February 11, 2000
Cap Rock Energy Corporation
500 West Wall
Suite 400
Midland, Texas 79701
Attn: David W. Pruitt
President and Chief Executive Officer
Gentlemen:
National Cooperative Services Corporation ("NCSC") is pleased to
offer Cap Rock Energy Corporation (the "Borrower") this commitment
to provide certain credit facilities in connection with the
Borrower's proposed purchase of certain electric assets owned by
Citizens Utilities Company (the "Seller") located in Arizona
(collectively, the "Assets"), subject to the terms and conditions
set forth below:
1. AMOUNT AND PURPOSE:
The credit facilities (hereinafter collectively referred to
as the "Credit Facilities") shall consist of the following:
A. Long Term Secured Loan No. A-900l in the principal amount of up to
$191,000,000 which shall be used for the acquisition of the Assets.
B. Long Term Secured Loan No. A-9002 in the principal amount of up to
$37,649,000 which shall be used for capital additions for the Assets for a
period of not more than three years.
C. Letter of Credit No, L-9003 in the face amount of up to $9,550,000 to be
delivered by the Borrower as the deposit under the purchase and sale
agreement for the Assets.
D. Secured Line of Credit No. R-9900 in the principal amount of $25,000,000
which shall be used for general corporate purposes after acquisition of the
Assets. -
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2. LOAN SECURITY:
First Mortgage lien on all assets and revenue of the
Borrower securing Loan No. A-9001, A-9002 and R-9900. The
Borrower's repayment obligation of any amounts drawn on
Letter of Credit No. L-9003 shall be unsecured.
3. GUARANTY:
The Credit Facilities shall be irrevocably and
unconditionally guaranteed by Cap Rock Electric Cooperative,
Inc.
4. INTEREST RATE OPTIONS:
Match funded rates shall be available for Loans A-9001 and
A-9002 at the Borrower's option, subject to NCSC policies of
general application in effect at the time of funding the
Credit Facilities. Any amounts drawn under Letter of Credit
No. L-9003 and the Line of Credit No. R-9900 will bear
interest at the NCSC variable associate rate. The amount of
interest rate risk assumed by the Borrower shall be
satisfactory to NCSC.
5. FEES:
NCSC will charge no commitment or up-front fees as a
condition to the closing of the Credit Facilities. NCSC will
not charge for NCSC staff time or expenses incurred during
the credit process.
NCSC's standard recission fees will apply to Loans A-9001
and A-9002 in the event those loans close but the Borrower
does not advance the full principal amounts thereof.
The annual fee for Letter of Credit No. L-9003 shall be 25
basis points, regardless of whether the letters of credit
remains outstanding for the full term, and shall be payable
at the time of issuance.
Borrower will reimburse NCSC for the expenses of external
consultants and legal counsel, if any, incurred during the
credit process.
6. LOAN TERMS, PAYMENTS AND AMORTIZATION:
Loan Nos. A-9001 and A-9002 will amortize over 30 years
using a level debt service repayment schedule or other
amortization agreed upon by the Borrower and NCSC, subject
to Section 7 below. Debt service payments will be made
quarterly on Loan Nos. A-900 I and A-9002.
Letter of Credit No. L-9003 shall be issued to Citizens
Utilities Company concurrently with the Borrower's execution
of the purchase and sale agreement of the Assets for a
period extending from the date of issuance to and including
April 30, 2001. Any amounts drawn under Letter of Credit No.
L-9003 shall be repaid in full by the Borrower 12 months
from
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the date of any such draw. Interest only shall be payable monthly on the amount
of any such draws. Secured Line of Credit No. R-9900 shall be repayable in
full in 12 months. Interest shall be payable quarterly on amounts
outstanding under the line of credit.
7. PRINCIPAL DEFERRAL:
At the Borrower's option, repayment of the principal amount
of Loan No. A-9001 may be deferred for a period of up to 4
years and the Borrower shall be required to pay interest
only during that period. Thereafter, Loan No. A-9001 shall
amortize over a 26 year period in the manner described in
Section 6 above.
8. PREPAYMENTS AND CONVERSIONS:
The loan documents will contain standard provisions relating
to prepayment of the Credit Facilities or any portion
thereof and conