31, 1998:
<TABLE>
<CAPTION>
COMPANY'S CURRENT SHARE OF
------------------------------------------------------------------
KW of Construction
Installed Fuel Ownership Plant in Accumulated Net Plant Work in
Project Capacity Source (%) Service Depreciation In Service Progress
- ------- --------- ------ --------- --------- ------------ ----------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Centralia ....... 1,330,000 Coal 15% $ 57,536 $ 38,352 $ 19,184 $--
Colstrip 3 & 4... 1,556,000 Coal 15 275,976 114,927 161,049 $--
</TABLE>
NOTE 7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has a pension plan covering substantially all of its regular
full-time employees. Certain of the Company's subsidiaries also participate in
this plan. Individual benefits under this plan are based upon years of service
and the employee's average compensation as specified in the Plan. The Company's
funding policy is to contribute annually an amount equal to the net periodic
pension cost, provided that such contributions are not less than the minimum
amounts required to be funded under the Employee Retirement Income Security Act,
nor more than the maximum amounts which are currently deductible for tax
purposes. Pension fund assets are invested primarily in marketable debt and
equity securities. The Company also has other plans which cover the executive
officers and key managers.
The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. The Company accrues the estimated
cost of postretirement benefit payments during the years that employees provide
services and allows recognition of the unrecognized transition obligation in the
year of adoption or the amortization of such obligation over a period of up to
twenty years. The Company elected to amortize this obligation of approximately
$34,500,000 over a period of twenty years, beginning in 1993.
56
<PAGE> 61
AVISTA CORPORATION
- --------------------------------------------------------------------------------
The following table sets forth the pension and health care plan disclosures:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 155,565 $ 143,237 $ 31,802 $ 30,977
Service cost 4,982 4,761 585 637
Interest cost 11,247 10,601 2,100 2,247
Amendments 5,454 -- -- (1,389)
Actuarial loss 10,088 4,930 108 1,359
Benefits paid (8,747) (7,964) (2,250) (2,029)
--------- --------- --------- ---------
Benefit obligation at end of year $ 178,589 $ 155,565 $ 32,345 $ 31,802
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $ 166,242 $ 149,846 $ 11,098 $ 5,388
Actual return on plan assets 21,384 21,042 1,374 973
Employer contributions -- 3,318 731 5,016
Benefits paid (8,747) (7,964) (744) (279)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 178,879 $ 166,242 $ 12,459 $ 11,098
--------- --------- --------- ---------
Funded status $ 289 $ 10,677 $ (19,886) $ (20,704)
Unrecognized net actuarial gain (19,767) (23,802) (5,626) (5,639)
Unrecognized prior service cost 19,455 15,655 -- --
Unrecognized net transition
obligation/(asset) (7,015) (8,101) 21,467 23,000
--------- --------- --------- ---------
Accrued benefit cost $ (7,038) $ (5,571) $ (4,045) $ (3,343)
========= ========= ========= =========
ASSUMPTIONS AS OF DECEMBER 31
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00%
Medical cost trend - initial 5.00% 5.00%
Medical cost trend - ultimate 5.00% 5.00%
Year for ultimate medical cost trend 1998 1997
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 4,982 $ 4,762 $ 585 $ 637
Interest cost 11,247 10,601 2,100 2,247
Expected return on plan assets (14,768) (13,152) (953) (973)
Transition (asset)/obligation recognition (1,086) (1,086) 1,533 1,570
Amortization of prior service cost 1,654 1,365 -- 13
Net gain recognition (562) (265) (326) (248)
Asset gain deferred -- -- -- 336
--------- --------- --------- ---------
Net periodic benefit cost $ 1,467 $ 2,225 $ 2,939 $ 3,582
--------- --------- --------- ---------
</TABLE>
Assumed health cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point increase in the
assumed health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1998 by approximately $2.6
million and the service and interest cost by approximately $212,000.
The Company also sponsors an employee savings plan which covers substantially
all employees. Employer matching contributinos of $2.8 million, $2.9 million
and $2.8 million were expensed in 1998, 1997 and 1996, respectively.
NOTE 8. ACCOUNTING FOR INCOME TAXES
In June 1997, the Company received $81 million from the Internal Revenue Service
(IRS) to settle an income tax claim relating to its investment in the terminated
nuclear project 3 of the Washington Public Power Supply System (WNP3). The $81
million recovery included $34 million in income taxes the Company overpaid in
prior years plus $47 million in accrued interest, which in total contributed
$41.4 million, or $0.74 per share, to net income.
57
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- --------------------------------------------------------------------------------
The Company had claimed that it realized a loss in 1985 relating to its $195
million investment in WNP3 entitling it to current tax deductions. The IRS,
however, originally denied the Company's claim and ruled that the investment
should be written off over 32.5 years, the term of a settlement agreement
between the Company and the Bonneville Power Administration relating to WNP3.
The Company disagreed with this ruling and had been pursuing a reversal for
several years. The IRS has now agreed with the Company's position.
The Company entered into settlement agreements with the WUTC and the IPUC in
1987 and 1988 providing for the recovery through retail prices of approximately
60% of the Company's $195 million investment in WNP3. As a result of these
agreements, customers have been and will continue to receive the tax benefits
relating to the recoverable portion of WNP3 over the recovery periods specified
in the settlement agreements. The settlement agreements resulted in a write-off
of approximately $75 million of the Company's WNP3 investment, with the entire
write-off charged to shareholders. The tax recovery and related accrued interest
from the IRS will flow through to the benefit of shareholders. The cash was used
to fund new business investment, including growth opportunities in national
energy markets, and reduced the need for issuance of long-term debt during 1997.
As of December 31, 1998 and 1997, the Company had recorded net regulatory assets
of $171.0 million and $176.7 million, respectively, related to the probable
recovery of FAS No. 109, "Accounting for Income Taxes," deferred tax liabilities
from customers through future rates. Such regulatory assets will be adjusted by
amounts recovered through rates.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) tax credit
carryforwards. The net deferred federal income tax liability consists of the
following (thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax bases
of utility plant $375,881 $368,137
Loss on reacquired debt 4,979 5,504
Other 7,462 5,825
-------- --------
Total deferred tax liabilities 388,322 379,466
-------- --------
Deferred tax assets:
Reserves not currently deductible 11,727 12,630
Contributions in aid of construction 7,159 6,277
Deferred natural gas credits -- 1,138
Centralia Trust 2,325 2,515
Gain on sale of office building 1,190 1,279
Other 8,219 2,878
-------- --------
Total deferred tax assets 30,620 26,717
-------- --------
Net deferred tax liability $357,702 $352,749
======== ========
</TABLE>
A reconciliation of federal income taxes derived from statutory tax rates
applied to income from continuing operations and federal income tax as set forth
in the accompanying Consolidated Statements of Income and Retained Earnings is
as follows (the current and deferred effective tax rates are approximately the
same during all periods):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Computed federal income taxes at statutory rate $ 50,468 $ 60,552 $ 46,103
Increase (decrease) in tax resulting from:
Accelerated tax depreciation 9,929 5,014 23
Prior year audit adjustments (1,526) (31,458) (3,491)
Reserve for WNP3 -- 10,402 --
Other (18,793) 12,500 3,955
-------- -------- --------
Total federal income tax expense* $ 40,078 $ 57,010 $ 46,590
======== ======== ========
INCOME TAX EXPENSE CONSISTS OF THE FOLLOWING:
Federal taxes currently provided $ 20,094 $ 51,104 $ 37,456
Deferred income taxes 19,984 5,906 9,134
-------- -------- --------
Total federal income tax expense 40,078 57,010 46,590
State income tax expense 3,257 4,065 2,919
-------- -------- --------
Federal and state income taxes $ 43,335 $ 61,075 $ 49,509
======== ======== ========
</TABLE>
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
*Federal Income Tax Expense:
Utility $ 28,582 $ 50,409 $ 34,866
National Energy Trading and Marketing 7,021 1,415 (625)
Non-energy 4,475 5,186 12,349
-------- -------- --------
Total Federal Income Tax Expense $ 40,078 $ 57,010 $ 46,590
======== ======== ========
Federal statutory rate 35% 35% 35%
</TABLE>
NOTE 9. LONG-TERM PURCHASED POWER CONTRACTS WITH REQUIRED MINIMUM PAYMENTS
Under fixed contracts with Public Utility Districts (PUD), the Company has
agreed to purchase portions of the output of certain generating facilities.
Although the Company has no investment in such facilities, these contracts
provide that the Company pay certain minimum amounts (which are based at least
in part on the debt service requirements of the supplier) whether or not the
facility is operating. The cost of power obtained under the contracts, including
payments made when a facility is not operating, is included in operations and
maintenance expense in the Consolidated Statements of Income. Information as of
December 31, 1998, pertaining to these contracts is summarized in the following
table:
<TABLE>
<CAPTION>
COMPANY'S CURRENT SHARE OF
-------------------------------------------------------------- Contract
Debt Revenue Expira-
Kilowatt Annual Service Bonds tion
Output Capability Costs(1) Costs(2) Outstanding Date
------- ---------- --------- --------- ----------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
PUD CONTRACTS:
Chelan County PUD:
Rocky Reach Project ... 2.9% 37,000 $ 1,660 $ 817 $ 6,493 2011
Grant County PUD:
Priest Rapids Project . 6.1 55,000 1,464 854 10,485 2005
Wanapum Project ....... 8.2 75,000 2,289 1,525 15,965 2009
Douglas County PUD:
Wells Project ......... 3.7 30,000 822 583 6,383 2018
------- -------- -------- --------
Totals ........ 197,000 $ 6,235 $ 3,779 $ 39,326
======= ======== ======== ========
</TABLE>
(1) The annual costs will change in proportion to the percentage of output
allocated to the Company in a particular year. Amounts represent the
operating costs for the year 1998.
(2) Included in annual costs.
Actual expenses for payments made under the above contracts for the years 1998,
1997 and 1996, were $6.2 million, $5.9 million and $5.4 million, respectively.
The estimated aggregate amounts of required minimum payments (the Company's
share of debt service costs) under the above contracts for the next five years
are $3.9 million in 1999, $4.0 million in 2000, $4.0 million in 2001, $5.5
million in 2002 and $5.2 million in 2003 (minimum payments thereafter are
dependent on then market conditions). In addition, the Company will be required
to pay its proportionate share of the variable operating expenses of these
projects.
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NOTE 10. LONG-TERM DEBT
The annual sinking fund requirements and maturities for the next five years for
long-term debt outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SINKING FUND
DECEMBER 31 MATURITIES REQUIREMENTS TOTAL
- ----------- ---------- ------------ --------
(Thousands of Dollars)
<S> <C> <C> <C>
1999............... $47,500 $ 4,452 $51,952
2000............... 55,000 4,242 59,242
2001............... 40,000 3,692 43,692
2002............... 50,000 3,542 53,542
2003............... 31,000 3,142 34,142
</TABLE>
The sinking fund requirements may be met by certification of property additions
at the rate of 167% of requirements. All of the utility plant is subject to the
lien of the Mortgage and Deed of Trust securing outstanding First Mortgage
Bonds.
In 1998, $84.0 million of Unsecured Medium-Term Notes were issued, while $14.0
million of Unsecured Medium-Term Notes matured or were redeemed. In 1997, $20.0
million of First Mortgage Bonds in the form of Secured Medium-Term Notes were
issued, while $26.5 million of Secured Medium-Term Notes and $25.0 million of
Unsecured Medium-Term Notes matured or were repurchased. As of December 31,
1998, the Company had remaining authorization to issue up to $89.0 million of
Secured Medium-Term Notes, which were issued in January 1999, and $166.0 million
of Unsecured Medium-Term Notes.
At December 31, 1998, the Company had no outstanding balances under borrowing
arrangements. See Note 11 for details of credit agreements.
Included in other long-term debt are the following items related to non-energy
operations (thousands of dollars):
<TABLE>
<CAPTION>
OUTSTANDING AT DECEMBER 31,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Notes payable - variable rates through 2002 $50,288 $40,480
Capital lease obligations ................. 7,176 7,601
------- -------
Total non-energy ..................... 57,464 48,081
Less: current portion ................... 15,165 12,177
------- -------
Net non-utility long-term debt ....... $42,299 $35,904
======= =======
</TABLE>
NOTE 11. BANK BORROWINGS
At December 31, 1998, the Company maintained lines of credit with various banks
under two separate credit agreements amounting to $200.0 million. The Company
has one revolving line of credit, expiring June 29, 1999, which provides a total
credit commitment of $125 million. The second revolving credit agreement, which
expires on June 29, 2001, provides a total credit commitment of $75 million. The
Company pays commitment fees of up to 0.09% per annum on the average daily
unused portion of each credit agreement.
In addition, under various agreements with banks, the Company can have up to
$100.0 million in loans outstanding at any one time, with the loans available at
the banks' discretion. These arrangements provide, if funds are made available,
for fixed-term loans for up to 180 days at a fixed rate of interest.
The amount of unused letter of credit available to Avista Corp. for use in
Generation and Resources activities totaled $2.5 million at December 31, 1998.
This letter of credit expires on February 28, 1999.
60
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AVISTA CORPORATION
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Balances and interest rates of bank borrowings under these arrangements were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1998 1997
------- -------
(Thousands of Dollars)
<S> <C> <C>
BALANCE OUTSTANDING AT END OF PERIOD:
Fixed-term loans .......................... $ -- $60,000
Revolving credit agreement ................ -- 48,500
MAXIMUM BALANCE DURING PERIOD:
Fixed-term loans .......................... $94,000 $60,000
Revolving credit agreement ................ 51,000 48,500
AVERAGE DAILY BALANCE DURING PERIOD:
Fixed-term loans .......................... $47,651 $23,737
Revolving credit agreement ................ 21,340 8,981
AVERAGE ANNUAL INTEREST RATE DURING PERIOD:
Fixed-term loans .......................... 5.69% 5.81%
Revolving credit agreement ................ 5.80 5.66
AVERAGE ANNUAL INTEREST RATE AT END OF PERIOD:
Fixed-term loans .......................... --% 6.20%
Revolving credit agreement ................ -- 6.39
</TABLE>
Avista Energy and its subsidiary, Avista Energy Canada, Ltd., as co-borrowers,
have a credit agreement with a commercial bank in the aggregate amount of $100
million, expiring April 1, 1999. The credit agreement may be terminated by the
bank at any time and all extensions of credit under the agreement are payable
upon demand, in either case at the bank's sole discretion. The agreement also
provides, on an uncommitted basis, for the issuance of letters of credit to
secure contractual obligations to counterparts. The facility is guaranteed by
Avista Capital and is secured by substantially all of Avista Energy's assets.
The maximum cash component of credit extended by the bank is $30 million, with
availability of up to $100 million for the issuance of letters of credit. At
December 31, 1998 and 1997, there were no cash advances (demand notes payable)
outstanding. Letters of credit outstanding under the facility totaled
approximately $20.2 million and $2.8 million at December 31, 1998 and 1997,
respectively. The total amount of unused credit available to the Company at
December 31, 1998 was $79.8 million.
Non-energy operations have $54.0 million in short-term borrowing arrangements
available. At December 31, 1998 and 1997, $21.4 million and $18.6 million,
respectively, were outstanding.
NOTE 12. LEASES
The Company has entered into several lease arrangements involving various
assets, with minimum terms ranging from one to thirteen years and expiration
dates from 1999 to 2011. Certain of the lease arrangements require the Company,
upon the occurrence of specified events, to purchase the leased assets for
varying amounts over the term of the lease. The Company's management believes
that the likelihood of the occurrence of the specified events under which the
Company could be required to purchase the property is remote. Rent expense for
the years ended December 31, 1998, 1997 and 1996 was $17.6 million, $16.9
million and $15.2 million, respectively. Future minimum lease payments (in
thousands of dollars) required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1998 are estimated as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999 $ 9,173
2000 8,356
2001 8,022
2002 7,164
2003 6,573
Later years 32,645
-------
Total minimum payments required $ 71,933
========
</TABLE>
The Company also has various other cancelable operating leases, which are
charged to operating expense, consisting of the Rathdrum combustion turbines,
the Company airplane and a large number of small, relatively short-term,
renewable agreements for various items, such as office equipment and office
space.
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The payments under National Energy Trading and Marketing's and Non-energy's
capital leases for the next five years are $3.0 million in 1999, $2.4 million in
2000, $1.0 million in 2001, $0.5 million in 2002 and $0.1 million in 2003.
NOTE 13. PREFERRED STOCK
CUMULATIVE PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION:
In December 1998, as part of a dividend restructuring plan, the Company issued
1,540,460 shares of its $12.40 Convertible Preferred Stock, Series L. See Note
14 for additional information.
The Company redeemed its $50 million of Flexible Auction Preferred Stock, Series
J in August 1997. The dividend rate on this preferred stock was reset every 49
days based on an auction.
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION:
Redemption requirements:
$6.95, Series K - On September 15, 2002, 2003, 2004, 2005 and 2006, the
Company must redeem 17,500 shares at $100 per share plus accumulated
dividends through a mandatory sinking fund. Remaining shares must be
redeemed on September 15, 2007. The Company has the right to redeem an
additional 17,500 shares on each September 15 redemption date.
There are $3.5 million in mandatory redemption requirements during the 1999-2003
period.
In June 1998, the Company redeemed the final $10 million, or 100,000 shares, of
its $8.625 Series I.
NOTE 14. CONVERTIBLE PREFERRED STOCK
In December 1998, as part of a dividend restructuring plan, the Company issued
1,540,460 shares of its $12.40 Convertible Preferred Stock, Series L, in
exchange for 15,404,595 shares of common stock, on the basis of a one-tenth
interest in one share of preferred stock for each share of common stock. The
Convertible Preferred Stock, Series L has a liquidation preference of $182.8125
per share.
Unless previously converted into common stock by the Company, on November 1,
2001 each share of the Convertible Preferred Stock, Series L will be converted
into (1) ten shares of common stock (subject to antidilution adjustments) and
(2) the right to receive an amount, in cash, equal to accrued and unpaid
dividends.
The Convertible Preferred Stock, Series L may be converted, at the option of the
Company, at any time prior to November 1, 2001, in whole but not in part, into,
for each share so converted (1) a number of shares of common stock equal to the
Optional Conversion Price then in effect, plus (2) the right to receive an
amount, in cash, equal to the accrued and unpaid dividends thereon to but
excluding the conversion date, plus (3) the right to receive the Optional
Conversion Premium. As used above,
* the "Optional Conversion Price" will be, for each share of Convertible
Preferred Stock, Series L so converted, a number of shares of common
stock equal to the lesser of (a) the amount of $24 divided by an amount
equal to the current market price of the common stock, multiplied by ten
and (b) one share of common stock (subject to antidilution adjustments);
and
* the "Optional Conversion Premium" will be, for each share of Convertible
Preferred Stock, Series L so converted, an amount in cash, initially
equal to $20.90, declining by $0.02111 for each day following December
15, 1998 to and including the optional conversion date and equal to zero
on and after September 15, 2001; provided, however, that in lieu of
delivering such amount in cash, the Company may, at its option, deliver
a number of shares of common stock equal to the quotient of such amount
divided by an amount equal to the current market price of the common
stock.
NOTE 15. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES
On January 23, 1997, Avista Capital I, a business trust, issued to the public
$60,000,000 of Preferred Trust Securities having a distribution rate of 7 7/8%.
Concurrent with the issuance of the Preferred Trust Securities, the Trust issued
$1,855,675 of Common Trust Securities to the Company. The sole assets of the
Trust are the
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AVISTA CORPORATION
- --------------------------------------------------------------------------------
Company's 7 7/8% Junior Subordinated Deferrable Interest Debentures, Series A,
with a principal amount of $61,855,675. These debt securities may be redeemed
at the Company's option on or after January 15, 2002 and mature January 15,
2037.
On June 3, 1997, Avista Capital II, a business trust, issued to the public
$50,000,000 of Preferred Trust Securities having a floating distribution rate of
LIBOR plus 0.875%, calculated and reset quarterly (initially 6.6875%). The
distribution rate paid during 1998 ranged from 6.77734% to 6.13625%, which was
the rate outstanding at December 31, 1998. Concurrent with the issuance of the
Preferred Trust Securities, the Trust issued $1,547,000 of Common Trust
Securities to the Company. The sole assets of the Trust are the Company's
Floating Rate Junior Subordinated Deferrable Interest Debentures, Series B, with
a principal amount of $51,547,000. These debt securities may be redeemed at the
Company's option on or after June 1, 2007 and mature June 1, 2037.
The Company has guaranteed the payment of distributions on, and redemption price
and liquidation amount in respect of, the Preferred Trust Securities to the
extent that the Trust has funds available for such payment from the debt
securities. Upon maturity or prior redemption of such debt securities, the Trust
Securities will be mandatorily redeemed. The Company's Consolidated Statements
of Capitalization reflect only the $60 million and $50 million of Preferred
Trust Securities, accordingly all intercompany transactions have been
eliminated.
NOTE 16. FAIR VALUE OF FINANCIAL SECURITIES
The fair value of the Company's long-term debt (excluding notes payable and
other) at December 31, 1998 and 1997 is estimated to be $735.5 million, or 107%
of the carrying value and $647.3 million, or 105% of the carrying value,
respectively. The fair value of the Company's mandatorily redeemable preferred
stock at December 31, 1998 and 1997 is estimated to be $38.5 million, or 110% of
the carrying value and $49.8 million, or 111% of the carrying value,
respectively. The fair value of the Company's preferred trust securities at
December 31, 1998 and 1997 is estimated to be $106.9 million, or 97% of the
carrying value and $109.4 million, or 99% of the carrying value, respectively.
These estimates are all based on available market information. The fair value of
the Company's convertible preferred securities at December 31, 1998 was $301.4
million, or 112%, of the carrying value. This valuation was based on the closing
price of the securities on December 31, 1998.
NOTE 17. COMMON STOCK
In April 1990, the Company sold 1,000,000 shares of its common stock to the
Trustee of the Investment and Employee Stock Ownership Plan for Employees of the
Company (Plan) for the benefit of the participants and beneficiaries of the
Plan. In payment for the shares of Common Stock, the Trustee issued a promissory
note payable to the Company in the amount of $14,125,000. Dividends paid on the
stock held by the Trustee, plus Company contributions to the Plan, if any, are
used by the Trustee to make interest and principal payments on the promissory
note. The balance of the promissory note receivable from the Trustee ($9.3
million at December 31, 1998) is reflected as a reduction to common equity. The
shares of Common Stock are allocated to the accounts of participants in the Plan
as the note is repaid. During 1998, the cost recorded for the Plan was $3.7
million. Interest on the note payable to the Company, cash and stock
contributions to the Plan and dividends on the shares held by the Trustee were
$0.9 million, $2.8 million and $0.9 million, respectively.
In February 1990, the Company adopted a shareholder rights plan, which was
subsequently amended, pursuant to which holders of Common Stock outstanding on
March 2, 1990, or issued thereafter, have been granted one preferred share
purchase right (Right) on each outstanding share of Common Stock. Each Right,
initially evidenced by and traded with the shares of Common Stock, entitles the
registered holder to purchase one two-hundredth of a share of Preferred Stock of
the Company, without par value, at an exercise price of $40, subject to certain
adjustments, regulatory approval and other specified conditions. The Rights will
be exercisable only if a person or group acquires 10% or more of the Common
Stock or announces a tender offer, the consummation of which would result in the
beneficial ownership by a person or group of 10% or more of the Common Stock.
Upon any such acquisition, each Right would entitle the holder to purchase a
number of shares of Common Stock of the Company (or, in the case of a merger of
the Company into another person or group, common stock of the acquiring person)
having a fair market value equal to twice the exercise price. In no event will
the Rights be exercisable by a person which has acquired 10% or more of the
Company's Common Stock. The Rights may be redeemed, at a redemption price of
$0.005 per Right, by the Board of Directors of the Company at any time until any
person or group has acquired 10% or more of the Common Stock. The Rights will
expire on February 16, 2000.
During 1992, the Company received authorization to issue 1.5 million shares of
Common Stock under a second Periodic Offering Program (POP). No shares were
issued under the POP during 1996, 1997 or 1998. At December 31, 1998, 572,400
shares remained authorized but unissued.
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The Company has a Dividend Reinvestment and Stock Purchase Plan under which the
Company's stockholders may automatically reinvest their dividends and make
optional cash payments for the purchase of the Company's Common Stock at current
market value.
The Company purchases stock on the open market to fulfill obligations of the
401(K) and Dividend Reinvestment Plans. Sales of Common Stock for 1998, 1997 and
1996 are summarized below (thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 ............... 55,960,360 $ 594,852 55,960,360 $ 594,852 55,947,967 $ 594,636
Exchange for preferred stock ..... (15,404,595) (213,451) -- -- -- --
Stock options/restricted stock ... (102,036) -- -- -- -- --
Employee Investment Plan (401-K).. -- -- -- -- --
Dividend Reinvestment Plan ......... -- -- -- -- 12,393 216
----------- ----------- ----------- ----------- ----------- -----------
Total issues (exchanges/purchases) (15,506,631) (213,451) -- -- 12,393 216
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31 ............. 40,453,729 $ 381,401 55,960,360 $ 594,852 55,960,360 $ 594,852
=========== =========== =========== =========== =========== ===========
</TABLE>
NOTE 18. EARNINGS PER SHARE
Average shares outstanding for basic EPS were 54,603,926 in 1998. At December
31, 1998, 1,540,460 shares of $12.40 Convertible Preferred Stock, Series L,
which were convertible into 15,404,595 million shares of common stock, were
outstanding. All of these potential common shares were excluded from the
computation of diluted EPS for 1998 because their inclusion had an antidilutive
effect on EPS. Options to purchase 647,900 shares of common stock were
outstanding during 1998, but 150,000 shares were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares for the year and, therefore,
the effect would be antidilutive. Average number of common shares outstanding
for both basic and diluted EPS was 55,960,360 for both 1997 and 1996. Basic and
diluted EPS were the same in 1997 and 1996 as the Company did not have any
common stock equivalents outstanding in either of those years.
The computation of basic and diluted earnings per common share is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income $ 78,139 $114,797 $ 83,453
Less: Preferred stock dividends 8,399 5,392 7,978
-------- -------- --------
Income available for common stock-basic 69,740 109,405 75,475
Convertible Preferred Stock, Series L,
dividend requirements -- -- --
-------- -------- --------
Income available for common stock-diluted $ 69,740 $109,405 $ 75,475
======== ======== ========
Weighted-average number of common shares
outstanding-basic 54,604 55,960 55,960
Conversion of Convertible Preferred Stock, Series L -- -- --
Exercise of stock options 54 -- --
-------- -------- --------
Weighted-average number of common shares
outstanding-diluted 54,658 55,960 55,960
Earnings per common share
Basic $ 1.28 $ 1.96 $ 1.35
Diluted $ 1.28 $ 1.96 $ 1.35
</TABLE>
For additional information regarding the convertible preferred stock and stock
option plans, see Notes 14 and 19, respectively.
NOTE 19. STOCK COMPENSATION PLANS
The Company and certain subsidiaries have adopted stock-based compensation
plans.
Avista Corp.
In 1998, the Company adopted and shareholders approved an incentive compensation
plan, the Long-Term Incentive Plan (Plan). Under the Plan, certain key
employees, directors and officers of the Company and its
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subsidiaries may be granted stock options, stock appreciation rights, stock
awards (including restricted stock) and other stock-based awards and dividend
equivalent rights. The Company has made available a maximum of 2.5 million
shares of its common stock for grant under the Plan. The shares issued under the
Plan will be purchased by the trustee on the open market.
The following summarizes stock options activity for 1998 under the Plan:
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Range
---------- ---------------
<S> <C> <C>
Granted 589,800 $18.31 - 22.62
Exercised -- --
Cancelled -- --
-------
Unexercised options outstanding - December 31, 1998 589,800
=======
Exercisable Options - December 31, 1998 --
Option grants vest 25% per year over four
years and expire 10 years after issuance.
Weighted average exercise price of options
granted during the year $ 20.14
Weighted average fair value of options
granted during the year $ 4.74(1)
</TABLE>
(1) The fair values of these options were estimated at the dates of the
grants using a Black-Scholes option pricing model using the following
assumptions: dividend yield of 3.01%, expected volatility of 22.19%,
risk-free interest rate range of 4.81% to 5.53% depending on the grant
date, and an expected life of 7 years.
The Company granted 102,036 shares of restricted common stock under the Plan in
1998. Plan participants are entitled to dividends and to vote their respective
shares. The sale or transfer of restricted stock is prohibited during the
vesting period except as specified in the award agreements. The value of
restricted stock awards is established by the average market price on the date
of grant. Restricted stock awarded in 1998 have vesting periods from 4 - 5
years.
Common equity was reduced in the accompanying Consolidated Balance Sheets by the
cost of restricted shares acquired by the Plan trustee on the open market.
Accordingly, the Company is recording compensation expense ratably over the
restriction periods based on the reduction to common equity.
The Company accounts for stock based compensation using APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under this method, compensation cost
is recognized on the excess, if any, of the market price of the stock at grant
date over the exercise price of the option. As the exercise price for options
granted under the Plan was equal to the market price at grant date, no
compensation expense has been recorded by the Company in connection this the
Plan. In accordance with FAS No. 123, "Accounting for Stock-Based Compensation,"
compensation expense is determined based on the fair value of the award and
recognizes that cost over the service period. Had compensation costs for these
plans been determined based on the fair value at the grant dates with FAS No.
123, the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Net income (in thousands):
As reported $78,139
Pro forma $76,891(2)
Basic EPS as reported $1.28
Proforma Basic EPS $1.25
Diluted EPS as Reported $1.28
Proforma Diluted EPS $1.25
</TABLE>
(2) Includes pro forma effect of subsidiary companies stock option plans.
Subsidiary Companies
Certain subsidiaries of the Company have adopted employee stock incentive plans
under which key employees and directors were granted the opportunity to purchase
shares of subsidiary common stock at prices equal to the fair market value as
determined by each subsidiary's Board of Directors. Restricted shares are
subject to transfer agreements and vest over various periods as defined in the
plans. The subsidiaries record compensation expense based on the increase in the
adjusted net book value of the shares subject to the plans.
Certain subsidiaries of the Company have adopted employee stock incentive plans
under which certain employees and directors of the Company and the subsidiaries
are granted options to purchase subsidiary shares at prices no less than the
fair market value on the date of grant. Options outstanding under these plans
usually become fully
65
<PAGE> 70
AVISTA CORPORATION
- --------------------------------------------------------------------------------
exercisable between three and five years from the date granted and terminate ten
years from the date granted. Upon termination of employment, vested options may
be exercised and the related subsidiary shares may be, but are not required to
be, repurchased by the applicable subsidiary at fair value.
NOTE 20. COMMITMENTS AND CONTINGENCIES
The Company believes, based on the information presently known, the ultimate
liability for the matters discussed in this note, individually or in the
aggregate, taking into account established accruals for estimated liabilities,
will not be material to the consolidated financial position of the Company, but
could be material to results of operations or cash flows for a particular
quarter or annual period. No assurance can be given, however, as to the ultimate
outcome with respect to any particular lawsuit.
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
(the "FPC", predecessor of the 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. Allegations of actual
loss under different assumptions ranged between $425 million and $650 million,
together with $100 million in punitive damages.
On November 21, 1994, the Company filed a Motion for Summary Judgment of
Dismissal. On March 28, 1996, a U.S. District judge entered a summary judgment
in favor of the Company dismissing the complaint. The Tribe filed a notice of
appeal to the Ninth Circuit Court of Appeals on April 24, 1996. A mediation
conference was held on October 11, 1996. Following the conclusion of that
conference, briefing schedules were vacated indefinitely to accommodate a
mediation process, which ultimately resulted in a settlement of this matter on
January 15, 1999. In accordance with that settlement, the Company will pay the
Nez Perce Tribe $2.5 million initially, part of which was already expensed and
the remainder deferred for possible future rate recovery. The Company will
provide 44 annual payments thereafter in the amount of $835,498 for utility
taxes, Tribal employment rights, fees and rights-of-ways, which will be expensed
as paid.
OIL SPILL
The Company completed an updated investigation of an oil spill from an
underground storage tank that occurred several years ago in downtown Spokane at
the site of the Company's steam heat plant. Underground soil testing conducted
in 1993 showed that the oil had migrated approximately one city block beyond the
steam plant property. The Clean-up Action Plan determined by the Department of
Ecology (DOE) is underway, and remediation facilities have been constructed and
installed and are being operated.
On August 17, 1995, a lawsuit was filed against the Company in Superior Court of
the State of Washington for Spokane County by Davenport Sun International Hotels
and Properties, Inc., the owner of a hotel property in downtown Spokane,
Washington. The Complaint alleged that the oil released from the Company's
Central Steamplant trespassed on property owned by the plaintiff. In addition,
the plaintiff claimed that the Steamplant has caused a diminution of value of
plaintiff's land. After mediation, the matter was resolved by settlement and
compromise, subject to certain conditions. In December 1997, the settlement was
restructured, certain amounts were paid, the litigation was dismissed with
prejudice, a release was obtained, and other conditions remain to be fulfilled,
none of which would affect the dismissal of this action.
The Company pursued recovery from insurers and reached settlement with one of
the two insurance carriers. On December 13, 1996, the Company filed a Complaint
for declaratory relief and money damages against Underwriters at Lloyds of
London (Lloyds), the remaining carrier, in Spokane County Superior Court. The
purpose of this action was to seek a declaration of the insurance policies
issued to the Company by Lloyds with respect to any liabilities of the Company
for environmental damage associated with the oil spill at the Central
Steamplant and other environmental remediation efforts. The policies at issue
were in effect during the period between 1926 and 1966; thereafter, the Company
maintained its policies with a new underwriter, Aegis. The Company's Complaint
sought money damages in excess of $16 million. On March 10, 1999, Avista Corp.
and Lloyds signed a settlement agreement resolving the claim.
SPOKANE GAS PLANT
The Company is participating with the Washington State Department of
Transportation in an environmental study relating to the former Spokane Natural
Gas Plant site (which was operated as a coal gasification plant for
66
<PAGE> 71
AVISTA CORPORATION
- --------------------------------------------------------------------------------
approximately 60 years until 1948) acquired by the Company through a merger in
1958. The Company no longer owns the property. Initial core samples taken from
the site indicate environmental contamination at the site. On January 15, 1999,
the Company received notice from the State of Washington's Department of Ecology
that it had been designated as a potentially liable person (PLP) with respect to
any hazardous substances located on this site, stemming from the Company's past
ownership of the former Gas Plant. In its notice, the DOE stated that it
intended to complete an on-going remedial investigation of this site, complete a
feasibility study to determine the most effective means of halting or
controlling future releases of substances from the site, and implement
appropriate remedial measures.
The Company responded to the DOE acknowledging its listing as a PLP, but
requested that additional parties also be listed as PLPs. The Company also
committed to pursue additional characterization of the site, with more drillings
and samples, and is in the process of determining the extent of further work.
The Company will be negotiating with the DOE on the remedial measures.
EASTERN PACIFIC ENERGY
On October 9, 1998, Eastern Pacific Energy (Eastern Pacific), an energy
aggregator participating in the restructured retail energy market in California,
filed suit against the Company and its affiliates, Avista Advantage and Avista
Energy in the United States District Court for the Central District of
California. Eastern Pacific alleges, among other things, a breach of an oral or
implied joint venture agreement whereby the Company agreed to supply not less
than 300 megawatts of power to Eastern Pacific's California customers and that
Avista Advantage agreed to provide energy-related products and services. The
complaint seeks an unspecified amount of damages and also seeks to recover any
future profits earned from sales of the aforementioned amount of power to
California consumers. The Company and its affiliates intend to vigorously defend
against all of the claims.
On December 4, 1998, Avista Advantage, Avista Energy and the Company jointly
filed a motion to dismiss the complaint for failure to state a claim upon which
relief can be granted. Following a responsive pleading from the plaintiff, the
court took the matter under advisement and notified the parties that a decision
will be issued in due course concerning this motion to dismiss.
OTHER CONTINGENCIES
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and recoveries from insurance carriers. The Company's policy is to
immediately accrue and charge to current expense identified exposures related to
environmental remediation sites based on estimates of investigation, cleanup and
monitoring costs to be incurred.
The Company must be in compliance with requirements under the Clean Air Act
Amendments (CAAA) by the year 2000 at both the Colstrip and Centralia thermal
generating plants, in which the Company maintains an ownership interest. The
anticipated share of costs at Colstrip are not expected to have a major economic
impact on the Company, but estimates at Centralia are expected to be
approximately $35 million, which have been included in the Company's future
projected capital expenditures.
The Company has potential liabilities under the Federal Endangered Species Act
(ESA) for species of fish that have either already been added to the endangered
species list, been listed as "threatened" or been petitioned for listing. Thus
far, measures which have been adopted and implemented have had minimal impact of
the Company. Future actions to save these, and other as yet unidentified fish or
wildlife species, particularly as the Company is relicensing several of its
hydroelectric facilities, could impact the Company's operations. It is currently
not possible to determine the likely financial impact of any further actions.
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 electric energy with
other utilities, cogenerators, small power producers and government agencies.
As of December 31, 1998, the Company's collective bargaining agreement with the
International Brotherhood of Electrical Workers represented approximately 50% of
employees. The current agreement with the union local representing the majority
of the bargaining unit employees expires on March 25, 2002. A local agreement in
the South Lake Tahoe area, which represents 7 employees, also expires on March
25, 1999. The Company and the union are currently negotiating this agreement.
67
<PAGE> 72
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NOTE 21. ACQUISITIONS AND DISPOSITIONS
In April 1998, Pentzer completed the purchase of two new companies that produce
store fixtures -- Universal Showcase, Ltd., in Toronto, Canada and Triangle
Systems, Inc., in New York. In October 1998, Pentzer acquired two additional
store fixtures companies -- Horizon Terra, Inc., in Indiana and Pacific Coast
Showcase, Inc., in Washington. During 1997, Pentzer acquired three new
companies: Target Woodworks, Inc., a Florida-based company; White Plus, a
California-based company; and Proco Wood Products, a Minnesota-based company.
All three companies provide point-of-purchase and in-store merchandising
services. During 1996, Pentzer acquired one company that provides
point-of-purchase and in-store merchandising services.
During the first quarter of 1998, Pentzer sold Systran Financial Services,
resulting in an after-tax gain of $5.5 million. In May 1997, Pentzer sold its
interest in a portfolio company, Safety Speed Cut, resulting in a gain of
approximately $2.0 million, net of taxes. In 1996, Pentzer Development
Corporation, a subsidiary of Pentzer, sold the Spokane Industrial Park,
resulting in a gain of approximately $10.8 million, net of taxes and other
adjustments.
In November 1998, the Company reached an agreement in principal to purchase a
majority ownership in One Eighty Communications, a competitive local exchange
carrier that provided local dial tone and data services to commercial accounts
in local communities. The acquisition was completed in January 1999, and the new
company was renamed Avista Communications. It will provide local high-speed
telecommunications services to under-served Northwest communities.
In December 1998, Avista Energy Canada, Ltd. acquired Coast Pacific Management,
Inc. (Coast Pacific), a natural gas marketing company based in Vancouver,
British Columbia, Canada. Coast Pacific manages and transports approximately
70,000 MMBtu of natural gas per day to some 70 large and medium size industrial
customers throughout British Columbia. Coast Pacific also acts as gas manager
for more than 40% of the large industrial market in the interior of British
Columbia.
Effective February 1, 1999, Avista Energy completed and closed the purchase of
Vitol Gas & Electric, LLC (Vitol), based in Boston, Massachusetts. Vitol is one
of the top 20 energy marketing companies in the United States. Vitol trades gas,
electricity, coal and SO2 allowances in markets in the eastern half of the
United States. The acquisition was funded through the issuance of additional
shares of common stock to Avista Capital.
NOTE 22. MERGER TERMINATION
On June 28, 1996, the Board of Directors of the Company terminated the Agreement
and Plan of Reorganization and Merger, dated as of June 27, 1994 by and among
the Company, Sierra Pacific Resources (SPR), Sierra Pacific Power Company, a
subsidiary of SPR (SPPC), and Altus Corporation, a wholly owned subsidiary of
the Company (Altus, formerly named Resources West Energy Corporation), which
would have provided for the merger of the Company, SPR and SPPC with and into
Altus. The Company had approximately $15.8 million, or $10.3 million after-tax,
in merger-related transaction and transition costs that were expensed in 1996.
No increase in rates occurred as a result of these costs being expensed.
68
<PAGE> 73
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NOTE 23. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The Company's energy operations are significantly affected by weather
conditions. Consequently, there can be large variances in revenues, expenses and
net income between quarters based on seasonal factors such as temperatures and
streamflow conditions. A summary of quarterly operations (in thousands of
dollars except per share amounts) for 1998 and 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
31 30 30 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Operating revenues .................... $ 571,678 $ 632,995 $ 1,434,055 $ 1,045,256
Operating income ...................... 56,633 41,942 24,303 49,942
Net income ............................ 32,232 15,643 8,707 21,557
Income available for common stock ..... 31,408 14,855 8,099 15,378
Outstanding common stock (000s):
Weighted average .................... 55,960 55,960 55,960 50,669
Actual .............................. 55,960 55,960 55,960 40,454
Earnings per share:
Energy Delivery and
Generation and Resources ......... $ 0.40 $ 0.17 $ 0.10 $ 0.21
National Energy Trading and Marketing 0.03 0.07 (0.01) 0.13
Non-energy .......................... 0.13 0.03 0.05 (0.03)
----------- ----------- ----------- -----------
Total, Basic and Diluted ............ $ 0.56 $ 0.27 $ 0.14 $ 0.31
Dividends paid per common share ....... $ 0.31 $ 0.31 $ 0.31 $ 0.12
Trading price range per share:
High ................................ $ 24 13/16 $ 24 7/8 $ 22 13/16 $ 20 3/16
Low ................................. $ 21 11/16 $ 20 13/16 $ 16 1/4 $ 17 1/2
1997
Operating revenues .................... $ 284,046 $ 236,274 $ 295,076 $ 486,776
Operating income ...................... 64,060 34,669 29,707 61,028
Net income ............................ 29,848 48,475 13,237 23,237
Income available for common stock ..... 28,070 46,663 12,258 22,414
Outstanding common stock (000s):
Weighted average .................... 55,960 55,960 55,960 55,960
Actual .............................. 55,960 55,960 55,960 55,960
Earnings per share:
Energy Delivery and
Generation and Resources ......... $ 0.49 $ 0.81 $ 0.12 $ 0.29
National Energy Trading and Marketing (0.01) (0.03) (0.02) 0.10
Non-energy .......................... 0.02 0.05 0.12 0.02
----------- ----------- ----------- -----------
Total, Basic and Diluted ............ $ 0.50 $ 0.83 $ 0.22 $ 0.41
Dividends paid per common share ....... $ 0.31 $ 0.31 $ 0.31 $ 0.31
Trading price range per share:
High ................................ $ 19 $ 19 7/8 $ 21 1/4 $ 24 13/16
Low ................................. $ 17 3/8 $ 17 3/8 $ 18 7/8 $ 18 15/16
</TABLE>
The effects of the conversion from common stock to convertible preferred stock
are reflected in the fourth quarter 1998 results. See Notes 14 and 18.
69
<PAGE> 74
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Registrant has been omitted pursuant
to General Instruction G to Form 10-K. Reference is made to the Registrant's
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the Registrant's annual meeting of shareholders to be held on
May 13, 1999.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Business Experience During Past 5 Years
- ---- --- ---------------------------------------
<S> <C> <C>
Thomas M. Matthews 55 Chairman of the Board, President & Chief
Executive Officer since October 1998; Chairman
of the Board & Chief Executive Officer July 1998
- October 1998; prior to employment with the
Registrant: President - Dynegy 1996 to July
1998; Vice President - Texaco, Inc. 1994 - 1996.
Jon E. Eliassen 52 Senior Vice President & Chief Financial Officer
since November 1998; Senior Vice President,
Chief Financial Officer & Treasurer December
1997 - November 1998; Senior Vice President &
Chief Financial Officer August 1996 - December
1997; Vice President - Finance & Chief Financial
Officer February 1986 - August 1996.
Gary G. Ely 51 Executive Vice President since February 1999;
Senior Vice President & General Manager August
1996 - February 1999; Vice President - Natural
Gas February 1991- August 1996.
David J. Meyer 45 Senior Vice President & General Counsel since
September 1998; prior to employment with the
Registrant: Attorney - Paine Hamblen Coffin
Brooke & Miller 1974 - September 1998.
Robert D. Fukai 49 Vice President - External Relations since August
1996; Vice President - Human Resources,
Corporate Services & Marketing January 1993
August 1996.
JoAnn G. Matthiesen 58 Vice President - Human Resources since August
1996; Vice President - Organization
Effectiveness, Public Relations & Assistant to
the Chairman January 1993 - August 1996.
Ronald R. Peterson 46 Vice President and Treasurer since November
1998; Vice President and Controller February
1998 - November 1998; Controller August 1996 -
February 1998; Treasurer February 1992 - August
1996.
Terry L. Syms 50 Vice President and Corporate Secretary since
February 1998; Corporate Secretary March 1988 -
February 1998.
Edward H. Turner 43 Vice President & General Manager - Energy
Delivery since November 1998; prior to
employment with the Registrant: Director of
Industrial Sales and various other positions -
Houston Lighting & Power Company and Houston
Industries Incorporated for 24 years.
Roger D. Woodworth 42 Vice President - Corporate Development since
November 1998; Director of Corporate Development
and various other positions with the Company
since 1979.
</TABLE>
All of the Company's executive officers, with the exception of Messrs. Turner
and Woodworth, were officers or directors of one or more of the Company's
subsidiaries in 1998.
Executive officers are elected annually by the Board of Directors.
70
<PAGE> 75
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation has been omitted pursuant to
General Instruction G to Form 10-K. Reference is made to the Registrant's Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Registrant's annual meeting of shareholders to be held on May 13, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners (owning 5% or more of
Registrant's voting securities):
None.
(b) Security ownership of management:
Information regarding security ownership of management has been omitted
pursuant to General Instruction G to Form 10-K. Reference is made to the
Registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Registrant's annual meeting
of shareholders to be held on May 13, 1999.
(c) Changes in control:
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions has been
omitted pursuant to General Instruction G to Form 10-K. Reference is made to the
Registrant's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Registrant's annual meeting of shareholders to
be held on May 13, 1999.
71
<PAGE> 76
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements (Included in Part II of this report):
Independent Auditors' Report
Consolidated Statements of Income, Comprehensive Income and Retained
Earnings for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets, December 31, 1998 and 1997
Consolidated Statements of Capitalization, December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Schedule of Information by Business Segments for the Years Ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
(a) 2. Financial Statement Schedules:
None
(a) 3. Exhibits:
Reference is made to the Exhibit Index commencing on page 75. The
Exhibits include the management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K by Item
601(10)(iii) of Regulation S-K.
(b) Reports on Form 8-K:
Dated June 4, 1998, announcing the appointment of the Company's new
Chief Executive Officer.
Dated August 19, 1998, regarding a dividend restructuring plan, a broad
corporate refocus and the corporate name change.
Dated October 21, 1998, announcing third quarter earnings, a potential
future rate increase in Idaho, a lawsuit filed against the Company, a
potential change in capital expenditures in future periods and an update
on the Company's progress on the Year 2000 issue.
Dated January 6, 1999, regarding the corporate name change effective
January 1, 1999.
72
<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE WASHINGTON WATER POWER COMPANY
March 19, 1999 By /s/ T. M. Matthews
- ------------------------- --------------------------------------------
Date T. M. Matthews
Chairman of the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ T. M. Matthews Principal Executive March 19, 1999
- ------------------------------------------- Officer and Director
T. M. Matthews (Chairman of the Board,
President and Chief Executive Officer)
/s/ J. E. Eliassen Principal Financial March 19, 1999
- ------------------------------------------ and Accounting Officer
J. E. Eliassen (Senior Vice President
and Chief Financial Officer)
/s/ David A. Clack Director March 19, 1999
- -------------------------------------------
David A. Clack
/s/ Sarah M. R. Jewell Director March 19, 1999
- -------------------------------------------
Sarah M. R. Jewell
/s/ John F. Kelly Director March 19, 1999
- -------------------------------------------
John F. Kelly
/s/ Eugene W. Meyer Director March 19, 1999
- -------------------------------------------
Eugene W. Meyer
/s/ Bobby Schmidt Director March 19, 1999
- -------------------------------------------
Bobby Schmidt
/s/ Larry A. Stanley Director March 19, 1999
- -------------------------------------------
Larry A. Stanley
/s/ R. John Taylor Director March 19, 1999
- -------------------------------------------
R. John Taylor
/s/ Daniel J. Zaloudek Director March 19, 1999
- -------------------------------------------
Daniel J. Zaloudek
</TABLE>
73
<PAGE> 78
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-81697, 2-94816, 33-54791, and 33-32148 on Form S-8, and in Registration
Statement Nos. 33-49662, 33-53655, 333-39551,333-16353, 333-16353-01,
333-16353-02, and 333-16353-03 on Form S-3 of our report dated January 29,
1999 (February 1, 1999 as to Note 21 and March 10, 1999 as to Note 20),
appearing in this Annual Report on Form 10-K of Avista Corporation for the
year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
March 19, 1999
74
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
3(a) ** Restated Articles of Incorporation of
Avista Corporation as restated
February 25, 1999.
3(b) ** Bylaws of Avista Corporation, as amended
January 1, 1999.
4(a)-1 2-4077 B-3 Mortgage and Deed of Trust, dated as of June
1, 1939.
4(a)-2 2-9812 4(c) First Supplemental Indenture, dated as of
October 1, 1952.
4(a)-3 2-60728 2(b)-2 Second Supplemental Indenture, dated as of
May 1, 1953.
4(a)-4 2-13421 4(b)-3 Third Supplemental Indenture, dated as of
December 1, 1955.
4(a)-5 2-13421 4(b)-4 Fourth Supplemental Indenture, dated as of
March 15, 1967.
4(a)-6 2-60728 2(b)-5 Fifth Supplemental Indenture, dated as of
July 1, 1957.
4(a)-7 2-60728 2(b)-6 Sixth Supplemental Indenture, dated as of
January 1, 1958.
4(a)-8 2-60728 2(b)-7 Seventh Supplemental Indenture, dated as of
August 1, 1958.
4(a)-9 2-60728 2(b)-8 Eighth Supplemental Indenture, dated as of
January 1, 1959.
4(a)-10 2-60728 2(b)-9 Ninth Supplemental Indenture, dated as of
January 1, 1960.
4(a)-11 2-60728 2(b)-10 Tenth Supplemental Indenture, dated as of
April 1, 1964.
4(a)-12 2-60728 2(b)-11 Eleventh Supplemental Indenture, dated as of
March 1, 1965.
4(a)-13 2-60728 2(b)-12 Twelfth Supplemental Indenture, dated as of
May 1, 1966.
4(a)-14 2-60728 2(b)-13 Thirteenth Supplemental Indenture, dated as
of August 1, 1966.
4(a)-15 2-60728 2(b)-14 Fourteenth Supplemental Indenture, dated as
of April 1, 1970.
4(a)-16 2-60728 2(b)-15 Fifteenth Supplemental Indenture, dated as
of May 1, 1973.
4(a)-17 2-60728 2(b)-16 Sixteenth Supplemental Indenture, dated as
of February 1, 1975.
4(a)-18 2-60728 2(b)-17 Seventeenth Supplemental Indenture, dated as
of November 1, 1976.
4(a)-19 2-69080 2(b)-18 Eighteenth Supplemental Indenture, dated as
of June 1, 1980.
4(a)-20 1-3701 (with 4(a)-20 Nineteenth Supplemental Indenture, dated as
1980 Form 10-K) of January 1, 1981.
4(a)-21 2-79571 4(a)-21 Twentieth Supplemental Indenture, dated as
of August 1, 1982.
4(a)-22 1-3701 (with 4(a)-22 Twenty-First Supplemental Indenture, dated
Form 8-K dated as of September 1, 1983.
September 20, 1983)
4(a)-23 2-94816 4(a)-23 Twenty-Second Supplemental Indenture, dated
as of March 1, 1984.
</TABLE>
- ------------
*Incorporated herein by reference.
**Filed herewith.
75
<PAGE> 80
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
4(a)-24 1-3701 (with 4(a)-24 Twenty-Third Supplemental Indenture, dated
1986 Form 10-K) as of December 1, 1986.
4(a)-25 1-3701 (with 4(a)-25 Twenty-Fourth Supplemental Indenture, dated
1987 Form 10-K) as of January 1, 1988.
4(a)-26 1-3701 (with 4(a)-26 Twenty-Fifth Supplemental Indenture, dated as
1989 Form 10-K) of October 1, 1989.
4(a)-27 33-51669 4(a)-27 Twenty-Sixth Supplemental Indenture, dated as
of April 1, 1993.
4(a)-28 1-3701 (with 4(a)-28 Twenty-Seventh Supplemental Indenture, dated
1993 Form 10-K) as of January 1, 1994.
4(b)-1 1-3701 (with 4(e)-1 Loan Agreement between City of Forsyth,
1989 Form 10-K) Rosebud County, and the Company,
dated as of November 1, 1989 (Series
1989 A and 1989 B). Replaces Exhibit 4(e)-1
(agreement between the Company and City
of Forsyth, Rosebud County, Montana,
dated as of October 1, 1986) filed with
Form 10-K for 1986 and Exhibit 4(g)-1
(agreement between the Company and City
of Forsyth, Rosebud County, Montana,
dated as of April 1, 1987) filed with
Form 10-K for 1987.
4(b)-2 1-3701 (with 4(e)-2 Indenture of Trust, Pollution Control
1989 Form 10-K) Revenue Refunding Bonds (Series 1989 A and
1989 B) between City of Forsyth, Rosebud
County, Montana and Chemical Bank, dated
as of November 1, 1989. Replaces Exhibit
4(e)-2 (Indenture of Trust between City of
Forsyth, Rosebud County, Montana and
Chemical Bank dated as of October 1, 1986)
filed with Form 10-K for 1986 and Exhibit
4(g)-2 (Indenture of Trust between City of
Forsyth, Rosebud County, Montana and
Chemical Bank, dated as of April 1, 1987)
filed with Form 10-K for 1987.
4(c)-1 1-3701 (with 4(h)-1 Indenture between the Company and Chemical
1988 Form 10-K) Bank dated as of July 1, 1988 (Series A
and B Medium-Term Notes).
4(d)-1 ** Credit Agreement between the Company and
Toronto Dominion (Texas), Bank of
America National Trust and Savings
Association and The Bank of New York
with Toronto Dominion as the agent,
dated June 30, 1998.
4(d)-2 ** Credit Agreement between the Company and
Toronto Dominion (Texas), Bank of
America National Trust and Savings
Association and The Bank of New York
with Toronto Dominion as the agent,
dated June 30, 1998.
4(e)-1 1-3701 (with 4(n) Rights Agreement, dated as of February 16,
Form 8-K dated 1990, between the Company and the Bank
February 16, 1990) of New York as successor Rights Agent.
4(e)-2 1-3701 (with 4(b) Amendment No. 1 to Rights Agreement, dated
1994 First Quarter as of May 10, 1994.
Form 10-Q)
</TABLE>
- -------------
*Incorporated herein by reference.
**Filed herewith.
76
<PAGE> 81
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
4(e)-3 1-3701 (with 1994 4(b) Amendment No. 2 to Rights Agreement,
Third Quarter dated as of June 27, 1994.
Form 10-Q)
10(a)-l 2-13788 13(e) Power Sales Contract (Rocky Reach Project)
with Public Utility District No. 1 of
Chelan County, Washington, dated as of
November 14, 1957.
10(a)-2 2-60728 10(b)-1 Amendment to Power Sales Contract (Rocky
Reach Project) with Public Utility
District No. 1 of Chelan County,
Washington, dated as of June 1, 1968.
10(b)-1 2-13421 13(d) Power Sales Contract (Priest Rapids Project)
with Public Utility District No. 2 of
Grant County, Washington, dated as of May
22, 1956.
10(b)-2 2-60728 5(d)-1 Second Amendment to Power Sales Contract
(Priest Rapids Project) with Public
Utility District No. 2 of Grant County,
Washington, dated as of December 19, 1977.
10(c)-1 2-60728 5(e) Power Sales Contract (Wanapum Project) with
Public Utility District No. 2 of Grant
County, Washington, dated as of June 22,
1959.
10(c)-2 2-60728 5(e)-1 First Amendment to Power Sales Contract
(Wanapum Project) with Public Utility
District No. 2 of Grant County,
Washington, dated as of December 19, 1977.
10(d)-1 2-60728 5(g) Power Sales Contract (Wells Project) with
Public Utility District No. 1 of Douglas
County, Washington, dated as of September
18, 1963.
10(d)-2 2-60728 5(g)-1 Amendment to Power Sales Contract (Wells
Project) with Public Utility District No.
1 of Douglas County, Washington, dated as
of February 9, 1965.
10(d)-3 2-60728 5(h) Reserved Share Power Sales Contract (Wells
Project) with Public Utility District No.
1 of Douglas County, Washington, dated as
of September 18, 1963.
10(d)-4 2-60728 5(h)-1 Amendment to Reserved Share Power Sales
Contract (Wells Project) with Public
Utility District No. 1 of Douglas County,
Washington, dated as of February 9, 1965.
10(e) 2-60728 5(i) Canadian Entitlement Exchange Agreement
executed by Bonneville Power
Administration Columbia Storage Power
Exchange and the Company, dated as of
August 13, 1964.
10(f) 2-60728 5(j) Pacific Northwest Coordination Agreement,
dated as of September 15, 1964.
10(g)-1 2-60728 5(k) Ownership Agreement between the Company,
Pacific Power & Light Company, Puget Sound
Power & Light Company, Portland General
Electric Company, Seattle City Light,
Tacoma City Light and Grays Harbor and
Snohomish County Public Utility Districts
as owners of the Centralia Steam Electric
Generating Plant, dated as of May 15,
1969.
</TABLE>
- ---------
*Incorporated herein by reference.
**Filed herewith.
77
<PAGE> 82
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
10(g)-2 1-3701 (with Form 10(h)-3 Centralia Fuel Supply Agreement between
10-K for 1991) PacifiCorp Electric Operations, as the
Seller, and the Company, Puget Sound Power
& Light Company, Portland General Electric
Company, Seattle City Light, Tacoma City
Light and Grays Harbor and Snohomish
County Public Utility Districts, as the
Buyers of coal for the Centralia Steam
Electric Generating Plant, dated as of
January 1, 1991.
10(h)-l 2-47373 13(y) Agreement between the Company, Bonneville
Power Administration and Washington Public
Power Supply System for purchase and
exchange of power from the Nuclear Project
No. 1 (Hanford), dated as of January 6,
1973.
10(h)-2 2-60728 5(m)-1 Amendment No. 1 to the Agreement between the
Company between the Company, Bonneville
Power Administration and Washington Public
Power Supply System for purchase and
exchange of power from the Nuclear Project
No. 1 (Hanford), dated as of May 8, 1974.
10(h)-3 1-3701 (with 10(i)-3 Agreement between Bonneville Power
Form 10-K for Administration, the Montana Power Company, Pacific
1986) Power & Light, Portland General Electric, Puget
Sound Power & Light, the Company and the Supply
System for relocation costs of Nuclear Project No.
1 (Hanford) dated as of July 9, 1986.
10(i)-1 2-60728 5(n) Ownership Agreement of Nuclear Project No.
3, sponsored by Washington Public Power
Supply System, dated as of September 17,
1973.
10(i)-2 1-3701 (with 1 Settlement Agreement and Covenant Not to
Form 10-Q for Sue executed by the United States
quarter ended Department of Energy acting by and through
September 30, the Bonneville Power Administration and
1985) the Company, dated as of September 17,
1985, describing the settlement of Project
3 litigation.
10(i)-3 1-3701 (with 2 Agreement to Dismiss Claims and Covenant
Form 10-Q for Not to Sue between the Washington Public
quarter ended Power Supply System and the Company, dated
September 30, as of September 17, 1985, describing the
1985) settlement of Project 3 litigation with
the Supply System.
10(i)-4 1-3701 (with 3 Agreement among Puget Sound Power & Light
Form 10-Q for Company, the Company, Portland General
quarter ended Electric Company and PacifiCorp, dba
September 30, Pacific Power & Light Company, agreeing to
1985) execute contemporaneously an irrevocable
offer, to and for the benefit of the
Bonneville Power Administration, dated as
of September 17, 1985.
10(j)-1 2-66184 5(r) Service Agreement (Natural Gas Storage
Service), dated as of August 27, 1979,
between the Company and Northwest Pipeline
Corporation.
10(j)-2 2-60728 5(s) Service Agreement (Liquefaction-Storage
Natural Gas Service), dated as of December
7, 1977, between the Company and Northwest
Pipeline Corporation.
</TABLE>
- ---------
*Incorporated herein by reference.
**Filed herewith.
78
<PAGE> 83
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
10(j)-3 1-3701 (with 10(k)-4 Amendment dated as of January 1, 1990, to
1989 Form 10-K) Firm Transportation Agreement, dated as of
June 15, 1988, between the Company and
Northwest Pipeline Corporation.
10(j)-4 1-3701 (with 10(k)-6 Firm Transportation Service Agreement, dated
1992 Form 10-K) as of April 25, 1991, between the Company
and Pacific Gas Transmission Company.
10(j)-5 1-3701 (with 10(k)-7 Service Agreement Applicable to Firm
1992 Form 10-K) Transportation Service, dated June 12,
1991, between the Company and Alberta
Natural Gas Company Ltd.
10(k)-1 1-3701 (with 13(b) Letter of Intent for the Construction and
Form 8-K for Ownership of Colstrip Units No. 3 and 4,
August 1976) sponsored by The Montana Power Company,
dated as of April 16, 1974.
10(k)-2 1-3701 (with 10(s)-7 Ownership and Operation Agreement for
1981 Form 10-K) Colstrip Units No. 3 and 4, sponsored by
The Montana Power Company, dated as of May
6, 1981.
10(k)-3 1-3701 (with 10(s)-2 Coal Supply Agreement for Colstrip Units No.
1981 Form 10-K) 3 and 4 between The Montana Power Company,
Puget Sound Power & Light Company,
Portland General Electric Company, Pacific
Power & Light Company, Western Energy
Company and the Company, dated as of July
2, 1980.
10(k)-4 1-3701 (with 10(s)-3 Amendment No. 1 to Coal Supply Agreement for
1981 Form 10-K) Colstrip Units No. 3 and 4, dated as of July
10, 1981.
10(k)-5 1-3701 (with 10(l)-5 Amendment No. 4 to Coal Supply Agreement for
1988 Form 10-K) Colstrip Units No. 3 and 4, dated as of
January 1, 1988.
10(l)-1 1-3701 (with 10(n)-2 Lease Agreement between the Company and IRE-4
1986 Form 10-K) New York, Inc., dated as of December 15, 1986,
relating to the Company's central operating
facility.
10(m) 1-3701 (with 10(v) Supplemental Agreement No. 2, Skagit/Hanford
1983 Form 10-K) Project, dated as of December 27, 1983,
relating to the termination of the
Skagit/Hanford Project.
10(n) 1-3701 (with 10(p)-l Agreement for Purchase and Sale of Firm
1986 Form 10-K) Capacity and Energy between Puget Sound
Power & Light Company and the Company,
dated as of August 1, 1986.
10(o) 1-3701 (with 10(q)-1 Electric Service and Purchase Agreement
1991 Form 10-K) between Potlatch Corporation and the
Company, dated as of January 3, 1991.
10(p) 1-3701 (with 10(s)-1 Agreements for Purchase and Sale of Firm
1992 Form 10-K) Capacity between the Company and Portland
General Electric Company dated March and
June 1992.
</TABLE>
- -----------
*Incorporated herein by reference.
**Filed herewith.
79
<PAGE> 84
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Previously Filed*
-------------------------------
With
Registration As
Exhibit Number Exhibit
- ------- --------------- -------
<S> <C> <C>
10(q)-1 1-3701 (with 10(t)-8 Executive Deferral Plan of the Company. (***)
1992 Form 10-K)
10(q)-2 1-3701 (with 10(t)-10 The Company's Unfunded Supplemental
1992 Form 10-K) Executive Retirement Plan. (***)
10(q)-3 1-3701 (with 10(t)-11 The Company's Unfunded Supplemental
1992 Form 10-K) Executive Disability Plan. (***)
10(q)-4 1-3701 (with 10(t)-12 Income Continuation Plan of the Company. (***)
1992 Form 10-K)
10(q)-5 ** Long-Term Incentive Plan. (***)
10(q)-6 ** Employment Agreement between the Company and
T. M. Matthews. (***)
12 ** Statement re computation of ratio of
earnings to fixed charges and preferred
dividend requirements.
21 ** Subsidiaries of Registrant.
27 ** Financial Data Schedule.
</TABLE>
- ------------
* Incorporated herein by reference.
** Filed herewith.
*** Management contracts or compensatory plans filed as exhibits by reference
per Item 601(10)(iii) of Regulation S-K.
<PAGE> 1
EXHIBIT 3(a)
RESTATED
ARTICLES OF INCORPORATION OF
AVISTA CORPORATION
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 Avista Corporation.
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;
To do a general contracting business;
<PAGE> 2
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 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
<PAGE> 3
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 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;
<PAGE> 4
(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 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
<PAGE> 5
assets of the Corporation available for distribution to its
shareholders 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 shareholders 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 shareholders 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 shareholders 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 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 shareholders 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
<PAGE> 6
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
shareholders 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 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 shareholders 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 shareholders.
(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 shareholders 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
<PAGE> 7
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
(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
<PAGE> 8
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 shareholders, 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
shareholder 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
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 shareholders
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 shareholders. 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 shareholders then of record or to any
class of shareholders.
(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.
<PAGE> 9
(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 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 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:
<PAGE> 10
(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 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
<PAGE> 11
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.
(3) SERIES L. There is hereby established a twelfth 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 twelfth series of Preferred Stock of the Corporation shall
consist of 1,540,086 shares and be designated as "$12.40
Preferred Stock, Convertible Series L".
(b) Said twelfth series shall have a dividend rate of $12.40 per
share per annum; provided, however, that the amount of the
dividend per share payable on December 15, 1998 shall be
$3.10.
(c) The shares of said twelfth series shall not, by their terms,
be redeemable.
(d) The amount payable upon the shares of said twelfth series in
the event of dissolution, liquidation or winding up of the
Corporation shall be $182.8125 per share plus an amount
equivalent to accumulated and unpaid dividends thereon, if
any, to the date of such dissolution, liquidation or winding
up.
(e) There shall be no sinking fund for the redemption or purchase
of shares of said twelfth series.
(f) (i)(A) Each share of said twelfth series shall be mandatorily
converted on November 1, 2001 (the "Mandatory Conversion
Date") into (1) a number of shares of Common Stock
determined by reference to the Common Equivalent Rate
(as hereinafter defined) then in effect plus (2) the
right to receive an amount, in cash, equivalent to the
accumulated and unpaid dividends on such share of said
twelfth series, if any, to but excluding the Mandatory
Conversion Date.
(B) Each share of said twelfth series shall be convertible,
at the option of the Company, at any time on or after
December 15, 1998 and prior to the Mandatory Conversion
Date, into (1) a number of shares of Common Stock equal
to the Optional Conversion Price then in effect, (2) the
right to receive an amount, in cash, equivalent to the
accumulated and unpaid dividends on the share of said
twelfth series to be converted to but excluding the date
fixed for conversion plus (3) the right to receive the
Optional Conversion Premium; it being understood that
the Company may not so convert less than all shares of
said twelfth series.
(C) Each share of said twelfth series shall be mandatorily
converted, at the time of effectiveness of any
Extraordinary Transaction, into, or into the right to
receive, as the case may be, securities and other
property (including cash) of the same character and in
the same respective amounts as the holder of such share
would have received if such share had been converted
pursuant to clause (B) above immediately prior to such
time of effectiveness.
(ii)(A) The "Common Equivalent Rate" shall be initially ten
shares of Common Stock for each share of said twelfth
series; provided, however, that the Common Equivalent
Rate shall be subject to adjustment from time to time as
provided below. All adjustments to the Common Equivalent
Rate shall be calculated to the nearest 1/100th of a
share of Common Stock. Such rate, as adjusted and in
effect at any time, is herein called the "Common
Equivalent Rate."
<PAGE> 12
(B) If the Corporation shall do any of the following (each,
an "Adjustment Event"):
(1) pay a dividend or make a distribution with respect
to Common Stock in shares of Common Stock,
(2) subdivide, reclassify or split its outstanding
shares of Common Stock into a greater number of
shares,
(3) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, or
(4) issue by reclassification of its shares of Common
Stock any shares of Common Stock other than in an
Extraordinary Transaction (as hereinafter
defined),
then the Common Equivalent Rate in effect immediately
prior to such Adjustment Event shall be adjusted so that
on the Mandatory Conversion Date each share of said
twelfth series shall be converted into the number of
shares of Common Stock that the holder of such share
would have owned or been entitled to receive after the
happening of the Adjustment Event had such share been
mandatorily converted immediately prior to the record
date, if any, for such Adjustment Event or, if there is
no record date, immediately prior to the effectiveness
of such Adjustment Event. In case the Adjustment Event
is a dividend or distribution, the adjustment to the
Common Equivalent Rate shall become effective as of the
close of business on the record date for determination
of shareholders entitled to receive such dividend or
distribution and any shares of Common Stock issuable in
payment of a dividend shall be deemed to have been
issued immediately prior to the close of business on the
record date for such dividend for purposes of
calculating the number of outstanding shares of Common
Stock under clauses (C) and (D) below; and, in case the
Adjustment Event is a subdivision, split, combination or
reclassification, the adjustment to the Common
Equivalent Rate shall become effective immediately after
the effective date of such subdivision, split,
combination or reclassification. Such adjustment shall
be made successively.
In the event that Rights are separated from the
outstanding shares of the Common Stock in accordance
with the provisions of the Rights Agreement such that
holders of shares of said twelfth series would not be
entitled to receive any Rights in respect of the shares
of Common Stock issuable upon conversion of the shares
of said twelfth series, the Common Equivalent Rate shall
be adjusted by multiplying the Common Equivalent Rate in
effect on the Distribution Date (as defined in the
Rights Agreement) by a fraction (1) the numerator of
which shall be the Current Market Price per share of the
outstanding shares of Common Stock on the Trading Date
next preceding the Distribution Date and (2) the
denominator of which shall be such Current Market Price
less the fair market value (as determined by the Board
of Directors of the Company, whose determination shall
be conclusive, final and binding on the Corporation and
all shareholders of the Corporation) as of such
Distribution Date of the portion of the Rights allocable
to one share of Common Stock. Such adjustment shall
become effective on the opening of business on the
business day next following the Distribution Date and
will remain in effect unless and until (A) the Company
(i) amends the Rights Agreement to provide that upon
conversion of the shares of said twelfth series the
holders thereof will receive, in addition to the shares
of Common Stock issuable upon such conversion, the
Rights which would have attached to such shares of
Common Stock if the Rights had not become separated from
the Common Stock pursuant to the Rights Agreement and
(ii) converts the Preferred Stock into shares of Common
Stock with such Rights or (B) the
<PAGE> 13
Rights expire, terminate or are redeemed, in which case
appropriate adjustments, if any, shall be made to the
Common Equivalent Rate consistent with the provisions of
this subparagraph (f)(i). Notwithstanding the foregoing,
in the event the aforesaid fair market value of the
portion of the Rights allocable to one share of Common
Stock is equal to or greater than the Current Market
Price per share of Common Stock on the Trading Date
mentioned above, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of
shares of said twelfth series shall have the right to
receive upon conversion the number of shares of Common
Stock such holder would have received had the shares of
said twelfth series been mandatorily converted
immediately prior to the Distribution Date.
(C) If the Corporation shall, after the date of the initial
issuance of shares of said twelfth series, issue rights
or warrants to all holders of the Common Stock entitling
them for a period not exceeding 45 days from the date of
such issuance to subscribe for or purchase shares of
Common Stock at a price per share less than the Current
Market Price of the Common Stock (as hereinafter
defined), on the record date for the determination of
shareholders entitled to receive such rights or
warrants, then in each case the Common Equivalent Rate
shall be adjusted by multiplying the Common Equivalent
Rate in effect immediately prior to the date of issuance
of such rights or warrants by a fraction (1) the
numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance,
plus the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such
rights or warrants and (2) the denominator of which
shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or
warrants, immediately prior to such issuance, plus the
number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common
Stock so offered for subscription or purchase pursuant
to such rights or warrants would purchase at such
Current Market Price (determined by multiplying such
total number of shares by the exercise price of such
rights or warrants and dividing the product so obtained
by such Current Market Price). Such adjustment shall
become effective as of the close of business on the
record date for the determination of shareholders
entitled to exercise such rights or warrants. To the
extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the
Common Equivalent Rate shall be readjusted to the Common
Equivalent Rate which would then be in effect had the
adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered.
Such adjustment shall be made successively.
(D) If the Corporation shall pay a dividend or make any
other distribution to all holders of its Common Stock of
evidences of its indebtedness or other assets (including
shares of capital stock of the Corporation (other than
Common Stock) but excluding any distributions and
dividends referred to in clause (B) above or any cash
dividends), or shall issue to all holders of its Common
Stock rights or warrants to subscribe for or purchase
any of its securities (other than those referred to in
clause (C) above), then, in each such case, the Common
Equivalent Rate shall be adjusted by multiplying the
Common Equivalent Rate in effect on the record date for
the determination of shareholders entitled to receive
such dividend or distribution mentioned below by a
fraction (1) the numerator of which shall be the Current
Market Price of the Common Stock on such record date and
(2) the denominator of which shall be such Current
Market Price per share of Common Stock less the fair
market value (as determined by the Board of Directors of
the Corporation, whose determination shall be
conclusive, as final and binding upon the Corporation
and all shareholders of the Corporation) as of such
<PAGE> 14
record date of the portion of the assets or evidences of
indebtedness so distributed, or of such subscription
rights or warrants, allocable to one share of Common
Stock. Such adjustment shall become effective on the
opening of business on the business day next following
the record date for the determination of the
shareholders entitled to receive such dividend or
distribution. Notwithstanding the foregoing, in the
event the portion of the assets or other evidences of
indebtedness so distributed allocable to one share of
Common Stock has a value equal to or greater than the
Current Market Price per share of Common Stock on the
record date mentioned above, in lieu of the foregoing
adjustment, adequate provision shall be made so that
each holder of shares of said twelfth series shall have
the right to receive upon conversion assets or other
evidences of indebtedness having a value in the amount
such holder would have received had the shares of said
twelfth series been mandatorily converted immediately
prior to the record date for such dividend or
distribution.
(E) If the Corporation shall pay a dividend or make any
other distribution to all holders of its Common Stock
exclusively in cash (excluding any quarterly cash
dividend on Common Stock in any quarter to the extent it
does not exceed $.16 per share (as adjusted to reflect
subdivisions or combinations of Common Stock)) the
Common Equivalent Rate shall be adjusted by multiplying
the Common Equivalent Rate in effect on the record date
for the determination of the shareholders entitled to
receive such dividend or distribution by a fraction (1)
the numerator of which shall be such Current Market
Price per share of the Common Stock on such record date
and (2) the denominator of which shall be such Current
Market Price less the amount of cash so distributed (and
not excluded as provided above) allocable to one share
of Common Stock. Such adjustment shall become effective
immediately prior to the opening of business on the
business day next following record date. Notwithstanding
the foregoing, in the event the portion of the cash so
distributed allocable to one share of Common Stock is
equal to or greater than the Current Market Price per
share of Common Stock on the record date mentioned
above, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of shares of
said twelfth series shall have the right to receive upon
conversion the amount of cash such holder would have
received had the shares of said twelfth series been
mandatorily converted immediately prior to the record
date for such dividend or distribution. If an adjustment
is required to be made pursuant to this clause (E) as a
result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which
such distribution exceeds the amount of the quarterly
cash dividend permitted to be excluded as provided
above; and an adjustment is required to be made pursuant
to this clause (E) as a result of a distribution that is
not a quarterly dividend, such adjustment shall be based
upon the full amount of the distribution.
(F) Anything herein to the contrary notwithstanding, the
Corporation may, at its option, make such upward
adjustment in the Common Equivalent Rate, in addition to
the adjustments specified above, as the Corporation in
its sole discretion may determine to be advisable, in
order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities,
or a distribution of securities convertible into or
exchangeable for stock (or any transaction that could be
treated as any of the foregoing transactions pursuant to
Section 305 of the Internal Revenue Code of 1986, as
amended) hereafter made by the Corporation to its
shareholders shall not be taxable. Any such adjustment
shall be made effective as of such date as the Board of
Directors of the Corporation shall determine. The
determination of the Board of Directors of the
Corporation as to whether or not such an adjustment to
the Common Equivalent Rate should be made and, if so, as
to what adjustment
<PAGE> 15
should be made and when, shall be conclusive, final and
binding on the Corporation and all shareholders of the
Corporation.
(G) As used herein, the "Current Market Price" of a share of
Common Stock on any date shall be, except as otherwise
specifically provided, the average of the daily Closing
Prices (as hereinafter defined) for the five consecutive
Trading Dates (as hereinafter defined) ending on and
including the date of determination of the Current
Market Price; provided, however, that if the Closing
Price of the Common Stock on the Trading Date next
following such five-day period (the "next-day closing
price") is less than 95% of such average Closing Price,
then the Current Market Price per share of Common Stock
on such date of determination will be the next-day
Closing Price; and provided, further, that with respect
to any conversion or antidilution adjustment, if any
event that results in an adjustment of the Common
Equivalent Rate occurs during the period beginning on
the first date of the applicable determination period
and ending on the applicable conversion date, the
Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the
occurrence of such event.
(H) In any case in which an adjustment as a result of any
event is required to become effective as of the close of
business on the record date for such event and the
Mandatory Conversion Date occurs after such record date
but before the occurrence of such event, the Corporation
may in its sole discretion elect to defer the following
until after the occurrence of such event (but shall be
under no obligation to do so): (1) issuing to the holder
of any converted shares of said twelfth series the
additional shares of Common Stock issuable upon such
conversion as a result of such adjustment and (2) paying
to such holder any amount in cash in lieu of a
fractional share of Common Stock as hereinafter
provided.
(iii) Whenever the Common Equivalent Rate is adjusted as herein
provided, the Corporation shall:
(A) forthwith compute the adjusted Common Equivalent Rate in
accordance herewith and prepare a certificate signed by
the President, any Vice President or the Treasurer of
the Corporation setting forth the adjusted Common
Equivalent Rate, the method of calculation thereof in
reasonable detail and the facts requiring such
adjustment and upon which such adjustment is based,
which certificate shall be conclusive, final and binding
evidence of the correctness of the adjustment, and file
such certificate forthwith with the transfer agent or
agents for the shares of said twelfth series and for the
Common Stock; and
(B) mail a notice stating that the Common Equivalent Rate
has been adjusted, the facts requiring such adjustment
and upon which such adjustment is based and setting
forth the adjusted Common Equivalent Rate to the holders
of record of the outstanding shares of said twelfth
series at or prior to the time the Corporation mails an
interim statement to its shareholders covering the
fiscal quarter during which the facts requiring such
adjustment occurred, but in any event within 45 days of
the end of such fiscal quarter.
(iv) No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon the conversion of any
shares of said twelfth series. Instead of any fractional
interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of a share of said twelfth
series, the Corporation shall pay to the holder of such share
an amount in cash (computed to the nearest cent) equal to the
same fraction of the Current Market Price of the Common Stock
determined as of the second Trading Date immediately preceding
(i) the
<PAGE> 16
day on which the Company gives notice of an option conversion,
(ii) in the event of an Extraordinary Transaction, the
effective date of such transaction or (iii) in the event of a
mandatory conversion, the Mandatory Conversion Date. If more
than one share of any holder shall be converted at the same
time, the number of full shares of Common Stock into which
such shares shall be converted shall be computed on the basis
of the aggregate number of shares so converted.
(v) Definitions. As used with respect to the shares of said
twelfth series:
(A) the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions
in the State of Washington or the State of New York are
authorized or obligated by law or executive order to
remain closed or are closed because of a banking
moratorium or otherwise;
(B) the term "Closing Price" on any day shall mean the
reported last sale price on such day, or, in case no
such sale takes place on such day, the average of the
reported last bid and asked prices on such day, in
either case as reported on the Consolidated Tape
maintained by the Consolidated Tape Association, or, if
the Common Stock is not listed or admitted to trading on
any securities exchange which participates in the
Consolidated Tape Association, the average of the
reported last bid and asked prices regular way (with any
relevant due bills attached) of the Common Stock on the
over-the-counter market on the day in question as
reported by the National Association of Securities
Dealers Automated Quotation System, or a similar
generally accepted reporting service, or if no
information of such character shall be available, as
determined in good faith by the Board of Directors on
the basis of such relevant factors as the Board of
Directors in good faith considers appropriate, (such
determination to be conclusive, final and binding upon
the Corporation and all shareholders of the
Corporation);
(C) the term "Extraordinary Transaction" shall mean a merger
or consolidation of the Corporation, a share exchange,
division or conversion of the Corporation's capital
stock or an amendment of the Restated Articles of
Incorporation of the Corporation that results in the
conversion or exchange of Common Stock into, or the
right of the holders thereof to receive, in lieu of or
in addition to their shares of Common Stock, other
securities or other property (whether of the Corporation
or any other entity);
(D) the term "Notice Date" with respect to any notice given
by the Corporation in connection with a conversion of
any of the Shares of said twelfth series shall be the
date of the commencement of the mailing of such notice
to the holders of such shares as specified herein;
(E) the term "Optional Conversion Premium" shall mean, in
respect of each share of said twelfth series converted
at the option of the Company, an amount, in cash,
initially equal to $20.90, declining by $.02111 for each
day following December 15, 1998 to and including the
optional conversion date (computed on the basis of a
360-day year consisting of twelve 30-day months) and
equal to $0 on and after September 15, 2001; provided,
however, that in lieu of delivering such amount in cash,
the Company may, at its option, deliver a number of
shares of Common Stock equal to the quotient of such
amount divided by the Current Market Price on the second
Trading Date immediately preceding (1) the date on which
the Company gives notice of such conversion or (2) in
the event of an Extraordinary Transaction, the effective
date of such transaction;
(F) the term "Optional Conversion Price" shall mean, in
respect of each share of said twelfth series converted
at the option of the Company, a number of shares of
Common Stock equal to the lesser of (1) the amount of
$24.00
<PAGE> 17
divided by the Current Market Price as of the second
Trading Date immediately preceding (a) the date on which
the Company gives notice of such conversion or (b) in
the event of an Extraordinary Transaction, the effective
date of such transaction, multiplied by ten and (2) the
number of shares of Common Stock determined by reference
to the Common Equivalent Rate;
(G) the term "Rights Agreement" shall mean the Rights
Agreement, dated as of February 16, 1990, between the
Company and The Bank of New York, successor Rights
Agent, as amended; and the term "Rights" shall mean the
"Preferred Share Purchase Rights" established under the
Rights Agreement; and
(H) the term "Trading Date" shall mean a date on which the
New York Stock Exchange (or any successor to such
Exchange) is open for the transaction of business.
(vi)(A) Unless otherwise required by applicable law, notice of
any conversion shall be sent to the holders of the
shares of said twelfth series to be converted at the
addresses shown on the books of the Corporation by
mailing a copy of such notice not less than fifteen (15)
days nor more than sixty (60) days prior to the
conversion date. Each such notice shall state (1) the
conversion date, (2) the total number of shares of said
twelfth series to be converted (being the total number
of shares outstanding), (3) the conversion price, (4)
the place or places where certificates for such shares
are to be surrendered in exchange for certificates
and/or cash representing the conversion price and (5)
that dividends on the shares to be converted will cease
to accrue on such conversion date. Notwithstanding the
foregoing, the failure so to mail any such notice of
mandatory conversion or any defect therein or in the
mailing thereof shall not prevent the occurrence of such
conversion or impair the validity thereof.
(B) The shares of said twelfth series shall, on the date
fixed for conversion, be deemed to have been converted;
from and after such conversion date dividends shall
cease to accrue on such shares; and all rights of the
holders of such shares (except only rights as holders of
securities into which such shares shall have been
converted and the right to receive certificates
representing such securities and the right to receive an
amount equal to dividends accrued on such shares to the
date fixed for such conversion) shall terminate.
(vii) Upon the surrender by a holder of converted shares of said
twelfth series of certificates representing such shares in
accordance with the notice of conversion on or after the
conversion date, the Corporation shall deliver to or upon the
order of such holder:
(A) certificates representing whole units of the securities
into which such shares of said twelfth series have been
converted, such certificates to be registered in such
name or names, and to be issued in such denominations,
as such holder shall have specified;
(B) an amount, in cash, in lieu of fractional shares, as
hereinbefore provided;
(C) an amount, in cash, equivalent to accumulated and unpaid
dividends on such shares of Series A Preferred Stock to
the conversion date;
(D) an amount, in cash, securities or other property,
representing any other consideration to be delivered
upon such conversion; and
<PAGE> 18
(E) a certificate representing any shares of said twelfth
series which had been represented by the certificate or
certificates delivered to the Corporation in connection
with such conversion but which were not converted.
(viii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock or other
securities on the conversion of shares of said twelfth
series; provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of
any registration of transfer involved in the issue or
delivery of shares of Common Stock or other securities in a
name other than that of the registered holder of the shares
converted, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid
to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that
such tax has been paid.
FOURTH: The duration of the Corporation shall be perpetual.
FIFTH: The number of Directors of the Corporation shall be such number,
not to exceed eleven (11), 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 eleven (11). The Directors shall be divided into
three classes, as nearly equal in number as possible. Commencing with the
directors elected at the 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.
<PAGE> 19
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 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
<PAGE> 20
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 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
<PAGE> 21
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 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
<PAGE> 22
(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.
(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
<PAGE> 23
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 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.
<PAGE> 24
(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.
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
<PAGE> 25
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.
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.
<PAGE> 26
IN WITNESS WHEREOF, we have set our hands and seals under these presents,
this 18th day of February 1999.
/s/ T. M. Matthews
--------------------------------------------------------
T. M. Matthews, Chairman of the Board, President and
Chief Executive Officer
ATTEST:
/s/ T. L. Syms
--------------------------------------------------------
T. L. Syms, Vice President and Corporate Secretary
(SEAL)
Certificate
STATE OF WASHINGTON
County of Spokane ss.
T. M. MATTHEWS and T. L. SYMS, being first duly sworn on oath, depose and say:
(a) That they have been authorized to execute the within Restated Articles of
Incorporation by resolution of the Board of Directors adopted on the 12th
day of February 1999;
(b) That these Restated Articles of Incorporation do not include an amendment
to the Articles of Incorporation; and
(c) That these Restated Articles of Incorporation supersede the original
Articles of Incorporation and all amendments thereto and restatements
thereof.
/s/ T. M. Matthews
--------------------------------------------------------
T. M. Matthews, Chairman of the Board, President and
Chief Executive Officer
ATTEST:
/s/ T. L. Syms
--------------------------------------------------------
T. L. Syms, Vice President and Corporate Secretary
SUBSCRIBED AND SWORN to before me this 18th day of February 1999.
------------------------------------
Notary Public in and for the state
of Washington, residing in the
County of Spokane. My commission
expires _________________.
(SEAL)
<PAGE> 1
Exhibit 3(b)
BYLAWS
OF
AVISTA CORPORATION
* * * * *
ARTICLE I.
OFFICES
The principal office of the Corporation shall be in the City of Spokane,
Washington. The Corporation may have such other offices, either within or
without the State of Washington, as the Board of Directors may designate from
time to time.
ARTICLE II.
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting of Shareholders shall be
held on such date in the month of May in each year as determined by the Board of
Directors for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the Annual
Meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President, the Chairman of the Board, the majority of the Board of
Directors, the Executive Committee of the Board, and shall be called by the
President at the request of the holders of not less than two-thirds (2/3) of the
voting power of all 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 at such meeting.
SECTION 3. PLACE OF MEETING. Meetings of the shareholders, whether they
be annual or special, shall be held at the principal office of the Corporation,
unless a place, either within or without the state, is otherwise designated by
the Board of Directors in the notice provided to shareholders of such meetings.
SECTION 4. NOTICE OF MEETING. Written or printed notice of every meeting
of shareholders shall be mailed by the Corporate Secretary or any Assistant
Corporate Secretary, not less than ten (10) nor more than fifty (50) days before
the date of the meeting, to each holder of record of stock entitled to vote at
the meeting. The notice shall be mailed to each shareholder at his last known
post office address, provided, however, that if a shareholder is present at a
meeting, or waives notice thereof in writing before or after the meeting, the
notice of the meeting to such shareholders shall be unnecessary.
SECTION 5. VOTING OF SHARES. At every meeting of shareholders each
holder of stock entitled to vote thereat shall be entitled to one vote for each
share of such stock held in his name on the books of the Corporation, subject to
the provisions of applicable law and the Articles of Incorporation, and may vote
and otherwise act in person or by proxy; provided, however, that in elections of
directors there shall be cumulative voting as provided by law and by the
Articles of Incorporation.
SECTION 6. QUORUM. The holders of a majority of the number of
outstanding shares of stock of the Corporation entitled to vote thereat, present
in person or by proxy at any meeting, shall constitute a quorum, but less than a
quorum shall have power to adjourn any meeting from time to time without notice.
No change shall be made in this Section 6 without the affirmative vote of the
holders of at least a majority of the outstanding shares of stock entitled to
vote.
<PAGE> 2
SECTION 7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purposes of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than seventy (70) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
SECTION 8. VOTING RECORD. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which record, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation. Such record shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting for
the purposes thereof.
SECTION 9. CONDUCT OF PROCEEDINGS. The Chairman of the Board shall
preside at all meetings of the shareholders. In the absence of the Chairman, the
President shall preside and in the absence of both, the Executive Vice President
shall preside. The members of the Board of Directors present at the meeting may
appoint any officer of the Corporation or member of the Board to act as Chairman
of any meeting in the absence of the Chairman, the President, or Executive Vice
President. The Corporate Secretary of the Corporation, or in his absence, an
Assistant Corporate Secretary, shall act as Secretary at all meetings of the
shareholders. In the absence of the Corporate Secretary or Assistant Corporate
Secretary at any meeting of the shareholders, the presiding officer may appoint
any person to act as Secretary of the meeting.
SECTION 10. PROXIES. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Corporate
Secretary of the Corporation before or at the time of the meeting.
2
<PAGE> 3
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The powers of the Corporation shall be
exercised by or under the authority of the Board of Directors, except as
otherwise provided by the laws of the State of Washington and the Articles of
Incorporation.
SECTION 2. NUMBER AND TENURE. The number of Directors of the Corporation
shall be nine (9); 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 of the Articles
of Incorporation, then, during such period as such holders shall have such
right, the number of directors may exceed nine (9). Directors shall be divided
into three classes, as nearly equal in number as possible. At each Annual
Meeting of Shareholders, 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 of the
Articles of Incorporation 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.
SECTION 3. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held immediately following the adjournment of the annual
meeting of the shareholders or as soon as practicable after said annual meeting
of shareholders. But, in any event, said regular annual meeting of the Board of
Directors must be held on either the same day as the annual meeting of
shareholders or the next business day following said annual meeting of
shareholders. At such meeting the Board of Directors, including directors newly
elected, shall organize itself for the coming year, shall elect officers of the
Corporation for the ensuing year, and shall transact all such further business
as may be necessary or appropriate. The Board shall hold regular quarterly
meetings, without call or notice, on such dates as determined by the Board of
Directors. At such quarterly meetings the Board of Directors shall transact all
business properly brought before the Board.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
the Executive Vice President or any three (3) directors. Notice of any special
meeting shall be given to each director at least two (2) days in advance of the
meeting.
SECTION 5. EMERGENCY MEETINGS. In the event of a catastrophe or a
disaster causing the injury or death to members of the Board of Directors and
the principal officers of the Corporation, any director or officer may call an
emergency meeting of the Board of Directors. Notice of the time and place of the
emergency meeting shall be given not less than two (2) days prior to the meeting
and may be given by any available means of communication. The director or
directors present at the meeting shall constitute a quorum for the purpose of
filling vacancies determined to exist. The directors present at the emergency
meeting may appoint such officers as necessary to fill any vacancies determined
to exist. All appointments under this section shall be temporary until a special
meeting of the shareholders and directors is held as provided in these Bylaws.
SECTION 6. CONFERENCE BY TELEPHONE. The members of the Board of
Directors, or of any committee created by the Board, may participate in a
meeting of the Board or of the committee by means of a conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
such means shall constitute presence in person at a meeting.
3
<PAGE> 4
SECTION 7. QUORUM. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. The action of a majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board.
SECTION 8. ACTION WITHOUT A MEETING. Any action required by law to be
taken at a meeting of the directors of the Corporation, or any action which may
be taken at a meeting of the directors or of a committee, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors, or all of the members of the committee, as the
case may be. Such consent shall have the same effect as a unanimous vote.
SECTION 9. VACANCIES. Subject to the provisions of paragraph (1) of
subdivision (j) of Article THIRD of the Articles of Incorporation, (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.
SECTION 10. RESIGNATION OF DIRECTOR. Any director or member of any
committee may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein. If no time is specified, it
shall take effect from the time of its receipt by the Corporate Secretary, who
shall record such resignation, noting the day, hour and minute of its reception.
The acceptance of a resignation shall not be necessary to make it effective.
SECTION 11. REMOVAL. Subject to the provisions of paragraph (1) of
subdivision (j) of Article THIRD of the Articles of Incorporation, 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 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. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
SECTION 12. ORDER OF BUSINESS. The Chairman of the Board shall preside
at all meetings of the directors. In the absence of the Chairman, the officer or
member of the Board designated by the Board of Directors shall preside. At
meetings of the Board of Directors, business shall be transacted in such order
as the Board may determine. Minutes of all proceedings of the Board of
Directors, or committees appointed by it, shall be prepared and maintained by
the Corporate Secretary or an Assistant Corporate Secretary and the original
shall be maintained in the principal office of the Corporation.
SECTION 13. NOMINATION OF DIRECTORS. Subject to the provisions of
paragraph (1) of subdivision (j) of Article THIRD of the Articles of
Incorporation, nominations for the election of directors may be made by the
Board of Directors, or a nominating committee appointed by the Board of
Directors, or by any holder of shares of the capital stock of the Corporation
entitled generally to vote in the election of directors (such stock being
hereinafter in this Section called "Voting Stock"). However, any holder of
shares of the Voting Stock may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Corporate Secretary not later
than (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days in advance of such
4
<PAGE> 5
meeting and (ii) with respect to an election to be held at a special meeting of
shareholders for the election of directors, the close of business on the seventh
day following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that such shareholder is a holder of record
of shares of the Voting Stock of the Corporation and intends to appear in person
or by proxy at the meeting to nominate the person or persons identified in the
notice; (c) a description of all arrangements or understandings between such
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent revisions replacing such Act, rules or
regulations) if the nominee(s) had been nominated, or were intended to be
nominated, by the Board of Directors; and (e) the consent of each nominee to
serve as a Director of the Corporation if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
SECTION 14. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors, or of a committee thereof, at
which action on any corporate matter is taken, shall be presumed to have
assented to the action unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Corporate Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 15. RETIREMENT OF DIRECTORS. Directors who are seventy (70)
years of age or more shall retire from the Board effective at the conclusion of
the Annual Meeting of Shareholders held in the year in which their term expires,
and any such Director shall not be nominated for election at such Annual
Meeting. The foregoing shall be effective in 1988 and thereafter as to any
Director who is seventy (70) years of age or more during the year in which his
or her term expires.
ARTICLE IV.
EXECUTIVE COMMITTEE
AND
ADDITIONAL COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the Board, may designate three or more of its members to
constitute an Executive Committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
SECTION 2. AUTHORITY. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors including authority to authorize distributions or the
issuance of shares of stock, except to the extent, if any, that such authority
shall be limited by the resolution appointing the Executive Committee or by law.
SECTION 3. TENURE. Each member of the Executive Committee shall hold
office until the next regular annual meeting of the Board of Directors following
his designation and until his successor is designated as a member of the
Executive Committee.
5
<PAGE> 6
SECTION 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by resolution. Special meetings of the Executive Committee may
be called by any member thereof upon not less than two (2) days notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the Executive Committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
SECTION 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof. Actions by the Executive Committee must be authorized by the
affirmative vote of a majority of the appointed members of the Executive
Committee.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
SECTION 7. PROCEDURE. The Executive Committee shall select a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
a meeting thereof held next after the proceedings shall have been taken.
SECTION 8. COMMITTEES ADDITIONAL TO EXECUTIVE COMMITTEE. The Board of
Directors may, by resolution, designate one or more other committees, each such
committee to consist of two (2) or more of the directors of the Corporation. A
majority of the members of any such committee may determine its action and fix
the time and place of its meetings unless the Board of Directors shall otherwise
provide.
ARTICLE V.
OFFICERS
SECTION 1. NUMBER. The Board of Directors shall elect one of its members
Chairman of the Board and shall elect one of its members as President of the
Corporation and the offices of Chairman and President may be held by the same
person. The Board of Directors shall also elect one or more Vice Presidents, a
Corporate Secretary, a Treasurer and may from time to time elect such other
officers as the Board deems appropriate. The same person may be appointed to
more than one office except the offices of President and Corporate Secretary.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected by the Board of Directors at the annual meeting of the Board.
Each officer shall hold office until his successor shall have been duly elected
and qualified.
SECTION 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to contract rights,
if any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
6
<PAGE> 7
SECTION 5. POWERS AND DUTIES. The officers shall have such powers and
duties as usually pertain to their offices, except as modified by the Board of
Directors, and shall have such other powers and duties as may from time to time
be conferred upon them by the Board of Directors.
ARTICLE VI.
CONTRACTS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers or agents, to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
SECTION 2. CHECKS/DRAFTS/NOTES. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors by
resolution may select.
ARTICLE VII.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors and shall contain such information as prescribed by law. Such
certificates shall be signed by the President or a Vice President and by either
the Corporate Secretary or an Assistant Corporate Secretary, and sealed with the
corporate seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Corporate Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes. The
Board of Directors shall have power to appoint one or more transfer agents and
registrars for transfer and registration of certificates of stock.
ARTICLE VIII.
CORPORATE SEAL
The seal of the Corporation shall be in such form as the Board of
Directors shall prescribe.
7
<PAGE> 8
ARTICLE IX.
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall indemnify and reimburse the expenses of any person who is or was a
director, officer, agent or employee of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, or agent of another enterprise or employee benefit plan to the extent
permitted by and in accordance with Article SEVENTH of the Company's Articles of
Incorporation and as permitted by law.
SECTION 2. LIABILITY INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such liability
under the laws of the State of Washington.
SECTION 3. RATIFICATION OF ACTS OF DIRECTOR, OFFICER OR SHAREHOLDER. Any
transaction questioned in any shareholders' derivative suit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or shareholder, nondisclosure, miscomputation, or the
application of improper principles or practices of accounting may be ratified
before or after judgment, by the Board of Directors or by the shareholders in
case less than a quorum of directors are qualified; and, if so ratified, shall
have the same force and effect as if the questioned transaction had been
originally duly authorized, and said ratification shall be binding upon the
Corporation and its shareholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE X.
AMENDMENTS
Except as to Section 6 of Article II of these Bylaws, the Board of
Directors may alter or amend these Bylaws at any meeting duly held, the notice
of which includes notice of the proposed amendment. Bylaws adopted by the Board
of Directors shall be subject to change or repeal by the shareholders; provided,
however, that Section 2 of the Article II, Section 2 (other than the provision
thereof specifying the number of Directors of the Corporation), and Sections 9,
11 and 13 of Article III and this proviso shall not be altered, amended or
repealed, and no provision inconsistent therewith or herewith shall be included
in these Bylaws, without the affirmative votes 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.
8
<PAGE> 1
Exhibit 4(d)-1
EXECUTION COPY
================================================================================
REVOLVING CREDIT AGREEMENT
(364 DAY)
among
THE WASHINGTON WATER POWER COMPANY,
THE BANKS NAMED HEREIN,
TORONTO DOMINION (TEXAS), INC.,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and
THE BANK OF NEW YORK
---------------
Dated as of June 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
I. DEFINITIONS
SECTION 1.01. Defined Terms...........................................4
SECTION 1.02. Terms Generally........................................20
II. THE CREDITS
SECTION 2.01. Commitments............................................21
SECTION 2.02. Loans..................................................21
SECTION 2.03. Notice of Revolving Borrowings.........................23
SECTION 2.04. Auction Bid Procedure..................................24
SECTION 2.05. Notes; Repayment of Loans..............................27
SECTION 2.06. Fees...................................................28
SECTION 2.07. Interest on Loans......................................28
SECTION 2.08. Default Interest.......................................29
SECTION 2.09. Alternate Rate of Interest.............................29
SECTION 2.10. Termination and Reduction of Commitments...............30
SECTION 2.11. Prepayment.............................................31
SECTION 2.12. Reserve Requirements; Change in Circumstances..........31
SECTION 2.13. Change in Legality.....................................33
SECTION 2.14. Indemnity..............................................34
SECTION 2.15. Pro Rata Treatment.....................................34
SECTION 2.16. Sharing of Setoffs.....................................35
SECTION 2.17. Payments...............................................36
SECTION 2.18. Taxes..................................................36
SECTION 2.19. Termination or Assignment of Commitments
Under Certain Circumstances..........................39
III. REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization; Powers...................................40
SECTION 3.02. Authorization..........................................40
SECTION 3.03. Enforceability.........................................41
SECTION 3.04. Governmental Approvals.................................41
SECTION 3.05. Financial Statements...................................41
SECTION 3.06. No Material Adverse Change.............................42
SECTION 3.07. Litigation; Compliance with Laws.......................42
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
SECTION 3.08. Federal Reserve Regulations............................42
SECTION 3.09. Investment Company Act; Public
Utility Holding Company Act..........................43
SECTION 3.10. Use of Proceeds........................................43
SECTION 3.11. No Material Misstatements..............................43
SECTION 3.12. Employee Benefit Plans.................................43
SECTION 3.13. Environmental and Safety Matters.......................44
SECTION 3.14. Significant Subsidiaries...............................45
SECTION 3.15. Year 2000 Compliance...................................45
IV. CONDITIONS OF LENDING
SECTION 4.01. All Borrowings.........................................45
SECTION 4.02. First Borrowing........................................46
V. AFFIRMATIVE COVENANTS
SECTION 5.01. Existence; Businesses and Properties...................48
SECTION 5.02. Insurance..............................................48
SECTION 5.03. Taxes and Obligations..................................48
SECTION 5.04. Financial Statements, Reports, etc.....................48
SECTION 5.05. Litigation and Other Notices...........................51
SECTION 5.06. ERISA..................................................51
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections...........................52
SECTION 5.08. Use of Proceeds........................................52
VI. NEGATIVE COVENANTS
SECTION 6.01. Liens..................................................52
SECTION 6.02. Mergers, Consolidations and Acquisitions...............56
SECTION 6.03. Disposition of Assets..................................58
VII. EVENTS OF DEFAULT
VIII. THE AGENT
IX. MISCELLANEOUS
SECTION 9.01. Notices................................................65
SECTION 9.02. Survival of Agreement..................................66
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
SECTION 9.03. Binding Effect.........................................66
SECTION 9.04. Successors and Assigns.................................67
SECTION 9.05. Expenses; Indemnity....................................71
SECTION 9.06. Right of Setoff........................................72
SECTION 9.07. Applicable Law.........................................72
SECTION 9.08. Waivers; Amendment.....................................72
SECTION 9.09. Interest Rate Limitation...............................73
SECTION 9.10. Entire Agreement.......................................74
SECTION 9.11. Waiver of Jury Trial...................................74
SECTION 9.12. Severability...........................................74
SECTION 9.13. Counterparts...........................................75
SECTION 9.14. Headings...............................................75
SECTION 9.15. Jurisdiction; Consent to Service of Process............75
References
Exhibit A Note
Exhibit B Assignment and Acceptance
Exhibit C Administrative Questionnaire
Exhibit D-1 Opinion of General Counsel for the Borrower
Exhibit D-2 Opinion of Special Counsel for the Borrower
Schedule 2.01 Banks
Schedule 3.14 Significant Subsidiaries
Schedule 4.02(c) Orders of Governmental Authorities
</TABLE>
-iii-
<PAGE> 5
REVOLVING CREDIT AGREEMENT dated as of June 30,
1998, among THE WASHINGTON WATER POWER COMPANY, a
Washington corporation (herein called the "Borrower"),
the banks listed in Schedule 2.01 (the "Banks"), TORONTO
DOMINION (TEXAS), INC., as agent for the Banks (in such
capacity, the "Agent"), BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as syndication agent (the
"Syndication Agent") and THE BANK OF NEW YORK, as
documentation agent (the "Documentation Agent").
The Borrower has requested that the Banks extend credit to the
Borrower in order to enable the Borrower to borrow on a standby revolving credit
basis on and after the date hereof, at any time prior to the Expiration Date (as
herein defined) a principal amount not in excess of $75,000,000 at any time
outstanding. The proceeds of such borrowings are to be used for general
corporate purposes. In consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit C.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or
<PAGE> 6
2
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the person specified.
"Agency Fees" shall have the meaning assigned to such term in
Section 2.06(c).
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the greater
of (a) the Prime Rate (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be) in effect on such
day and (b) the sum of (i) the Federal Funds Effective Rate in effect for such
day plus (ii) 1/2 of 1%. If for any reason the Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, the
Alternate Base Rate shall be determined without regard to clause (b) of the
first sentence of this definition until the circumstances giving rise to such
inability no longer exist.
"Applicable Percentage" shall mean, with respect to any Bank,
the percentage of the total Commitments represented by such Bank's Commitment.
If the Commitments have terminated or expired, the Applicable Percentage shall
be determined based upon the Commitments most recently in effect, giving effect
to any assignments.
"Applicable Rate" shall mean on any date, with respect to any
ABR Loan or Eurodollar Revolving Loan, or with respect to the Commitment Fees
payable hereunder, as the case may be, the applicable rate per annum set forth
below under the caption "ABR Spread," "Eurodollar Spread" or "Commitment Fee",
as the case may be, based upon the Ratings:
<PAGE> 7
3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Eurodollar Commitment
Ratings ABR Spread Spread Fee
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Level 1 0.00% .25% .09%
- -------
A- or higher by S&P;
and A3 or higher by
Moody's
- -------------------------------------------------------------------------
Level 2 0.00% .375% .15%
- -------
BBB+ by S&P; and Baa1
by Moody's
- -------------------------------------------------------------------------
Level 3 0.00% .45% .20%
- -------
BBB by S&P; and Baa2
by Moody's
- -------------------------------------------------------------------------
Level 4 .50% .625% .25%
- -------
BBB- by S&P; and Baa3
by Moody's
- -------------------------------------------------------------------------
Level 5 .50% 1.00% .375%
- -------
Lower than BBB- by
S&P; and lower than
Baa3 by Moody's
- -------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing, (i) if the Ratings in effect on any date fall in
different Levels, the Applicable Rate shall be determined on such date by
reference to the superior (numerically lower) Level, unless the Ratings differ
by more than one Level, in which case the applicable Level shall be the Level
next below the superior (numerically lower) of the two; (ii) if either Moody's
or S&P shall not have in effect a Rating (other than because
<PAGE> 8
4
such rating agency shall no longer be in the business of rating corporate debt
obligations), then such rating agency will be deemed to have established a
Rating in Level 5; and (iii) if any rating established or deemed to have been
established by Moody's or S&P shall be changed (other than as a result of a
change in the rating system of either Moody's or S&P), such change shall be
effective as of the day after the date on which such change is first announced
by the rating agency making such change. Each change in the Applicable Rate
shall apply during the period commencing on the effective date of such change
and ending on the date immediately preceding the effective date of the next such
change. If the rating system of either Moody's or S&P shall change, or if either
such rating agency shall cease to be in the business of rating corporate debt
obligations, the Borrower and the Banks shall negotiate in good faith to amend
the references to specific ratings in this definition to reflect such changed
rating system or the non- availability of ratings from such rating agency.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Bank and an assignee, and accepted by the Agent and
the Borrower, in the form of Exhibit B or such other form as shall be approved
by the Agent.
"Auction Bid" shall mean an offer by a Bank to make an Auction
Loan in accordance with Section 2.04.
"Auction Bid Rate" shall mean, with respect to any Auction Bid,
the Margin for Eurodollar Auction Loans, the Fixed Rate for Fixed Rate Loans or
the Delayed Fixed Rate for Delayed Fixed Rate Loans, as applicable, offered by
the Bank in making such Auction Bid.
"Auction Bid Request" shall mean a request by the Borrower for
Auction Bids in accordance with Section 2.04.
"Auction Facility" shall mean the facility described in Section
2.04.
"Auction Loan" shall mean a Loan made pursuant to Section 2.04.
"Availability Period" shall mean the period from
<PAGE> 9
5
and including the Effective Date to but excluding the earlier of the Expiration
Date and the date of the termination of the Commitments.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" shall mean (a) a group of Revolving Loans of the
same Type, made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect or (b) an
Auction Loan or group of Auction Loans of the same Type made on the same date
and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Class", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are Revolving
Loans or Auction Loans.
"Closing Date" shall mean the date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"Commitment" shall mean, with respect to each Bank, the
commitment of such Bank to make Revolving Loans hereunder as set forth in
Section 2.01, as the same may be reduced from time to time pursuant to Section
2.10.
<PAGE> 10
6
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Delayed Fixed Rate" shall mean, with respect to any Auction
Loan (other than a Eurodollar Auction Loan or a Fixed Rate Loan), the fixed rate
of interest per annum specified by the Bank in making such Auction Loan in its
related Auction Bid.
"Delayed Fixed Rate Loan" shall mean an Auction Loan bearing
interest at a Delayed Fixed Rate for which an Auction Bid Request is made two
Business Days before the proposed date of borrowing.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Environmental Law" shall mean any and all applicable present
and future treaties, laws, regulations, enforceable requirements, binding
determinations, orders, decrees, judgments, injunctions, permits, approvals,
authorizations, licenses, permissions, notices or binding agreements issued,
promulgated or entered by any Governmental Authority, relating to the
environment, preservation or reclamation of natural resources, or to the
management, release or threatened release of contaminants or noxious odor,
including the Hazardous Materials Transportation Act, Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Waste Amendments of 1984, Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, Clean Air Act of
<PAGE> 11
7
1970, as amended, Toxic Substances Control Act of 1976, Occupational Safety and
Health Act of 1970, as amended, Emergency Planning and Community Right-to-Know
Act of 1986, Safe Drinking Water Act of 1974, as amended, and any similar or
implementing state law, and all amendments or regulations promulgated
thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Borrower is a member
and which is treated as a single employer under Section 414 of the Code.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Eurodollar Rate.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate in accordance with the provisions
of Article II.
"Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/100 of 1%) equal to the product of (i) the arithmetic
average of rates at which dollar deposits approximately equal to the principal
amount of the portion of such Eurodollar Loan to be made by The Toronto-Dominion
Bank, and for a maturity equal to the applicable Interest Period, are offered to
The Toronto-Dominion Bank for Eurodollars at approximately 10:00 a.m., New York
City time, two Business Days prior to the commencement of such Interest Period
and (ii) Statutory Reserves. In the event that such rate is not available at
such time for any reason, then the "Eurodollar Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the
<PAGE> 12
8
Agent in immediately available funds in the London interbank market at
approximately 10:00 a.m., New York City time, two Business Days prior to the
commencement of such Interest Period.
"Event of Default" shall have the meaning assigned to such term
in Article VII.
"Expiration Date" shall mean the day that is 364 days after the
date of this Agreement.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
reported on such Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so reported for any day that is a Business Day, the average of
the quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"Fees" shall mean the Commitment Fee and the Agency Fees.
"$50,000,000 Credit Facility" shall mean the $50,000,000 Amended
and Restated Revolving Credit Agreement among the Washington Water Power
Company, the banks named therein, and Toronto Dominion (Texas), Inc., dated as
of July 22, 1997.
"Financial Officer" of any corporation shall mean the chief
financial officer or Treasurer of such corporation.
"First Mortgage" shall mean the Mortgage and Deed of Trust dated
as of June 1, 1939, made by the Borrower in favor of Citibank, N.A., as
successor Trustee, as the same has been amended, modified or supplemented to
date and as the same may be further amended, modified or supplemented from time
to time hereafter.
"Fixed Rate" shall mean, with respect to any Auction Loan (other
than a Eurodollar Auction Loan or a Delayed Fixed Rate Loan), the fixed rate of
interest per annum specified by the Bank making such Auction Loan in its
<PAGE> 13
9
related Auction Bid.
"Fixed Rate Loan" shall mean an Auction Loan bearing interest at
a Fixed Rate for which an Auction Bid Request is made on the day of the proposed
borrowing.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness; provided, however, that
the term Guarantee shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
person upon which interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention agreements relating
to property or assets purchased by such person, (e) all obligations of such
person issued or assumed as the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for
<PAGE> 14
10
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, but
limited, if such obligations are without recourse to such person, to the lesser
of the principal amount of such Indebtedness or the fair market value of such
property, (g) all Guarantees by such person of Indebtedness of others, (h) all
Capital Lease Obligations of such person, (i) all obligations of such person in
respect of interest rate protection agreements, foreign currency exchange
agreements or other interest or exchange rate hedging arrangements (the amount
of any such obligation to be the amount that would be payable upon the
acceleration, termination or liquidation thereof) and (j) all obligations of
such person as an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any person shall include the Indebtedness of
any partnership in which such person is a general partner.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
been applicable to such Borrowing and, in addition, the date of any refinancing
or conversion of such Borrowing with or to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter,
as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on
the date of such Borrowing and ending on the earliest of (i) the next succeeding
March 31, June 30, September 30 or December 31, (ii) the Expiration Date, and
(iii) the date such Borrowing shall be repaid or prepaid in accordance with
Section 2.11 and (c) with respect to any Fixed Rate Borrowing or Delayed Fixed
Rate Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the
<PAGE> 15
11
applicable Auction Bid Request; provided, however, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
"Loans" shall mean loans made by the Banks to the Borrower
pursuant to this Agreement.
"Loan Documents" shall mean this Agreement and the Notes.
"Margin" shall mean, with respect to any Auction Loan bearing
interest at a rate based on the Eurodollar Rate, the marginal rate of interest,
if any, to be added to or subtracted from the Eurodollar Rate to determine the
rate of interest applicable to such Loan, as specified by the Bank making such
Loan in its related Auction Bid.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Material Adverse Effect" shall mean an effect on the business,
assets, operations or financial condition of the Borrower and the Subsidiaries
taken as a whole which could reasonably be expected to have a material adverse
effect on the creditworthiness of the Borrower.
"Moody's" shall mean Moody's Investors Service, Inc.
<PAGE> 16
12
"Notes" shall mean promissory notes of the Borrower,
substantially in the form of Exhibit A, evidencing Loans.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean a corporation, association, partnership,
trust, organization, business, individual or government or governmental agency
or political subdivision thereof.
"Plan" shall mean any pension plan subject to the provisions of
Title IV of ERISA or Section 412 or the Code which is maintained for employees
of the Borrower or any ERISA Affiliate.
"Prime Rate" shall mean the rate of interest per annum adopted
from time to time by The Toronto-Dominion Bank at its principal office in New
York City as its prime rate. For purposes of this Agreement, any change in the
Alternate Base Rate due to a change in the Prime Rate shall be effective on the
date such change in the Prime Rate is adopted.
"Ratings" shall refer to the ratings of Moody's and S&P
applicable to the Borrower's senior secured long-term debt obligations.
"Register" shall have the meaning given to such term in Section
9.04(d).
"Regulation D" shall mean Regulation D of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof and shall include any successor or other regulation or official
interpretation of the Board relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation U" shall mean Regulation U of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time
to time in effect and all official
<PAGE> 17
13
rulings and interpretations thereunder or thereof.
"Related Parties" shall mean, with respect to any specified
Person, such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person's Affiliates.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Banks" shall mean, at any time, Banks having Revolving
Exposures representing at least 66-2/3% of the aggregate Revolving Exposures or,
if there shall be no Revolving Credit Exposure, Banks having Commitments
representing at least 66-2/3% of the aggregate Commitments. For purposes of
declaring the Loans to be due and payable pursuant to Article VII, and for all
purposes after the Loans become due and payable pursuant to Article VII or the
Commitments expire or terminate, the outstanding Auction Loans of the Banks
shall be included in their respective Revolving Credit Exposure in determining
the Required Banks.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Exposure" shall mean, with respect to any Bank
at any time, the sum of the outstanding principal amount of such Bank's
Revolving Loans at such time.
"Revolving Loan" shall mean a Loan made pursuant to Section
2.03.
"S&P" shall mean Standard & Poor's Ratings Services.
"$70,000,000 Credit Facility" shall mean the
<PAGE> 18
14
$70,000,000 Revolving Credit Agreement among The Washington Water Power Company,
the banks named therein and Seattle First National Bank, dated as of December
12, 1992.
"Significant Subsidiary" shall mean a Subsidiary meeting any one
of the following conditions: (a) the investments in and advances to such
Subsidiary by the Borrower and the other Subsidiaries, if any, as at the end of
the Borrower's latest fiscal quarter exceeded 10% of the total assets of the
Borrower and its Subsidiaries at such date, computed and consolidated in
accordance with GAAP; or (b) the Borrower's and the other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of
such Subsidiary as at the end of the Borrower's latest fiscal quarter exceeded
10% of the total assets of the Borrower and its Subsidiaries at such date,
computed and consolidated in accordance with GAAP; or (c) the equity in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of such Subsidiary for the
period of four consecutive fiscal quarters ending at the end of the Borrower's
latest fiscal quarter exceeded 10% of such income of the Borrower and its
Subsidiaries for such period, computed and consolidated in accordance with GAAP;
or (d) such Subsidiary is the parent of one or more Subsidiaries and, together
with such Subsidiaries would, if considered in the aggregate, constitute a
Significant Subsidiary.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal) the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or supplemental
reserves) with respect to Eurodollar funding (including with respect to
Eurocurrency Liabilities as defined in Regulation D) in an amount approximately
equal to the respective Eurodollar Loan and with a term approximately equal to
the Interest Period for such Eurodollar Loan expressed as a decimal established
by the Board or by any other United States banking authority to which the Agent
is subject. Such reserve percentages shall include, without limitation, those
imposed under Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentage.
<PAGE> 19
15
"subsidiary" shall mean, for any person (the "Parent"), any
corporation, partnership or other entity of which securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) are at the time directly or
indirectly owned or controlled by the Parent or one or more of its subsidiaries
or by the Parent and one or more of its subsidiaries.
"Subsidiary" shall mean a subsidiary of the Borrower.
A "Subsidiary Event" shall mean the following; provided,
however, that a Subsidiary Event shall not be deemed to have occurred if the
Banks have previously consented thereto:
(a) any Significant Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.01(a) as if
such section applied to such Significant Subsidiary, with all references
therein to the Borrower being deemed references to such Significant
Subsidiary;
(b) any Significant Subsidiary shall fail to observe or perform
any covenant, condition or agreement in Sections 5.01(b), 5.02, 5.03 or
5.07 as if such sections applied to such Significant Subsidiary, with
all references therein to the Borrower being deemed references to such
Significant Subsidiary, and such default shall continue unremedied for a
period of 30 days after notice thereof from the Agent or any Bank to the
Borrower;
(c) any Significant Subsidiary shall:
(i) merge into or consolidate with any other person, or
permit any other person to merge into or consolidate with it, or
purchase, lease or
<PAGE> 20
16
otherwise acquire (in one transaction or a series of
transactions) all or substantially all of the assets of any
other person (whether directly by purchase, lease or other
acquisition of all or substantially all of the assets of such
person or indirectly by purchase or other acquisition of all or
substantially all of the capital stock of such other person)
other than acquisitions in the ordinary course of such
Significant Subsidiary's business, except that if, at the time
thereof and immediately after giving effect thereto no Event of
Default or Default shall have occurred and be continuing, then
(A) such Significant Subsidiary may (i) merge with or into, or
consolidate with, any Subsidiary or (ii) merge with or into, or
consolidate with, the Borrower in a transaction in which the
Borrower is the surviving corporation, (B) such Significant
Subsidiary may purchase, lease or otherwise acquire from any
Subsidiary all or substantially all of its assets and may
purchase or otherwise acquire all or substantially all of the
capital stock of any person who immediately thereafter is a
Subsidiary, (C) such Significant Subsidiary may merge with or
into, or consolidate with, any other person so long as the
assets of such person at the time of such consolidation or
merger, do not exceed 10% of the total assets of the Borrower
and its Subsidiaries, after giving effect to such merger or
consolidation, computed and consolidated in accordance with GAAP
consistently applied, and (D) such Significant Subsidiary may
purchase, lease or otherwise acquire any or all of the assets of
any other person (and may purchase or otherwise acquire the
capital stock of any other person) so long as the assets being
purchased, leased or acquired (or the Significant Subsidiary's
proportionate share of the assets of the person whose capital
stock is being acquired) do not exceed 10% of the total assets
of the Borrower and its Subsidiaries, after giving effect to
such acquisition, computed and consolidated in accordance with
GAAP consistently applied, or
(ii) sell, lease, transfer, assign or other
<PAGE> 21
17
wise dispose of (in one transaction or in a series of
transactions), in any fiscal year, assets (whether now owned or
hereafter acquired) which, together with the amount of all
sales, leases, transfers, assignments or dispositions by the
Borrower permitted under Section 6.03 (other than sales, leases,
transfers, assignments or other dispositions permitted under
clauses (i) through (iv) of such Section), are in excess of 10%
of the assets of the Borrower and its Subsidiaries as of the end
of the most recent fiscal year, computed and consolidated in
accordance with GAAP consistently applied, except (A) a
Significant Subsidiary may sell, lease, transfer, assign or
otherwise dispose of, in any fiscal year, assets in the ordinary
course of business which, together with the amount of all sales,
leases, transfers, assignments or dispositions in the ordinary
course permitted under Section 6.03(i), do not exceed 5% of the
assets of the Borrower and its Subsidiaries as of the end of the
most recent fiscal year, computed and consolidated in accordance
with GAAP consistently applied, (B) to the extent permitted in
clause (c)(i) above and (C) any Significant Subsidiary may sell,
lease, transfer, assign or otherwise dispose of, or create,
incur, assume or permit to exist Liens on, receivables and
related properties or interests therein;
provided, however, that, notwithstanding anything in this clause (c) to the
contrary, a Subsidiary Event shall not be deemed to have occurred and shall not
constitute an Event of Default under paragraph (k) of Article VII if, after
giving effect to the consummation of any transaction contemplated by clause
(c)(i) or (c)(ii) hereof, such Significant Subsidiary shall have or shall be
deemed to have a ratio of total long-term Indebtedness to total stockholders'
equity equal to or less than 1.5 to 1.0.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such
<PAGE> 22
18
Borrowing is determined. For purposes hereof, "Rate" shall mean, in the case of
a Revolving Loan or Borrowing, the Eurodollar Rate and the Alternate Base Rate
or, in the case of an Auction Loan or Borrowing, the Eurodollar Rate, Fixed Rate
or Delayed Fixed Rate.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
however, that, for purposes of determining compliance with any covenant set
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in preparing the Borrower's audited financial statements
referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each Bank
agrees, severally and not jointly, to make Revolving Loans to the Borrower, at
any time and from time to time on or after the date of this Agreement, and until
the earlier of the Expiration Date and the termination of the Commitment of such
Bank in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in (a) the Revolving Credit Exposure
of any Bank exceeding the Commitment set forth opposite its name in Schedule
2.01 hereto, as the same may be reduced from time to time pursuant to Section
2.10 or (b) the sum of the total Revolving Credit Exposure plus the aggregate
principal amount of outstanding Auction Loans exceeding the total
<PAGE> 23
19
Commitments.
Within the limits set forth in the preceding sentence, the
Borrower may borrow, pay or prepay and reborrow Revolving Loans on or after the
date of this Agreement and prior to the Expiration Date, subject to the terms,
conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Banks ratably in
accordance with their Commitments. Each Auction Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Bank to make
any Loan required to be made hereunder shall not in itself relieve any other
Bank of its obligation to lend hereunder (it being understood, however, that no
Bank shall be responsible for the failure of any other Bank to make any Loan
required to be made by such other Bank). The Loans comprising each Borrowing
shall be in an aggregate principal amount which is an integral multiple of
$1,000,000.
(b) Subject to Section 2.09, (i) each Revolving Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans, as the Borrower may
request pursuant to Section 2.03, and (ii) each Auction Borrowing shall be
comprised entirely of Eurodollar Loans, Fixed Rate Loans or Delayed Fixed Rate
Loans as the Borrower may request in accordance with Section 2.04. Each Bank may
at its option fulfill its Commitment with respect to any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Bank to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement and the applicable Note. Borrowings of more than one Type or Class may
be outstanding at the same time; provided, however, that the Borrower shall not
be entitled to request any Borrowing which, if made, would result in an
aggregate of more than five separate Eurodollar Loans of any Bank being
outstanding hereunder at any one time. For purposes of the foregoing, Loans
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Loans.
(c) Subject to paragraph (e) below, each Bank shall make a
Revolving Loan in the amount of its pro rata
<PAGE> 24
20
portion, as determined under Section 2.15, or, if an Auction Loan, in the
relevant amount as determined under Section 2.04, of each Borrowing hereunder on
the proposed date thereof by wire transfer of immediately available funds to the
Agent in Houston, Texas, not later than 2:00 p.m., New York City time, and the
Agent shall by 3:00 p.m., New York City time, make available to the Borrower in
immediately available funds the amounts so received (i) by wire transfer for
credit to the account of the Borrower with Seattle First National Bank, Account
Number 13972-203; ABA # 12500002-4, or (ii) as otherwise specified by the
Borrower in its notice of Borrowing or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Banks. Unless the Agent shall
have received notice from a Bank prior to the date of any Borrowing that such
Bank will not make available to the Agent such Bank's portion of such Borrowing,
the Agent may assume that such Bank has made such portion available to the Agent
on the date of such Borrowing in accordance with this paragraph (c) and the
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Bank shall not
have made such portion available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the Agent
at (i) in the case of the Borrower the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Bank, the
Federal Funds Effective Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount shall constitute such Bank's Loan as part of
such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Expiration Date.
(e) The Borrower may refinance all or any part of any Borrowing
with a Borrowing of the same or a different Type or Class, subject to the
conditions and limitations set forth in this Agreement. Any Borrowing or
<PAGE> 25
21
part thereof so refinanced shall be deemed to be repaid or prepaid in accordance
with Section 2.05 or 2.11, as applicable, with the proceeds of a new Borrowing,
and the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by the
Banks to the Agent or by the Agent to the Borrower pursuant to paragraph (c)
above.
SECTION 2.03. Notice of Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall give the Agent written or telecopy
notice (or telephone notice promptly confirmed in writing or by telecopy) (a) in
the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York City
time, three Business Days before a proposed borrowing and (b) in the case of an
ABR Borrowing, not later than 12:00 (noon), New York City time, the day of a
proposed borrowing. Such notice shall be irrevocable and shall in each case
refer to this Agreement and specify (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Borrowing (which shall be a Business Day) and the amount thereof; and (iii)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. If the Borrower shall not have given notice in
accordance with this Section 2.03 of its election to refinance a Borrowing prior
to the end of the Interest Period in effect for such Borrowing, then the
Borrower shall (unless such Borrowing is repaid at the end of such Interest
Period) be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing. The Agent shall promptly advise the Banks of
any notice given pursuant to this Section 2.03 and of each Bank's portion of the
requested Borrowing.
SECTION 2.04. Auction Bid Procedure. (a) Subject to the terms
and conditions set forth herein, from time to time during the Availability
Period the Borrower may request Auction Bids and may (but shall not have any
<PAGE> 26
22
obligation to) accept Auction Bids and borrow Auction Loans; provided that the
sum of the total Revolving Credit Exposure plus the aggregate principal amount
of outstanding Auction Loans at any time shall not exceed the total Commitments.
To request Auction Bids, the Borrower shall notify the Agent of such request by
telephone, in the case of a Eurodollar Borrowing, not later than 1:00 p.m., New
York City time, four Business Days before the date of the proposed Borrowing, in
the case of a Fixed Rate Borrowing, not later than 1:00 p.m., New York City
time, one Business Day before the date of the proposed Borrowing, or, in the
case of a Delayed Fixed Rate Borrowing, not later than 2:00 p.m., New York City
time, two Business Days before the date for the proposed Borrowing; provided
that the Borrower may submit up to (but not more than) (i) 1 Eurodollar Auction
Bid Request and (ii) 1 Fixed Rate Auction Bid Request or 1 Delayed Fixed Rate
Auction Bid Request on the same day. Each such telephonic Auction Bid Request
shall be confirmed promptly by hand delivery or telecopy to the Agent of a
written Auction Bid Request in a form approved by the Agent and signed by the
Borrower. Each such telephonic and written Auction Bid Request shall specify the
following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing, a
Fixed Rate Borrowing, or a Delayed Fixed Rate Borrowing;
(iv) the Interest Period (or Interest Periods) to be applicable
to such Borrowing, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.02.
(b) Following receipt of an Auction Bid Request in accordance
with this Section, the Agent shall notify the Banks of the details thereof by
telecopy,
<PAGE> 27
23
inviting the Banks to submit Auction Bids in the case of a Eurodollar Auction
Bid Request, no later than 2:00 p.m., New York City time, four Business Days
before the proposed date of the Borrowing, in the case of a Fixed Rate Auction
Bid Request, no later than 2:00 p.m., one Business Day before the proposed date
of the Borrowing, and, in the case of a Delayed Fixed Rate Bid Request, not
later than 3:00 p.m., New York City time, two Business Days before the proposed
date of the Borrowing.
(c) Each Bank may (but shall not have any obligation to) make
one or more Auction Bids to the Borrower in response to an Auction Bid Request.
Each Auction Bid by a Bank must be in a form approved by the Agent and must be
received by the Agent by telecopy, in the case of a Eurodollar Auction
Borrowing, not later than 12:00 (noon), New York City time, three Business Days
before the proposed date of such Auction Borrowing, in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the proposed date
of such Auction Borrowing, and, in the case of a Delayed Fixed Rate Bid, not
later than 12:00 (noon), New York City time, one Business Day before the
proposed date of such Auction Borrowing. Auction Bids that do not conform
substantially to the form approved by the Agent may be rejected by the Agent,
and the Agent shall notify the applicable Bank as promptly as practicable. Each
Auction Bid shall specify (i) the principal amount (which shall be an integral
multiple of $1,000,000 and which may equal the entire principal amount of the
Auction Borrowing requested by the Borrower) of the Auction Loan or Loans that
the Bank is willing to make, (ii) the Auction Bid Rate or Rates at which the
Bank is prepared to make such Loan or Loans (expressed as a percentage rate per
annum in the form of a decimal to no more than four decimal places) and (iii)
the Interest Period applicable to each such Loan and the last day thereof in
accordance with the Auction Bid Request.
(d) The Agent shall promptly notify the Borrower by telecopy of
the Auction Bid Rate and the principal amount specified in each Auction Bid and
the identity of the Bank that shall have made such Auction Bid.
(e) Subject only to the provisions of this paragraph, the
Borrower may accept or reject any Auction Bid. The Borrower shall notify the
Agent by telephone,
<PAGE> 28
24
confirmed by telecopy in a form approved by the Agent, whether and to what
extent it has decided to accept or reject each Auction Bid, in the case of a
Eurodollar Auction Borrowing, not later than 2:00 p.m., New York City time,
three Business Days before the date of the proposed Auction Borrowing, in the
case of a Fixed Rate Borrowing, not later than 11:30 a.m., New York City time,
on the proposed date of the Auction Borrowing, and, in the case of a Delayed
Fixed Rate Borrowing, not later than 1:00 p.m., New York City time, one Business
day before the date of the proposed Auction Borrowing; provided that (i) the
failure of the Borrower to give such notice shall be deemed to be a rejection of
each Auction Bid, (ii) the Borrower shall not accept an Auction Bid made at a
particular Auction Bid Rate if the Borrower rejects an Auction Bid made at a
lower Auction Bid Rate, (iii) the aggregate amount of the Auction Bids accepted
by the Borrower shall not exceed the aggregate amount of the requested Auction
Borrowing specified in the related Auction Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Auction
Bids at the same Auction Bid Rate in part, which acceptance, in the case of
multiple Auction Bids at such Auction Bid Rate, shall be made pro rata in
accordance with the amount of each such Auction Bid, and (v) except pursuant to
clause (iv) above, no Auction Bid shall be accepted for an Auction Loan unless
such Auction Loan is in an integral multiple of $1,000,000. A notice given by
the Borrower pursuant to this paragraph shall be irrevocable.
(f) The Agent shall notify each bidding Bank by telephone and
telecopy whether or not its Auction Bid has been accepted (and, if so, the
amount and Auction Bid Rate so accepted) in the case of Eurodollar Auction
Loans, by 3:00 p.m., New York City time, three Business Days before the
borrowing date, in the case of Fixed Rate Loans, by 12:00 (noon), New York City
time, on the borrowing date, and, in the case of Delayed Fixed Rate Loans, by
3:00 p.m., New York City time, one Business Day before the Borrowing Date. Each
successful bidder will thereupon become bound, subject to the terms and
conditions hereof, to make the Auction Loan in respect of which its Auction Bid
has been accepted.
(g) If the Agent shall elect to submit an Auction Bid in its
capacity as a Bank, it shall submit such
<PAGE> 29
25
Auction Bid directly to the Borrower at least one quarter of an hour earlier
than the time by which the other Banks are required to submit their Auction Bids
to the Agent pursuant to paragraph (b) of this Section.
SECTION 2.05. Notes; Repayment of Loans. The Loans made by each
Bank shall be evidenced by a Note, duly executed on behalf of the Borrower,
dated the date of this Agreement, in substantially the form attached hereto as
Exhibit A, with the blanks appropriately filled, payable to the order of such
Bank in a principal amount equal to such Bank's Commitment. The outstanding
principal balance of each Revolving Loan and Auction Loan, as evidenced by such
a Note, shall be payable on the last day of the Interest Period applicable to
such Loan and on the Expiration Date. Each Note shall bear interest from the
date of the first borrowing hereunder on the outstanding principal balance
thereof as set forth in Section 2.07. Each Bank shall, and is hereby authorized
by the Borrower to, endorse on the schedule attached to each Note delivered to
such Bank (or on a continuation of such schedule attached to such Note and made
a part thereof), or otherwise to record in such Bank's internal records, an
appropriate notation evidencing the date and amount of each Loan from such Bank,
each payment and prepayment of principal of any such Loan, each payment of
interest on any such Loan and the other information provided for on such
schedule; provided, however, that any such recordation shall be conclusive
absent manifest error and the failure of any Bank to make such a notation or any
error therein shall not affect the obligation of the Borrower to repay the Loans
made by such Bank in accordance with the terms of this Agreement and the
applicable Notes.
SECTION 2.06. Fees. (a) The Borrower agrees to pay to each Bank,
through the Agent, on the first Business Day of January, April, July and
October, in each year, and on the date on which the Commitment of such Bank
shall be terminated as provided herein, a commitment fee (a "Commitment Fee") on
the average daily unused amount of the Commitment of such Bank during the
preceding quarter (or shorter period commencing with the date hereof or ending
with the Expiration Date or the date on which the Commitment of such Bank shall
be terminated); provided, that, for purposes of determining the Commitment Fee,
the undrawn portion of the Commitments shall not be deemed to be reduced by the
amount of any borrowing under the Auction
<PAGE> 30
26
Facility. The Commitment Fees shall accrue on each day at a rate per annum equal
to the Applicable Rate in effect on such day. All Commitment Fees shall be
computed on the basis of the actual number of days elapsed in a year of 365 or
366 days, as appropriate. The Commitment Fee due to each Bank shall commence to
accrue on the date of this Agreement and shall cease to accrue on the date on
which the Commitment of such Bank shall be terminated as provided herein.
(b) The Borrower agrees to pay to the Agent, for its own
account, the fees set forth in the engagement letter dated May 12, 1998, between
the Agent and the Borrower, at the times set forth therein (the "Agency Fees"
and the "Structuring Fee").
(c) All Fees shall be paid on the dates due, in immediately
available funds, to the Agent for distribution, if and as appropriate, among the
Banks. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.07. Interest on Loans. (a) Subject to the provisions
of Section 2.08, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be) at a rate per annum equal to the Alternate Base
Rate plus the Applicable Rate.
(b) Subject to the provisions of Section 2.08, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) (i) in the case of
a Eurodollar Revolving Loan at a rate per annum equal to the Eurodollar Rate for
the Interest Period in effect for such Borrowing plus the Applicable Rate or
(ii) in the case of a Eurodollar Auction Loan, at the Eurodollar Rate for the
Interest Period in effect for such Borrowing plus the Margin applicable to such
Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan. Each Delayed Fixed Rate Loan shall bear interest at the
Delayed Fixed Rate applicable to such Loan.
(d) Interest on each Loan shall be payable on
<PAGE> 31
27
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement. The applicable Alternate Base Rate or Eurodollar Rate for
each Interest Period or day within an Interest Period, as the case may be, shall
be determined by the Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.08. Default Interest. If the Borrower shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, the Borrower shall on
demand from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the Alternate
Base Rate plus the Applicable Rate plus 2%.
SECTION 2.09. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Agent shall have in good
faith determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to the majority in interest of the
Banks of making or maintaining their Eurodollar Loans during such Interest
Period, or that reasonable means do not exist for ascertaining the Eurodollar
Rate, the Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Banks. In the
event of any such determination, (i) any request by the Borrower for a
Eurodollar Borrowing pursuant to Section 2.03 shall, until the Agent shall have
advised the Borrower and the Banks that the circumstances giving rise to such
notice no longer exist, be deemed to be a request for an ABR Borrowing and (ii)
any request by the Borrower for a Eurodollar Auction Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
do not affect all the Banks, then requests by Borrower for Eurodollar Auction
Borrowings may be made to Banks that are not affected thereby and (B) if the
circumstances giving rise to such notice affect only one Type of Borrowings,
<PAGE> 32
28
then the other Type of Borrowings shall be permitted. Each determination by the
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.10. Termination, Reduction and Extension of
Commitments. (a) The Commitments shall be automatically terminated on the
Expiration Date.
(b) Upon at least three Business Days' prior irrevocable written
or telecopy notice to the Agent, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the
unused portion of the Commitments; provided, however, that (i) each partial
reduction of the Commitments shall be in an integral multiple of $1,000,000 and
(ii) the Borrower shall not terminate or reduce the Commitments if, after giving
effect to any concurrent prepayment of the Loans in accordance with Section
2.11, the sum of the Revolving Credit Exposure plus the aggregate principal
amount of outstanding Auction Loans would exceed the total Commitments.
(c) Each reduction in the Commitments hereunder shall be made
ratably among the Banks in accordance with their respective applicable
Commitments. The Borrower shall pay to the Agent for the account of the Banks,
on the date of each termination or reduction, the Commitment Fees on the amount
of the Commitments so terminated or reduced accrued through the date of such
termination or reduction.
(d) The Borrower may request an extension of this Agreement upon
60 days' prior written notice to the Agent; provided, that, such extension will
be at the sole option of the Banks and will require the written agreement of
each Bank in order to become effective.
SECTION 2.11. Prepayment. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least three Business Days' prior written or telecopy notice (or
telephone notice promptly confirmed by written or telecopy notice) to the Agent;
provided, however, that each partial prepayment shall be in an amount which is
an integral multiple of $1,000,000, and that the Borrower shall not have the
right to prepay any Auction Loan without the prior consent of the Bank thereof.
<PAGE> 33
29
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.10, the Borrower shall pay or prepay so much
of the Borrowings as shall be necessary in order that the aggregate principal
amount of the Revolving Credit Exposure plus the aggregate principal amount of
Auction Loans outstanding will not exceed the aggregate Commitments after giving
effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date
and the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Borrowing by
the amount stated therein on the date stated therein. All prepayments under this
Section 2.11 shall be subject to Section 2.14 but otherwise without premium or
penalty. All prepayments under this Section 2.11 shall be accompanied by accrued
interest on the principal amount being prepaid to the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
there is adopted any new law, rule or regulation or any change in applicable law
or regulation or in the interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law) which shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by such Bank (except
any such reserve requirement which is reflected in the Eurodollar Rate) or shall
impose on such Bank or the London interbank market any other condition affecting
this Agreement or Eurodollar Loans made by such Bank, and the result of any of
the foregoing shall be to increase the cost to such Bank of making or
maintaining any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Bank hereunder or under the Notes (whether of principal,
interest or otherwise) in respect of Eurodollar Loans by an amount deemed by
such Bank to be material, then the Borrower will pay to such Bank upon demand
such additional amount or amounts as will compensate such Bank for such
additional costs incurred or reduction suffered.
<PAGE> 34
30
(b) If any Bank shall have determined that the applicability of
any law, rule, regulation, agreement or guideline adopted after the date hereof
regarding capital adequacy, or any change in any of the foregoing or the
adoption after the date hereof of any change in any law, rule, regulation,
agreement or guideline existing on the date hereof or in the interpretation or
administration of any of the foregoing by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any lending office of such Bank) or any
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital or on the capital of such Bank's holding company, if any,
as a consequence of this Agreement or the Loans made by such Bank pursuant
hereto to a level below that which such Bank or such Bank's holding company
could have achieved but for such applicability, adoption, change or compliance
(taking into consideration such Bank's policies and the policies of such Bank's
holding company with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank or such Bank's
holding company for any such reduction suffered.
(c) A certificate of each Bank setting forth in reasonable
detail such amount or amounts as shall be necessary to compensate such Bank or
its holding company as specified in paragraph (a) or (b) above, as the case may
be, and the manner in which such Bank has determined the same, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay each Bank the amount shown as due on any such certificate
delivered by it within 10 days after its receipt of the same.
(d) Failure on the part of any Bank to demand compensation for
any increased costs or reduction in amounts received or receivable or reduction
in return on capital with respect to any period shall not constitute a waiver of
such Bank's right to demand compensation with respect to such period or any
other period. The protection of this Section shall be available to each Bank
regardless
<PAGE> 35
31
of any possible contention of the invalidity or inapplicability of the law,
rule, regulation, guideline or other change or condition which shall have
occurred or been imposed.
SECTION 2.13. Change in Legality. (a) Notwithstanding any other
provision herein, if any change in, or adoption of, any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Agent, such Bank may:
(i) declare that Eurodollar Loans will not there after be made
by such Bank hereunder, whereupon any request by the Borrower for a
Eurodollar Borrowing shall, as to such Bank only, be deemed a request
for an ABR Loan unless such declaration shall be subsequently withdrawn;
and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall
be automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Bank shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Bank or the
converted Eurodollar Loans of such Bank shall instead be applied to repay the
ABR Loans made by such Bank in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice to the Borrower
by any Bank shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar Loan.
SECTION 2.14. Indemnity. The Borrower shall indemnify each Bank
against any loss or expense which such Bank may sustain or incur as a
consequence of (a) any
<PAGE> 36
32
failure by the Borrower to fulfill on the date of any Eurodollar Borrowing
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow or to refinance any Eurodollar Loan hereunder after
irrevocable notice of such borrowing or refinancing has been given pursuant to
Sections 2.03 and 2.04, (c) any payment or prepayment of a Eurodollar Loan
required by any other provision of this Agreement or otherwise made or deemed
made on a date other than the last day of the Interest Period applicable thereto
or (d) any default in payment or prepayment of the principal amount of any
Eurodollar Loan or any part thereof or interest accrued thereon, as and when due
and payable (at the due date thereof, whether by scheduled maturity,
acceleration, irrevocable notice of prepayment or otherwise) including, in each
such case, any loss or reasonable expense sustained or incurred or to be
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a Eurodollar
Loan. Such loss or reasonable expense shall include an amount equal to the
excess, if any, as reasonably determined by such Bank, of (i) its cost of
obtaining the funds for the Eurodollar Loan being paid, prepaid, converted or
not borrowed (assumed to be the Eurodollar Rate applicable thereto) for the
period from the date of such payment, prepayment, conversion or failure to
borrow to the last day of the Interest Period for such Loan (or, in the case of
a failure to borrow, the Interest Period for such Eurodollar Loan which would
have commenced on the date of such failure) over (ii) the amount of interest (as
reasonably determined by such Bank) that would be realized by such Bank in
reemploying the funds so paid, prepaid or not borrowed for such period or
Interest Period, as the case may be. A certificate of any Bank setting forth any
amount or amounts which such Bank is entitled to receive pursuant to this
Section, and the manner in which such Bank has determined the same, shall be
delivered to the Borrower and shall be conclusive absent manifest error.
SECTION 2.15. Pro Rata Treatment. Except as required under
Sections 2.04 and 2.13, each Borrowing, each payment or prepayment of principal
of any Borrowing, each payment of interest on the Loans, each payment of the
Commitment Fees, each reduction of the Commitments and each refinancing of any
Borrowing with a Borrowing of any Type shall be allocated pro rata among the
Banks in accordance
<PAGE> 37
33
with their respective applicable Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal amounts
of their outstanding Loans). Each Bank agrees that in computing such Bank's
portion of any Borrowing to be made hereunder, the Agent may, in its discretion,
round each Bank's percentage of such Borrowing, computed in accordance with
Section 2.01, to the next higher or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. Each Bank agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Bank under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Revolving Loan or
Revolving Loans as a result of which the unpaid principal portion of its
Revolving Loans shall be proportionately less than the unpaid principal portion
of the Revolving Loans of any other Bank, it shall be deemed simultaneously to
have purchased from such other Bank at face value, and shall promptly pay to
such other Bank the purchase price for, a participation in the Revolving Loans
of such other Bank, so that the aggregate unpaid principal amount of the
Revolving Loans and participations in Revolving Loans held by each Bank shall be
in the same proportion to the aggregate unpaid principal amount of all Revolving
Loans then outstanding as the principal amount of its Revolving Loans prior to
such exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Revolving Loans outstanding prior to such exercise of
banker's lien, setoff or counter-claim or other event; provided, however, that,
if any such purchase or purchases or adjustments shall be made pursuant to this
Section and the payment giving rise thereto shall thereafter be recovered, such
purchase or purchases or adjustments shall be rescinded to the extent of such
recovery and the purchase price or prices or adjustment restored without
interest. The Borrower expressly consents to the foregoing arrangements and
agrees that any Bank holding a participation in a Revolving Loan deemed to have
been so purchased may exercise any and all rights of banker's lien,
<PAGE> 38
34
setoff or counterclaim with respect to any and all moneys owing by the Borrower
to such Bank by reason thereof as fully as if such Bank had made a Loan directly
to the Borrower in the amount of such participation.
SECTION 2.17. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under any other Loan Document not later than 12:00
(noon), New York City time, on the date when due in dollars to the Agent at its
offices at 909 Fanning, Suite 1700, Houston, Texas, in immediately available
funds.
(b) Whenever any payment (including principal of or interest on
any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.17, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of the Agent or any Bank (or any
transferee or assignee thereof, including a participation holder (any such
entity being called a "Transferee")) and franchise taxes imposed on the Agent or
any Bank (or Transferee) by the United States or any jurisdiction under the laws
of which the Agent or any such Bank (or such Transferee) or the applicable
lending office, is organized or any political subdivision thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Banks (or any Transferee) or the Agent, (i) the sum payable
shall be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.18) such Bank (or such Transferee) or the Agent (as the case may
be) shall receive an amount equal to the
<PAGE> 39
35
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other Governmental Authority in
accordance with applicable law; provided, however, that no Transferee of any
Bank shall be entitled to receive any greater payment under this paragraph (a)
than such Bank would have been entitled to receive with respect to the rights
assigned, participated or other wise transferred unless such assignment,
participation or transfer shall have been made at a time when the circumstances
giving rise to such greater payment did not exist.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank (or Transferee) and
the Agent for the full amount of Taxes and Other Taxes paid by such Bank (or
such Transferee)or the Agent, as the case may be, and any liability (including
penalties, interest and reasonable expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant taxing authority or other Governmental Authority. Such
indemnification shall be made within 30 days after the date any Bank (or
Transferee) or the Agent, as the case may be, makes written demand therefor. If
a Bank (or Transferee) or the Agent shall become aware that it is entitled to
receive a refund in respect of Taxes or Other Taxes as to which it has been
indemnified by the Borrower pursuant to this Section 2.18, it shall promptly
notify the Borrower of the availability of such refund and shall, within 30 days
after receipt of a request by the Borrower, apply for such refund at the
Borrower's expense. If any Bank (or Transferee) or the Agent receives a refund
in respect of any Taxes or Other Taxes as to which it has been indemnified by
the Borrower pursuant to this Section 2.18, it shall promptly notify the
Borrower of such refund and shall repay such refund to the Borrower (to the
extent of amounts that have been paid by the Borrower under
<PAGE> 40
36
this Section 2.18 with respect to such refund) within 30 days (or promptly upon
receipt, if the Borrower has requested application for such refund pursuant
hereto), net of all reasonable out-of-pocket expenses of such Bank and without
interest; provided that the Borrower, upon the request of such Bank (or such
Transferee) or the Agent, agrees to return such refund (plus penalties, interest
or other charges) to such Bank (or such Transferee) or the Agent in the event
such Bank (or such Transferee) or the Agent is required to repay such refund.
Nothing contained in this paragraph (c) shall require any Bank (or Transferee)
or the Agent to make available any of its tax returns (or any other information
relating to its taxes which it deems to be confidential); provided that
Borrower, at its expense, shall have the right to receive an opinion from a firm
of independent public accountants of recognized national standing acceptable to
the Borrower that the amount due hereunder is correctly calculated.
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Bank (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to in Section 9.01, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.18
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) On or prior to the execution of this Agreement and on or
before the transfer to a Transferee, the Agent shall notify the Borrower of each
Bank's (or Transferee's) address. On or prior to the Bank's (or Transferee's)
first Interest Payment Date, and from time to time as required by law, each Bank
(or Transferee) that is organized under the laws of a jurisdiction outside the
United States shall, if legally able to do so, deliver to the Borrower and the
Agent such certificates, documents or other evidence, as required by the Code or
Treasury Regulations issued pursuant thereto, including Internal Revenue Service
Form 1001 or Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any
<PAGE> 41
37
subsequent version thereof or successors thereto, properly completed and duly
executed by such Bank (or Transferee) establishing that such payment is (i) not
subject to United States Federal withholding tax under the Code because such
payment is effectively connected with the conduct by such Bank (or Transferee)
of a trade or business in the United States or (ii) totally exempt from United
States Federal withholding tax, or subject to a reduced rate of such tax under a
provision of an applicable tax treaty. Unless the Borrower and the Agent have
received forms or other documents satisfactory to them indicating that such
payments hereunder or under the Notes are not subject to United States Federal
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrower shall withhold taxes from such payments at the
applicable statutory rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Bank (or Transferee) in respect of United States Federal
withholding tax pursuant to paragraph (a) above if the obligation to pay such
additional amounts would not have arisen but for a failure by such Bank (or
Transferee) to comply with the provisions of paragraph (f) above; provided,
however, that the Borrower shall be required to pay those amounts to any Bank
(or Transferee) that it was required to pay hereunder prior to the failure of
such Bank (or Transferee) to comply with the provisions of such paragraph (f).
SECTION 2.19. Termination or Assignment of Commitments Under
Certain Circumstances. (a) Any Bank (or Transferee) claiming any additional
amounts payable pursuant to Section 2.12 or Section 2.18 or exercising its
rights under Section 2.13 shall use reasonable efforts (consistent with legal
and regulatory restrictions) to file any certificate or document requested by
the Borrower or to change the jurisdiction of its applicable lending office if
the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue or avoid the
circumstances giving rise to such exercise and would not, in the sole
determination of such Bank, be otherwise disadvantageous to such Bank (or
Transferee).
(b) In the event that any Bank shall have delivered a notice or
certificate pursuant to Section 2.12
<PAGE> 42
38
or 2.13, or the Borrower shall be required to make additional payments under
Section 2.18 to any Bank (or Transferee) or to the Agent with respect to any
Bank (or Transferee), the Borrower shall have the right, at its own expense,
upon notice to such Bank (or Transferee) and the Agent (a) to terminate the
Commitment of such Bank (or Transferee) or (b) to require such Bank (or
Transferee) to transfer and assign without recourse (in accordance with and
subject to the restrictions contained in Section 9.04) all its interests, rights
and obligations under this Agreement (other than any outstanding Auction Loans)
to another financial institution which shall assume such obligations; provided
that (i) no such termination or assignment shall conflict with any law, rule or
regulation or order of any Governmental Authority and (ii) the Borrower or the
assignee, as the case may be, shall pay to the affected Bank (or Transferee) in
immediately available funds on the date of such termination or assignment the
principal of and interest accrued to the date of payment on the Loans made by it
hereunder and all other amounts accrued for its account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Banks that:
SECTION 3.01. Organization; Powers. Each of the Borrower and the
Significant Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (d) in the case of the Borrower, has the corporate power and
authority to execute, deliver and perform its obligations under each of the Loan
Documents and each other agreement or instrument contemplated thereby to which
it is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by the Borrower of each of the
<PAGE> 43
39
Loan Documents and the borrowings hereunder (collectively, the "Transactions")
(a) have been duly authorized by all requisite corporate and, if required,
stockholder action and (b) will not (i) violate (A) any provision of law,
statute, rule or regulation the violation of which could reasonably be expected
to impair the validity and enforceability of this Agreement or any other Loan
Document or materially impair the rights of or benefits available to the Banks
under the Loan Documents, or of the certificate or articles of incorporation or
other constitutive documents or by-laws of the Borrower or any Significant
Subsidiary, (B) any order of any Governmental Authority the violation of which
could reasonably be expected to impair the validity or enforce ability of this
Agreement or any other Loan Document, or materially impair the rights of or
benefits available to the Banks under the Loan Documents, or (C) any provision
of any indenture or other material agreement or instrument evidencing or
relating to borrowed money to which the Borrower or any Significant Subsidiary
is a party or by which any of them or any of their property is or may be bound
in a manner which could reasonably be expected to impair the validity and
enforceability of this Agreement or any other Loan Document or materially impair
the rights of or benefits available to the Banks under the Loan Documents, (ii)
be in conflict with, result in a breach of or constitute (alone or with notice
or lapse of time or both) a default under any such indenture, agreement or other
instrument in a manner which could reasonably be expected to impair the validity
and enforceability of this Agreement or any other Loan Document or materially
impair the rights of or benefits available to the Banks under the Loan Documents
or (iii) result in the creation or imposition under any such indenture,
agreement or other instrument of any Lien upon or with respect to any property
or assets now owned or hereafter acquired by the Borrower.
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by the Borrower and constitutes, and each other Loan
Document when executed and delivered by the Borrower will constitute, a legal,
valid and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or
<PAGE> 44
40
will be required in connection with the Transactions, except such as have been
made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. The Borrower has heretofore
furnished to the Banks its consolidated balance sheets and statements of income
and statements of cash flow as of and for the fiscal year ended December 31,
1997, audited by and accompanied by the opinion of Deloitte & Touche,
independent public accountants. Such financial statements present fairly the
financial condition and results of operations of the Borrower and its
consolidated subsidiaries as of such dates and for such periods. Such balance
sheets and the notes thereto, together with the Borrower's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, reflect all liabilities,
direct or contingent, of the Borrower and its consolidated Subsidiaries as of
the dates thereof which are material on a consolidated basis. Such financial
statements were prepared in accordance with GAAP applied (except as noted
therein) on a consistent basis.
SECTION 3.06. No Material Adverse Change. Except as disclosed in
the Borrower's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and in the Borrower's Form 10-Q for the fiscal quarter ended March 31,
1998, there has been no change in the business, assets, operations or financial
condition of the Borrower and the Subsidiaries, taken as a whole, since December
31, 1997, which could reasonably be expected to have a material adverse effect
on the creditworthiness of the Borrower.
SECTION 3.07. Litigation; Compliance with Laws. (a) Except as
set forth in the Annual Report of the Borrower on Form 10-K for the year ended
December 31, 1997, or in any document filed prior to the date of this Agreement
pursuant to Sections 13(a), 14 or 15(d) of the Securities Exchange Act of 1934,
there are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority now pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary or any
business, property or rights of any such person (i) which involve any Loan
Document or the Transactions or (ii) which could reasonably be anticipated,
individually or in the aggregate, to result in a Material Adverse Effect.
<PAGE> 45
41
(b) Neither the Borrower nor any of the Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would be reasonably likely to result in a Material Adverse
Effect.
SECTION 3.08. Federal Reserve Regulations. (a) Neither the
Borrower nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including Regulation U or X.
SECTION 3.09. Investment Company Act; Public Utility Holding
Company Act. The Borrower is not (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) subject
to regulation as a "holding company" under the Public Utility Holding Company
Act of 1935.
SECTION 3.10. Use of Proceeds. The Borrower will use the
proceeds of the Loans only for the purposes specified in the preamble to this
Agreement.
SECTION 3.11. No Material Misstatements. No information, report,
financial statement, exhibit or schedule furnished by or on behalf of the
Borrower to the Agent or any Bank in connection with the negotiation of any Loan
Document or included therein or delivered pursuant thereto contained, contains
or will contain any material misstatement of fact or, when considered together
with all reports theretofore filed with the Securities and Exchange Commission,
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
<PAGE> 46
42
or will be made, not misleading.
SECTION 3.12. Employee Benefit Plans. Each of the Borrower and
its ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the regulations and published interpretations
thereunder. No Reportable Event has occurred as to which the Borrower or any
ERISA Affiliate was required to file a report with the PBGC, and the present
value of all benefit liabilities under each Plan (based on those assumptions
used to fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed by more than $10,000,000 the value of the assets of such Plan.
SECTION 3.13. Environmental and Safety Matters. Each of the
Borrower and each Subsidiary has complied with all Federal, state, local and
other statutes, ordinances, orders, judgments, rulings and regulations relating
to environmental pollution or to environmental or nuclear regulation or control
or to employee health or safety, except where noncompliance would not be
reasonably likely to result in a Material Adverse Effect. Neither the Borrower
nor any Subsidiary has received notice of any failure so to comply, except where
noncompliance would not be reasonably likely to result in a Material Adverse
Effect. The Borrower's and the Subsidiaries' plants do not manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances, toxic
pollutants or substances similarly denominated, as those terms or similar terms
are used in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law relating to environmental pollution
or employee health and safety, or any nuclear fuel or other radioactive
materials, in violation of any law or any regulations promulgated pursuant
thereto, where such violation would be reasonably likely to result in a Material
Adverse Effect. The Borrower is aware of no events, conditions or circumstances
involving environmental pollution or contamination or employee health or safety
that could reasonably be expected to result in a Material Adverse Effect. The
representations and warranties set forth in this Section 3.13 are, however,
subject to any matters, circumstances or events set forth in the Borrower's
Annual
<PAGE> 47
43
Report on Form 10-K for the fiscal year ended December 31, 1997 and in the
Borrower's Form 10-Q for the fiscal quarter ended March 31, 1998; provided,
however, that the inclusion of such matters, circumstances or events as
exceptions (or any other exceptions contained in the representations and
warranties which refer to the Borrower's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 or the Borrower's Form 10-Q for the fiscal
quarter ended March 31, 1998) shall not be construed to mean that the Borrower
has concluded that any such matter, circumstance or effect is likely to result
in a Material Adverse Effect.
SECTION 3.14. Significant Subsidiaries. Schedule 3.14 sets forth
as of the date hereof a list of all Significant Subsidiaries of the Borrower and
the percentage ownership interest of the Borrower therein.
SECTION 3.15. Year 2000 Compliance. The Borrower and each
Significant Subsidiary has a) initiated a review and assessment of all areas
within its and each of its Significant Subsidiaries' business and operations
(including those mission critical suppliers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Significant Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999) and (b) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and,
as of the date of this Agreement, is implementing that plan in accordance with
that timetable. The Borrower and each Significant Subsidiary reasonably believes
that all computer applications that are material to its or any of its
Significant Subsidiaries' business and operations will on a timely basis be able
to perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Banks to make Loans hereunder are subject
to the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of
<PAGE> 48
44
each Borrowing, including each Borrowing in which Loans are refinanced with new
Loans as contemplated by Section 2.02(e):
(a) The Agent shall have received a notice of such Borrowing as
required by Section 2.03.
(b) The representations and warranties set forth in Article III
hereof (except, in the case of a refinancing of Loans that does not
increase the sum of the Revolving Credit Exposure and the Auction Loans
of any Bank outstanding, the representations set forth in Sections 3.06
and 3.07) shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on and
as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part
to be observed or performed, and at the time of and immediately after
such Borrowing no Event of Default or Default shall have occurred and be
continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Borrowing. On the date of this Agreement:
(a) Each Bank shall have received a duly executed Note complying
with the provisions of Section 2.05.
(b) The Agent shall have received favorable written opinions of
(i) Paine, Hamblen, Coffin, Brooke & Miller, general counsel for the
Borrower, and (ii) Reid & Priest, special counsel to the Borrower, each
dated the date of this Agreement and addressed to the Banks, to the
effect set forth in Exhibits D-1 and D-2 hereto, and the Borrower hereby
instructs such counsel to deliver such opinions to the Agent.
<PAGE> 49
45
(c) The Agent shall have received evidence satisfactory to it
and set forth on Schedule 4.02(c) that the Borrower shall have obtained
all consents and approvals of, and shall have made all filings and
registrations with, any Governmental Authority required in order to
consummate the Transactions, in each case without the imposition of any
condition which, in the judgment of the Banks, could adversely affect
their rights or interests hereunder.
(d) All legal matters incident to this Agreement and the
borrowings hereunder shall be satisfactory to the Banks and their
counsel and to Cravath, Swaine & Moore, counsel for the Agent.
(e) The Agent shall have received (i) a copy of the certificate
or articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a recent date by the Secretary of State of the
state of its organization, and a certificate as to the good standing of
the Borrower as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of the Borrower
dated the Closing Date and certifying (A) that attached thereto is a
true and complete copy of the by-laws of the Borrower as in effect on
the Closing Date and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is
a true and complete copy of resolutions duly adopted by the Board of
Directors of the Borrower authorizing the execution, delivery and
performance of the Loan Documents and the borrowings hereunder, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the certificate or articles of
incorporation of the Borrower have not been amended since the date of
the last amendment thereto shown on the certificate of good standing
furnished pursuant to clause (i) above, and (D) as to the incumbency and
specimen signature of each officer executing any Loan Document or any
other document delivered in connection herewith on behalf of the
Borrower; (iii) a certificate of another officer as to the incumbency
and specimen signature of the Secretary or Assistant Secretary executing
the certificate pursuant to (ii) above; and (iv) such
<PAGE> 50
46
other documents as the Banks or their counsel or Cravath, Swaine &
Moore, counsel for the Agent, may reasonably request.
(f) The Agent shall have received a certificate, dated the
Closing Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.
(g) The Agent shall have received evidence satisfactory to it
that confirms the cancelation of the $50,000,000 and $70,000,000 Credit
Facilities.
(h) The Agent shall have received all Fees and other amounts due
and payable on or prior to the date of this Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Bank that so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or any amounts payable under any Loan
Document shall be unpaid, unless the Required Banks shall otherwise consent in
writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, except as otherwise expressly permitted under
Section 6.02.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names utilized in the conduct of the Borrower's business except where the
failure so to obtain, preserve, renew, extend or maintain any of the foregoing
would not result in a Material Adverse Effect; maintain and operate such
business in substantially the manner in which it is presently conducted and
operated, except as otherwise expressly permitted under this Agreement; comply
in all material respects with all applicable laws, rules,
<PAGE> 51
47
regulations and orders of any Governmental Authority, whether now in effect or
hereafter enacted if failure to comply with such requirements would result in a
Material Adverse Effect; and at all times maintain and preserve all property
material to the conduct of such business and keep such property in good repair,
working order and condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that the Borrower may
cause the discontinuance of the operation or a reduction in the capacity of any
of its facilities, or any element or unit thereof including, without limitation,
real and personal properties, facilities, machinery and equipment, (i) if, in
the judgment of the Borrower, it is no longer advisable to operate the same, or
to operate the same at its former capacity, and such discontinuance or reduction
would not result in a Material Adverse Effect, or (ii) if the Borrower intends
to sell and dispose of its interest in the same in accordance with the terms of
this Agreement and within a reasonable time shall endeavor to effectuate the
same.
SECTION 5.02. Insurance. (a) Maintain insurance, to such extent
and against such risks, as is customary with companies in the same or similar
businesses and owning similar properties in the same general area in which the
Borrower operates and (b) maintain such other insurance as may be required by
law. All insurance required by this Section 5.02 shall be maintained with
financially sound and reputable insurers or through self-insurance; provided,
however, that the portion of such insurance constituting self-insurance shall be
comparable to that usually maintained by companies engaged in the same or
similar businesses and owning similar properties in the same general area in
which the Borrower operates and the reserves maintained with respect to such
self-insured amounts are deemed adequate by the officer or officers of the
Borrower responsible for insurance matters.
SECTION 5.03. Taxes and Obligations. Pay and discharge promptly
when due all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or in respect of its property, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or
<PAGE> 52
48
otherwise which, if unpaid, might give rise to a Lien upon such properties or
any part thereof; provided, however, that such payment and discharge shall not
be required with respect to any such tax, assessment, charge, levy or claim so
long as the validity or amount thereof shall be contested in good faith by
appropriate proceedings and the Borrower shall, to the extent required by GAAP,
have set aside on its books adequate reserves with respect thereto.
SECTION 5.04. Financial Statements, Reports, etc. Furnish to the
Agent and each Bank:
(a) within 105 days after the end of each fiscal year, its
consolidated and consolidating balance sheets and related statements of
income and statements of cash flow, showing the financial condition of
the Borrower and its consolidated Subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by Deloitte & Touche or other
independent public accountants of recognized national standing
acceptable to the Required Banks and accompanied by an opinion of such
accountants (which shall not be qualified in any material respect) to
the effect that such consolidated financial statements fairly present
the financial condition and results of operations of the Borrower on a
consolidated basis (except as noted therein) in accordance with GAAP
consistently applied;
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated and, to the extent
otherwise available, consolidating balance sheets and related statements
of income and statements of cash flow, showing the financial condition
of the Borrower and its consolidated subsidiaries as of the close of
such fiscal quarter and the results of its operations and the operations
of such subsidiaries during such fiscal quarter and the then elapsed
portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments;
<PAGE> 53
49
(c) concurrently with any delivery of financial statements under
(a) or (b) above, a certificate of the relevant accounting firm opining
on or certifying such statements or Financial Officer (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) certifying that to the knowledge of the accounting firm
or the Financial Officer, as the case may be, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto;
(d) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
governmental authority succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or distributed to
its share holders, as the case may be; and
(e) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any Significant Subsidiary, or compliance with the terms
of any Loan Document, as the Agent or any Bank may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Agent
and each Bank prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any written threat or
notice of intention of any person to file or commence, any action, suit
or proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Subsidiary thereof
which could reasonably be anticipated to
<PAGE> 54
50
result in a Material Adverse Effect; and
(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with
the applicable provisions of ERISA and (b) furnish to the Agent and each Bank
(i) as soon as possible, and in any event within 30 days after any Responsible
Officer of the Borrower or any ERISA Affiliate either knows or has reason to
know that any Reportable Event has occurred that alone or together with any
other Reportable Event could reasonably be expected to result in liability of
the Borrower to the PBGC in an aggregate amount exceeding $10,000,000, a
statement of a Financial Officer setting forth details as to such Reportable
Event and the action proposed to be taken with respect thereto, together with a
copy of the notice, if any, of such Reportable Event given to the PBGC, (ii)
promptly after receipt thereof, a copy of any notice the Borrower or any ERISA
Affiliate may receive from the PBGC relating to the intention of the PBGC to
terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate
which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) or to appoint a trustee to administer any Plan or Plans
and (iii) within 10 days after the due date for filing with the PBGC pursuant to
Section 412(n) of the Code of a notice of failure to make a required installment
or other payment with respect to a Plan, a statement of a Financial Officer
setting forth details as to such failure and the action proposed to be taken
with respect thereto, together with a copy of such notice given to the PBGC.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP and permit
any representatives designated by any Bank to visit and inspect the financial
records and the properties of the Borrower at reasonable times and as often as
requested and to make extracts from and copies of such financial records, and
permit any representatives designated by any Bank to discuss the affairs,
finances and condition of the Borrower with the chief financial officer of the
Borrower, or other person designated by the chief financial officer, and
independent
<PAGE> 55
51
accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans
only for the purposes set forth in the preamble to this Agreement.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Bank that, so long
as this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under any Loan Document
shall be unpaid, unless the Required Banks shall otherwise consent in writing,
the Borrower will not:
SECTION 6.01. Liens. Create, incur, assume or permit to exist
any Lien on any property or assets (including stock or other securities of any
person, including any Subsidiary) now owned or hereafter acquired by it or on
any income or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower created by the
documents, instruments or agreements existing on the date hereof and
which are listed as exhibits to the Borrower's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, to the extent that
such Liens secure only obligations arising under such existing
documents, agreements or instruments; (b) any Lien existing on any
property or asset prior to the acquisition thereof by the Borrower;
provided that (i) such Lien is not created in contemplation of or in
connection with such acquisition and (ii) such Lien does not apply to
any other property or assets of the Borrower;
(c) the Lien of the First Mortgage;
(d) Liens permitted under the First Mortgage (whether or not
such permitted Liens cover properties or assets subject to the Lien of
the First Mortgage) and any other Liens to which the Lien of the First
Mortgage is expressly made subject;
<PAGE> 56
52
(e) the Lien of any collateral trust mortgage or similar
instrument which would be intended to eventually replace (in one
transaction or a series of transactions) the First Mortgage (as amended,
modified or supplemented from time to time, "Collateral Trust Mortgage")
on properties or assets of the Borrower to secure bonds, notes and other
obligations of the Borrower; provided that, so long as the First
Mortgage shall constitute a Lien on properties or assets of the
Borrower, the bonds, notes or other obligations issued under the
Collateral Trust Mortgage (i) shall also be secured by an equal
principal amount of bonds issued under the First Mortgage or (ii) shall
be issued against property additions not subject to the Lien of the
First Mortgage;
(f) Liens permitted under the Collateral Trust Mortgage (whether
or not such permitted Liens cover properties or assets subject to the
Lien of the Collateral Trust Mortgage) and any other Liens to which the
Lien of the Collateral Trust Mortgage is subject;
(g) Liens for taxes, assessments or governmental charges not yet
due or which are being contested in compliance with Section 5.03;
(h) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested in compliance with Section 5.03;
(i) pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and
other social security laws or regulations;
(j) Liens incurred or created in connection with or to secure
the performance of bids, tenders, trade contracts (other than for
Indebtedness), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(k) zoning restrictions, easements, rights-of-
<PAGE> 57
53
way, restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are
not substantial in amount and do not materially detract from the value
of the property subject thereto or interfere with the ordinary conduct
of the business of the Borrower or any of its Subsidiaries;
(l) Liens (i) which secure obligations not assumed by the
Borrower, (ii) on account of which the Borrower has not and does not
expect to pay interest directly or indirectly and (iii) which exist upon
real estate or rights in or relating to real estate in respect of which
the Borrower has a right-of-way or other easement for purposes of
substations or transmission or distribution facilities;
(m) rights reserved to or vested in any federal, state or local
governmental body or agency by the terms of any right, power, franchise,
grant, license, con tract or permit, or by any provision of law, to
recapture or to purchase, or designate a purchase of or order the sale
of, any property of the Borrower or to terminate any such right, power,
franchise, grant, license, contract or permit before the expiration
thereof;
(n) Liens of judgments covered by insurance, or upon appeal and
covered by bond, or to the extent not so covered not exceeding at one
time $10,000,000 in aggregate amount;
(o) any Liens, moneys sufficient for the discharge of which
shall have been deposited in trust with the trustee or mortgagee under
the instrument evidencing such Lien, with irrevocable authority of such
trustee or mortgagee to apply such moneys to the discharge of such Lien
to the extent required for such purpose;
(p) rights reserved to or vested in any federal, state or local
governmental body or agency or other public authority to control or
regulate the business or property of the Borrower;
(q) any obligations or duties, affecting the
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54
property of the Borrower to any federal, state or local governmental
body or agency or other public authority with respect to any
authorization, permit, consent or license of such body, agency or
authority, given in connection with the purchase, construction,
equipping, testing and operation of the Borrower's utility property;
(r) with respect to any property which the Borrower may
hereafter acquire, any exceptions or reservations therefrom existing at
the time of such acquisition or any terms, conditions, agreements,
covenants, exceptions and reservations expressed or provided in the
deeds of other instruments, respectively, under and by virtue of which
the Borrower shall hereafter acquire the same, none of which materially
impairs the use of such property for the purposes for which it is
acquired by the Borrower;
(s) leases and subleases entered into in the ordinary course of
business;
(t) banker's Liens and other Liens in the nature of a right of
set-off;
(u) Liens resulting from any transaction permitted under Section
6.03(iv);
(v) renewals, replacements, amendments, modifications,
supplements, refinancings or extensions of Liens set forth above to the
extent that the principal amount of Indebtedness secured by such Lien
immediately prior thereto is not increased and such Lien is not extended
to other property (it being understood that such limitation does not
apply to the Liens described in subsection (c), (e) or (u) above);
(w) security deposits or amounts paid into trust funds for the
reclamation of mining properties;
(x) restrictions on transfer or use of properties and assets,
first rights of refusal, and rights to acquire properties and assets
granted to others;
(y) non-consensual equitable Liens on the Borrower's
tenant-in-common or other interest in joint projects;
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55
(z) Liens on the Borrower's tenant-in-common or other interest
in joint projects incurred by the project sponsor without the express
consent of the Borrower to such incurrence;
(aa) cash collateral contemplated under Section 2.06(i) of the
$125,000,000 Revolving Credit Facility dated as of the date hereof
between The Washington Water Power Company, Toronto-Dominion (Texas),
Inc., and the banks named therein; and
(ab) Liens not expressly permitted in clauses (a) through (aa)
of this Section 6.01 to secure Indebtedness of the Borrower, provided
that the aggregate outstanding principal amount of the Indebtedness so
secured does not at any one time exceed 5% of the total assets of the
Borrower and its Subsidiaries, computed and consolidated in accordance
with GAAP consistently applied.
SECTION 6.02. Mergers, Consolidations and Acquisitions. Merge
into or consolidate with any other person, or permit any other person to merge
into or consolidate with it, or purchase, lease or otherwise acquire (in one
transaction or a series of transactions) all or substantially all of the assets
of any other person (whether directly by purchase, lease or other acquisition of
all or substantially all of the assets of such person or indirectly by purchase
or other acquisition of all or substantially all of the capital stock of such
other person) other than acquisitions in the ordinary course of the Borrower's
business, except that if (A) at the time thereof and immediately after giving
effect thereto no Event of Default or Default shall have occurred and be
continuing and (B) in the case of any merger or consolidation involving the
Borrower in which the Borrower is not the surviving corporation, the surviving
corporation shall assume in writing the obligations of the Borrower under this
Agreement and any other Loan Documents, then (a) the Borrower may merge or
consolidate with any Subsidiary in a transaction in which the Borrower is the
surviving corporation, (b) the Borrower may purchase, lease or otherwise acquire
from any Subsidiary all or substantially all of its assets and may purchase or
otherwise acquire all or substantially all of the capital stock of any person
who immediately thereafter is a Subsidiary, (c) the Borrower may merge with or
into, or consolidate with, any other person so long as (i) in the
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56
case where the business of such other person, or an Affiliate of such other
person, entirely or primarily consists of an electric or gas utility business,
the senior secured long-term debt rating of the Borrower shall be at least BBB
or higher by S&P and Baa2 or higher by Moody's immediately after such merger or
consolidation, or in the case of a merger or consolidation in which the Borrower
is not the surviving entity, the senior secured long-term debt rating of the
surviving entity or an Affiliate thereof shall be at least BBB+ or higher by S&P
and Baa1 or higher by Moody's immediately after such merger or consolidation, or
(ii) in the case where such other person's business does not entirely or
primarily consist of an electric or gas utility business, the assets of such
person at the time of such consolidation or merger do not exceed 10% of the
total assets of the Borrower and its Subsidiaries after giving effect to such
merger or consolidation, computed and consolidated in accordance with GAAP
consistently applied, and (d) the Borrower may purchase, lease or otherwise
acquire any or all of the assets of any other person (and may purchase or
otherwise acquire the capital stock of any other person) so long as (i) the
assets being purchased, leased or acquired (or the assets of the person whose
capital stock is being acquired) entirely or primarily consist of electric or
gas utility assets or (ii) in the case where the assets being purchased, leased
or acquired (or the assets of the person whose capital stock is being acquired)
do not entirely or primarily consist of electric or gas utility assets, the
assets being acquired (or the Borrower's proportionate share of the assets of
the person whose capital stock is being acquired) do not exceed 10% of the total
assets of the Borrower and its Subsidiaries, after giving effect to such
acquisition, computed and consolidated in accordance with GAAP consistently
applied.
SECTION 6.03. Disposition of Assets. Sell, lease, transfer,
assign or otherwise dispose of (in one transaction or in a series of
transactions), in any fiscal year, assets (whether now owned or hereafter
acquired) which, together with the amount of all sales, leases, transfers,
assignments or other dispositions permitted under clause (c)(ii) of the
definition of Subsidiary Event in Article I (other than sales, leases,
transfers, assignments or other dispositions permitted under clauses (c)(ii) (A)
through (C) in such definition), exceed 10% of the assets of the Borrower and
its Subsidiaries as
<PAGE> 61
57
of the end of the most recent fiscal year, computed and consolidated in
accordance with GAAP consistently applied, except (i) the Borrower may, in any
fiscal year, sell, lease, transfer, assign or otherwise dispose of assets in the
ordinary course of business which, together with the amount of all sales,
leases, transfers, assignments or other dispositions in the ordinary course
permitted under clause (c)(ii)(A) of the definition of Subsidiary Event in
Article I, do not exceed 5% of the assets of the Borrower and its Subsidiaries
as of the end of the most recent fiscal year, computed and consolidated in
accordance with GAAP consistently applied, (ii) to the extent permitted under
Section 5.03, 6.01 or Section 6.02, (iii) the Borrower may sell, lease,
transfer, assign or otherwise dispose of its interest in the Washington Public
Power Supply System Nuclear Project No. 3 in accordance with the settlement
agreement among the Borrower, the Washington Public Power Supply System and
Bonneville Power Administration, as the same may be amended, modified or
supplemented from time to time, (iv) the Borrower may sell, lease, transfer,
assign or otherwise dispose of its interests in the Colstrip and Centralia
Projects and related assets and (v) the Borrower may sell, lease, transfer,
assign or otherwise dispose (including by way of capital contribution) of, or
create, incur, assume or permit to exist Liens on, receivables and related
properties or interests therein.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of
the following events ("Events of Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings hereunder, or any
representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to have
been false or misleading in any material respect when so made, deemed
made or furnished;
(b) default shall be made in the payment of any
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58
principal of any Loan when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any
Loan or any Fee or any other amount (other than an amount referred to in
(b) above) due under any Loan Document, when and as the same shall
become due and payable, and such default shall continue unremedied for a
period of five Business Days;
(d) default shall be made in the due observance or performance
by the Borrower of any covenant, condition or agreement contained in
Section 5.01(a) or 5.05 or in Article VI;
(e) default shall be made in the due observance or performance
by the Borrower of any covenant, condition or agreement contained in any
Loan Document (other than those specified in (b), (c) or (d) above) and
such default shall continue unremedied for a period of 30 days after
notice thereof from the Agent or any Bank to the Borrower;
(f) the Borrower or any Significant Subsidiary shall (i) fail to
pay any principal or interest, regardless of amount, due in respect of
any Indebted ness when the aggregate unpaid principal amount is in
excess of $25,000,000, when and as the same shall become due and payable
(after expiration of any applicable grace period), or (ii) fail to
observe or perform any other term, covenant, condition or agreement
(after expiration of any applicable grace period) contained in any
agreement or instrument evidencing or governing any such Indebtedness if
the effect of any failure referred to in this clause (ii) is to cause,
or to permit the holder or holders of such Indebtedness or a trustee on
its or their behalf (with or without the giving of notice, the lapse of
time or both) to cause, such Indebtedness to become due prior to its
stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court
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59
of competent jurisdiction seeking (i) relief in respect of the Borrower
or any Significant Subsidiary, or of a substantial part of the property
or assets of the Borrower or a Significant Subsidiary, under Title 11 of
the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar
law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Significant Subsidiary or for a substantial part of the property or
assets of the Borrower or a Significant Subsidiary or (iii) the
winding-up or liquidation of the Borrower or any Significant Subsidiary;
and such proceeding or petition shall continue undismissed, or an order
or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 60 or more days;
(h) the Borrower or any Significant Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail
to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in (g) above, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Significant Subsidiary or for a substantial part of the property or
assets of the Borrower or any Significant Subsidiary, (iv) file an
answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action
for the purpose of effecting any of the foregoing;
(i) a final judgment or judgments shall be rendered against the
Borrower, any Significant Subsidiary or any combination thereof for the
payment of money with respect to which an aggregate amount in excess of
$25,000,000 is not covered by insurance and the same shall remain
undischarged for a period of
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60
30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to
levy upon assets or properties of the Borrower or any Significant
Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrower to the PBGC or to a Plan in an aggregate amount
exceeding $25,000,000 and, within 30 days after the reporting of any
such Reportable Event to the Agent or after the receipt by the Agent of
the statement required pursuant to Section 5.06, the Agent shall have
notified the Borrower in writing that (i) the Required Banks have made a
determination that, on the basis of such Reportable Event or Reportable
Events or the failure to make a required payment, there are reasonable
grounds (A) for the termination of such Plan or Plans by the PBGC, (B)
for the appointment by the appropriate United States District Court of a
trustee to administer such Plan or Plans or (C) for the imposition of a
lien in favor of a Plan and (ii) as a result thereof an Event of Default
exists hereunder; or a trustee shall be appointed by a United States
District Court to administer any such Plan or Plans; or the PBGC shall
institute proceedings to terminate any Plan or Plans; or
(k) there shall occur a Subsidiary Event;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Agent, at the request of the Required Banks,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the Commitments and (ii)
declare the Loans then outstanding to be forthwith due and payable in whole or
in part, whereupon (A) the Commitments will automatically be terminated and (B)
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and any unpaid
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61
accrued Fees and all other liabilities of the Borrower accrued hereunder and
under any other Loan Document, shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Borrower, anything contained herein or in any
other Loan Document to the contrary notwithstanding; and in any event with
respect to the Borrower described in paragraph (g) or (h) above, the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Loan Document,
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
ARTICLE VIII. THE AGENT
In order to expedite the various transactions contemplated by
this Agreement, Toronto Dominion (Texas), Inc. is hereby appointed to act as
Agent on behalf of the Banks. Each of the Banks hereby irrevocably authorizes
and directs the Agent to take such action on behalf of such Bank under the terms
and provisions of this Agreement, and to exercise such powers hereunder as are
specifically delegated to or required of the Agent by the terms and provisions
hereof, together with such powers as are reasonably incidental thereto. The
Agent is hereby expressly authorized on behalf of the Banks, without hereby
limiting any implied authority, (a) to receive on behalf of each of the Banks
any payment of principal of or interest on the Loans outstanding hereunder and
all other amounts accrued hereunder paid to the Agent, and to distribute to each
Bank its proper share of all payments so received as soon as practicable; (b) to
give notice promptly on behalf of each of the Banks to the Borrower of any event
of default specified in this Agreement of which the Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute promptly
to each Bank copies of all notices, agreements and other material as provided
for in this Agreement as received by such Agent.
Neither the Agent nor any of its directors,
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officers, employees or agents shall be liable to any Bank as such for any action
taken or omitted by any of them hereunder except for its or his own gross
negligence or wilful misconduct, or be responsible for any statement, warranty
or representation herein or the contents of any document delivered in connection
herewith or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrower of any of the terms, conditions,
covenants or agreements of this Agreement. The Agent shall not be responsible to
the Banks for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other instrument to which reference is
made herein. The Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Banks, and, except as otherwise specifically provided herein, such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all the Banks. The Agent shall, in the absence of knowledge to the
contrary, be entitled to rely on any paper or document believed by it in good
faith to be genuine and correct and to have been signed or sent by the proper
person or persons. Neither the Agent nor any of its directors, officers,
employees or agents shall have any responsibility to the Borrower on account of
the failure or delay in performance or breach by any Bank of any of its
obligations hereunder or to any Bank on account of the failure of or delay in
performance or breach by any other Bank or the Borrower of any of their
respective obligations hereunder or in connection herewith. The Agent may
execute any and all duties hereunder by or through agents or employees and shall
be entitled to advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Agent and its affiliates may accept deposits from, lend
money to and generally engage in any kind of business with the Borrower or other
affiliate thereof as if it were not the Agent.
Each Bank recognizes that applicable laws, rules, regulations or
guidelines of governmental authorities may require the Agent to determine
whether the transactions contemplated hereby should be classified as "highly
leveraged" or assigned any similar or successor classification,
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63
and that such determination may be binding upon the other Banks. Each Bank
understands that any such determination shall be made solely by the Agent based
upon such factors (which may include, without limitation, the Agent's internal
policies and prevailing market practices) as the Agent shall deem relevant and
agrees that the Agent shall have no liability for the consequences of any such
determination.
Each Bank agrees (i) to reimburse the Agent in the amount of
such Bank's pro rata share (based on its Commitment hereunder) of any expenses
incurred for the benefit of the Banks by the Agent, including reasonable counsel
fees and compensation of agents and employees paid for services rendered on
behalf of the Banks, not reimbursed by the Borrower and (ii) to indemnify and
hold harmless the Agent and any of its directors, officers, employees or agents,
on demand, in the amount of its pro rata share, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in its capacity as the Agent or
any of them in any way relating to or arising out of this Agreement or any
action taken or omitted by it or any of them under this Agreement, to the extent
not reimbursed by the Borrower; provided, however, that no Bank shall be liable
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or wilful misconduct of the Agent or any of its
directors, officers, employees or agents.
Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank based on
such documents and information as it shall deem appropriate at the time,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder.
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The Agent may execute any of its duties under this Agreement by
or through agents or attorneys selected by them using reasonable care and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys selected and authorized to act by it with reasonable
care unless the damage complained of directly results from an act or failure to
act on part of the Agent which constitutes gross negligence or wilful
misconduct. Delegation to an attorney or agent shall not release the Agent from
its obligation to perform or cause to be performed the delegated duty.
The Documentation Agent and the Syndication Agent shall not have
any rights, powers, obligations, liabilities, responsibilities or duties under
this Agreement other than those applicable to all Banks as such. Without
limiting the foregoing, none of the Banks identified as "Documentation Agent" or
"Syndication Agent" shall have or be deemed to have any fiduciary relationship
with any Bank. Each Bank acknowledges that it has not relied, and will not rely,
on any of the Banks so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy, graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Borrower, to it at East 1411 Mission Avenue
(99202), P.O. Box 3727, Spokane, Washington 99220, Attention of the
Senior Vice President, Chief Financial Officer and Treasurer (Telecopy
No. 509-482-4879);
(b) if to the Agent, to it at 909 Fannin, Suite 1700, Houston,
Texas 77010, Attention of Kimberly Burleson (Telecopy No. 713-951-9921);
and
(c) if to a Bank, to it at its address (or
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telecopy number) set forth in Schedule 2.01 or in the Assignment and
Acceptance pursuant to which such Bank shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or other telegraphic communications equipment of the sender, or on the
date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties, including, without limitation, any indemnities
and reimbursement obligations, made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Banks and shall survive the making by the Banks of
the Loans, and the execution and delivery to the Banks of the Notes evidencing
such Loans, regardless of any investigation made by the Banks, or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have received copies hereof which, when taken together,
bear the signatures of each Bank, and thereafter shall be binding upon and inure
to the benefit of the Borrower, the Agent and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior consent of
all the Banks.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the
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successors and permitted assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Agent or the Banks that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and permitted assigns.
(b) Each Bank (including the Agent when acting as a Bank) may
assign to one or more assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Credit Commitment and the same portion of the
applicable Loan or Loans at the time owing to it and the applicable Note or
Notes held by it, other than any Auction Loans or Notes held by it, which may,
but need not, be assigned); provided, however, that (i) except in the case of an
assignment to a Bank or an Affiliate of such Bank, the Borrower and the Agent
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (ii) that no assignee of any Bank shall be
entitled to receive any greater payment or protection under Sections 2.12,
2.13(a), 2.14 or 2.18 than such Bank would have been entitled to receive with
respect to the rights assigned or otherwise transferred unless such assignment
or transfer shall have been made at a time when the circumstances giving rise to
such greater payment did not exist, (iii) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Agreement, except that this clause (iii) shall not apply
to rights in respect of outstanding Auction Loans, (iv) the amount of the
Commitment of the assigning Bank subject to each such assignment (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall not be less than $5,000,000 (or, if less, the
total amount of their Commitments), (v) the parties to each such assignment
shall execute and deliver to the Agent an Assignment and Acceptance, together
with the Note or Notes subject to such assignment and a processing and
recordation fee of $5,000 and (vi) the assignee, if it shall not be a Bank,
shall deliver to the Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party
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hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Bank under this Agreement and
(B) the assigning Bank thereunder shall, to the extent of the interest assigned
by such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.12, 2.14, 2.18 and 9.05, as well as to
any Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Bank thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Bank warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance; (ii) except as set forth in (i) above,
such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Agent, such assigning Bank or any other Bank and based
on such
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documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (vi) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Bank.
(d) The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it including the recordation of the names and addresses
of the Banks, and the Commitment of, and principal amount of the Loans owing to,
each Bank pursuant to the terms hereof from time to time (the "Register"). The
Agent and the Banks may treat each person whose name is recorded in the Register
pursuant to the terms hereof as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower and
any Bank, at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and an assignee together with the Note
or Notes subject to such assignment, an Administrative Questionnaire completed
in respect of the assignee (unless the assignee shall already be a Bank
hereunder), the processing and recordation fee referred to in paragraph (b)
above and, if required, the written consent of the Borrower and the Agent to
such assignment, the Agent shall (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the Banks. Within five Business Days after receipt of notice,
the Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for the surrendered Note or Notes, a new Note or Notes to the order of
such assignee in a principal amount equal to the applicable Commitment assumed
by it pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment, a new Note to the order of such assigning Bank in a
principal amount equal to the applicable Commitment retained by it. Such new
Note or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such
<PAGE> 73
69
surrendered Note; such new Notes shall be dated the date of the surrendered
Notes which they replace and shall otherwise be in substantially the form of
Exhibit A hereto. Canceled Notes shall be returned to the Borrower.
(f) Each Bank may without the consent of the Borrower or the
Agent sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it and the Notes held by it);
provided, however, that (i) such Bank's obligations under this Agreement shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.12, 2.14 and 2.18 to the same extent as if
they were Banks (provided, that the amount of such benefit shall be limited to
the amount in respect of the interest sold to which the seller of such
participation would have been entitled had it not sold such interest) and (iv)
the Borrower, the Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement, and such Bank shall retain the sole right to enforce the
obligations of the Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the
Loans, extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or changing or extending the Commitments).
(g) Any Bank or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such Bank
by or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions)
<PAGE> 74
70
to preserve the confidentiality of such confidential information.
(h) Any Bank may at any time assign for security purposes all or
any portion of its rights under this Agreement and the Notes issued to it to a
Federal Reserve Bank; provided that no such assignment shall release a Bank from
any of its obligations hereunder.
(i) Subject to Section 6.02, the Borrower shall not assign or
delegate any of its rights or duties hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the Agent in connection
with the preparation of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Agent or any Bank in connection with the
enforcement or protection of their rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made or the Notes
issued hereunder, including the fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Agent, and, in connection with any such
amendment, modification or waiver or any such enforcement or protection, the
fees, charges and disbursements of any other internal or external counsel for
the Agent or any Bank. The Borrower further agrees that it shall indemnify the
Banks from and hold them harmless against any documentary taxes, assessments or
charges made by any Governmental Authority by reason of the execution and
delivery of this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent and each Bank and
each of their respective directors, officers, employees and agents (each such
person being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, charges and disbursements, incurred
by or asserted against any Indemnitee arising out of, in any way connected with,
or as a result of (i) the execution or delivery of this Agreement or any other
Loan
<PAGE> 75
71
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agent or any Bank. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing and the Loans shall have been accelerated as set
forth in Article VII, each Bank is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank (or bank
Controlling such Bank) to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter existing
under this Agreement and other Loan Documents held by such Bank. The rights of
each Bank under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Bank may have. Any Bank shall
provide the Borrower with written notice promptly after exercising its rights
under this Section.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF
<PAGE> 76
72
NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Agent or any Bank in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent and the Banks
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Banks; provided, however,
that no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each holder of a Note affected thereby, (ii) change or extend the
Commitment or decrease the Commitment Fees of any Bank without the prior written
consent of such Bank, or (iii) amend or modify the provisions of Section 2.15,
the provisions of this Section or the definition of "Required Banks", without
the prior written consent of each Bank; provided further that no such agreement
shall amend, modify or otherwise affect the rights or duties of the Agent
hereunder without the prior written consent of the Agent. Each Bank and each
holder of a Note shall be bound by any waiver, amendment or modification
authorized by this Section regardless of whether its Note shall have been marked
to make reference thereto, and any consent by any
<PAGE> 77
73
Bank or holder of a Note pursuant to this Section shall bind any person
subsequently acquiring a Note from it, whether or not such Note shall have been
so marked.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein or in the Notes to the contrary, if at any time the applicable interest
rate, together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Bank, shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by such Bank in accordance with applicable law, the rate of
interest payable under the Note held by such Bank, together with all Charges
payable to such Bank, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with respect
to the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Waiver of Jury Trial. Each party hereto hereby
waives, to the fullest extent permitted by applicable law, any right it may have
to a trial by jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.11.
<PAGE> 78
74
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
The Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the Agent
or any Bank may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against the Borrower or its
properties in the courts of any
<PAGE> 79
75
jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
WITNESS the due execution hereof as of the date first above
written.
THE WASHINGTON WATER POWER COMPANY,
by
--------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC., as Agent,
by
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Documentation Agent,
<PAGE> 80
76
by
--------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Syndication Agent,
by
--------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
by
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
--------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by
--------------------------------------
Name:
Title:
<PAGE> 81
77
FIRST SECURITY BANK OF IDAHO,
by
--------------------------------------
Name:
Title:
MELLON BANK, N.A.,
by
--------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
by
--------------------------------------
Name:
Title:
U.S. BANK,
by
--------------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
by
--------------------------------------
Name:
Title:
<PAGE> 82
78
WELLS FARGO BANK,
by
--------------------------------------
Name:
Title:
<PAGE> 83
EXHIBIT A
[FORM OF]
NOTE
$__________________ [ ], 1998
New York, New York
FOR VALUE RECEIVED, the undersigned, THE WASHINGTON WATER POWER
COMPANY, a Washington corporation (the "Borrower"), hereby promises to pay to
the order of _______________________ (the "Bank"), at the office of Toronto
Dominion (Texas), Inc., (the "Agent"), at 909 Fanning, Suite 1700, Houston,
Texas 77010, (i) on the last day of each Interest Period, as defined in the
$75,000,000 Revolving Credit Agreement dated as of June 30, 1998 (the "Credit
Agreement"), among the Borrower, the Banks named therein and the Agent, the
aggregate unpaid principal amount of all Loans (as defined in the Credit
Agreement) made to the Borrower by the Bank pursuant to the Credit Agreement to
which such Interest Period applies and (ii) on the Expiration Date (as defined
in the Credit Agreement) the lesser of the principal sum of __________________
Dollars ($______________) and the aggregate unpaid principal amount of all Loans
made to the Borrower by the Bank pursuant to the Credit Agreement, in lawful
money of the United States of America in immediately available funds, and to pay
interest from the date hereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at the rate or rates per annum and
payable on the dates provided in the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the rate or rates provided in the Credit Agreement.
<PAGE> 84
2
The Borrower hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The nonexercise by the holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective dates
and maturity dates thereof shall be endorsed by the holder hereof on the
schedule attached hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof, or otherwise recorded by
such holder in its internal records; provided, however, that the failure of the
holder hereof to make such a notation or any error in such a notation shall not
affect the obligations of the Borrower under this Note.
This Note is one of the Notes referred to in the Credit
Agreement, which, among other things, contains provisions for the acceleration
of the maturity hereof upon the happening of certain events, for optional and
mandatory prepayment of the principal hereof prior to the maturity hereof and
for the amendment or waiver of certain provisions of the Credit Agreement, all
upon the terms and conditions therein specified. This Note shall be construed in
accordance with and governed by the laws of the State of New York and any
applicable laws of the United States of America.
THE WASHINGTON WATER
POWER COMPANY
by
--------------------------------------
Name:
Title:
<PAGE> 85
3
Loans and Payments
<TABLE>
<CAPTION>
Amount Unpaid Name of
and Payments Principal Person
Type/Class Maturity Principal Balance of Making
Date of Loan Date Interest Note Notation
- ------------ ------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 86
EXHIBIT B
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the $75,000,000 Credit Agreement dated as
of June 30, 1998 (as in effect from time to time, the "Credit Agreement"), among
The Washington Water Power Company, a Washington corporation (the "Borrower"),
the banks listed on Schedule 2.01 thereto (the "Banks") and Toronto Dominion
(Texas), Inc., as agent for the Banks (in such capacity, the "Agent"). Terms
defined in the Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth on the reverse
hereof, the interests set forth on the reverse hereof (the "Assigned Interest")
in the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Effective Date and Revolving Loans [and
Auction Loans] owing to the Assignor which are outstanding on the Effective
Date, together with unpaid interest accrued on the assigned Revolving Loans [and
Auction Loans] to the Effective Date, and the amount, if any, set forth on the
reverse hereof of the Fees accrued to the Effective Date for the account of the
Assignor. Each of the Assignor and the Assignee hereby makes and agrees to be
bound by all the representations, warranties and agreements set forth in Section
9.04(c) of the Credit Agreement, a copy of which has been received by each such
party. From and after the Effective Date (i) the Assignee shall be a party to
and be bound by the provisions of the Credit Agreement and, to the extent of the
interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder and under the Loan Documents and (ii) the
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be
<PAGE> 87
2
released from its obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the
Agent together with (i) the Notes evidencing the Loans included in the Assigned
Interest, (ii) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms specified in Section 2.18(f) of the Credit
Agreement, duly completed and executed by such Assignee, (iii) if the Assignee
is not already a Bank under the Credit Agreement, an Administrative
Questionnaire in the form of Exhibit C to the Credit Agreement and (iv) a
processing and recordation fee of $5,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
<PAGE> 88
3
<TABLE>
<CAPTION>
Percentage
Assigned of
Facility and
Commitment
Thereunder (set
forth, to at
least 8 decimals,
Principal Amount as a percentage
Assigned (and of the Facility
identifying and the aggregate
information as to Commitments
individual of all Banks
Facility Auction Loans) thereunder)
- -------- ----------------- -----------------
<S> <C> <C>
Commitment Assigned: $ %
Revolving Loans: $ %
[Auction Loans: $ %]
Fees Assigned (if any): $ %
</TABLE>
The terms set forth above and on
the reverse side hereof are
hereby agreed to:
Accepted:
, as Assignor
TORONTO DOMINION (TEXAS), INC., as
Agent
By:____________________________
Name: By:_________________________
Title: Name:
Title:
____________________, as Assignee THE WASHINGTON POWER COMPANY
By:____________________________ By:_________________________
Name: Name:
Title: Title:
<PAGE> 89
EXHIBIT C
Administrative Questionnaire
<PAGE> 90
EXHIBIT D-1
Opinion of General Counsel for the Borrower
<PAGE> 91
EXHIBIT D-2
Opinion of Special Counsel for the Borrower
<PAGE> 92
SCHEDULE 2.01
Banks
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Toronto-Dominion (Texas), Inc. $13,125,000
909 Fanning
Suite 1700
Houston, TX 77010
Attention: Ms. Kimberly Burleson
Telecopy: (713)951-9921
With copies to:
Toronto-Dominion Bank U.S.A. Division
31 West 52nd Street
New York, NY 10019-6101
Attention: Mr. Peter Cody
Telecopy: (212) 262-1929
Bank of America National Trust $13,125,000
and Savings Association
555 California Street
41st floor
San Francisco, CA 94104
Attention: Mr. Lawrence Balingit
Telecopy: (415) 622-0632
First Security Bank of Idaho $3,750,000
119 North 9th Street (83702)
Boise, ID 83730
Attention: Mr. Brian Cook
Telecopy: (509) 353-2472
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Mellon Bank, N.A. $5,625,000
400 South Hope Street
5th floor
Los Angeles, CA 9071-2806
Attention: Mr. Scott Sommers
Telecopy: (213) 629-0492
Copies to:
Mellon Bank, N.A.
1 Mellon Bank Center
500 Grant Street (AIM# 151-4425)
Pittsburgh, PA 15258-0001
Attention: Mr. Mark Rogers
Telecopy: (412) 234-1813
The Bank of New York $9,375,000
One Wall Street
New York, NY 10286
Attention: Mr. Timothy Lynch
Telecopy: (212) 635-7923
NationsBank, N.A. $9,375,000
901 Main Street
64th Floor
P.O. Box 830104
Dallas, TX 75202
Attention: Mr. Curtis Anderson
Telecopy: (214) 508-3943
U.S. Bank $7,500,000
1420 Fifth Avenue
11th floor
WWH276
Seattle, WA 98101
Attention: Mr. Wilfred C. Jack
Telecopy: (206) 587-5259
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Wachovia Bank, N.A. $5,625,000
191 Peachtree St.
N.E.
Atlanta, GA 30303
Attention: Mr. David Alexander
Telecopy: (404) 332-6898
Wells Fargo Bank $7,500,000
W. 524 Riverside Avenue
6th floor
Spokane, WA 00210-0085
Attention: Mr. Tom Beil
Telecopy: (509) 455-5762
</TABLE>
<PAGE> 95
SCHEDULE 3.14
Significant Subsidiaries
<TABLE>
<CAPTION>
Name Percent Ownership
---- -----------------
<S> <C>
Avista Corp. 100%
Pentzer Corporation 100%
</TABLE>
<PAGE> 96
SCHEDULE 4.02(c)
Orders of Governmental Authorities
1. Order(s) of the Washington Utilities and Transportation Commission.
2. Order(s) of the Oregon Public Utility Commission.
3. Order(s) of the Idaho Public Utilities Commission.
4. Order(s) of the California Public Utilities Commission.
<PAGE> 1
EXHIBIT 4(d)-2
EXECUTION COPY
================================================================================
REVOLVING CREDIT AGREEMENT
(3 YEAR)
among
THE WASHINGTON WATER POWER COMPANY,
THE BANKS NAMED HEREIN,
TORONTO DOMINION (TEXAS), INC.,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and
THE BANK OF NEW YORK
Dated as of June 30, 1998
================================================================================
<PAGE> 2
EXHIBIT 4(d)-2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- -------- ----
<S> <C>
I. DEFINITIONS
SECTION 1.01. Defined Terms.......................................... 4
SECTION 1.02. Terms Generally........................................ 21
II. THE CREDITS
SECTION 2.01. Commitments............................................ 21
SECTION 2.02. Loans.................................................. 22
SECTION 2.03. Notice of Revolving Borrowings......................... 24
SECTION 2.04. Auction Bid Procedure.................................. 24
SECTION 2.05. Notes; Repayment of Loans.............................. 28
SECTION 2.06. Letters of Credit...................................... 28
SECTION 2.07. Fees................................................... 33
SECTION 2.08. Interest on Loans...................................... 35
SECTION 2.09. Default Interest....................................... 35
SECTION 2.10. Alternate Rate of Interest............................. 36
SECTION 2.11. Termination and Reduction of Commitments............... 36
SECTION 2.12. Prepayment............................................. 37
SECTION 2.13. Reserve Requirements; Change in Circumstances.......... 38
SECTION 2.14. Change in Legality..................................... 39
SECTION 2.15. Indemnity.............................................. 40
SECTION 2.16. Pro Rata Treatment..................................... 41
SECTION 2.17. Sharing of Setoffs..................................... 41
SECTION 2.18. Payments............................................... 42
SECTION 2.19. Taxes.................................................. 43
SECTION 2.20. Termination or Assignment of Commitments
Under Certain Circumstances............................ 46
III. REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization; Powers................................... 47
SECTION 3.02. Authorization.......................................... 47
SECTION 3.03. Enforceability......................................... 48
SECTION 3.04. Governmental Approvals................................. 48
SECTION 3.05. Financial Statements................................... 48
SECTION 3.06. No Material Adverse Change............................. 49
</TABLE>
-i-
<PAGE> 3
EXHIBIT 4(d)-2
<TABLE>
<CAPTION>
Article Section Page
- ------- -------- ----
<S> <C>
SECTION 3.07. Litigation; Compliance with Laws....................... 49
SECTION 3.08. Federal Reserve Regulations............................ 49
SECTION 3.09. Investment Company Act; Public Utility
Holding Company Act ................................... 50
SECTION 3.10. Use of Proceeds........................................ 50
SECTION 3.11. No Material Misstatements.............................. 50
SECTION 3.12. Employee Benefit Plans................................. 50
SECTION 3.13. Environmental and Safety Matters....................... 51
SECTION 3.14. Significant Subsidiaries............................... 51
SECTION 3.15. Year 2000 Compliance................................... 52
IV. CONDITIONS OF LENDING
SECTION 4.01. All Borrowings......................................... 52
SECTION 4.02. First Borrowing........................................ 53
V. AFFIRMATIVE COVENANTS
SECTION 5.01. Existence; Businesses and Properties................... 55
SECTION 5.02. Insurance.............................................. 56
SECTION 5.03. Taxes and Obligations.................................. 56
SECTION 5.04. Financial Statements, Reports, etc..................... 57
SECTION 5.05. Litigation and Other Notices........................... 58
SECTION 5.06. ERISA.................................................. 58
SECTION 5.07. Maintaining Records; Access to Properties
and Inspections ....................................... 59
SECTION 5.08. Use of Proceeds and Letters of Credit.................. 59
VI. NEGATIVE COVENANTS
SECTION 6.01. Liens.................................................. 60
SECTION 6.02. Mergers, Consolidations and Acquisitions............... 64
SECTION 6.03. Disposition of Assets.................................. 65
VII. EVENTS OF DEFAULT
VIII. THE AGENT
IX. MISCELLANEOUS
SECTION 9.01. Notices................................................ 73
</TABLE>
-ii-
<PAGE> 4
EXHIBIT 4(d)-2
<TABLE>
<CAPTION>
Article Section Page
- ------- -------- ----
<S> <C>
SECTION 9.02. Survival of Agreement.................................. 73
SECTION 9.03. Binding Effect......................................... 74
SECTION 9.04. Successors and Assigns................................. 74
SECTION 9.05. Expenses; Indemnity.................................... 78
SECTION 9.06. Right of Setoff........................................ 80
SECTION 9.07. Applicable Law......................................... 80
SECTION 9.08. Waivers; Amendment..................................... 80
SECTION 9.09. Interest Rate Limitation............................... 81
SECTION 9.10. Entire Agreement....................................... 82
SECTION 9.11. Waiver of Jury Trial................................... 82
SECTION 9.12. Severability........................................... 82
SECTION 9.13. Counterparts........................................... 82
SECTION 9.14. Headings............................................... 83
SECTION 9.15. Jurisdiction; Consent to Service of Process............ 83
</TABLE>
<TABLE>
<CAPTION>
References
- ----------
<S> <C>
Exhibit A Note
Exhibit B Assignment and Acceptance
Exhibit C Administrative Questionnaire
Exhibit D-1 Opinion of General Counsel for the Borrower
Exhibit D-2 Opinion of Special Counsel for the Borrower
Schedule 2.01 Banks
Schedule 3.14 Significant Subsidiaries
Schedule 4.02(c) Orders of Governmental Authorities
</TABLE>
-iii-
<PAGE> 5
REVOLVING CREDIT AGREEMENT dated as of June 30,
1998, among THE WASHINGTON WATER POWER COMPANY, a
Washington corporation (herein called the "Borrower"), the
banks listed in Schedule 2.01 (the "Banks"), TORONTO
DOMINION (TEXAS), INC., as agent for the Banks (in such
capacity, the "Agent"), BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as syndication agent (the
"Syndication Agent") and THE BANK OF NEW YORK, as
documentation agent (the "Documentation Agent").
The Borrower has requested that the Banks extend credit to the
Borrower in order to enable the Borrower to borrow on a standby revolving credit
basis and obtain letters of credit on and after the date hereof, at any time
prior to the Expiration Date (as herein defined) a principal amount not in
excess of $125,000,000 at any time outstanding. The proceeds of such borrowings
and such letters of credit are to be used for general corporate purposes. In
consideration of the mutual covenants and agreements contained herein, the
parties agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit C.
"Affiliate" shall mean, when used with respect to
<PAGE> 6
5
a specified person, another person that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by or is under common Control
with the person specified.
"Agency Fees" shall have the meaning assigned to such term in
Section 2.07(c).
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the greater
of (a) the Prime Rate (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be) in effect on such
day and (b) the sum of (i) the Federal Funds Effective Rate in effect for such
day plus (ii) 1/2 of 1%. If for any reason the Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, the
Alternate Base Rate shall be determined without regard to clause (b) of the
first sentence of this definition until the circumstances giving rise to such
inability no longer exist.
"Applicable Percentage" shall mean, with respect to any Bank, the
percentage of the total Commitments represented by such Bank's Commitment. If
the Commitments have terminated or expired, the Applicable Percentage shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" shall mean on any date, with respect to any ABR
Loan or Eurodollar Revolving Loan, or with respect to the Commitment Fees or the
Letter of Credit fees payable hereunder, as the case may be, the applicable rate
per annum set forth below under the caption "ABR Spread," "Eurodollar Spread,"
"Commitment Fee" or "Letter of Credit Participation Fees", as the case may be,
based upon the Ratings:
<PAGE> 7
6
<TABLE>
<CAPTION>
Ratings ABR Spread Eurodollar Commitment Letter of
------- ---------- ---------- ---------- ---------
Spread Fee Credit
------ --- ------
Participation
-------------
Fees
----
<S> <C> <C> <C> <C>
Level 1 0.00% .25% .09% .25%
A- or higher by S&P;
and A3 or higher by
Moody's
Level 2 0.00% .375% .15% .375%
BBB+ by S&P; and Baa1
by Moody's
Level 3 0.00% .45% .20% .45%
BBB by S&P; and Baa2
by Moody's
Level 4 .50% .625% .25% .625%
BBB- by S&P; and Baa3
by Moody's
Level 5 .50% 1.00% .375% 1.00%
Lower than BBB- by
S&P; and lower than
Baa3 by Moody's
</TABLE>
For purposes of the foregoing, (i) if the Ratings in effect on any date fall in
different Levels, the Applicable Rate shall be determined on such date by
reference to the superior (numerically lower) Level, unless the Ratings differ
by more than one Level, in which case the applicable
<PAGE> 8
7
Level shall be the Level next below the superior (numerically lower) of the two;
(ii) if either Moody's or S&P shall not have in effect a Rating (other than
because such rating agency shall no longer be in the business of rating
corporate debt obligations), then such rating agency will be deemed to have
established a Rating in Level 5; and (iii) if any rating established or deemed
to have been established by Moody's or S&P shall be changed (other than as a
result of a change in the rating system of either Moody's or S&P), such change
shall be effective as of the day after the date on which such change is first
announced by the rating agency making such change. Each change in the Applicable
Rate shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change. If the rating system of either Moody's or S&P shall change, or
if either such rating agency shall cease to be in the business of rating
corporate debt obligations, the Borrower and the Banks shall negotiate in good
faith to amend the references to specific ratings in this definition to reflect
such changed rating system or the non- availability of ratings from such rating
agency.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Bank and an assignee, and accepted by the Agent and
the Borrower, in the form of Exhibit B or such other form as shall be approved
by the Agent.
"Auction Bid" shall mean an offer by a Bank to make an Auction
Loan in accordance with Section 2.04.
"Auction Bid Rate" shall mean, with respect to any Auction Bid,
the Margin for Eurodollar Auction Loans, the Fixed Rate for Fixed Rate Loans or
the Delayed Fixed Rate for Delayed Fixed Rate Loans, as applicable, offered by
the Bank in making such Auction Bid.
"Auction Bid Request" shall mean a request by the Borrower for
Auction Bids in accordance with Section 2.04.
"Auction Facility" shall mean the facility described in Section
2.04.
"Auction Loan" shall mean a Loan made pursuant to
<PAGE> 9
8
Section 2.04.
"Availability Period" shall mean the period from and including
the Effective Date to but excluding the earlier of the Expiration Date and the
date of the termination of the Commitments.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" shall mean (a) a group of Revolving Loans of the same
Type, made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect or (b) an
Auction Loan or group of Auction Loans of the same Type made on the same date
and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Class", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are Revolving
Loans or Auction Loans.
"Closing Date" shall mean the date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"Commitment" shall mean, with respect to each
<PAGE> 10
9
Bank, the commitment of such Bank to make Revolving Loans and to acquire
participations in Letters of Credit hereunder as set forth in Sections 2.01 and
2.06, as the same may be reduced from time to time pursuant to Section 2.11.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.07(a).
"Control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Delayed Fixed Rate" shall mean, with respect to any Auction Loan
(other than a Eurodollar Auction Loan or a Fixed Rate Loan), the fixed rate of
interest per annum specified by the Bank in making such Auction Loan in its
related Auction Bid.
"Delayed Fixed Rate Loan" shall mean an Auction Loan bearing
interest at a Delayed Fixed Rate for which an Auction Bid Request is made two
Business Days before the proposed date of borrowing.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Environmental Law" shall mean any and all applicable present and
future treaties, laws, regulations, enforceable requirements, binding
determinations, orders, decrees, judgments, injunctions, permits, approvals,
authorizations, licenses, permissions, notices or binding agreements issued,
promulgated or entered by any Governmental Authority, relating to the
environment, preservation or reclamation of natural resources, or to the
management, release or threatened release of contaminants or noxious odor,
including the Hazardous Materials Transportation Act, Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the
<PAGE> 11
10
Superfund Amendments and Reauthorization Act of 1986, Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous
and Solid Waste Amendments of 1984, Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, Clean Air Act of 1970, as amended, Toxic
Substances Control Act of 1976, Occupational Safety and Health Act of 1970, as
amended, Emergency Planning and Community Right-to-Know Act of 1986, Safe
Drinking Water Act of 1974, as amended, and any similar or implementing state
law, and all amendments or regulations promulgated thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Borrower is a member
and which is treated as a single employer under Section 414 of the Code.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Eurodollar Rate.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate in accordance with the provisions
of Article II.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/100 of 1%) equal to the product of (i) the arithmetic
average of rates at which dollar deposits approximately equal to the principal
amount of the portion of such Eurodollar Loan to be made by The Toronto-Dominion
Bank, and for a maturity equal to the applicable Interest Period, are offered to
The Toronto-Dominion Bank for Eurodollars at approximately 10:00 a.m., New York
City time, two Business Days prior to the commencement of such Interest Period
and (ii) Statutory Reserves. In the event that such rate is not available at
<PAGE> 12
11
such time for any reason, then the "Eurodollar Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Agent in immediately available
funds in the London interbank market at approximately 10:00 a.m., New York City
time, two Business Days prior to the commencement of such Interest Period.
"Event of Default" shall have the meaning assigned to such term
in Article VII.
"Expiration Date" shall mean the third anniversary of the date of
this Agreement.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
reported on such Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so reported for any day that is a Business Day, the average of
the quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"Fees" shall mean the Commitment Fee and the Agency Fees.
"$50,000,000 Credit Facility" shall mean the $50,000,000 Amended
and Restated Revolving Credit Agreement among the Washington Water Power
Company, the banks named therein, and Toronto Dominion (Texas), Inc., dated as
of July 22, 1997.
"Financial Officer" of any corporation shall mean the chief
financial officer or Treasurer of such corporation.
"First Mortgage" shall mean the Mortgage and Deed of Trust dated
as of June 1, 1939, made by the Borrower in favor of Citibank, N.A., as
successor Trustee, as the same has been amended, modified or supplemented to
date and as the same may be further amended, modified or supplemented from time
to time hereafter.
<PAGE> 13
12
"Fixed Rate" shall mean, with respect to any Auction Loan (other
than a Eurodollar Auction Loan or a Delayed Fixed Rate Loan), the fixed rate of
interest per annum specified by the Bank making such Auction Loan in its related
Auction Bid.
"Fixed Rate Loan" shall mean an Auction Loan bearing interest at
a Fixed Rate for which an Auction Bid Request is made on the day of the proposed
borrowing.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness; provided, however, that
the term Guarantee shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Indebtedness" of any person shall mean, without duplication, (a)
all obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements
<PAGE> 14
13
relating to property or assets purchased by such person, (e) all obligations of
such person issued or assumed as the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, but limited, if such obligations
are without recourse to such person, to the lesser of the principal amount of
such Indebtedness or the fair market value of such property, (g) all Guarantees
by such person of Indebtedness of others, (h) all Capital Lease Obligations of
such person, (i) all obligations of such person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements (the amount of any such obligation to be the
amount that would be payable upon the acceleration, termination or liquidation
thereof) and (j) all obligations of such person as an account party in respect
of letters of credit and bankers' acceptances. The Indebtedness of any person
shall include the Indebtedness of any partnership in which such person is a
general partner.
"Interest Payment Date" shall mean, with respect to any Loan, the
last day of the Interest Period applicable to the Borrowing of which such Loan
is a part and, in the case of a Eurodollar Borrowing with an Interest Period of
more than three months' duration, each day that would have been an Interest
Payment Date had successive Interest Periods of three months' duration been
applicable to such Borrowing and, in addition, the date of any refinancing or
conversion of such Borrowing with or to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter,
as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on
the date of such Borrowing and ending on the earliest of (i) the next succeeding
March 31, June 30, September 30 or December 31, (ii) the Expiration Date, and
(iii) the date such Borrowing
<PAGE> 15
14
shall be repaid or prepaid in accordance with Section 2.12 and (c) with respect
to any Fixed Rate Borrowing or Delayed Fixed Rate Borrowing, the period (which
shall not be less than 7 days or more than 360 days) commencing on the date of
such Borrowing and ending on the date specified in the applicable Auction Bid
Request; provided, however, that if any Interest Period would end on a day other
than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Issuing Bank" shall mean The Toronto-Dominion Bank in its
capacity as the issuer of Letters of Credit hereunder, and its successors in
such capacity as provided in Section 2.06(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Issuing Bank, in which case the term "Issuing Bank" shall include any
such Affiliate with respect to Letters of Credit issued by such Affiliate.
"LC Disbursement" shall mean a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any
Bank at any time shall be its Applicable Percentage of the total LC Exposure at
such time.
"Letter of Credit" shall mean any letter of credit issued
pursuant to this Agreement.
"Lien" shall mean, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party
<PAGE> 16
15
with respect to such securities.
"Loans" shall mean loans made by the Banks to the Borrower
pursuant to this Agreement.
"Loan Documents" shall mean this Agreement and the Notes and any
Letter of Credit applications referred to in Section 2.06(a).
"Margin" shall mean, with respect to any Auction Loan bearing
interest at a rate based on the Eurodollar Rate, the marginal rate of interest,
if any, to be added to or subtracted from the Eurodollar Rate to determine the
rate of interest applicable to such Loan, as specified by the Bank making such
Loan in its related Auction Bid.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Material Adverse Effect" shall mean an effect on the business,
assets, operations or financial condition of the Borrower and the Subsidiaries
taken as a whole which could reasonably be expected to have a material adverse
effect on the creditworthiness of the Borrower.
"Moody's" shall mean Moody's Investors Service, Inc.
"Notes" shall mean promissory notes of the Borrower,
substantially in the form of Exhibit A, evidencing Loans.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean a corporation, association, partnership,
trust, organization, business, individual or government or governmental agency
or political subdivision thereof.
"Plan" shall mean any pension plan subject to the provisions of
Title IV of ERISA or Section 412 or the Code which is maintained for employees
of the Borrower or any ERISA Affiliate.
<PAGE> 17
16
"Prime Rate" shall mean the rate of interest per annum adopted
from time to time by The Toronto-Dominion Bank at its principal office in New
York City as its prime rate. For purposes of this Agreement, any change in the
Alternate Base Rate due to a change in the Prime Rate shall be effective on the
date such change in the Prime Rate is adopted.
"Ratings" shall refer to the ratings of Moody's and S&P
applicable to the Borrower's senior secured long-term debt obligations.
"Register" shall have the meaning given to such term in Section
9.04(d).
"Regulation D" shall mean Regulation D of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof and shall include any successor or other regulation or official
interpretation of the Board relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation U" shall mean Regulation U of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof.
"Related Parties" shall mean, with respect to any specified
Person, such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person's Affiliates.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Banks" shall mean, at any time, Banks having Revolving
Exposures representing at least 66-2/3% of the aggregate Revolving Exposures or,
if there
<PAGE> 18
17
shall be no Revolving Credit Exposure, Banks having Commitments representing at
least 66-2/3% of the aggregate Commitments. For purposes of declaring the Loans
to be due and payable pursuant to Article VII and of demanding the deposit of
cash collateral pursuant to Section 2.06(i), and for all purposes after the
Loans become due and payable pursuant to Article VII or the Commitments expire
or terminate, the outstanding Auction Loans of the Banks shall be included in
their respective Revolving Credit Exposure in determining the Required Banks.
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Revolving Credit Exposure" shall mean, with respect to any Bank
at any time, the sum of the outstanding principal amount of such Bank's
Revolving Loans and its LC Exposure at such time.
"Revolving Loan" shall mean a Loan made pursuant to Section 2.03.
"S&P" shall mean Standard & Poor's Ratings Services.
"$70,000,000 Credit Facility" shall mean the $70,000,000
Revolving Credit Agreement among The Washington Water Power Company, the banks
named therein and Seattle -First National Bank, dated as of December 12, 1992.
"Significant Subsidiary" shall mean a Subsidiary meeting any one
of the following conditions: (a) the investments in and advances to such
Subsidiary by the Borrower and the other Subsidiaries, if any, as at the end of
the Borrower's latest fiscal quarter exceeded 10% of the total assets of the
Borrower and its Subsidiaries at such date, computed and consolidated in
accordance with GAAP; or (b) the Borrower's and the other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of
such Subsidiary as at the end of the Borrower's latest fiscal quarter exceeded
10% of the total assets of the Borrower and its Subsidiaries at such date,
<PAGE> 19
18
computed and consolidated in accordance with GAAP; or (c) the equity in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of such Subsidiary for the
period of four consecutive fiscal quarters ending at the end of the Borrower's
latest fiscal quarter exceeded 10% of such income of the Borrower and its
Subsidiaries for such period, computed and consolidated in accordance with GAAP;
or (d) such Subsidiary is the parent of one or more Subsidiaries and, together
with such Subsidiaries would, if considered in the aggregate, constitute a
Significant Subsidiary.
"Statutory Reserves" shall mean a fraction (ex pressed as a
decimal) the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or supplemental
reserves) with respect to Eurodollar funding (including with respect to
Eurocurrency Liabilities as defined in Regulation D) in an amount approximately
equal to the respective Eurodollar Loan and with a term approximately equal to
the Interest Period for such Eurodollar Loan expressed as a decimal established
by the Board or by any other United States banking authority to which the Agent
is subject. Such reserve percentages shall include, without limitation, those
imposed under Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentage.
"subsidiary" shall mean, for any person (the "Parent"), any
corporation, partnership or other entity of which securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) are at the time directly or
indirectly owned or controlled by the Parent or one or more of its subsidiaries
or by the Parent and one or more of its subsidiaries.
<PAGE> 20
19
"Subsidiary" shall mean a subsidiary of the Borrower.
A "Subsidiary Event" shall mean the following; provided, however,
that a Subsidiary Event shall not be deemed to have occurred if the Banks have
previously consented thereto:
(a) any Significant Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.01(a) as if
such section applied to such Significant Subsidiary, with all references
therein to the Borrower being deemed references to such Significant
Subsidiary;
(b) any Significant Subsidiary shall fail to observe or perform
any covenant, condition or agreement in Sections 5.01(b), 5.02, 5.03 or
5.07 as if such sections applied to such Significant Subsidiary, with
all references therein to the Borrower being deemed references to such
Significant Subsidiary, and such default shall continue unremedied for a
period of 30 days after notice thereof from the Agent or any Bank to the
Borrower; (c) any Significant Subsidiary shall:
(i) merge into or consolidate with any other person, or
permit any other person to merge into or consolidate with it, or
purchase, lease or otherwise acquire (in one transaction or a
series of transactions) all or substantially all of the assets
of any other person (whether directly by purchase, lease or
other acquisition of all or substantially all of the assets of
such person or indirectly by purchase or other acquisition of
all or substantially all of the capital stock of such other
person) other than acquisitions in the ordinary course of such
Significant Subsidiary's business, except that if, at the time
thereof and immediately after giving effect thereto no Event of
Default or Default shall have occurred and be continuing, then
(A) such Significant Subsidiary may (i) merge with or into, or
consolidate with, any Subsidiary or (ii) merge with or into, or
consolidate with, the Borrower in a transaction in which the
Borrower is the surviving
<PAGE> 21
20
corporation, (B) such Significant Subsidiary may purchase, lease
or otherwise acquire from any Subsidiary all or substantially
all of its assets and may purchase or otherwise acquire all or
substantially all of the capital stock of any person who
immediately thereafter is a Subsidiary, (C) such Significant
Subsidiary may merge with or into, or consolidate with, any
other person so long as the assets of such person at the time of
such consolidation or merger, do not exceed 10% of the total
assets of the Borrower and its Subsidiaries, after giving effect
to such merger or consolidation, computed and consolidated in
accordance with GAAP consistently applied, and (D) such
Significant Subsidiary may purchase, lease or otherwise acquire
any or all of the assets of any other person (and may purchase
or otherwise acquire the capital stock of any other person) so
long as the assets being purchased, leased or acquired (or the
Significant Subsidiary's proportionate share of the assets of
the person whose capital stock is being acquired) do not exceed
10% of the total assets of the Borrower and its Subsidiaries,
after giving effect to such acquisition, computed and
consolidated in accordance with GAAP consistently applied, or
(ii) sell, lease, transfer, assign or other wise dispose of
(in one transaction or in a series of transactions), in any
fiscal year, assets (whether now owned or hereafter acquired)
which, together with the amount of all sales, leases, transfers,
assignments or dispositions by the Borrower permitted under
Section 6.03 (other than sales, leases, transfers, assignments
or other dispositions permitted under clauses (i) through (iv)
of such Section), are in excess of 10% of the assets of the
Borrower and its Subsidiaries as of the end of the most recent
fiscal year, computed and consolidated in accordance with GAAP
consistently applied, except (A) a Significant Subsidiary may
sell, lease, transfer, assign or otherwise dispose of, in any
fiscal year, assets in the ordinary course of business which,
together with the amount of all sales,
<PAGE> 22
21
leases, transfers, assignments or dispositions in the ordinary
course permitted under Section 6.03(i), do not exceed 5% of the
assets of the Borrower and its Subsidiaries as of the end of the
most recent fiscal year, computed and consolidated in accordance
with GAAP consistently applied, (B) to the extent permitted in
clause (c)(i) above and (C) any Significant Subsidiary may sell,
lease, transfer, assign or otherwise dispose of, or create,
incur, assume or permit to exist Liens on, receivables and
related properties or interests therein;
provided, however, that, notwithstanding anything in this clause (c) to the
contrary, a Subsidiary Event shall not be deemed to have occurred and shall not
constitute an Event of Default under paragraph (k) of Article VII if, after
giving effect to the consummation of any transaction contemplated by clause
(c)(i) or (c)(ii) hereof, such Significant Subsidiary shall have or shall be
deemed to have a ratio of total long-term Indebtedness to total stockholders'
equity equal to or less than 1.5 to 1.0.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall mean,
in the case of a Revolving Loan or Borrowing, the Eurodollar Rate and the
Alternate Base Rate or, in the case of an Auction Loan or Borrowing, the
Eurodollar Rate, Fixed Rate or Delayed Fixed Rate.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as
<PAGE> 23
22
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided, however, that, for purposes of determining compliance with any
covenant set forth in Article VI, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing the Borrower's audited
financial statements referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each Bank
agrees, severally and not jointly, to make Revolving Loans to the Borrower, at
any time and from time to time on or after the date of this Agreement, and until
the earlier of the Expiration Date and the termination of the Commitment of such
Bank in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in (a) the Revolving Credit Exposure
of any Bank exceeding the Commitment set forth opposite its name in Schedule
2.01 hereto, as the same may be reduced from time to time pursuant to Section
2.11 or (b) the sum of the total Revolving Credit Exposure plus the aggregate
principal amount of outstanding Auction Loans exceeding the total Commitments.
Within the limits set forth in the preceding sentence, the
Borrower may borrow, pay or prepay and reborrow Revolving Loans on or after the
date of this Agreement and prior to the Expiration Date, subject to the terms,
conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Banks ratably in
accordance with their Commitments. Each Auction Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Bank to make
any Loan required to be made hereunder shall not in itself relieve any other
Bank of its obligation to lend hereunder (it being understood, however, that no
Bank shall be responsible for the failure
<PAGE> 24
23
of any other Bank to make any Loan required to be made by such other Bank). The
Loans comprising each Borrowing shall be in an aggregate principal amount which
is an integral multiple of $1,000,000.
(b) Subject to Section 2.10, (i) each Revolving Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans, as the Borrower may
request pursuant to Section 2.03, and (ii) each Auction Borrowing shall be
comprised entirely of Eurodollar Loans, Fixed Rate Loans or Delayed Fixed Rate
Loans as the Borrower may request in accordance with Section 2.04. Each Bank may
at its option fulfill its Commitment with respect to any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Bank to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement and the applicable Note. Borrowings of more than one Type or Class may
be outstanding at the same time; provided, however, that the Borrower shall not
be entitled to request any Borrowing which, if made, would result in an
aggregate of more than five separate Eurodollar Loans of any Bank being
outstanding hereunder at any one time. For purposes of the foregoing, Loans
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Loans.
(c) Subject to paragraph (e) below, each Bank shall make a
Revolving Loan in the amount of its pro rata portion, as determined under
Section 2.16, or, if an Auction Loan, in the relevant amount as determined under
Section 2.04, of each Borrowing hereunder on the proposed date thereof by wire
transfer of immediately available funds to the Agent in Houston, Texas, not
later than 2:00 p.m., New York City time, and the Agent shall by 3:00 p.m., New
York City time, make available to the Borrower in immediately available funds
the amounts so received (i) by wire transfer for credit to the account of the
Borrower with Seattle First National Bank, Account Number 13972-203; ABA #
12500002-4, or (ii) as otherwise specified by the Borrower in its notice of
Borrowing or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Banks. Unless the Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
<PAGE> 25
24
available to the Agent such Bank's portion of such Borrowing, the Agent may
assume that such Bank has made such portion available to the Agent on the date
of such Borrowing in accordance with this paragraph (c) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have made
such portion available to the Agent, such Bank and the Borrower severally agree
to repay to the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Agent at (i) in the
case of the Borrower the interest rate applicable at the time to the Loans
comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds
Effective Rate. If such Bank shall repay to the Agent such corresponding amount,
such amount shall constitute such Bank's Loan as part of such Borrowing for
purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Expiration Date.
(e) The Borrower may refinance all or any part of any Borrowing
with a Borrowing of the same or a different Type or Class, subject to the
conditions and limitations set forth in this Agreement. Any Borrowing or part
thereof so refinanced shall be deemed to be repaid or prepaid in accordance with
Section 2.05 or 2.12, as applicable, with the proceeds of a new Borrowing, and
the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by the
Banks to the Agent or by the Agent to the Borrower pursuant to paragraph (c)
above.
SECTION 2.03. Notice of Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall give the Agent written or telecopy
notice (or telephone notice promptly confirmed in writing or by telecopy) (a) in
the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York City
time, three Business Days before a proposed borrowing and (b) in the case of an
ABR Borrowing, not later than 12:00 (noon), New York City time, the day of a
<PAGE> 26
25
proposed borrowing. Such notice shall be irrevocable and shall in each case
refer to this Agreement and specify (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Borrowing (which shall be a Business Day) and the amount thereof; and (iii)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. If the Borrower shall not have given notice in
accordance with this Section 2.03 of its election to refinance a Borrowing prior
to the end of the Interest Period in effect for such Borrowing, then the
Borrower shall (unless such Borrowing is repaid at the end of such Interest
Period) be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing. The Agent shall promptly advise the Banks of
any notice given pursuant to this Section 2.03 and of each Bank's portion of the
requested Borrowing.
SECTION 2.04. Auction Bid Procedure. (a) Subject to the terms and
conditions set forth herein, from time to time during the Availability Period
the Borrower may request Auction Bids and may (but shall not have any obligation
to) accept Auction Bids and borrow Auction Loans; provided that the sum of the
total Revolving Credit Exposure plus the aggregate principal amount of
outstanding Auction Loans at any time shall not exceed the total Commitments. To
request Auction Bids, the Borrower shall notify the Agent of such request by
telephone, in the case of a Eurodollar Borrowing, not later than 1:00 p.m., New
York City time, four Business Days before the date of the proposed Borrowing, in
the case of a Fixed Rate Borrowing, not later than 1:00 p.m., New York City
time, one Business Day before the date of the proposed Borrowing, or, in the
case of a Delayed Fixed Rate Borrowing, not later than 2:00 p.m., New York City
time, two Business Days before the date for the proposed Borrowing; provided
that the Borrower may submit up to (but not more than) (i) 1 Eurodollar Auction
Bid Request and (ii) 1 Fixed Rate Auction Bid Request or 1 Delayed Fixed Rate
Auction Bid Request on the same day.
<PAGE> 27
26
Each such telephonic Auction Bid Request shall be confirmed promptly by hand
delivery or telecopy to the Agent of a written Auction Bid Request in a form
approved by the Agent and signed by the Borrower. Each such telephonic and
written Auction Bid Request shall specify the following information in
compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing, a
Fixed Rate Borrowing, or a Delayed Fixed Rate Borrowing;
(iv) the Interest Period (or Interest Periods) to be applicable
to such Borrowing, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.02.
(b) Following receipt of an Auction Bid Request in accordance
with this Section, the Agent shall notify the Banks of the details thereof by
telecopy, inviting the Banks to submit Auction Bids in the case of a Eurodollar
Auction Bid Request, no later than 2:00 p.m., New York City time, four Business
Days before the proposed date of the Borrowing, in the case of a Fixed Rate
Auction Bid Request, no later than 2:00 p.m., one Business Day before the
proposed date of the Borrowing, and, in the case of a Delayed Fixed Rate Bid
Request, not later than 3:00 p.m., New York City time, two Business Days before
the proposed date of the Borrowing.
(c) Each Bank may (but shall not have any obligation to) make one
or more Auction Bids to the Borrower in response to an Auction Bid Request. Each
Auction Bid by a Bank must be in a form approved by the Agent and must be
received by the Agent by telephone, in the case of a Eurodollar Auction
Borrowing, not later than 12:00 (noon), New York City time, three Business Days
<PAGE> 28
27
before the proposed date of such Auction Borrowing, in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the proposed date
of such Auction Borrowing, and, in the case of a Delayed Fixed Rate Bid, not
later than 12:00 (noon), New York City time, one Business Day before the
proposed date of such Auction Borrowing. Auction Bids that do not conform
substantially to the form approved by the Agent may be rejected by the Agent,
and the Agent shall notify the applicable Bank as promptly as practicable. Each
Auction Bid shall specify (i) the principal amount (which shall be an integral
multiple of $1,000,000 and which may equal the entire principal amount of the
Auction Borrowing requested by the Borrower) of the Auction Loan or Loans that
the Bank is willing to make, (ii) the Auction Bid Rate or Rates at which the
Bank is prepared to make such Loan or Loans (expressed as a percentage rate per
annum in the form of a decimal to no more than four decimal places) and (iii)
the Interest Period applicable to each such Loan and the last day thereof in
accordance with the Auction Bid Request.
(d) The Agent shall promptly notify the Borrower by telecopy of
the Auction Bid Rate and the principal amount specified in each Auction Bid and
the identity of the Bank that shall have made such Auction Bid.
(e) Subject only to the provisions of this paragraph, the
Borrower may accept or reject any Auction Bid. The Borrower shall notify the
Agent by telephone, confirmed by telecopy in a form approved by the Agent,
whether and to what extent it has decided to accept or reject each Auction Bid,
in the case of a Eurodollar Auction Borrowing, not later than 2:00 p.m., New
York City time, three Business Days before the date of the proposed Auction
Borrowing, in the case of a Fixed Rate Borrowing, not later than 11:30 a.m., New
York City time, on the proposed date of the Auction Borrowing, and, in the case
of a Delayed Fixed Rate Borrowing, not later than 1:00 p.m., New York City time,
one Business day before the date of the proposed Auction Borrowing; provided
that (i) the failure of the Borrower to give such notice shall be deemed to be a
rejection of each Auction Bid, (ii) the Borrower shall not accept an Auction Bid
made at a particular Auction Bid Rate if the Borrower rejects an Auction Bid
made at a lower Auction Bid Rate, (iii) the aggregate amount of the Auction Bids
accepted by the Borrower shall not exceed the
<PAGE> 29
28
aggregate amount of the requested Auction Borrowing specified in the related
Auction Bid Request, (iv) to the extent necessary to comply with clause (iii)
above, the Borrower may accept Auction Bids at the same Auction Bid Rate in
part, which acceptance, in the case of multiple Auction Bids at such Auction Bid
Rate, shall be made pro rata in accordance with the amount of each such Auction
Bid, and (v) except pursuant to clause (iv) above, no Auction Bid shall be
accepted for an Auction Loan unless such Auction Loan is in an integral multiple
of $1,000,000. A notice given by the Borrower pursuant to this paragraph shall
be irrevocable.
(f) The Agent shall notify each bidding Bank by telephone and
telecopy whether or not its Auction Bid has been accepted (and, if so, the
amount and Auction Bid Rate so accepted) in the case of Eurodollar Auction
Loans, by 3:00 p.m., New York City time, three Business Days before the
borrowing date, in the case of Fixed Rate Loans, by 12:00 (noon), New York City
time, on the borrowing date, and, in the case of Delayed Fixed Rate Loans, by
3:00 p.m., New York City time, one Business Day before the Borrowing Date. Each
successful bidder will thereupon become bound, subject to the terms and
conditions hereof, to make the Auction Loan in respect of which its Auction Bid
has been accepted.
(g) If the Agent shall elect to submit an Auction Bid in its
capacity as a Bank, it shall submit such Auction Bid directly to the Borrower at
least one quarter of an hour earlier than the time by which the other Banks are
required to submit their Auction Bids to the Agent pursuant to paragraph (b) of
this Section.
SECTION 2.05. Notes; Repayment of Loans. The Loans made by each
Bank shall be evidenced by a Note, duly executed on behalf of the Borrower,
dated the date of this Agreement, in substantially the form attached hereto as
Exhibit A, with the blanks appropriately filled, payable to the order of such
Bank in a principal amount equal to such Bank's Commitment. The outstanding
principal balance of each Revolving Loan and Auction Loan, as evidenced by such
a Note, shall be payable on the last day of the Interest Period applicable to
such Loan and on the Expiration Date. Each Note shall bear interest from the
date of the first borrowing hereunder on the outstanding principal balance
<PAGE> 30
29
thereof as set forth in Section 2.08. Each Bank shall, and is hereby authorized
by the Borrower to, endorse on the schedule attached to each Note delivered to
such Bank (or on a continuation of such schedule attached to such Note and made
a part thereof), or otherwise to record in such Bank's internal records, an
appropriate notation evidencing the date and amount of each Loan from such Bank,
each payment and prepayment of principal of any such Loan, each payment of
interest on any such Loan and the other information provided for on such
schedule; provided, however, that any such recordation shall be conclusive
absent manifest error and the failure of any Bank to make such a notation or any
error therein shall not affect the obligation of the Borrower to repay the Loans
made by such Bank in accordance with the terms of this Agreement and the
applicable Notes.
SECTION 2.06. Letters of Credit. (a) General. Subject to the
terms and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Agent and the Issuing Bank, at any time and from time to time during the
Availability Period. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the Borrower to, or
entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
and specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day), the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such other
information as shall
<PAGE> 31
30
be necessary to prepare, amend, renew or extend such Letter of Credit. If
requested by the Issuing Bank, the Borrower also shall submit a letter of credit
application on the Issuing Bank's standard form in connection with any request
for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Letter of Credit the Borrower shall be deemed to represent and warrant that),
after giving effect to such issuance, amendment, renewal or extension (i) the LC
Exposure shall not exceed $25,000,000 and (ii) the sum of the total Revolving
Credit Exposure plus the aggregate principal amount of outstanding Auction Loans
shall not exceed the total Commitments.
(c) Expiration Date. Each Letter of Credit shall expire not later
than the close of business on the date that is five Business Days prior to the
Expiration Date.
(d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Banks, the Issuing Bank
hereby grants to each Bank, and each Bank hereby acquires from the Issuing Bank,
a participation in such Letter of Credit equal to such Bank's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Bank hereby
absolutely and unconditionally agrees to pay to the Agent, for the account of
the Issuing Bank, such Bank's Applicable Percentage of each LC Disbursement made
by the Issuing Bank and not reimbursed by the Borrower on the date due as
provided in paragraph (e) of this Section, or of any reimbursement payment
required to be refunded to the Borrower for any reason to the extent received by
such Bank. Each Bank acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
<PAGE> 32
31
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Agent an amount equal to such LC Disbursement
not later than 12:00 (noon), New York City time, on (i) the Business Day that
the Borrower receives notice of such LC Disbursement, if such notice is received
prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of receipt;
provided that ,if such LC Disbursement is not less than $1,000,000, the Borrower
may, subject to the conditions to borrowing set forth herein, request in
accordance with Section 2.03 that such payment be financed with an ABR Revolving
Borrowing in an equivalent amount and, to the extent so financed, the Borrower's
obligation to make such payment shall be discharged and replaced by the
resulting ABR Revolving Borrowing. If the Borrower fails to make such payment
when due, the Agent shall notify each Bank of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Bank's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Bank shall pay to the Agent its Applicable Percentage of the payment then due
from the Borrower, in the same manner as provided in Section 2.02 with respect
to Loans made by such Bank (and Section 2.02 shall apply, mutatis mutandis, to
the payment obligations of the Banks), and the Agent shall promptly pay to the
Issuing Bank the amounts so received by it from the Banks. Promptly following
receipt by the Agent of any payment from the Borrower pursuant to this
paragraph, the Agent shall distribute such payment to the Issuing Bank or, to
the extent that Banks have made payments pursuant to this paragraph to reimburse
the Issuing Bank, then to such Banks and the Issuing Bank as their interests may
appear. Any payment made by a Bank pursuant to this paragraph to reimburse the
Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving
Loans as contemplated above) shall not constitute a Loan and shall not relieve
the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse
LC Disbursements as provided in paragraph (e) of this Section shall be absolute,
<PAGE> 33
32
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Agent, the Banks nor the Issuing Bank, nor any of their Related Parties,
shall have any liability or responsibility by reason of or in connection with
the issuance or transfer of any Letter of Credit or any payment or failure to
make any payment thereunder (irrespective of any of the circumstances referred
to in the preceding sentence), or any error, omission, interruption, loss or
delay in transmission or delivery of any draft, notice or other communication
under or relating to any Letter of Credit (including any document required to
make a drawing thereunder), any error in interpretation of technical terms or
any consequence arising from causes beyond the control of the Issuing Bank;
provided that the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's gross negligence or wilful misconduct. The
parties hereto expressly agree that, in the absence of gross negligence or
wilful misconduct on the part of the Issuing Bank (as finally determined by a
court of competent jurisdiction), the Issuing Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and
without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the Issuing Bank may, in its sole
discretion, either accept and make payment upon such documents without
responsibility
<PAGE> 34
33
for further investigation, regardless of any notice or information to the
contrary, or refuse to accept and make payment upon such documents if such
documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Agent and the Borrower by telephone (confirmed by telecopy) of such
demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Banks with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.09 shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Bank pursuant to paragraph (e) of this Section to reimburse the Issuing Bank
shall be for the account of such Bank to the extent of such payment.
(i) Cash Collateralization. If any Event of Default shall occur
and be continuing, on the Business Day that the Borrower receives notice from
the Agent, at the request of the Required Banks, demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall deposit in an account
with the Agent, in the name of the Agent and for the benefit of the Banks, an
amount in cash equal to the LC Exposure as of such date plus any accrued and
unpaid interest thereon; provided that the obligation to deposit such cash
collateral shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind,
<PAGE> 35
34
upon the occurrence of any Event of Default with respect to the Borrower
described in clause (g) or (h) of Article VII. Such deposit shall be held by the
Agent as collateral for the payment and performance of the obligations of the
Borrower under this Agreement. The Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Agent and at the
Borrower's risk and expense, such deposits shall not bear interest. Interest or
profits, if any, on such investments shall accumulate in such account. Moneys in
such account shall be applied by the Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the occurrence of
an Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived.
SECTION 2.07. Fees. (a) The Borrower agrees to pay to each Bank,
through the Agent, on the first Business Day of January, April, July and
October, in each year, and on the date on which the Commitment of such Bank
shall be terminated as provided herein, a commitment fee (a "Commitment Fee") on
the average daily unused amount of the Commitment of such Bank during the
preceding quarter (or shorter period commencing with the date hereof or ending
with the Expiration Date or the date on which the Commitment of such Bank shall
be terminated); provided, that, for purposes of determining the Commitment Fee,
the undrawn portion of the Commitments shall not be deemed to be reduced by the
amount of any borrowing under the Auction Facility. The Commitment Fees shall
accrue on each day at a rate per annum equal to the Applicable Rate in effect on
such day. All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as appropriate. The
Commitment Fee due to each Bank shall commence to accrue on the date of this
Agreement and shall cease to accrue on the date on which the Commitment of such
Bank shall be terminated as provided
<PAGE> 36
35
herein.
(b) The Borrower agrees to pay (i) to the Agent for the account
of each Bank a participation fee with respect to its participations in Letters
of Credit, which shall accrue at the Applicable Rate on the average daily amount
of such Bank's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Bank's
Commitment terminates and the date on which such Bank ceases to have any LC
Exposure, and (ii) to the Issuing Bank a fronting fee for Letters of Credit,
which shall accrue at the rate per annum of .125% on the average daily amount of
the LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure. Participation fees and fronting
fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the first Business Day following such
last day, commencing on the first such date to occur after the Effective Date;
provided that all such fees shall be payable on the date on which the
Commitments terminate and any such fees accruing after the date on which the
Commitments terminate shall be payable on demand. Any other fees payable to the
Issuing Bank pursuant to this paragraph shall be payable within 10 days after
demand. All participation fees and fronting fees shall be computed on the basis
of a year of 365 or 366 days, as appropriate and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Agent, for its own account,
the fees set forth in the engagement letter dated May 12, 1998, between the
Agent and the Borrower, at the times set forth therein (the "Agency Fees" and
the "Structuring Fee").
(d) The Borrower agrees to pay the Agent, for its own account,
$100 for each Auction Bid Request the Borrower makes, payable the day on which
the Auction Bid Request is made.
(e) All Fees shall be paid on the dates due, in immediately
available funds, to the Agent (or to the
<PAGE> 37
36
Issuing Bank, in the case of fees payable to it) for distribution, if and as
appropriate, among the Banks. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
Section 2.09, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be) at a rate per annum equal to the Alternate Base
Rate plus the Applicable Rate.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) (i) in the case of
a Eurodollar Revolving Loan at a rate per annum equal to the Eurodollar Rate for
the Interest Period in effect for such Borrowing plus the Applicable Rate or
(ii) in the case of a Eurodollar Auction Loan, at the Eurodollar Rate for the
Interest Period in effect for such Borrowing plus the Margin applicable to such
Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan. Each Delayed Fixed Rate Loan shall bear interest at the
Delayed Fixed Rate applicable to such Loan.
(d) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate or Eurodollar Rate for each
Interest Period or day within an Interest Period, as the case may be, shall be
determined by the Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.09. Default Interest. If the Borrower shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, the Borrower shall on
demand from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360
<PAGE> 38
37
days) equal to the Alternate Base Rate plus the Applicable Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Agent shall have in good
faith determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to the majority in interest of the
Banks of making or maintaining their Eurodollar Loans during such Interest
Period, or that reasonable means do not exist for ascertaining the Eurodollar
Rate, the Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Banks. In the
event of any such determination, (i) any request by the Borrower for a
Eurodollar Borrowing pursuant to Section 2.03 shall, until the Agent shall have
advised the Borrower and the Banks that the circumstances giving rise to such
notice no longer exist, be deemed to be a request for an ABR Borrowing and (ii)
any request by the Borrower for a Eurodollar Auction Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
do not affect all the Banks, then requests by Borrower for Eurodollar Auction
Borrowings may be made to Banks that are not affected thereby and (B) if the
circumstances giving rise to such notice affect only one Type of Borrowings,
then the other Type of Borrowings shall be permitted. Each determination by the
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.11. Termination, Reduction and Extension of
Commitments. (a) The Commitments shall be automatically terminated on the
Expiration Date.
(b) Upon at least three Business Days' prior irrevocable written
or telecopy notice to the Agent, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the
unused portion of the Commitments; provided, however, that (i) each partial
reduction of the Commitments shall be in an integral multiple of $1,000,000 and
(ii) the Borrower shall not terminate or reduce the Commitments if, after giving
<PAGE> 39
38
effect to any concurrent prepayment of the Loans in accordance with Section
2.12, the sum of the Revolving Credit Exposure plus the aggregate principal
amount of outstanding Auction Loans would exceed the total Commitments.
(c) Each reduction in the Commitments hereunder shall be made
ratably among the Banks in accordance with their respective applicable
Commitments. The Borrower shall pay to the Agent for the account of the Banks,
on the date of each termination or reduction, the Commitment Fees on the amount
of the Commitments so terminated or reduced accrued through the date of such
termination or reduction.
(d) The Borrower may request an extension of this Agreement upon
60 days' prior written notice to the Agent; provided, that, such extension will
be at the sole option of the Banks and will require the written agreement of
each Bank in order to become effective.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least three Business Days' prior written or telecopy notice (or
telephone notice promptly confirmed by written or telecopy notice) to the Agent;
provided, however, that each partial prepayment shall be in an amount which is
an integral multiple of $1,000,000, and that the Borrower shall not have the
right to prepay any Auction Loan without the prior consent of the Bank thereof.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11, the Borrower shall pay or prepay so much
of the Borrowings as shall be necessary in order that the aggregate principal
amount of the Revolving Credit Exposure plus the aggregate principal amount of
Auction Loans outstanding will not exceed the aggregate Commitments after giving
effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date
and the principal amount of each Borrowing (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Borrowing by
the amount stated therein on the date stated therein. All prepayments under this
Section 2.12 shall be subject to
<PAGE> 40
39
Section 2.15 but otherwise without premium or penalty. All prepayments under
this Section 2.12 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
there is adopted any new law, rule or regulation or any change in applicable law
or regulation or in the interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law) which shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by such Bank (except
any such reserve requirement which is reflected in the Eurodollar Rate) or shall
impose on such Bank or the London interbank market any other condition affecting
this Agreement or Eurodollar Loans made by such Bank, and the result of any of
the foregoing shall be to increase the cost to such Bank of making or
maintaining any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Bank hereunder or under the Notes (whether of principal,
interest or otherwise) in respect of Eurodollar Loans by an amount deemed by
such Bank to be material, then the Borrower will pay to such Bank upon demand
such additional amount or amounts as will compensate such Bank for such
additional costs incurred or reduction suffered.
(b) If any Bank shall have determined that the applicability of
any law, rule, regulation, agreement or guideline adopted after the date hereof
regarding capital adequacy, or any change in any of the foregoing or the
adoption after the date hereof of any change in any law, rule, regulation,
agreement or guideline existing on the date hereof or in the interpretation or
administration of any of the foregoing by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any lending office of such Bank) or any
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital or on the capital of such Bank's
<PAGE> 41
40
holding company, if any, as a consequence of this Agreement or the Loans made by
such Bank pursuant hereto to a level below that which such Bank or such Bank's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Bank's policies and the policies
of such Bank's holding company with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time the Borrower shall
pay to such Bank such additional amount or amounts as will compensate such Bank
or such Bank's holding company for any such reduction suffered.
(c) A certificate of each Bank setting forth in reasonable detail
such amount or amounts as shall be necessary to compensate such Bank or its
holding company as specified in paragraph (a) or (b) above, as the case may be,
and the manner in which such Bank has determined the same, shall be delivered to
the Borrower and shall be conclusive absent manifest error. The Borrower shall
pay each Bank the amount shown as due on any such certificate delivered by it
within 10 days after its receipt of the same.
(d) Failure on the part of any Bank to demand compensation for
any increased costs or reduction in amounts received or receivable or reduction
in return on capital with respect to any period shall not constitute a waiver of
such Bank's right to demand compensation with respect to such period or any
other period. The protection of this Section shall be available to each Bank
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition which shall
have occurred or been imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
provision herein, if any change in, or adoption of, any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Agent, such Bank may:
<PAGE> 42
41
(i) declare that Eurodollar Loans will not there after be made
by such Bank hereunder, whereupon any request by the Borrower for a
Eurodollar Borrowing shall, as to such Bank only, be deemed a request
for an ABR Loan unless such declaration shall be subsequently withdrawn;
and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall
be automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Bank shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Bank or the
converted Eurodollar Loans of such Bank shall instead be applied to repay the
ABR Loans made by such Bank in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice to the Borrower
by any Bank shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar Loan.
SECTION 2.15. Indemnity. The Borrower shall indemnify each Bank
against any loss or expense which such Bank may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
Eurodollar Borrowing hereunder the applicable conditions set forth in Article
IV, (b) any failure by the Borrower to borrow or to refinance any Eurodollar
Loan hereunder after irrevocable notice of such borrowing or refinancing has
been given pursuant to Sections 2.03 and 2.04, (c) any payment or prepayment of
a Eurodollar Loan required by any other provision of this Agreement or otherwise
made or deemed made on a date other than the last day of the Interest Period
applicable thereto or (d) any default in payment or prepayment of the principal
amount of any Eurodollar Loan or any part thereof or interest accrued thereon,
as and when due and payable (at the due date thereof, whether by scheduled
maturity, acceleration, irrevocable notice of prepayment or otherwise)
including, in each such case, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating
<PAGE> 43
42
or employing deposits from third parties acquired to effect or maintain such
Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense
shall include an amount equal to the excess, if any, as reasonably determined by
such Bank, of (i) its cost of obtaining the funds for the Eurodollar Loan being
paid, prepaid, converted or not borrowed (assumed to be the Eurodollar Rate
applicable thereto) for the period from the date of such payment, prepayment,
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such
Eurodollar Loan which would have commenced on the date of such failure) over
(ii) the amount of interest (as reasonably determined by such Bank) that would
be realized by such Bank in reemploying the funds so paid, prepaid or not
borrowed for such period or Interest Period, as the case may be. A certificate
of any Bank setting forth any amount or amounts which such Bank is entitled to
receive pursuant to this Section, and the manner in which such Bank has
determined the same, shall be delivered to the Borrower and shall be conclusive
absent manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required under
Sections 2.04 and 2.14, each Borrowing, each payment or prepayment of principal
of any Borrowing, each payment of interest on the Loans, each payment of the
Commitment Fees, each reduction of the Commitments and each refinancing of any
Borrowing with a Borrowing of any Type shall be allocated pro rata among the
Banks in accordance with their respective applicable Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). Each Bank agrees that
in computing such Bank's portion of any Borrowing to be made hereunder, the
Agent may, in its discretion, round each Bank's percentage of such Borrowing,
computed in accordance with Section 2.01, to the next higher or lower whole
dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Bank agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Bank under any applicable
bankruptcy,
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43
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Revolving Loan or Revolving
Loans or participations in LC Disbursements as a result of which the unpaid
principal portion of its Revolving Loans or participations in LC Disbursements
shall be proportionately less than the unpaid principal portion of the Revolving
Loans or participations in LC Disbursements of any other Bank, it shall be
deemed simultaneously to have purchased from such other Bank at face value, and
shall promptly pay to such other Bank the purchase price for, a participation in
the Revolving Loans or participations in LC Disbursements of such other Bank, so
that the aggregate unpaid principal amount of the Revolving Loans and
participations in Revolving Loans and in LC Disbursements held by each Bank
shall be in the same proportion to the aggregate unpaid principal amount of all
Revolving Loans and participations in LC Disbursements then outstanding as the
principal amount of its Revolving Loans and participations in LC Disbursements
prior to such exercise of banker's lien, setoff or counterclaim or other event
was to the principal amount of all Revolving Loans and participations in LC
Disbursements outstanding prior to such exercise of banker's lien, setoff or
counter-claim or other event; provided, however, that, if any such purchase or
purchases or adjustments shall be made pursuant to this Section and the payment
giving rise thereto shall thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and the purchase
price or prices or adjustment restored without interest. The Borrower expressly
consents to the foregoing arrangements and agrees that any Bank holding a
participation in a Revolving Loan or in an LC Disbursement deemed to have been
so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrower to such
Bank by reason thereof as fully as if such Bank had made a Loan directly to the
Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or reimbursements of LC
Disbursements or any Fees or other amounts) hereunder and under any other Loan
Document not later than 12:00 (noon), New York City time, on the date when due
in dollars to the Agent at its offices
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44
at 909 Fanning, Suite 1700, Houston, Texas, in immediately available funds.
(b) Whenever any payment (including principal of or interest on
any Borrowing or reimbursements of LC Disbursements or any Fees or other
amounts) hereunder or under any other Loan Document shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.18, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of the Agent, any Bank or the Issuing
Bank (or any transferee or assignee thereof, including a participation holder
(any such entity being called a "Transferee")) and franchise taxes imposed on
the Agent, any Bank or the Issuing Bank (or Transferee) by the United States or
any jurisdiction under the laws of which the Agent, any such Bank or the Issuing
Bank (or such Transferee) or the applicable lending office, is organized or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Banks or the Issuing Bank (or
any Transferee) or the Agent, (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.19) such
Bank or the Issuing Bank (or such Transferee) or the Agent (as the case may be)
shall receive an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing authority or
other Governmental Authority in accordance with applicable law; provided,
however, that no Transferee of any Bank shall be entitled to receive any greater
payment under this paragraph (a) than such Bank would have been entitled to
<PAGE> 46
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receive with respect to the rights assigned, participated or other wise
transferred unless such assignment, participation or transfer shall have been
made at a time when the circumstances giving rise to such greater payment did
not exist.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank (or Transferee), the
Issuing Bank (or Transferee) and the Agent for the full amount of Taxes and
Other Taxes paid by such Bank (or such Transferee), the Issuing Bank (or such
Transferee) or the Agent, as the case may be, and any liability (including
penalties, interest and reasonable expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant taxing authority or other Governmental Authority. Such
indemnification shall be made within 30 days after the date any Bank or the
Issuing Bank (or Transferee) or the Agent, as the case may be, makes written
demand therefor. If a Bank or the Issuing Bank (or Transferee) or the Agent
shall become aware that it is entitled to receive a refund in respect of Taxes
or Other Taxes as to which it has been indemnified by the Borrower pursuant to
this Section 2.19, it shall promptly notify the Borrower of the availability of
such refund and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund at the Borrower's expense. If any Bank or the
Issuing Bank (or Transferee) or the Agent receives a refund in respect of any
Taxes or Other Taxes as to which it has been indemnified by the Borrower
pursuant to this Section 2.19, it shall promptly notify the Borrower of such
refund and shall repay such refund to the Borrower (to the extent of amounts
that have been paid by the Borrower under this Section 2.19 with respect to such
refund) within 30 days (or promptly upon receipt, if the Borrower has requested
application for such refund pursuant hereto), net of all reasonable
out-of-pocket expenses of such Bank and without interest; provided that the
Borrower, upon the request of such Bank or the Issuing Bank (or such
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46
Transferee) or the Agent, agrees to return such refund (plus penalties, interest
or other charges) to such Bank or the Issuing Bank (or such Transferee) or the
Agent in the event such Bank or the Issuing Bank (or such Transferee) or the
Agent is required to repay such refund. Nothing contained in this paragraph (c)
shall require any Bank or the Issuing Bank (or Transferee) or the Agent to make
available any of its tax returns (or any other information relating to its taxes
which it deems to be confidential); provided that Borrower, at its expense,
shall have the right to receive an opinion from a firm of independent public
accountants of recognized national standing acceptable to the Borrower that the
amount due hereunder is correctly calculated.
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Bank or
the Issuing Bank (or Transferee) or the Agent, the Borrower will furnish to the
Agent, at its address referred to in Section 9.01, the original or a certified
copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.19
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) On or prior to the execution of this Agreement and on or
before the transfer to a Transferee, the Agent shall notify the Borrower of each
Bank's or the Issuing Bank's (or Transferee's) address. On or prior to the
Banks' or the Issuing Bank's (or Transferee's) first Interest Payment Date, and
from time to time as required by law, each Bank or the Issuing Bank (or
Transferee) that is organized under the laws of a jurisdiction outside the
United States shall, if legally able to do so, deliver to the Borrower and the
Agent such certificates, documents or other evidence, as required by the Code or
Treasury Regulations issued pursuant thereto, including Internal Revenue Service
Form 1001 or Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any
subsequent version thereof or successors thereto, properly completed and duly
executed by such Bank or such Issuing
<PAGE> 48
47
Bank (or Transferee) establishing that such payment is (i) not subject to United
States Federal withholding tax under the Code because such payment is
effectively connected with the conduct by such Bank or such Issuing Bank (or
Transferee) of a trade or business in the United States or (ii) totally exempt
from United States Federal withholding tax, or subject to a reduced rate of such
tax under a provision of an applicable tax treaty. Unless the Borrower and the
Agent have received forms or other documents satisfactory to them indicating
that such payments hereunder or under the Notes are not subject to United States
Federal withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrower shall withhold taxes from such payments at
the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Bank or the Issuing Bank (or Transferee) in respect of United
States Federal withholding tax pursuant to paragraph (a) above if the obligation
to pay such additional amounts would not have arisen but for a failure by such
Bank or such Issuing Bank (or Transferee) to comply with the provisions of
paragraph (f) above; provided, however, that the Borrower shall be required to
pay those amounts to any Bank or the Issuing Bank (or Transferee) that it was
required to pay hereunder prior to the failure of such Bank or such Issuing Bank
(or Transferee) to comply with the provisions of such paragraph (f).
SECTION 2.20. Termination or Assignment of Commitments Under
Certain Circumstances. (a) Any Bank or the Issuing Bank (or Transferee) claiming
any additional amounts payable pursuant to Section 2.13 or Section 2.19 or
exercising its rights under Section 2.14 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or to change the jurisdiction of its
applicable lending office if the making of such a filing or change would avoid
the need for or reduce the amount of any such additional amounts which may
thereafter accrue or avoid the circumstances giving rise to such exercise and
would not, in the sole determination of such Bank or such Issuing Bank, be
otherwise disadvantageous to such Bank or such Issuing Bank (or Transferee).
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48
(b) In the event that any Bank shall have delivered a notice or
certificate pursuant to Section 2.13 or 2.14, or the Borrower shall be required
to make additional payments under Section 2.19 to any Bank or the Issuing Bank
(or Transferee) or to the Agent with respect to any Bank or the Issuing Bank (or
Transferee), the Borrower shall have the right, at its own expense, upon notice
to such Bank or the Issuing Bank (or Transferee) and the Agent (and, if a
Commitment is being assigned, the Issuing Bank), (a) to terminate the Commitment
of such Bank or such Issuing Bank (or Transferee) or (b) to require such Bank or
the Issuing Bank (or Transferee) to transfer and assign without recourse (in
accordance with and subject to the restrictions contained in Section 9.04) all
its interests, rights and obligations under this Agreement (other than any
outstanding Auction Loans) to another financial institution which shall assume
such obligations; provided that (i) no such termination or assignment shall
conflict with any law, rule or regulation or order of any Governmental Authority
and (ii) the Borrower or the assignee, as the case may be, shall pay to the
affected Bank or the Issuing Bank (or Transferee) in immediately available funds
on the date of such termination or assignment the principal of and interest
accrued to the date of payment on the Loans made by it hereunder and all other
amounts accrued for its account or owed to it hereunder and, in the case of a
termination or assignment by the Issuing Bank, shall cause all Letters of Credit
to be surrendered for cancelation on or prior to the date of such termination or
assignment.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Banks that:
SECTION 3.01. Organization; Powers. Each of the Borrower and the
Significant Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to
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49
qualify would not result in a Material Adverse Effect, and (d) in the case of
the Borrower, has the corporate power and authority to execute, deliver and
perform its obligations under each of the Loan Documents and each other
agreement or instrument contemplated thereby to which it is or will be a party
and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by the Borrower of each of the Loan Documents and the borrowings
hereunder (collectively, the "Transactions") (a) have been duly authorized by
all requisite corporate and, if required, stockholder action and (b) will not
(i) violate (A) any provision of law, statute, rule or regulation the violation
of which could reasonably be expected to impair the validity and enforceability
of this Agreement or any other Loan Document or materially impair the rights of
or benefits available to the Banks under the Loan Documents, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of the Borrower or any Significant Subsidiary, (B) any order of any
Governmental Authority the violation of which could reasonably be expected to
impair the validity or enforce ability of this Agreement or any other Loan
Document, or materially impair the rights of or benefits available to the Banks
under the Loan Documents, or (C) any provision of any indenture or other
material agreement or instrument evidencing or relating to borrowed money to
which the Borrower or any Significant Subsidiary is a party or by which any of
them or any of their property is or may be bound in a manner which could
reasonably be expected to impair the validity and enforceability of this
Agreement or any other Loan Document or materially impair the rights of or
benefits available to the Banks under the Loan Documents, (ii) be in conflict
with, result in a breach of or constitute (alone or with notice or lapse of time
or both) a default under any such indenture, agreement or other instrument in a
manner which could reasonably be expected to impair the validity and
enforceability of this Agreement or any other Loan Document or materially impair
the rights of or benefits available to the Banks under the Loan Documents or
(iii) result in the creation or imposition under any such indenture, agreement
or other instrument of any Lien upon or with respect to any property or assets
now owned or hereafter acquired by the Borrower.
SECTION 3.03. Enforceability. This Agreement
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50
has been duly executed and delivered by the Borrower and constitutes, and each
other Loan Document when executed and delivered by the Borrower will constitute,
a legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except
such as have been made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. The Borrower has heretofore
furnished to the Banks its consolidated balance sheets and statements of income
and statements of cash flow as of and for the fiscal year ended December 31,
1997, audited by and accompanied by the opinion of Deloitte & Touche,
independent public accountants. Such financial statements present fairly the
financial condition and results of operations of the Borrower and its
consolidated subsidiaries as of such dates and for such periods. Such balance
sheets and the notes thereto, together with the Borrower's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, reflect all liabilities,
direct or contingent, of the Borrower and its consolidated Subsidiaries as of
the dates thereof which are material on a consolidated basis. Such financial
statements were prepared in accordance with GAAP applied (except as noted
therein) on a consistent basis.
SECTION 3.06. No Material Adverse Change. Except as disclosed in
the Borrower's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and in the Borrower's Form 10-Q for the fiscal quarter ended March 31,
1998, there has been no change in the business, assets, operations or financial
condition of the Borrower and the Subsidiaries, taken as a whole, since December
31, 1997, which could reasonably be expected to have a material adverse effect
on the creditworthiness of the Borrower.
SECTION 3.07. Litigation; Compliance with Laws. (a) Except as set
forth in the Annual Report of the Borrower on Form 10-K for the year ended
December 31, 1997, or in any document filed prior to the date of this Agreement
pursuant to Sections 13(a), 14 or 15(d) of the
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51
Securities Exchange Act of 1934, there are not any actions, suits or proceedings
at law or in equity or by or before any Governmental Authority now pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any Subsidiary or any business, property or rights of any such person (i)
which involve any Loan Document or the Transactions or (ii) which could
reasonably be anticipated, individually or in the aggregate, to result in a
Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would be reasonably likely to result in a Material Adverse
Effect.
SECTION 3.08. Federal Reserve Regulations. (a) Neither the
Borrower nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan or Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (i) to purchase or carry Margin Stock or to extend credit to
others for the purpose of purchasing or carrying Margin Stock or to refund
indebtedness originally incurred for such purpose, or (ii) for any purpose which
entails a violation of, or which is inconsistent with, the provisions of the
Regulations of the Board, including Regulation U or X.
SECTION 3.09. Investment Company Act; Public Utility Holding
Company Act. The Borrower is not (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) subject
to regulation as a "holding company" under the Public Utility Holding Company
Act of 1935.
SECTION 3.10. Use of Proceeds and Letters of Credit. The Borrower
will use the proceeds of the Loans and the Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.11. No Material Misstatements. No
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52
information, report, financial statement, exhibit or schedule furnished by or on
behalf of the Borrower to the Agent, the Issuing Bank or any Bank in connection
with the negotiation of any Loan Document or included therein or delivered
pursuant thereto contained, contains or will contain any material misstatement
of fact or, when considered together with all reports theretofore filed with the
Securities and Exchange Commission, omitted, omits or will omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were, are or will be made, not misleading.
SECTION 3.12. Employee Benefit Plans. Each of the Borrower and
its ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the regulations and published interpretations
thereunder. No Reportable Event has occurred as to which the Borrower or any
ERISA Affiliate was required to file a report with the PBGC, and the present
value of all benefit liabilities under each Plan (based on those assumptions
used to fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed by more than $10,000,000 the value of the assets of such Plan.
SECTION 3.13. Environmental and Safety Matters. Each of the
Borrower and each Subsidiary has complied with all Federal, state, local and
other statutes, ordinances, orders, judgments, rulings and regulations relating
to environmental pollution or to environmental or nuclear regulation or control
or to employee health or safety, except where noncompliance would not be
reasonably likely to result in a Material Adverse Effect. Neither the Borrower
nor any Subsidiary has received notice of any failure so to comply, except where
noncompliance would not be reasonably likely to result in a Material Adverse
Effect. The Borrower's and the Subsidiaries' plants do not manage any hazardous
wastes, hazardous substances, hazardous materials, toxic substances, toxic
pollutants or substances similarly denominated, as those terms or similar terms
are used in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the
Clean Water Act or any other applicable law relating to environmental pollution
or employee health and safety, or any nuclear fuel or other radioactive
materials, in
<PAGE> 54
53
violation of any law or any regulations promulgated pursuant thereto, where such
violation would be reasonably likely to result in a Material Adverse Effect. The
Borrower is aware of no events, conditions or circumstances involving
environmental pollution or contamination or employee health or safety that could
reasonably be expected to result in a Material Adverse Effect. The
representations and warranties set forth in this Section 3.13 are, however,
subject to any matters, circumstances or events set forth in the Borrower's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and in
the Borrower's Form 10-Q for the fiscal quarter ended March 31, 1998; provided,
however, that the inclusion of such matters, circumstances or events as
exceptions (or any other exceptions contained in the representations and
warranties which refer to the Borrower's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 or the Borrower's Form 10-Q for the fiscal
quarter ended March 31, 1998) shall not be construed to mean that the Borrower
has concluded that any such matter, circumstance or effect is likely to result
in a Material Adverse Effect.
SECTION 3.14. Significant Subsidiaries. Schedule 3.14 sets forth
as of the date hereof a list of all Significant Subsidiaries of the Borrower and
the percentage ownership interest of the Borrower therein.
SECTION 3.15. Year 2000 Compliance. The Borrower and each
Significant Subsidiary has a) initiated a review and assessment of all areas
within its and each of its Significant Subsidiaries' business and operations
(including those mission critical suppliers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Significant Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999) and (b) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and,
as of the date of this Agreement, is implementing that plan in accordance with
that timetable. The Borrower and each Significant Subsidiary reasonably believes
that all computer applications that are material to its or any of its
Significant Subsidiaries' business and operations will on a timely basis be able
to perform properly date-sensitive functions for all dates before and
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54
after January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Banks to make Loans and of the Issuing
Bank to issue, amend, renew, or extend Letters of Credit, hereunder are subject
to the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each Borrowing or
issuance, renewal, extension or amending of a Letter of Credit, including each
Borrowing in which Loans are refinanced with new Loans as contemplated by
Section 2.02(e):
(a) The Agent shall have received a notice of such Borrowing as
required by Section 2.03.
(b) The representations and warranties set forth in Article III
hereof (except, in the case of a refinancing of Loans or the issuance,
amendment, renewal or extension of a Letter of Credit or the refinancing
of a LC Disbursement that does not increase the sum of the Revolving
Credit Exposure, LC Disbursements and the Auction Loans of any Bank
outstanding, the representations set forth in Sections 3.06 and 3.07)
shall be true and correct in all material respects on and as of the date
of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit with the same effect as though made
on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part
to be observed or performed, and at the time of and immediately after
such Borrowing or the date of issuance, amendment, renewal or extension
of such Letter of Credit no Event of Default or Default shall have
occurred and be continuing.
Each Borrowing and issuance, amendment, renewal or
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55
extension of such Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date of such Borrowing as to
the matters specified in paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Borrowing. On the date of this Agreement:
(a) Each Bank shall have received a duly executed Note complying
with the provisions of Section 2.05.
(b) The Agent shall have received favorable written opinions of
(i) Paine, Hamblen, Coffin, Brooke & Miller, general counsel for the
Borrower, and (ii) Reid & Priest, special counsel to the Borrower, each
dated the date of this Agreement and addressed to the Banks, to the
effect set forth in Exhibits D-1 and D-2 hereto, and the Borrower hereby
instructs such counsel to deliver such opinions to the Agent.
(c) The Agent shall have received evidence satisfactory to it
and set forth on Schedule 4.02(c) that the Borrower shall have obtained
all consents and approvals of, and shall have made all filings and
registrations with, any Governmental Authority required in order to
consummate the Transactions, in each case without the imposition of any
condition which, in the judgment of the Banks, could adversely affect
their rights or interests hereunder.
(d) All legal matters incident to this Agreement and the
borrowings hereunder shall be satisfactory to the Banks and their
counsel and to Cravath, Swaine & Moore, counsel for the Agent.
(e) The Agent shall have received (i) a copy of the certificate
or articles of incorporation, including all amendments thereto, of the
Borrower, certified as of a recent date by the Secretary of State of the
state of its organization, and a certificate as to the good standing of
the Borrower as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of the Borrower
dated the Closing Date and certifying (A) that attached thereto is a
true and complete copy
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of the by-laws of the Borrower as in effect on the Closing Date and at
all times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of the Borrower
authorizing the execution, delivery and performance of the Loan
Documents and the borrowings hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (C) that the certificate or articles of incorporation of the
Borrower have not been amended since the date of the last amendment
thereto shown on the certificate of good standing furnished pursuant to
clause (i) above, and (D) as to the incumbency and specimen signature of
each officer executing any Loan Document or any other document delivered
in connection herewith on behalf of the Borrower; (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to
(ii) above; and (iv) such other documents as the Banks or their counsel
or Cravath, Swaine & Moore, counsel for the Agent, may reasonably
request.
(f) The Agent shall have received a certificate, dated the
Closing Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.
(g) The Agent shall have received evidence satisfactory to it
that confirms the cancelation of the $50,000,000 and $70,000,000 Credit
Facilities.
(h) The Agent shall have received all Fees and other amounts due
and payable on or prior to the date of this Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Bank and with the
Issuing Bank that so long as this Agreement shall remain in effect or the
principal of or interest on any Loan, any Fees or any other expenses, any LC
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Disbursement or amounts payable under any Loan Document shall be unpaid or any
Letter of Credit remains outstanding, unless the Required Banks shall otherwise
consent in writing, the Borrower will:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, except as otherwise expressly permitted under
Section 6.02.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names utilized in the conduct of the Borrower's business except where the
failure so to obtain, preserve, renew, extend or maintain any of the foregoing
would not result in a Material Adverse Effect; maintain and operate such
business in substantially the manner in which it is presently conducted and
operated, except as otherwise expressly permitted under this Agreement; comply
in all material respects with all applicable laws, rules, regulations and orders
of any Governmental Authority, whether now in effect or hereafter enacted if
failure to comply with such requirements would result in a Material Adverse
Effect; and at all times maintain and preserve all property material to the
conduct of such business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that the Borrower may cause
the discontinuance of the operation or a reduction in the capacity of any of its
facilities, or any element or unit thereof including, without limitation, real
and personal properties, facilities, machinery and equipment, (i) if, in the
judgment of the Borrower, it is no longer advisable to operate the same, or to
operate the same at its former capacity, and such discontinuance or reduction
would not result in a Material Adverse Effect, or (ii) if the Borrower intends
to sell and dispose of its interest in the same in accordance with the terms of
this Agreement and within a reasonable time shall endeavor to effectuate the
same.
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SECTION 5.02. Insurance. (a) Maintain insurance, to such extent
and against such risks, as is customary with companies in the same or similar
businesses and owning similar properties in the same general area in which the
Borrower operates and (b) maintain such other insurance as may be required by
law. All insurance required by this Section 5.02 shall be maintained with
financially sound and reputable insurers or through self-insurance; provided,
however, that the portion of such insurance constituting self-insurance shall be
comparable to that usually maintained by companies engaged in the same or
similar businesses and owning similar properties in the same general area in
which the Borrower operates and the reserves maintained with respect to such
self-insured amounts are deemed adequate by the officer or officers of the
Borrower responsible for insurance matters.
SECTION 5.03. Taxes and Obligations. Pay and discharge promptly
when due all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or in respect of its property, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any part thereof; provided, however, that such payment
and discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower shall, to
the extent required by GAAP, have set aside on its books adequate reserves with
respect thereto.
SECTION 5.04. Financial Statements, Reports, etc. Furnish to the
Agent and each Bank:
(a) within 105 days after the end of each fiscal year, its
consolidated and consolidating balance sheets and related statements of
income and statements of cash flow, showing the financial condition of
the Borrower and its consolidated Subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by Deloitte & Touche or other
independent public accountants of recognized national standing
acceptable to the Required Banks and
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accompanied by an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results
of operations of the Borrower on a consolidated basis (except as noted
therein) in accordance with GAAP consistently applied;
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated and, to the extent
otherwise available, consolidating balance sheets and related statements
of income and statements of cash flow, showing the financial condition
of the Borrower and its consolidated subsidiaries as of the close of
such fiscal quarter and the results of its operations and the operations
of such subsidiaries during such fiscal quarter and the then elapsed
portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
(a) or (b) above, a certificate of the relevant accounting firm opining
on or certifying such statements or Financial Officer (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) certifying that to the knowledge of the accounting firm
or the Financial Officer, as the case may be, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto;
(d) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
governmental authority succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or distributed to
its share
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holders, as the case may be; and
(e) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any Significant Subsidiary, or compliance with the terms
of any Loan Document, as the Agent or any Bank may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Agent
and each Bank prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any written threat or
notice of intention of any person to file or commence, any action, suit
or proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Subsidiary thereof
which could reasonably be anticipated to result in a Material Adverse
Effect; and
(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
applicable provisions of ERISA and (b) furnish to the Agent and each Bank (i) as
soon as possible, and in any event within 30 days after any Responsible Officer
of the Borrower or any ERISA Affiliate either knows or has reason to know that
any Reportable Event has occurred that alone or together with any other
Reportable Event could reasonably be expected to result in liability of the
Borrower to the PBGC in an aggregate amount exceeding $10,000,000, a statement
of a Financial Officer setting forth details as to such Reportable Event and the
action proposed to be taken with respect thereto, together with a copy of the
notice, if any, of such Reportable Event given to the PBGC, (ii) promptly after
receipt thereof, a copy of any notice the Borrower or any ERISA Affiliate may
receive from the PBGC relating to the
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61
intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a
trustee to administer any Plan or Plans and (iii) within 10 days after the due
date for filing with the PBGC pursuant to Section 412(n) of the Code of a notice
of failure to make a required installment or other payment with respect to a
Plan, a statement of a Financial Officer setting forth details as to such
failure and the action proposed to be taken with respect thereto, together with
a copy of such notice given to the PBGC.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP and permit
any representatives designated by any Bank to visit and inspect the financial
records and the properties of the Borrower at reasonable times and as often as
requested and to make extracts from and copies of such financial records, and
permit any representatives designated by any Bank to discuss the affairs,
finances and condition of the Borrower with the chief financial officer of the
Borrower, or other person designated by the chief financial officer, and
independent accountants therefor.
SECTION 5.08. Use of Proceeds and Letters of Credit. Use the
proceeds of the Loans and the Letters of Credit only for the purposes set forth
in the preamble to this Agreement.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Bank that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan shall be unpaid, any LC Disbursement, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid or any Letter of Credit
remains outstanding, unless the Required Banks shall otherwise consent in
writing, the Borrower will not:
SECTION 6.01. Liens. Create, incur, assume or permit to exist any
Lien on any property or assets (including stock or other securities of any
person,
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including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower created by the
documents, instruments or agreements existing on the date hereof and
which are listed as exhibits to the Borrower's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, to the extent that
such Liens secure only obligations arising under such existing
documents, agreements or instruments;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower; provided that (i) such Lien is not
created in contemplation of or in connection with such acquisition and
(ii) such Lien does not apply to any other property or assets of the
Borrower;
(c) the Lien of the First Mortgage;
(d) Liens permitted under the First Mortgage (whether or not
such permitted Liens cover properties or assets subject to the Lien of
the First Mortgage) and any other Liens to which the Lien of the First
Mortgage is expressly made subject;
(e) the Lien of any collateral trust mortgage or similar
instrument which would be intended to eventually replace (in one
transaction or a series of transactions) the First Mortgage (as amended,
modified or supplemented from time to time, "Collateral Trust Mortgage")
on properties or assets of the Borrower to secure bonds, notes and other
obligations of the Borrower; provided that, so long as the First
Mortgage shall constitute a Lien on properties or assets of the
Borrower, the bonds, notes or other obligations issued under the
Collateral Trust Mortgage (i) shall also be secured by an equal
principal amount of bonds issued under the First Mortgage or (ii) shall
be issued against property additions not subject to the Lien of the
First Mortgage;
(f) Liens permitted under the Collateral Trust Mortgage (whether
or not such permitted Liens cover
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properties or assets subject to the Lien of the Collateral Trust
Mortgage) and any other Liens to which the Lien of the Collateral Trust
Mortgage is subject;
(g) Liens for taxes, assessments or governmental charges not yet
due or which are being contested in compliance with Section 5.03;
(h) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested in compliance with Section 5.03;
(i) pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and
other social security laws or regulations;
(j) Liens incurred or created in connection with or to secure
the performance of bids, tenders, trade contracts (other than for
Indebtedness), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(k) zoning restrictions, easements, rights-of-way, restrictions
on use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not substantial
in amount and do not materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business
of the Borrower or any of its Subsidiaries;
(l) Liens (i) which secure obligations not assumed by the
Borrower, (ii) on account of which the Borrower has not and does not
expect to pay interest directly or indirectly and (iii) which exist upon
real estate or rights in or relating to real estate in respect of which
the Borrower has a right-of-way or other easement for purposes of
substations or transmission or distribution facilities;
(m) rights reserved to or vested in any federal,
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state or local governmental body or agency by the terms of any right,
power, franchise, grant, license, con tract or permit, or by any
provision of law, to recapture or to purchase, or designate a purchase
of or order the sale of, any property of the Borrower or to terminate
any such right, power, franchise, grant, license, contract or permit
before the expiration thereof;
(n) Liens of judgments covered by insurance, or upon appeal and
covered by bond, or to the extent not so covered not exceeding at one
time $10,000,000 in aggregate amount;
(o) any Liens, moneys sufficient for the discharge of which
shall have been deposited in trust with the trustee or mortgagee under
the instrument evidencing such Lien, with irrevocable authority of such
trustee or mortgagee to apply such moneys to the discharge of such Lien
to the extent required for such purpose;
(p) rights reserved to or vested in any federal, state or local
governmental body or agency or other public authority to control or
regulate the business or property of the Borrower;
(q) any obligations or duties, affecting the property of the
Borrower to any federal, state or local governmental body or agency or
other public authority with respect to any authorization, permit,
consent or license of such body, agency or authority, given in
connection with the purchase, construction, equipping, testing and
operation of the Borrower's utility property;
(r) with respect to any property which the Borrower may
hereafter acquire, any exceptions or reservations therefrom existing at
the time of such acquisition or any terms, conditions, agreements,
covenants, exceptions and reservations expressed or provided in the
deeds of other instruments, respectively, under and by virtue of which
the Borrower shall hereafter acquire the same, none of which materially
impairs the use of such property for the purposes for which it is
acquired by the Borrower;
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(s) leases and subleases entered into in the ordinary course of
business;
(t) banker's Liens and other Liens in the nature of a right of
set-off;
(u) Liens resulting from any transaction permitted under Section
6.03(iv);
(v) renewals, replacements, amendments, modifications,
supplements, refinancings or extensions of Liens set forth above to the
extent that the principal amount of Indebtedness secured by such Lien
immediately prior thereto is not increased and such Lien is not extended
to other property (it being understood that such limitation does not
apply to the Liens described in subsection (c), (e) or (u) above);
(w) security deposits or amounts paid into trust funds for the
reclamation of mining properties;
(x) restrictions on transfer or use of properties and assets,
first rights of refusal, and rights to acquire properties and assets
granted to others;
(y) non-consensual equitable Liens on the Borrower's
tenant-in-common or other interest in joint projects;
(z) Liens on the Borrower's tenant-in-common or other interest
in joint projects incurred by the project sponsor without the express
consent of the Borrower to such incurrence;
(aa) cash collateral contemplated under Section 2.06(i); and
(ab) Liens not expressly permitted in clauses (a) through (aa)
of this Section 6.01 to secure Indebtedness of the Borrower, provided
that the aggregate outstanding principal amount of the Indebtedness so
secured does not at any one time exceed 5% of the total assets of the
Borrower and its Subsidiaries, computed and consolidated in accordance
with GAAP consistently applied.
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SECTION 6.02. Mergers, Consolidations and Acquisitions. Merge
into or consolidate with any other person, or permit any other person to merge
into or consolidate with it, or purchase, lease or otherwise acquire (in one
transaction or a series of transactions) all or substantially all of the assets
of any other person (whether directly by purchase, lease or other acquisition of
all or substantially all of the assets of such person or indirectly by purchase
or other acquisition of all or substantially all of the capital stock of such
other person) other than acquisitions in the ordinary course of the Borrower's
business, except that if (A) at the time thereof and immediately after giving
effect thereto no Event of Default or Default shall have occurred and be
continuing and (B) in the case of any merger or consolidation involving the
Borrower in which the Borrower is not the surviving corporation, the surviving
corporation shall assume in writing the obligations of the Borrower under this
Agreement and any other Loan Documents, then (a) the Borrower may merge or
consolidate with any Subsidiary in a transaction in which the Borrower is the
surviving corporation, (b) the Borrower may purchase, lease or otherwise acquire
from any Subsidiary all or substantially all of its assets and may purchase or
otherwise acquire all or substantially all of the capital stock of any person
who immediately thereafter is a Subsidiary, (c) the Borrower may merge with or
into, or consolidate with, any other person so long as (i) in the case where the
business of such other person, or an Affiliate of such other person, entirely or
primarily consists of an electric or gas utility business, the senior secured
long-term debt rating of the Borrower shall be at least BBB or higher by S&P and
Baa2 or higher by Moody's immediately after such merger or consolidation, or in
the case of a merger or consolidation in which the Borrower is not the surviving
entity, the senior secured long-term debt rating of the surviving entity or an
Affiliate thereof shall be at least BBB+ or higher by S&P and Baa1 or higher by
Moody's immediately after such merger or consolidation, or (ii) in the case
where such other person's business does not entirely or primarily consist of an
electric or gas utility business, the assets of such person at the time of such
consolidation or merger do not exceed 10% of the total assets of the Borrower
and its Subsidiaries after giving effect to such merger or consolidation,
computed and
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consolidated in accordance with GAAP consistently applied, and (d) the Borrower
may purchase, lease or otherwise acquire any or all of the assets of any other
person (and may purchase or otherwise acquire the capital stock of any other
person) so long as (i) the assets being purchased, leased or acquired (or the
assets of the person whose capital stock is being acquired) entirely or
primarily consist of electric or gas utility assets or (ii) in the case where
the assets being purchased, leased or acquired (or the assets of the person
whose capital stock is being acquired) do not entirely or primarily consist of
electric or gas utility assets, the assets being acquired (or the Borrower's
proportionate share of the assets of the person whose capital stock is being
acquired) do not exceed 10% of the total assets of the Borrower and its
Subsidiaries, after giving effect to such acquisition, computed and consolidated
in accordance with GAAP consistently applied.
SECTION 6.03. Disposition of Assets. Sell, lease, transfer,
assign or otherwise dispose of (in one transaction or in a series of
transactions), in any fiscal year, assets (whether now owned or hereafter
acquired) which, together with the amount of all sales, leases, transfers,
assignments or other dispositions permitted under clause (c)(ii) of the
definition of Subsidiary Event in Article I (other than sales, leases,
transfers, assignments or other dispositions permitted under clauses (c)(ii) (A)
through (C) in such definition), exceed 10% of the assets of the Borrower and
its Subsidiaries as of the end of the most recent fiscal year, computed and
consolidated in accordance with GAAP consistently applied, except (i) the
Borrower may, in any fiscal year, sell, lease, transfer, assign or otherwise
dispose of assets in the ordinary course of business which, together with the
amount of all sales, leases, transfers, assignments or other dispositions in the
ordinary course permitted under clause (c)(ii)(A) of the definition of
Subsidiary Event in Article I, do not exceed 5% of the assets of the Borrower
and its Subsidiaries as of the end of the most recent fiscal year, computed and
consolidated in accordance with GAAP consistently applied, (ii) to the extent
permitted under Section 5.03, 6.01 or Section 6.02, (iii) the Borrower may sell,
lease, transfer, assign or otherwise dispose of its interest in the Washington
Public Power Supply System Nuclear Project No. 3 in accordance with the
settlement agreement among the Borrower, the Washington
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Public Power Supply System and Bonneville Power Administration, as the same may
be amended, modified or supplemented from time to time, (iv) the Borrower may
sell, lease, transfer, assign or otherwise dispose of its interests in the
Colstrip and Centralia Projects and related assets and (v) the Borrower may
sell, lease, transfer, assign or otherwise dispose (including by way of capital
contribution) of, or create, incur, assume or permit to exist Liens on,
receivables and related properties or interests therein.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening (and during the continuance) of any of
the following events ("Events of Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings hereunder, or any
representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to have
been false or misleading in any material respect when so made, deemed
made or furnished;
(b) default shall be made in the payment of any principal of any
Loan or any reimbursement obligation in respect of any LC Disbursement
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any
Loan or any Fee or any other amount (other than an amount referred to in
(b) above) due under any Loan Document, when and as the same shall
become due and payable, and such default shall continue unremedied for a
period of five Business Days;
(d) default shall be made in the due observance or performance
by the Borrower of any covenant, condition or agreement contained in
Section 5.01(a) or
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5.05 or in Article VI;
(e) default shall be made in the due observance or performance
by the Borrower of any covenant, condition or agreement contained in any
Loan Document (other than those specified in (b), (c) or (d) above) and
such default shall continue unremedied for a period of 30 days after
notice thereof from the Agent or any Bank to the Borrower;
(f) the Borrower or any Significant Subsidiary shall (i) fail to
pay any principal or interest, regardless of amount, due in respect of
any Indebted ness when the aggregate unpaid principal amount is in
excess of $25,000,000, when and as the same shall become due and payable
(after expiration of any applicable grace period), or (ii) fail to
observe or perform any other term, covenant, condition or agreement
(after expiration of any applicable grace period) contained in any
agreement or instrument evidencing or governing any such Indebtedness if
the effect of any failure referred to in this clause (ii) is to cause,
or to permit the holder or holders of such Indebtedness or a trustee on
its or their behalf (with or without the giving of notice, the lapse of
time or both) to cause, such Indebtedness to become due prior to its
stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of the Borrower or any Significant
Subsidiary, or of a substantial part of the property or assets of the
Borrower or a Significant Subsidiary, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Significant
Subsidiary or for a substantial part of the property or assets of the
Borrower or a Significant Subsidiary or (iii) the winding-up or
liquidation of the Borrower or any Significant Subsidiary; and such
proceeding or petition shall continue undismissed, or an order or decree
approving or ordering any of the foregoing
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shall be entered and continue unstayed and in effect, for a period of 60
or more days;
(h) the Borrower or any Significant Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail
to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in (g) above, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Significant Subsidiary or for a substantial part of the property or
assets of the Borrower or any Significant Subsidiary, (iv) file an
answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action
for the purpose of effecting any of the foregoing;
(i) a final judgment or judgments shall be rendered against the
Borrower, any Significant Subsidiary or any combination thereof for the
payment of money with respect to which an aggregate amount in excess of
$25,000,000 is not covered by insurance and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by
a judgment creditor to levy upon assets or properties of the Borrower or
any Significant Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrower to the PBGC or to a Plan in an aggregate amount
exceeding $25,000,000 and, within 30 days after the reporting of any
such Reportable Event to the Agent or after the receipt by
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the Agent of the statement required pursuant to Section 5.06, the Agent
shall have notified the Borrower in writing that (i) the Required Banks
have made a determination that, on the basis of such Reportable Event or
Reportable Events or the failure to make a required payment, there are
reasonable grounds (A) for the termination of such Plan or Plans by the
PBGC, (B) for the appointment by the appropriate United States District
Court of a trustee to administer such Plan or Plans or (C) for the
imposition of a lien in favor of a Plan and (ii) as a result thereof an
Event of Default exists hereunder; or a trustee shall be appointed by a
United States District Court to administer any such Plan or Plans; or
the PBGC shall institute proceedings to terminate any Plan or Plans; or
(k) there shall occur a Subsidiary Event;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Agent, at the request of the Required Banks,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the Commitments and (ii)
declare the Loans then outstanding to be forthwith due and payable in whole or
in part, whereupon (A) the Commitments will automatically be terminated and (B)
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and any unpaid accrued Fees and all other liabilities
of the Borrower accrued hereunder and under any other Loan Document, shall
become forthwith due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding; and in any event with respect to the Borrower
described in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document, shall
automatically become due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly
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waived by the Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding.
ARTICLE VIII. THE AGENT
In order to expedite the various transactions contemplated by
this Agreement, Toronto Dominion (Texas), Inc. is hereby appointed to act as
Agent on behalf of the Banks and the Issuing Bank. Each of the Banks and the
Issuing Bank hereby irrevocably authorizes and directs the Agent to take such
action on behalf of such Bank under the terms and provisions of this Agreement,
and to exercise such powers hereunder as are specifically delegated to or
required of the Agent by the terms and provisions hereof, together with such
powers as are reasonably incidental thereto. The Agent is hereby expressly
authorized on behalf of the Banks and the Issuing Bank, without hereby limiting
any implied authority, (a) to receive on behalf of each of the Banks any payment
of principal of or interest on the Loans outstanding hereunder, LC
Reimbursements and all other amounts accrued hereunder paid to the Agent, and to
distribute to each Bank its proper share of all payments so received as soon as
practicable; (b) to give notice promptly on behalf of each of the Banks to the
Borrower of any event of default specified in this Agreement of which the Agent
has actual knowledge acquired in connection with its agency hereunder; and (c)
to distribute promptly to each Bank copies of all notices, agreements and other
material as provided for in this Agreement as received by such Agent.
Neither the Agent nor any of its directors, officers, employees
or agents shall be liable to any Bank as such for any action taken or omitted by
any of them hereunder except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith or be
required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower of any of the terms, conditions, covenants or
agreements of this Agreement. The Agent shall not be responsible to the Banks
and the Issuing Bank for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other instrument to
which reference is made herein. The
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Agent shall in all cases be fully protected in acting, or refraining from
acting, in accordance with written instructions signed by the Required Banks,
and, except as otherwise specifically provided herein, such instructions and any
action taken or failure to act pursuant thereto shall be binding on all the
Banks. The Agent shall, in the absence of knowledge to the contrary, be entitled
to rely on any paper or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. Neither
the Agent nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure or delay in performance
or breach by any Bank or the Issuing Bank of any of its obligations hereunder or
to any Bank or the Issuing Bank on account of the failure of or delay in
performance or breach by any other Bank or the Borrower of any of their
respective obligations hereunder or in connection herewith. The Agent may
execute any and all duties hereunder by or through agents or employees and shall
be entitled to advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Agent and its affiliates may accept deposits from, lend money
to and generally engage in any kind of business with the Borrower or other
affiliate thereof as if it were not the Agent.
Each Bank recognizes that applicable laws, rules, regulations or
guidelines of governmental authorities may require the Agent to determine
whether the transactions contemplated hereby should be classified as "highly
lever aged" or assigned any similar or successor classification, and that such
determination may be binding upon the other Banks. Each Bank understands that
any such determination shall be made solely by the Agent based upon such factors
(which may include, without limitation, the Agent's internal policies and
prevailing market practices) as the Agent shall deem relevant and agrees that
the Agent shall have no liability for the consequences of any such
determination.
Each Bank agrees (i) to reimburse the Agent in the amount of such
Bank's pro rata share (based on its Commitment hereunder) of any expenses
incurred for the
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benefit of the Banks by the Agent, including reasonable counsel fees and
compensation of agents and employees paid for services rendered on behalf of the
Banks, not reimbursed by the Borrower and (ii) to indemnify and hold harmless
the Agent and any of its directors, officers, employees or agents, on demand, in
the amount of its pro rata share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of this Agreement or any action taken
or omitted by it or any of them under this Agreement, to the extent not
reimbursed by the Borrower; provided, however, that no Bank shall be liable to
the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or wilful misconduct of the Agent or any of its
directors, officers, employees or agents.
Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank based on
such documents and information as it shall deem appropriate at the time,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder.
The Agent may execute any of its duties under this Agreement by
or through agents or attorneys selected by them using reasonable care and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys selected and authorized to act by it with reasonable
care unless the damage complained of directly results from an act or failure to
act on part of the Agent which constitutes gross negligence or wilful
misconduct. Delegation to an attorney or agent shall not release the Agent from
its obligation to perform or cause to be
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performed the delegated duty.
The Documentation Agent and the Syndication Agent shall not have
any rights, powers, obligations, liabilities, responsibilities or duties under
this Agreement other than those applicable to all Banks as such. Without
limiting the foregoing, none of the Banks identified as "Documentation Agent" or
"Syndication Agent" shall have or be deemed to have any fiduciary relationship
with any Bank. Each Bank acknowledges that it has not relied, and will not rely,
on any of the Banks so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy, graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Borrower, to it at East 1411 Mission Avenue
(99202), P.O. Box 3727, Spokane, Washington 99220, Attention of the
Senior Vice President, Chief Financial Officer and Treasurer (Telecopy
No. 509-482-4879);
(b) if to the Agent, to it at 909 Fannin, Suite 1700, Houston,
Texas 77010, Attention of Kimberly Burleson (Telecopy No. 713-951-9921);
(c) if to the Issuing Bank, to it at 909 Fannin, Suite 1700,
Houston, Texas 77010, Attention of Kimberly Burleson (Telecopy No.
713-951-0021); and
(d) if to a Bank, to it at its address (or telecopy number) set
forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Bank shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt
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if delivered by hand or overnight courier service or sent by telecopy or other
telegraphic communications equipment of the sender, or on the date five Business
Days after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in this
Section 9.01 or in accordance with the latest unrevoked direction from such
party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties, including, without limitation, any indemnities
and reimbursement obligations, made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Banks and shall survive the making by the Banks of
the Loans and issuance of any Letters of Credit, and the execution and delivery
to the Banks of the Notes evidencing such Loans, regardless of any investigation
made by the Banks, or on their behalf, or by the Issuing Bank and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement or any
other Loan Document is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have received copies hereof which, when taken together,
bear the signatures of each Bank and the Issuing Bank, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Agent, the Issuing
Bank and each Bank and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior consent of all the Banks and the Issuing Bank.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrower, the Agent,
the Issuing Bank or the Banks that are
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contained in this Agreement shall bind and inure to the benefit of their
respective successors and permitted assigns.
(b) Each Bank (including the Agent when acting as a Bank) may
assign to one or more assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Credit Commitment and the same portion of the
applicable Loan or Loans at the time owing to it and the applicable Note or
Notes held by it, other than any Auction Loans or Notes held by it, which may,
but need not, be assigned); provided, however, that (i) except in the case of an
assignment to a Bank or an Affiliate of such Bank, the Borrower and the Agent
(and, in the case of an assignment of all or a portion of a Commitment or any
Bank's obligation in respect of its LC Exposure, the Issuing Bank) must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) that no assignee of any Bank shall be entitled to
receive any greater payment or protection under Sections 2.13, 2.14(a), 2.15 or
2.19 than such Bank would have been entitled to receive with respect to the
rights assigned or otherwise transferred unless such assignment or transfer
shall have been made at a time when the circumstances giving rise to such
greater payment did not exist, (iii) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Agreement, except that this clause (iii) shall not apply
to rights in respect of outstanding Auction Loans, (iv) the amount of the
Commitment of the assigning Bank subject to each such assignment (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall not be less than $5,000,000 (or, if less, the
total amount of their Commitments), (v) the parties to each such assignment
shall execute and deliver to the Agent an Assignment and Acceptance, together
with the Note or Notes subject to such assignment and a processing and
recordation fee of $5,000 and (vi) the assignee, if it shall not be a Bank,
shall deliver to the Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee
<PAGE> 79
78
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Bank
under this Agreement and (B) the assigning Bank thereunder shall, to the extent
of the interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank's rights
and obligations under this Agreement, such Bank shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19
and 9.05, as well as to any Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder shall be deemed to confirm
to and agree with each other and the other parties hereto as follows: (i) such
assigning Bank warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitment, and the outstanding balances of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance; (ii) except as set forth in (i) above,
such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Agent, such
<PAGE> 80
79
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all the obligations which by the terms of this Agreement are required to
be performed by it as a Bank.
(d) The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it including the recordation of the names and addresses
of the Banks, and the Commitment of, and principal amount of the Loans and LC
Disbursements owing to, each Bank pursuant to the terms hereof from time to time
(the "Register"). The Agent, the Issuing Bank and the Banks may treat each
person whose name is recorded in the Register pursuant to the terms hereof as a
Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Bank, at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and an assignee together with the Note
or Notes subject to such assignment, an Administrative Questionnaire completed
in respect of the assignee (unless the assignee shall already be a Bank
hereunder), the processing and recordation fee referred to in paragraph (b)
above and, if required, the written consent of the Borrower and the Agent to
such assignment, the Agent shall (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the Banks. Within five Business Days after receipt of notice,
the Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for the surrendered Note or Notes, a new Note or Notes to the order of
such assignee in a principal amount equal to the applicable Commitment assumed
by it pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment, a new Note to the order of such assigning Bank in a
principal amount equal to the applicable Commitment retained by it. Such new
Note or Notes shall be in an aggregate principal
<PAGE> 81
80
amount equal to the aggregate principal amount of such surrendered Note; such
new Notes shall be dated the date of the surrendered Notes which they replace
and shall otherwise be in substantially the form of Exhibit A hereto. Canceled
Notes shall be returned to the Borrower.
(f) Each Bank may without the consent of the Borrower, the
Issuing Bank or the Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it and the
Notes held by it); provided, however, that (i) such Bank's obligations under
this Agreement shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost protection provisions contained in Sections 2.13, 2.15 and 2.19 to
the same extent as if they were Banks (provided, that the amount of such benefit
shall be limited to the amount in respect of the interest sold to which the
seller of such participation would have been entitled had it not sold such
interest) and (iv) the Borrower, the Agent, the Issuing Bank and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and such Bank shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans and to approve any amendment, modification or waiver of any provision of
this Agreement (other than amendments, modifications or waivers decreasing any
fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending any scheduled principal payment date
or date fixed for the payment of interest on the Loans or changing or extending
the Commitments).
(g) Any Bank or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such Bank
by or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant
<PAGE> 82
81
shall execute an agreement whereby such assignee or participant shall agree
(subject to customary exceptions) to preserve the confidentiality of such
confidential information.
(h) Any Bank may at any time assign for security purposes all or
any portion of its rights under this Agreement and the Notes issued to it to a
Federal Reserve Bank; provided that no such assignment shall release a Bank from
any of its obligations hereunder.
(i) Subject to Section 6.02, the Borrower shall not assign or
delegate any of its rights or duties hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay
(i) all reasonable out-of-pocket expenses incurred by the Agent in connection
with the preparation of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Agent or any Bank in connection with the
enforcement or protection of their rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made or the Notes
issued hereunder, including the fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Agent, and, in connection with any such
amendment, modification or waiver or any such enforcement or protection, the
fees, charges and disbursements of any other internal or external counsel for
the Agent, the Issuing Bank or any Bank and (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder. The Borrower further agrees that it shall indemnify the
Banks from and hold them harmless against any documentary taxes, assessments or
charges made by any Governmental Authority by reason of the execution and
delivery of this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, the Issuing Bank
and each Bank and each of their respective directors, officers, employees and
agents (each such person being called an "Indemnitee") against, and to hold each
<PAGE> 83
82
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
contemplated thereby, (ii) the use of the proceeds of the Loans and of the
Letters of Credit (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of Credit)
or (iii) any claim, litigation, investigation or proceeding relating to any of
the foregoing, whether or not any Indemnitee is a party thereto; provided that
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agent, the Issuing Bank or any Bank. All amounts due
under this Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing and the Loans shall have been accelerated as set
forth in Article VII, each Bank is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank (or bank
Controlling such Bank) to or for the credit or the account of the Borrower
against any of and all the obligations of
<PAGE> 84
83
the Borrower now or hereafter existing under this Agreement and other Loan
Documents held by such Bank. The rights of each Bank under this Section are in
addition to other rights and remedies (including other rights of setoff) which
such Bank may have. Any Bank shall provide the Borrower with written notice
promptly after exercising its rights under this Section.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Agent, the Issuing Bank or any Bank in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the Agent,
the Issuing Bank and the Banks hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Banks; provided, however,
that no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan or LC Disbursement, or waive or excuse any such payment
or any part thereof, or decrease the rate of interest on any Loan, without the
prior written consent of each holder of a Note affected thereby, (ii) change or
<PAGE> 85
84
extend the Commitment or decrease the Commitment Fees of any Bank without the
prior written consent of such Bank, or (iii) amend or modify the provisions of
Section 2.16, the provisions of this Section or the definition of "Required
Banks", without the prior written consent of each Bank; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Agent or the Issuing Bank hereunder without the prior written consent of the
Agent or the Issuing Bank, as the case may be. Each Bank and each holder of a
Note shall be bound by any waiver, amendment or modification authorized by this
Section regardless of whether its Note shall have been marked to make reference
thereto, and any consent by any Bank or holder of a Note pursuant to this
Section shall bind any person subsequently acquiring a Note from it, whether or
not such Note shall have been so marked.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein or in the Notes to the contrary, if at any time the applicable interest
rate, together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Bank, shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by such Bank in accordance with applicable law, the rate of
interest payable under the Note held by such Bank, together with all Charges
payable to such Bank, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other Loan
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Waiver of Jury Trial. Each party hereto hereby
waives, to the fullest extent permitted by
<PAGE> 86
85
applicable law, any right it may have to a trial by jury in respect of any
litigation directly or indirectly arising out of, under or in connection with
this Agreement or any of the other Loan Documents. Each party hereto (a)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (b) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement and the other Loan Documents, as applicable, by, among other things,
the mutual waivers and certifications in this Section 9.11.
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
The Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition
<PAGE> 87
86
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Agent, Issuing Bank or any other Bank may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents
against the Borrower or its properties in the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
WITNESS the due execution hereof as of the date first above
written.
THE WASHINGTON WATER POWER COMPANY,
by
-------------------------------
Name:
Title:
<PAGE> 88
87
TORONTO DOMINION (TEXAS), INC., as Agent,
by
-------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK, as Issuing Bank,
by
-------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Documentation
Agent,
by
-------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Syndication Agent,
by
-------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
by
-------------------------------
Name:
Title:
<PAGE> 89
88
THE BANK OF NEW YORK,
by
-------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
by
-------------------------------
Name:
Title:
FIRST SECURITY BANK OF IDAHO,
by
-------------------------------
Name:
Title:
<PAGE> 90
89
MELLON BANK, N.A.,
by
-------------------------------
Name:
Title:
NATIONSBANK, N.A.,
by
-------------------------------
Name:
Title:
U.S. BANK,
by
-------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
by
-------------------------------
Name:
Title:
WELLS FARGO BANK,
by
-------------------------------
Name:
Title:
<PAGE> 91
EXHIBIT A
[FORM OF]
NOTE
$__________________ [ ], 1998
New York, New York
FOR VALUE RECEIVED, the undersigned, THE WASHINGTON WATER POWER
COMPANY, a Washington corporation (the "Borrower"), hereby promises to pay to
the order of _______________________ (the "Bank"), at the office of Toronto
Dominion (Texas), Inc., (the "Agent"), at 909 Fanning, Suite 1700, Houston,
Texas 77010, (i) on the last day of each Interest Period, as defined in the
$125,000,000 Revolving Credit Agreement dated as of June 30, 1998 (the "Credit
Agreement"), among the Borrower, the Banks named therein and the Agent, the
aggregate unpaid principal amount of all Loans (as defined in the Credit
Agreement) made to the Borrower by the Bank pursuant to the Credit Agreement to
which such Interest Period applies and (ii) on the Expiration Date (as defined
in the Credit Agreement) the lesser of the principal sum of __________________
Dollars ($______________) and the aggregate unpaid principal amount of all Loans
made to the Borrower by the Bank pursuant to the Credit Agreement, in lawful
money of the United States of America in immediately available funds, and to pay
interest from the date hereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at the rate or rates per annum and
payable on the dates provided in the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the rate or rates provided in the Credit Agreement.
<PAGE> 92
The Borrower hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The nonexercise by the holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective dates
and maturity dates thereof shall be endorsed by the holder hereof on the
schedule attached hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof, or otherwise recorded by
such holder in its internal records; provided, however, that the failure of the
holder hereof to make such a notation or any error in such a notation shall not
affect the obligations of the Borrower under this Note.
This Note is one of the Notes referred to in the Credit
Agreement, which, among other things, contains provisions for the acceleration
of the maturity hereof upon the happening of certain events, for optional and
mandatory prepayment of the principal hereof prior to the maturity hereof and
for the amendment or waiver of certain provisions of the Credit Agreement, all
upon the terms and conditions therein specified. This Note shall be construed in
accordance with and governed by the laws of the State of New York and any
applicable laws of the United States of America.
THE WASHINGTON WATER
POWER COMPANY
by
-------------------------------
Name:
Title:
<PAGE> 93
3
Loans and Payments
<TABLE>
<CAPTION>
Amount Unpaid Name of
and Principal Person
Type/Class Maturity Payments Balance of Making
Date of Loan Date Principal Interest Note Notation
---- ---------- -------- ------------------ ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 94
EXHIBIT B
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the $125,000,000 Credit Agreement dated as
of June 30, 1998 (as in effect from time to time, the "Credit Agreement"), among
The Washington Water Power Company, a Washington corporation (the "Borrower"),
the banks listed on Schedule 2.01 thereto (the "Banks") and Toronto Dominion
(Texas), Inc., as agent for the Banks (in such capacity, the "Agent"). Terms
defined in the Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth on the reverse
hereof, the interests set forth on the reverse hereof (the "Assigned Interest")
in the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Effective Date and Revolving Loans [and
Auction Loans] owing to the Assignor which are outstanding on the Effective
Date, together with unpaid interest accrued on the assigned Revolving Loans [and
Auction Loans] to the Effective Date, together with the participations in
Letters of Credit and LC Disbursements held by the Assignor on the Effective
Date, and the amount, if any, set forth on the reverse hereof of the Fees
accrued to the Effective Date for the account of the Assignor. Each of the
Assignor and the Assignee hereby makes and agrees to be bound by all the
representations, warranties and agreements set forth in Section 9.04(c) of the
Credit Agreement, a copy of which has been received by each such party. From and
after the Effective Date (i) the Assignee shall be a party to and be bound by
the provisions of the Credit Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Bank thereunder and under the Loan Documents and (ii) the Assignor
<PAGE> 95
shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement.
2. This Assignment and Acceptance is being delivered to the Agent
together with (i) the Notes evidencing the Loans included in the Assigned
Interest, (ii) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms specified in Section 2.19(f) of the Credit
Agreement, duly completed and executed by such Assignee, (iii) if the Assignee
is not already a Bank under the Credit Agreement, an Administrative
Questionnaire in the form of Exhibit C to the Credit Agreement and (iv) a
processing and recordation fee of $5,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
<PAGE> 96
3
<TABLE>
<CAPTION>
Percentage
Assigned of
Facility and
Commitment
Thereunder (set
forth, to at
least 8 decimals,
Principal Amount as a percentage
Assigned (and of the Facility
identifying and the aggregate
information as to Commitments
individual of all Banks
Facility Auction Loans) thereunder)
- -------- -------------- -----------------
<S> <C> <C>
Commitment Assigned: $ %
Revolving Loans: $ %
[Auction Loans: $ %]
Fees Assigned (if any): $ %
</TABLE>
<TABLE>
<S> <C>
The terms set forth above and on
the reverse side hereof are
hereby agreed to:
Accepted:
__________________, as Assignor
TORONTO DOMINION (TEXAS), INC., as
Agent
By:____________________________
Name: By:_________________________
Title: Name:
Title:
__________________, as Assignee THE WASHINGTON POWER COMPANY
By:____________________________ By:_________________________
Name: Name:
Title: Title:
</TABLE>
<PAGE> 97
EXHIBIT C
Administrative Questionnaire
<PAGE> 98
EXHIBIT D-1
Opinion of General Counsel for the Borrower
<PAGE> 99
EXHIBIT D-2
Opinion of Special Counsel for the Borrower
<PAGE> 100
SCHEDULE 2.01
Banks
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Toronto Dominion (Texas), Inc. $21,875,000
909 Fanning
Suite 1700
Houston, TX 77010
Attention: Ms. Kimberly Burleson
Telecopy: (713)951-9921
With copies to:
Toronto Dominion Bank U.S.A. Division
31 West 52nd Street
New York, NY 10019-6101
Attention: Mr. Peter Cody
Telecopy: (212) 262-1929
Bank of America National Trust $21,875,000
and Savings Association
555 California Street
41st floor
San Francisco, CA 94104
Attention: Mr. Lawrence Balingit
Telecopy: (415) 622-0632
First Security Bank of Idaho $6,250,000
119 North 9th Street (83702)
Boise, ID 83730
Attention: Mr. Brian Cook
Telecopy: (509) 353-2472
</TABLE>
<PAGE> 101
2
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Mellon Bank, N.A. $9,375,000
400 South Hope Street
5th floor
Los Angeles, CA 9071-2806
Attention: Mr. Scott Sommers
Telecopy: (213) 629-0492
Copies to:
Mellon Bank, N.A.
1 Mellon Bank Center
500 Grant Street (AIM# 151-4425)
Pittsburgh, PA 15258-0001
Attention: Mr. Mark Rogers
Telecopy: (412) 234-1813
The Bank of New York $15,625,000
One Wall Street
New York, NY 10286
Attention: Mr. Timothy Lynch
Telecopy: (212) 635-7923
NationsBank, N.A. $15,625,000
901 Main Street
64th Floor
P.O. Box 830104
Dallas, TX 75202
Attention: Mr. Curtis Anderson
Telecopy: (214) 508-3943
U.S. Bank $12,500,000
1420 Fifth Avenue
11th floor
WWH276
Seattle, WA 98101
Attention: Mr. Wilfred C. Jack
Telecopy: (206) 587-5259
</TABLE>
<PAGE> 102
3
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Wachovia Bank, N.A. $9,375,000
191 Peachtree St.
N.E.
Atlanta, GA 30303
Attention: Mr. David Alexander
Telecopy: (404) 332-6898
Wells Fargo Bank $12,500,000
W. 524 Riverside Avenue
6th floor
Spokane, WA 00210-0085
Attention: Mr. Tom Beil
Telecopy: (509) 455-5762
</TABLE>
<PAGE> 103
SCHEDULE 3.14
Significant Subsidiaries
<TABLE>
<CAPTION>
Name Percent Ownership
---- -----------------
<S> <C>
Avista Corp. 100%
Pentzer Corporation 100%
</TABLE>
<PAGE> 104
SCHEDULE 4.02(c)
Orders of Governmental Authorities
1. Order(s) of the Washington Utilities and Transportation Commission.
2. Order(s) of the Oregon Public Utility Commission.
3. Order(s) of the Idaho Public Utilities Commission.
4. Order(s) of the California Public Utilities Commission.
<PAGE> 1
Exhibit 10(q)-5
[LOGO]
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Avista Corporation Long-Term Incentive Plan (the
"Plan") is to enhance the long-term shareholder value of Avista Corporation, a
Washington corporation (the "Company"), by offering opportunities to employees,
directors and officers of the Company and its Subsidiaries (as defined in
Section 2) to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Subsidiaries and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 Award
"Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, awards or grants of Options, Stock
Appreciation Rights, Stock Awards, Performance Awards, Other Stock-Based Awards
or any combination of the foregoing (including any Dividend Equivalent Rights
granted in connection with such Awards).
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means (a) the willful and continued failure of the Holder to
perform substantially the Holder's duties with the Company or one of its
Subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness) after a written demand for substantial performance
is delivered to the Holder by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or the Chief
Executive Officer believes that the Holder has not substantially performed the
Holder's duties; or (b) the willful engaging by the Holder in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
2.4 Change of Control
"Change of Control" means any of the following events:
<PAGE> 2
(a) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities "); provided, however, that for
purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2.4;
(b) A change in the Board so that individuals who constitute the
Board (the "Incumbent Board ") as of the date of adoption of the
Plan cease for any reason to constitute at least a majority of
the Board after such date; provided, however, that any
individual becoming a director subsequent to such date whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination "), in each case,
unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of Common Stock and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business
2
<PAGE> 3
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of Common
Stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.5 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.6 Common Stock
"Common Stock" means the common stock, no par value, of the Company.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of
the Company's Long-Term Disability Plan or other similar successor plan
applicable to salaried employees.
2.8 Dividend Equivalent Right
"Dividend Equivalent Right" means an Award granted under Section 13.
2.9 Early Retirement
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.10 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 Fair Market Value
The "Fair Market Value" shall be the average of the high and low per
share sales prices for the Common Stock on the New York Stock Exchange as such
price is officially quoted in the composite tape of transactions on such
exchange for a single trading day. If there is no such reported price for the
Common Stock for the date in question, then such price on the last preceding
date for which such price exists shall be determinative of Fair Market Value.
3
<PAGE> 4
2.12 Good Reason
"Good Reason" means:
(a) The assignment to the Holder of any duties inconsistent in any
respect with the Holder's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of
notice thereof given by the Holder;
(b) Any failure of the Company to comply with its standard
compensation arrangements with the Holder, including the failure
to continue in effect any material compensation or benefit plan
(or the substantial equivalent thereof) in which the Holder was
participating at the time of a Change of Control, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof from the Holder;
(c) Any purported termination of the Holder's employment or service
for Cause by the Company that does not comply with the terms of
the Plan; or
(d) The failure of the Company to require that any Successor
Corporation (whether by purchase, merger, consolidation or
otherwise) expressly assume and agree to be bound by the terms
of the Plan in the same manner and to the same extent that the
Company would be required to perform if no such succession had
taken place.
2.13 Grant Date
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.14 Holder
"Holder" means:
(a) the Participant to whom an Award is granted;
(b) for a Holder who has died, the personal representative of the
Holder's estate, the person(s) to whom the Holder's rights under
the Award have passed by will or by the applicable laws of
descent and distribution, or the beneficiary designated in
accordance with Section 14; or
(c) the person(s) to whom an Award has been transferred in
accordance with Section 14.
4
<PAGE> 5
2.15 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.16 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.17 Option
"Option" means the right to purchase Common Stock granted under Section
7.
2.18 Other Stock-Based Award
"Other Stock-Based Award" means an Award granted under Section 12.
2.19 Participant
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director or officer of the Company or a
Subsidiary who has been designated by the Plan Administrator as eligible to
participate in the Plan.
2.20 Performance Award
"Performance Award" means an Award granted under Section 11, the payout
of which is subject to achievement through a performance period of performance
goals prescribed by the Plan Administrator.
2.21 Plan Administrator
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.22 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under Section
10, the rights of ownership of which are subject to restrictions prescribed by
the Plan Administrator.
2.23 Retirement
"Retirement" means retirement as of the individual's normal retirement
date under the Company's retirement plan for salaried employees or other similar
successor plan applicable to salaried employees.
5
<PAGE> 6
2.24 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.25 Stock Appreciation Right
"Stock Appreciation Right" means an Award granted under Section 9.
2.26 Stock Award
"Stock Award" means an Award granted under Section 10.
2.27 Subsidiary
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.28 Successor Corporation
"Successor Corporation" has the meaning set forth under Section 15.2.
2.29 Trust and Trustee
"Trust" and "Trustee" have the meanings set forth in Section 3.2.
2.30 Trustee Shares
"Trustee Shares" has the meaning set forth in Section 3.3.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible Participants to different committees consisting
of two or more members of the Board, subject to such limitations as the
6
<PAGE> 7
Board or the Plan Administrator deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award, and to authorize the Trustee (the "Trustee") of any Trust (the
"Trust") that may be required pursuant to the Plan to grant Awards to
Participants. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
3.3 Trust for the Long-Term Incentive Plan
Payments may be, but need not be, made to the Trustee, such payments to
be used by the Trustee to purchase shares of the Common Stock. Shares purchased
by the Trustee pursuant to the terms of the Trust ("Trustee Shares") shall be
held for the benefit of Participants, and shall be distributed to Participants
or their beneficiaries by the Trustee at the direction of the Plan Administrator
in accordance with the terms and conditions of the Awards. Awards may also be
made in units that are redeemable (in whole or in part) in Trustee Shares.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 15.1, a
maximum of 2,500,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company or,
if required by applicable law, shall be purchased by the Trustee on the open
market. In the event a Trust is required, the Company shall not issue any Common
Stock under the Plan to the Trust or to any Participant, nor shall the Company
purchase any Trustee Shares from the Trust.
4.2 Limitations
(a) Subject to adjustment from time to time as provided in Section
15.1, not more than an aggregate of 625,000 shares shall be
available for issuance pursuant to grants of Restricted Stock
under the Plan.
7
<PAGE> 8
(b) Subject to adjustment from time to time as provided in Section
15.1, not more than 200,000 shares of Common Stock may be made
subject to Awards under the Plan to any individual Participant
in the aggregate in any one fiscal year of the Company, such
limitation to be applied in a manner consistent with the
requirements of, and only to the extent required for compliance
with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.
4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan; provided, however, that for purposes of Section 4.2, any such shares shall
be counted in accordance with the requirements of Section 162(m) of the Code.
Shares that are subject to tandem Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards, Performance Awards, Other
Stock-Based Awards and Dividend Equivalent Rights. Awards may be granted singly,
in combination or in tandem so that the settlement or payment of one
automatically reduces or cancels the other. Awards may also be made in
combination or in tandem with, as alternatives to, or as the payment form for,
grants or rights under any other employee or compensation plan of the Company.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan
8
<PAGE> 9
Administrator, except as may be required for compliance with Rule 16b-3 under
the Exchange Act, and the persons holding such Awards shall be deemed to be
Participants and Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date.
7.3 Term of Options
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
PERIOD OF HOLDER'S CONTINUOUS EMPLOYMENT OR PERCENT OF TOTAL
SERVICE WITH THE COMPANY OR ITS OPTION THAT IS VESTED
SUBSIDIARIES FROM THE OPTION GRANT DATE AND EXERCISABLE
--------------------------------------- ---------------
<S> <C>
After 1 year ..................................... 25%
After 2 years .................................... 50%
After 3 years .................................... 75%
After 4 years .................................... 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the Company,
in accordance with procedures established by the Plan Administrator, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
9
<PAGE> 10
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check, or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms:
(a) tendering (either actually or, if and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange
Act, by attestation) Common Stock already owned by the Holder
for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price or
(b) if and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, delivery of a properly
executed exercise notice, together with irrevocable
instructions, to
(i) a brokerage firm designated by the Company to deliver
promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection
with the exercise and
(ii) the Company to deliver the certificates for such
purchased shares directly to such brokerage firm, all in
accordance with the regulations of the Federal Reserve
Board.
In addition, to the extent permitted by the Plan Administrator in its
sole discretion, the price for shares purchased under an Option may be paid,
either singly or in combination with one or more of the alternative forms of
payment authorized by this Section 7.5 by (y) a full-recourse promissory note
delivered pursuant to Section 16 or (z) such other consideration as the Plan
Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
10
<PAGE> 11
In case of termination of the Holder's employment or services other than
by reason of death or Cause, the Option shall be exercisable, to the extent of
the number of shares purchasable by the Holder at the date of such termination,
only
(a) within one year if the termination of the Holder's employment or
services is coincident with Retirement, Early Retirement in
connection with a Company program offering early retirement or
Disability or
(b) within three months after the date the Holder ceases to be an
employee, director, or officer of the Company or a Subsidiary if
termination of the Holder's employment or services is for any
reason other than Retirement, Early Retirement in connection
with a Company program offering early retirement or Disability,
but in no event later than the remaining term of the Option. Any
Option exercisable at the time of the Holder's death may be
exercised, to the extent of the number of shares purchasable by
the Holder at the date of the Holder's death, by the personal
representative of the Holder's estate, the person(s) to whom the
Holder's rights under the Award have passed by will or the
applicable laws of descent and distribution or the beneficiary
designated pursuant to Section 14 at any time or from time to
time within one year after the date of death, but in no event
later than the remaining term of the Option. Any portion of an
Option that is not exercisable on the date of termination of the
Holder's employment or services shall terminate on such date,
unless the Plan Administrator determines otherwise. In case of
termination of the Holder's employment or services for Cause,
the Option shall automatically terminate upon first notification
to the Holder of such termination, unless the Plan Administrator
determines otherwise. If a Holder's employment or services with
the Company are suspended pending an investigation of whether
the Holder shall be terminated for Cause, all the Holder's
rights under any Option likewise shall be suspended during the
period of investigation.
A transfer of employment or services between or among the Company and
its Subsidiaries shall not be considered a termination of employment or services
for purposes of this Section 7.6. The effect of a Company-approved leave of
absence on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for
11
<PAGE> 12
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% Shareholders
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
To qualify for Incentive Stock Option tax treatment, an Option
designated as an Incentive Stock Option must be exercised within three months
after termination of employment for reasons other than death, except that, in
the case of termination of employment due to total disability, such Option must
be exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Participant that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more and
that causes the Participant to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed to
have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Participant must hold the shares
issued upon the exercise of an Incentive Stock Option for two years after the
Grant Date of the Incentive Stock Option and one year from the date of exercise.
A Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Plan Administrator may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
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<PAGE> 13
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 16 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights
The Plan Administrator may grant a Stock Appreciation Right separately
or in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan Administrator,
in its sole discretion, shall determine at any time) in an amount equal to the
excess of the Fair Market Value for the date the Stock Appreciation Right is
exercised over the exercise price per share of the right, which shall be the
same as the exercise price of the related Option. A tandem Stock Appreciation
Right will have the same other terms and provisions as the related Option. Upon
and to the extent a tandem Stock Appreciation Right is exercised, the related
Option will terminate.
9.3 Stand-Alone Stock Appreciation Rights
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution
(in shares of Common Stock or cash or any combination of shares and cash, as the
Plan Administrator, in its sole discretion, shall determine at any time) in an
amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the exercise price per share of the
right must be at least equal to 100% of the Fair Market Value on the Grant Date
and the term of the right, if not otherwise established by the Plan
Administrator, shall be 10 years from the Grant Date.
9.4 Exercise of Stock Appreciation Rights
Unless otherwise provided by the Plan Administrator in the instrument
that evidences the Stock Appreciation Right, the provisions of Section 7.6
relating to the termination of a Holder's employment or services shall apply
equally, to the extent applicable, to the Holder of a Stock Appreciation Right.
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SECTION 10. STOCK AWARDS
10.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (which may be based on continuous service with the Company or the
achievement of performance goals related to earnings, earnings per share,
profits, profit growth, profit-related return ratios, cost management, dividend
payout ratios, economic value added, cash flow or total shareholder return,
where such goals may be stated in absolute terms or relative to comparison
companies), as the Plan Administrator shall determine, in its sole discretion,
which terms, conditions and restrictions shall be set forth in the instrument
evidencing the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's services.
10.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions
prescribed in respect to a Stock Award, or upon the Holder's release from any
terms, conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock.
10.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 11. PERFORMANCE AWARDS
11.1 Plan Administrator Authority
Performance Awards may be denominated in cash, shares of Common Stock or
any combination thereof. The Plan Administrator is authorized to grant
Performance Awards and shall determine the nature, length and starting date of
the performance period for each Performance Award and the performance objectives
to be used in valuing Performance Awards and determining the extent to which
such Performance Awards have been earned. Performance objectives and other terms
may vary from Participant to Participant and between groups of Participants.
Performance objectives shall be based on earnings, earnings per share, profits,
profit growth, profit-related return ratios, cost management, dividend payout
ratios, economic value added, cash flow or total shareholder return, where such
goals may be stated in absolute terms or relative to comparison companies, as
the Plan Administrator shall determine, in its sole
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discretion. Additional performance measures may be used to the extent their use
would comply with the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code. Performance periods may overlap
and Participants may participate simultaneously with respect to Performance
Awards that are subject to different performance periods and different
performance factors and criteria.
The Plan Administrator shall determine for each Performance Award the
range of dollar values or number of shares of Common Stock (which may, but need
not, be shares of Restricted Stock pursuant to Section 10), or a combination
thereof, to be received by the Participant at the end of the performance period
if and to the extent that the relevant measures of performance for such
Performance Awards are met. If Performance Awards are denominated in cash, no
more than an aggregate maximum dollar value in excess of $1,000,000 shall be
granted to any individual Participant in any one fiscal year of the Company,
such limitations to be applied in a manner consistent with the requirements of,
and to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.
The earned portion of a Performance Award may be paid currently or on a deferred
basis with such interest or earnings equivalent as may be determined by the Plan
Administrator. Payment shall be made in the form of cash, whole shares of Common
Stock (which may, but need not, be shares of Restricted Stock pursuant to
Section 10), Options or any combination thereof, either in a single payment or
in annual installments, all as the Plan Administrator shall determine.
11.2 Adjustment of Awards
The Plan Administrator may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Plan Administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances, except that,
to the extent required for compliance with the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code, no adjustment
shall be made that would result in an increase in the compensation of any
Participant whose compensation is subject to the limitation on deductibility
under Section 162(m) of the Code for the applicable year. The Plan Administrator
also may adjust the performance goals and measurements applicable to Performance
Awards and thereby reduce the amount to be received by any Participant pursuant
to such Awards if and to the extent that the Plan Administrator deems it
appropriate.
11.3 Payout Upon Termination
The Plan Administrator shall establish and set forth in each instrument
that evidences a Performance Award whether the Award will be payable, and the
terms and conditions of such payment, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time. If not so established
in the instrument evidencing the Performance Award, the Award will be payable
according to the following terms and conditions, which may be waived or modified
by the Plan Administrator at any time. If during a performance period a
Participant's employment or services with the Company terminate by reason of the
Participant's Retirement,
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<PAGE> 16
Early Retirement at the Company's request, Disability or death, such Participant
shall be entitled to a payment with respect to each outstanding Performance
Award at the end of the applicable performance period (a) based, to the extent
relevant under the terms of the Award, on the Participant's performance for the
portion of such performance period ending on the date of termination and (b)
prorated for the portion of the performance period during which the Participant
was employed by the Company, all as determined by the Plan Administrator. The
Plan Administrator may provide for an earlier payment in settlement of such
Performance Award discounted at a reasonable interest rate and otherwise in such
amount and under such terms and conditions as the Plan Administrator deems
appropriate.
Except as otherwise provided in Section 15 or in the instrument
evidencing the Performance Award, if during a performance period a Participant's
employment or services with the Company terminate other than by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, then such Participant shall not be entitled to any payment with
respect to the Performance Awards relating to such performance period, unless
the Plan Administrator shall otherwise determine. The provisions of Section 7.6
regarding leaves of absence and termination for Cause shall apply to Performance
Awards.
SECTION 12. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
SECTION 13. DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's discretion,
earn Dividend Equivalent Rights. In respect of any Award that is outstanding on
the dividend record date for Common Stock, the Participant may be credited with
an amount equal to the cash or stock dividends or other distributions that would
have been paid on the shares of Common Stock covered by such Award had such
covered shares been issued and outstanding on such dividend record date. The
Plan Administrator shall establish such rules and procedures governing the
crediting of Dividend Equivalent Rights, including the timing, form of payment
and payment contingencies of such Dividend Equivalent Rights, as it deems are
appropriate or necessary.
SECTION 14. ASSIGNABILITY
No Option, Stock Appreciation Right, Stock Award, Performance Award,
Other Stock-Based Award or Dividend Equivalent Right granted under the Plan may
be assigned or transferred by the Holder other than by will or by the applicable
laws of descent and distribution, and, during the Holder's lifetime, such Awards
may be exercised only by the Holder or a permitted assignee or transferee of the
Holder (as provided below). Notwithstanding the foregoing, and to the extent
permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit such assignment, transfer and exercisability and may
permit a Holder
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of such Awards to designate a beneficiary who may exercise the Award or receive
compensation under the Award after the Holder's death; provided, however, that
any Award so assigned or transferred shall be subject to all the same terms and
conditions contained in the instrument evidencing the Award.
SECTION 15. ADJUSTMENTS
15.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend or other change in the Company's corporate or capital structure results
in (a) the outstanding shares, or any securities exchanged therefor or received
in their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator
shall make proportional adjustments in (i) the maximum number and kind of
securities subject to the Plan as set forth in Section 4.1, (ii) the maximum
number and kind of securities that may be made subject to Stock Awards and to
Awards to any individual Participant as set forth in Section 4.2, and (iii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
15.2 Change of Control
Except as otherwise provided in the instrument that evidences the Award,
in the event of any Change of Control, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Change of Control,
become 100% vested and exercisable, except that such acceleration will not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Change of Control that would
otherwise qualify for such accounting treatment. Such Award shall not so
accelerate, however, if and to the extent that such Award is, in connection with
the Change of Control, either to be assumed by the successor corporation or
parent thereof (the "Successor Corporation") or to be replaced with a comparable
award for the purchase of shares of the capital stock of the Successor
Corporation. The determination of Award comparability under clause (a) above
shall be made by the Plan Administrator, and its determination shall be
conclusive and binding. All such Awards shall terminate and cease to remain
outstanding immediately following the consummation of the Change of Control,
except to the extent assumed by the Successor Corporation. Any such Awards that
are assumed or replaced in the Change of Control and do not otherwise accelerate
at that time shall be accelerated in the event that the Holder's employment or
services should subsequently terminate within three years following such Change
of Control, unless such employment or services are terminated by the Successor
Corporation for Cause or by the Holder voluntarily without Good Reason.
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15.3 Further Adjustment of Awards
Subject to Section 15.2, and subject to the limitations set forth in
Section 11, the Plan Administrator shall have the discretion, exercisable at any
time before a sale, merger, consolidation, reorganization, liquidation or other
corporate transaction, as defined by the Plan Administrator, to take such
further action as it determines to be necessary or advisable, and fair and
equitable to Participants, with respect to Awards. Such authorized action may
include (but shall not be limited to) establishing, amending or waiving the
type, terms, conditions or duration of, or restrictions on, Awards so as to
provide for earlier, later, extended or additional time for exercise, payment or
settlement or lifting restrictions, differing methods for calculating payments
or settlements, alternate forms and amounts of payments and settlements and
other modifications, and the Plan Administrator may take such actions with
respect to all Participants, to certain categories of Participants or only to
individual Participants. The Plan Administrator may take such action before or
after granting Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
15.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 16. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, exercise, payment or settlement of any Award. Subject to the Plan and
applicable law and unless the Plan Administrator determines otherwise, the
Holder may satisfy withholding obligations, in whole or in part, by paying cash,
by electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation. The Company
shall have the right to withhold from any Award or any shares of Common Stock
issuable pursuant to an Award or from any cash amounts otherwise due or to
become due from the Company to the Participant an amount equal to such taxes.
The Company may also deduct from any Award any other amounts due from the
Participant to the Company or a Subsidiary.
SECTION 17. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or a director
of the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment,
will be subject to the Plan
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Administrator's discretion. The maximum credit available is the purchase price,
if any, of the Common Stock acquired, plus the maximum federal and state income
and employment tax liability that may be incurred in connection with the
acquisition.
SECTION 18. AMENDMENT AND TERMINATION OF PLAN
18.1 Amendment of Plan
The Plan may be amended only by the Board as it shall deem advisable;
however, to the extent required for compliance with Section 422 of the Code or
any applicable law or regulation, shareholder approval will be required for any
amendment that will (a) increase the total number of shares as to which Options
may be granted or that may be used in payment of Stock Appreciation Rights,
Performance Awards, Other Stock-Based Awards or Dividend Equivalent Rights under
the Plan or that may be issued as Stock Awards, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
18.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
18.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent
of the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Holder, be made in a manner so as to constitute a "modification"
that would cause such Incentive Stock Option to fail to continue to qualify as
an Incentive Stock Option.
SECTION 19. GENERAL
19.1 Award Agreements
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
19.2 Continued Employment or Services; Rights in Awards
None of the Plan, participation in the Plan as a Participant or any
action of the Plan Administrator taken under the Plan shall be construed as
giving any Participant or employee of the Company any right to be retained in
the employ of the Company or limit the Company's right to terminate the
employment or services of the Participant.
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<PAGE> 20
19.3 Registration
The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
19.4 No Rights as a Shareholder
No Award shall entitle the Holder to any cash dividend (except to the
extent provided in an Award of Dividend Equivalent Rights), voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Award, free of all applicable
restrictions.
19.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
19.6 Unfunded Plan
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
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19.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 20. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's shareholders after adoption of the Plan by the Board.
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Exhibit 10(s)
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), is made as of June 2, 1998,
between The Washington Water Power Company, a Washington corporation (the
"Company"), and Thomas Matthews ("Executive").
WHEREAS, the Company desires to retain the services of Executive upon
the terms and conditions set forth herein; and
WHEREAS, Executive is willing to provide services to the Company upon
the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and agreements set forth below, the Company and Executive hereby agree
as follows:
1. EMPLOYMENT AND DUTIES: LOCATION
The Company will employ Executive and Executive will accept employment
by the Company as its Chief Executive Officer and (assuming Executive is
re-elected to the Company's Board of Directors (the "Board") by the Company's
shareholders when necessary) Chairman of the Board. Executive shall, subject to
the Company's Articles of Incorporation and Bylaws and to the authority of the
Board, be in charge of the management of the business and affairs of the
Company. Executive will perform the duties customarily performed by the Chairman
and Chief Executive Officer of a corporation which is, in all respects, similar
to the Company and such other duties as may be assigned from time to time by the
Board, which relate to the business of the Company or its subsidiaries, or any
business ventures in which the Company or its subsidiaries may participate. The
Executive's services will be performed at the Company's offices in Spokane,
Washington, in Houston, Texas, and at other locations, all at the direction of
the Board.
2. ATTENTION AND EFFORT
Executive will devote all of his entire working time, ability, attention
and effort to the Company's business and will skillfully serve its interests
during the term of this Agreement; provided, however that Executive may devote
reasonable periods of time to (a) engaging in personal investment activities,
(b) serving on the Board of Directors of other corporations, if such service
would not otherwise be prohibited by Section 11 hereof, and (c) engaging in
charitable or community service activities, so long as none of the foregoing
additional activities materially interfere with the performance of Executive's
duties under this Agreement.
3. TERM
Unless otherwise terminated pursuant to Section 9 of this Agreement,
Executive's term of employment under this Agreement will commence on July 1,
1998 (the "Commencement Date") and will expire on the fifth anniversary of the
Commencement Date (the "Employment Period").
<PAGE> 2
4. CERTAIN PAYMENTS, OPTIONS AND BENEFITS
As an incentive to induce Executive to commence his employment with the
Company, and to compensate Executive for certain compensation and awards he will
forfeit as a result of leaving his prior employment, the Company shall provide
Executive with the payments, restricted stock and option awards and other
benefits set forth in this Section 4.
4.1. SIGNING BONUS
On the Commencement Date, the Company shall award Executive a signing
bonus of $1,000,000 (the "Signing Bonus"). Of the total Signing Bonus, $300,000
shall be paid to Executive on the Commencement Date, less required payroll tax
deductions. Receipt of the balance of the Signing Bonus shall be deferred by the
Executive pursuant to the Company's Executive Deferral Plan. In the event that
Executive terminates his employment with the Company prior to the expiration of
the Employment Period under Section 9.2 hereof, other than for Good Reason (as
defined in Section 9.6 below), Executive shall repay to the Company, within 60
days of date of termination, that amount of the Signing Bonus as is
proportionate to the period of time remaining in the Employment Period (e.g., if
Executive so terminates his employment with the Company on the third anniversary
of the Commencement Date, two-fifths or $400,000 of the signing bonus shall be
repaid to the Company).
4.2. RESTRICTED STOCK AWARD
Executive will be awarded restricted shares of the Company's Common
Stock (the "Common Stock") having a fair market value on the Commencement Date
equal to $2,000,000. One-third of this award will vest on each of the third,
fourth and fifth anniversaries of the Commencement Date. For purposes of this
Section 4.2, the "fair market value" of the Common Stock means the average of
the high and low trading prices on the applicable day. This award shall be made
by the Company as soon as reasonably practicable following the Commencement
Date. Regardless of the date this award is made, the number of restricted shares
awarded to Executive shall be calculated as described in the first sentence of
this Section 4.2.
4.3. STOCK OPTION GRANT
On the Commencement Date, subject to shareholder approval of the
Long-Term Incentive Plan' Executive will be awarded an option to purchase
100,000 shares of Common Stock, with an exercise price equal to the fair market
value of the Common Stock on the Commencement Date. These options will vest at
the rate of 25% on each of the first four anniversaries of the Commencement
Date.
4.4. RELOCATION AND MOVING EXPENSES
The Company shall pay or reimburse Executive for the following expenses
incurred by Executive in connection with his relocation to the Spokane,
Washington area:
<PAGE> 3
(a) reasonable temporary living expenses, for a period of up to 60 days,
incurred by Executive and his family for food, lodging (in a hotel, apartment or
club), and other incidentals, including a rental car if necessary;
(b) reasonable expenses costs incurred by Executive for up to four round
trips between Houston, Texas and Spokane, Washington during the first 60 days of
Executive's employment;
(c) reasonable expenses (including airfare, lodging and meals) incurred
by Executive's spouse in connection with a homefinding trip of up to seven days
to Spokane, Washington;
(d) reasonable moving expenses incurred by Executive and his family in
connection with the moving of their household goods, personal possessions and
car (mileage or moving expense) from Houston, Texas to the Spokane, Washington
area; and
(e) if Executive purchases a home in the Spokane, Washington area within
the first year of his employment by the Company, the reasonable costs incurred
by Executive in connection with the closing of the purchase of such home,
including credit reports, surveys, title insurance, brokers commissions,
pre-purchase inspection fees, transfer fees, bank loan origination fees and
other closing fees.
5. COMPENSATION
During the Employment Period, the Company agrees to pay or cause to be
paid to Executive, and Executive agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1. BASE SALARY
Executive's compensation will consist, in part, of an annual base salary
of $750,000 before all customary payroll deductions. Such annual base salary
shall be paid in substantially equal installments and at the same intervals as
other officers of the Company are paid. The Board or a Committee thereof shall
determine increases, if any, in the amount of the annual base salary in future
years. Notwithstanding the foregoing, a portion of such annual base salary may
be deferred by Executive, in Executive's sole discretion, in accordance with the
terms of the Company's Executive Deferral Plan.
5.2. BONUS
Executive will participate in the Company's Executive Incentive
Compensation ("EIC") Plan (or a comparable successor plan). Under the EIC Plan,
Executive will be entitled to receive a bonus of 100% of his annual base salary
upon achievement of targeted levels of financial and other performance goals
(which are established annually by the Compensation Committee of the Board), and
will be entitled to receive a bonus of up to 150% of his annual base salary if
such targeted levels are exceeded. Notwithstanding the foregoing, with respect
to each of 1998 and 1999 even if applicable
<PAGE> 4
performance goals are not satisfied, Executive will be entitled to receive a
minimum guaranteed annual bonus of $300,000 (prorated with respect to 1998 as
described below). For any partial calendar year included in the Employment
Period, Executive shall be eligible to earn under the EIC Plan the appropriate
proportion of such annual base salary and, if applicable, guaranteed annual
bonus (e.g.1 assuming the Commencement Date is July 1, 1998, with respect to
1998 the Executive would be eligible to earn a maximum of $562,500 under the EIC
Plan ($375,000 if targeted performance levels are met but not exceeded), and
Executive's guaranteed annual bonus for 1998 would be $150,000). In accordance
with the EIC Plan, payouts thereunder may be made in cash or in shares of the
Common Stock, in the discretion of the Compensation Committee.
5.3. EQUITY INCENTIVE COMPENSATION
Executive shall be granted an annual award of equity-based incentive
compensation (which may be in the form of stock options, restricted stock,
performance shares, stock appreciation rights or other forms of equity). The
form of the award may vary from year to year, and shall be determined by the
Compensation Committee. Each annual grant must have a five-year projected
pre-tax value of at least $1,000,000. Executive acknowledges that the projected
value is subject to the future market performance of the Common Stock and that
there is no guarantee that the actual value of such annual grant will achieve
that value. "Projected value" means that at the end of five years from the date
of grant, assuming a 15% compound annual growth rate of the market value of the
Common Stock, the value of the equity award is, or it may be exercised to obtain
Common Stock having a market price of; $1,000,000 over any applicable exercise
price. These annual equity incentive compensation awards are subject to vesting,
forfeiture and other terms and conditions of the Company's Long-Term Incentive
Plan (or comparable successor plan). In the event that the Board desires to
grant equity incentive awards to Executive on a date substantially different
than the anniversary of the Commencement Date in order to make the grant to
Executive hereunder concurrent with grants of equity incentive awards to other
executive officers of the Company, then a proportionate adjustment shall be made
in the minimum projected pre-tax value of awards relating to less than a full
year.
The initial annual equity incentive compensation award granted to Executive
under this Section 5.3 shall consist of options to purchase 50,000 shares of
Common Stock, with an exercise price equal to the fair market value of the
Common Stock on the grant date, and with vesting at the rate of 25% per year on
each anniversary of the grant date.
6. RETIREMENT BENEFITS
Executive shall be entitled to participate in the Company's Retirement
Plan for Employees and the Supplemental Executive Retirement Plan (or in the
applicable successor plans thereto). For purposes of the Supplemental Executive
Retirement Plan, Executive will vest at the rate of 20% per year of employment,
and for purposes of both the Retirement Plan for Employees and the Supplemental
Executive Retirement Plan, Executive will receive one year of past service
credit for each year of future service at the Company.
<PAGE> 5
7. OTHER FRINGE BENEFITS
During the Employment Period, Executive will be entitled to participate,
subject to and in accordance with applicable eligibility requirements, in all
health care, insurance, deferred compensation and other employee benefit plans
generally available to officers or senior executives of the Company, consistent
with the terms of those plans as they may currently exist or be modified from
time to time. Executive shall also be entitled to not less than 30 days paid
leave pursuant to the Company's One-Leave Program (as currently in effect or as
may be modified from time to time) and to holidays and other fringe benefits
provided by the Company policy to officers or senior executives of the Company,
as those policies may currently exist or be modified from time to time.
8. REIMBURSEMENT OF BUSINESS EXPENSES
The Company agrees to pay or reimburse Executive for all expenses,
including those for travel and entertainment, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board.
9. TERMINATION
Employment of Executive pursuant to this Agreement may be terminated as
follows, but in any case, the provisions of Section 11 hereof shall survive the
termination of this Agreement and the termination of Executive's employment
hereunder:
9.1. BY THE COMPANY
With or without Cause (as defined below), the Company may terminate the
employment of Executive at any time during the Employment Period upon giving
Notice of Termination (as defined below).
9.2. BY EXECUTIVE
With or without Good Reason (as defined below), Executive may terminate
his employment at any time during the Employment Period upon giving Notice of
Termination.
9.3. AUTOMATIC TERMINATION
This Agreement and Executive's employment hereunder shall terminate
automatically upon the death or total disability of Executive. The term "total
disability" as used herein shall mean permanent and total disability as defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"). Termination under this Section 9.3 shall be deemed to be effective (a)
at the end of the calendar month in which Executive's death occurs or (b)
immediately upon a determination by the Board of Executive's total disability,
as defined herein.
<PAGE> 6
9.4. NOTICE
The term "Notice of Termination" shall mean at least 20 days' written
notice of termination of Executive's employment, during which period Executive's
employment and performance of services will continue; provided, however that the
Company may, upon notice to Executive and without reducing Executive's
compensation during such period, excuse Executive from any or all of his duties
during such period. The effective date of the termination of Executive's
employment hereunder shall be the date on which such 20-day period expires.
9.5. CAUSE
Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" is limited to the occurrence of one or more of the
following events:
(a) Failure or refusal to carry out the lawful duties of Executive
described in Section 1 hereof or any directions of the Board of
Directors of the Company, which directions are reasonably consistent
with the duties herein set forth to be performed by Executive;
(b) Violation by Executive of a state or federal criminal law involving
the commission of a crime against the Company or a felony;
(c) Current use by Executive of illegal substances; deception, fraud,
misrepresentation or dishonesty by Executive; any incident materially
compromising Executive's reputation or ability to represent the Company
with the public; any act or omission by Executive which substantially
impairs the Company's business, good will or reputation; or any other
misconduct; or
(d) My other material violation of any provision of this Agreement.
9.6. GOOD REASON
Wherever reference is made in this Agreement to termination being with
or without Good Reason, "Good Reason" is limited to the occurrence of one or
more of the following events:
(a) the reduction in the Executive's annual base salary as
specified in Section 5.1 of this Agreement or the reduction in the value
of other bonus payments or equity awards that Executive is eligible to
receive under Sections 5.2 and 5.3 of this Agreement (provided, however,
that Good Reason shall not exist under this Section 9.6(a) in the event
Executive does not actually realize such values because of failure to
satisfy performance or other criteria applicable to such bonus payments
or equity awards);
(b) the material diminution or reduction without his consent of
the Executive's title, authority, duties or responsibilities;
<PAGE> 7
(c) the Company requiring Executive without his consent to be
based at any offices or locations other than the locations specified in
Section 1 of this Agreement; or
(d) any breach by the Company of any other material provision of
this Agreement.
10. TERMINATION PAYMENTS
In the event of termination of the employment of Executive, all
compensation and benefits set forth in this Agreement shall terminate except as
specifically provided in this Section 10:
10.1. TERMINATION BY THE COMPANY
If the Company terminates Executive's employment without Cause prior to
the end of the Employment Period, (a)(i) Executive will be entitled to receive
termination payments equal to the greater of 24 months' annual base salary or
the annual base salary Executive would have received if his employment hereunder
had continued until the end of the Employment Period; (ii) the restricted stock
award granted to Executive under Section 4.2 hereof will vest in full; and (iii)
vesting of all other equity awards or stock options granted to Executive
pursuant to this Agreement will accelerate on the date of termination, but only
up to the percentage that would have been vested had Executive remained in
regular employment with the Company to the end of the Employment Period; and (b)
Executive will be entitled to receive any unpaid annual base salary which has
accrued for services already performed as of the date termination of Executive's
employment becomes effective. For purposes of determining under clause (a)(iii)
above whether equity awards or options that vest upon achievement of stock price
appreciation goals would have been vested at the end of the Employment Period, a
15% annual growth rate in the market price of the Common Stock from the date of
termination of employment shall be assumed.
If Executive is terminated by the Company for Cause, Executive shall not
be entitled to receive any of the foregoing benefits, other than those set forth
in clause (b) above.
10.2. TERMINATION BY EXECUTIVE
In the case of the termination of Executive's employment by Executive
other than for Good Reason, Executive shall not be entitled to any payments
hereunder, other than those set forth in Section 10. 1(b) hereof In the case of
the termination of Executive's employment for Good Reason, Executive shall be
entitled to receive those payments set forth in Section 10.1(a) and (b) hereof.
10.3. EXPIRATION OF TERM
In the case of a termination of Executive's employment as a result of
the expiration of the Employment Period, Executive shall not be entitled to
receive any payments hereunder, other than those set forth in Section 10.1 (b)
hereof.
<PAGE> 8
10.4. TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
In the event of a termination of Executive's employment because of his
death or total disability, Executive or his personal representative shall be
entitled to receive termination payments in accordance with the Company's
Executive Income Continuation Plan' or any successor plan thereto generally
applicable to the Company's executive officers.
10.5. TERMINATION IN CONNECTION WITH A CHANGE IN CONTROL
Executive and the Company shall enter into a Change in Control
Agreement, in the form attached hereto as Exhibit A. Notwithstanding Sections
10.1 and 10.2 of this Agreement and in full substitution of all payments
otherwise due thereunder, if Executive's employment is terminated for any reason
following a Change in Control (as defined in such agreement) of the Company,
Executive shall be entitled to receive those termination payments provided in
the Change in Control Agreement. The letter agreements or other documents
evidencing the equity awards and stock options granted to the Executive pursuant
to this Agreement shall not provide for automatic acceleration of vesting in the
event of a Change of Control of the Company unless such Change of Control is a
result of the Company being taken over by another corporation, entity or
person(s). In addition to the ordinary meaning and usage in corporate settings
of the terms "takeover" and "taken over," the Company shall be considered taken
over if it has a controlling shareholder whose control of the Company has not
been specifically approved by a majority of the members of the Board of
Directors who do not represent and are not affiliated with such controlling
shareholder.
10.6. PAYMENT SCHEDULE
All payments under this Section 10 shall be made to Executive at the
same interval as payments of salary were made to Executive immediately prior to
termination.
11. NONCOMPETITION AND NONSOLICITATION
11.1. APPLICABILITY
This Section 11 shall survive the termination of Executive's employment
with the Company or the expiration of the Employment Period.
11.2. DEFINITION OF THE COMPANY
For purposes of Sections 11.3 and 11.4 hereof; the "Company" shall
include all subsidiaries of the Company and any business ventures in which the
Company or its subsidiaries may participate.
11.3. SCOPE OF COMPETITION
Executive agrees that he will not, directly or indirectly, during his
employment and for a period of the greater of (a) two years from the date on
which his employment
<PAGE> 9
with the Company terminates (for any reason), or this Agreement expires, or (b)
if applicable, the period of time as to which Executive is entitled to receive
termination payments under Section 10. 1(a)(i) hereof; be employed by, consult
with or otherwise perform services for, own, manage, operate, join, control or
participate in the ownership, management, operation or control of or be
connected with, in any manner, any Competitor. A "Competitor" shall include any
entity which, directly or indirectly, competes with the Company or produces,
markets, distributes or otherwise derives benefit from the production, marketing
or distribution of products or services which compete with products then
produced or services then being provided or marketed, by the Company or the
feasibility for production of which the Company is then actually studying, or
which is preparing to market or is developing products or services that will be
in competition with the products or services then produced or being studied or
developed by the Company, in each case within the United States or Canada,
unless released from such obligation in writing by the Board. Executive shall be
deemed to be related to or connected with a Competitor if such Competitor is (a)
a partnership in which he is a general or limited partner or employee, (b) a
corporation or association of which he is a shareholder, officer, employee or
director, or (c) a partnership, corporation or association of which he is a
member, consultant or agent; provided however that nothing herein shall prevent
the purchase or ownership by Executive of shares which constitute less than five
percent of the outstanding equity securities of a publicly or privately held
corporation, if Executive had no other relationship with such corporation.
11.4. SCOPE OF NONSOLICITATION
Executive shall not directly or indirectly solicit, influence or entice,
or attempt to solicit, influence or entice, any executive or consultant of the
Company to cease his or her relationship with the Company or solicit, influence,
entice or in any way divert any customer, distributor, partner, joint venturer
or supplier of the Company to do business or in any way become associated with
any Competitor. This Section 11.4 shall apply during the time period and
geographical area described in Section 11.3 hereof.
11.5. CONFIDENTIAL INFORMATION
Employee acknowledge that the Company's business is highly competitive
and that the Company's books, records and documents, the Company's technical
information concerning its products, equipment, services and processes,
procurement procedures and pricing techniques, the names of and other
information (such as credit and financial data) concerning the Company's
customers and business Affiliates, all comprise confidential business
information and trade secrets of the Company which are valuable, special, and
unique assets of the Company, which the Company uses in its business to obtain a
competitive advantage over the Company's competitors which do not know or use
this information. Employee further acknowledges that protection of the Company's
confidential business information and trade secrets against unauthorized
disclosure and use, is of critical importance to the Company in maintaining its
competitive position. Accordingly, Employee hereby agrees that he will not, at
any time during or after his employment by the Company, make any unauthorized
disclosure of any confidential business information or trade secrets of the
Company, or make any use thereof, except for the
<PAGE> 10
benefit of, and on behalf of the Company, or make any use thereof, except for
the benefit of; and on behalf of the Company. For the purposes of this Section,
the term the "Company" shall also include Affiliates of the Company.
11.6. RETURN OF MATERIALS
In the event of the termination of Executive's employment with the
Company or the expiration of this Agreement, Executive will return all
documents, data and other materials of whatever nature, including, without
limitation, drawings, specifications, research, reports, embodiments, software
and manuals to the Company which pertain to his employment with the Company or
to any Intellectual Property and shall not retain or cause or allow any third
party to retain photocopies or other reproductions of the foregoing.
11.7. EQUITABLE RELIEF
Executive acknowledges that the provisions of this Section 11 are
essential to the Company, that the Company would not enter into this Agreement
if it did not include this Section 11 and that damages sustained by the Company
as a result of a breach of this Section 11 cannot be adequately remedied by
damages, and Executive agrees that the Company, notwithstanding any other
provision of this Agreement, including, without limitation, Section 18 hereof,
and in addition to any other remedy it may have under this Agreement or at law,
shall be entitled to injunctive and other equitable relief to prevent or curtail
any breach of any provision of this Agreement, including, without limitation,
this Section 11.
12. REPRESENTATIONS AND WARRANTIES
In order to induce the Company to enter into this Agreement, Executive
represents and warrants to the Company that neither the execution nor the
performance of this Agreement by Executive will violate or conflict in any way
with any other agreement by which Executive may be bound, or with any other
duties imposed upon Executive by corporate or other statutory or common law.
13. INDEMNIFICATION
Executive and the Company shall enter into an Indemnification Agreement
in the form attached hereto as Exhibit B. Executive shall be indemnified by the
Company to the extent permitted by applicable law and as provided by the
Company's Bylaws.
14. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of "Cause" set forth in
Section 9.5 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 20 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 20-day period.
<PAGE> 11
15. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof.
Such notice shall be effective upon receipt or upon refusal of the addressee to
accept delivery.
If to Executive: Mr. Thomas Matthews
____________________________________
____________________________________
If to the Company: The Washington Water Power Company
Attn: _____________________________
1411 East Mission Avenue
Spokane, WA
16. ASSIGNMENT
This Agreement is personal to Executive and shall not be assignable by
Executive. The Company may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation or other reorganization to which the
Company is a party or (b) any corporation, partnership, association or other
person to which the Company may transfer all or substantially all of the assets
and business of the Company existing at such time. All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
17. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
18. ARBITRATION
Subject to the provisions of Section 11.7 hereof, any controversies or
claims arising out of or relating to this Agreement shall be fully and finally
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect (the "AAA Rules"), conducted
by one arbitrator either mutually agreed upon by the Company and Executive or
chosen in accordance with the
<PAGE> 12
AAA Rules, except that the parties thereto shall have any right to discovery as
would be permitted by the Federal Rules of Civil Procedure for a period of 90
days following the commencement of such arbitration and the arbitrator thereof
shall resolve any dispute which arises in connection with such discovery. The
prevailing party shall be entitled to costs, expenses and reasonable attorneys'
fees, and judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof.
19. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and Executive.
20. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
21. MISCELLANEOUS
(a) This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
(b) All headings used herein are for convenience only and shall not in
any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
(c) This Agreement, and any amendment or modification entered into
pursuant to Section 19 hereof, may be executed in any number of counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same instrument.
<PAGE> 13
(d) This Agreement on the date hereof constitutes the entire agreement
between the Company and Executive with respect to the subject matter hereof and
all prior or contemporaneous oral or written communications, understandings or
agreements between the Company and Executive with respect to such subject matter
are hereby superseded and nullified in their entireties.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on
the date set forth above.
EXECUTIVE:
/s/ Thomas M. Matthews
---------------------------------
COMPANY:
By: /s/ Paul A. Redmond
---------------------------------
Its: Chairman & CEO
--------------------------------
<PAGE> 1
EXHIBIT 12
THE WASHINGTON WATER POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividend Requirements
Consolidated
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt $ 66,218 $ 63,413 $ 60,256 $ 55,580 $ 49,566
Amortization of debt expense
and premium - net 2,859 2,862 2,998 3,441 3,511
Interest portion of rentals 4,301 4,354 4,311 3,962 1,282
-------- -------- -------- -------- --------
Total fixed charges $ 73,378 $ 70,629 $ 67,565 $ 62,983 $ 54,359
======== ======== ======== ======== ========
Earnings, as defined:
Net income from continuing ops $ 78,139 $114,797 $ 83,453 $ 87,121 $ 77,197
Add (deduct):
Income tax expense 43,335 61,075 49,509 52,416 44,696
Total fixed charges above 73,378 70,629 67,565 62,983 54,359
-------- -------- -------- -------- --------
Total earnings $194,852 $246,501 $200,527 $202,520 $176,252
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.66 3.49 2.97 3.22 3.24
Fixed charges and preferred dividend
requirements:
Fixed charges above $ 73,378 $ 70,629 $ 67,565 $ 62,983 $ 54,359
Preferred dividend requirements (2) 13,057 8,261 12,711 14,612 13,668
-------- -------- -------- -------- --------
Total $ 86,435 $ 78,890 $ 80,276 $ 77,595 $ 68,027
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred dividend requirements 2.25 3.12 2.50 2.61 2.59
</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.
<PAGE> 1
Exhibit 21
Avista Corporation
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
---------- ----------------------
<S> <C>
Altus Corporation Nevada
Avista Capital, Inc. Washington
Avista Advantage, Inc. Washington
Avista Communications, Inc. Washington
Avista Development, Inc. Washington
Avista Energy, Inc. Washington
Avista Fiber, Inc. Washington
Avista International, Inc. Washington
Avista Laboratories, Inc. Washington
Avista Power, Inc. Washington
Pentzer Corporation Washington
WWP Receivables Corp. Washington
Avista Energy Canada, Inc. Alberta, Canada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE WASHINGTON WATER POWER COMPANY,
INCLUDED IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,470,942
<OTHER-PROPERTY-AND-INVEST> 540,620
<TOTAL-CURRENT-ASSETS> 976,936
<TOTAL-DEFERRED-CHARGES> 282,088
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,270,586
<COMMON> 372,106
<CAPITAL-SURPLUS-PAID-IN> (4,517)
<RETAINED-EARNINGS> 120,445
<TOTAL-COMMON-STOCKHOLDERS-EQ> 488,024
145,000
269,227
<LONG-TERM-DEBT-NET> 640,217<F1>
<SHORT-TERM-NOTES> 21,425
<LONG-TERM-NOTES-PAYABLE> 37,903
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 60,446
0
<CAPITAL-LEASE-OBLIGATIONS> 4,403
<LEASES-CURRENT> 2,222
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,601,709<F2>
<TOT-CAPITALIZATION-AND-LIAB> 3,270,586
<GROSS-OPERATING-REVENUE> 3,683,984
<INCOME-TAX-EXPENSE> 43,335<F3>
<OTHER-OPERATING-EXPENSES> 3,511,164
<TOTAL-OPERATING-EXPENSES> 3,511,164
<OPERATING-INCOME-LOSS> 172,820
<OTHER-INCOME-NET> 17,731
<INCOME-BEFORE-INTEREST-EXPEN> 190,551<F4>
<TOTAL-INTEREST-EXPENSE> 69,077
<NET-INCOME> 78,139
8,399
<EARNINGS-AVAILABLE-FOR-COMM> 69,740
<COMMON-STOCK-DIVIDENDS> 56,898
<TOTAL-INTEREST-ON-BONDS> 46,933
<CASH-FLOW-OPERATIONS> 267,903
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<FN>
<F1>LONG-TERM DEBT-NET DOES NOT MATCH THE AMOUNT REPORTED ON THE COMPANY'S
CONSOLIDATED STATEMENT OF CAPITALIZATION AS LONG-TERM DEBT DUE TO THE OTHER
CATEGORIES REQUIRED BY THIS SCHEDULE.
<F2>OTHER ITEMS CAPITAL AND LIABILITIES INCLUDES THE CURRENT LIABILITIES,
DEFERRED CREDITS AND MINORITY INTEREST, LESS CERTAIN AMOUNTS INCLUDED UNDER
LONG-TERM DEBT-CURRENT PORTION AND LEASES-CURRENT, FROM THE COMPANY'S
CONSOLIDATED BALANCE SHEET.
<F3>THE COMPANY DOES NOT INCLUDE INCOME TAX EXPENSE AS AN OPERATING EXPENSE
ITEM. IT IS INCLUDED ON THE COMPANY'S STATEMENTS AS A BELOW-THE-LINE ITEM.
<F4>INCOME BEFORE INTEREST EXPENSE IS NOT A SPECIFIC LINE ITEM ON THE COMPANY'S
INCOME STATEMENTS. THE COMPANY COMBINES TOTAL INTEREST EXPENSE AND OTHER INCOME
TO CALCULATE INCOME BEFORE INCOME TAXES.
</FN>
</TABLE>
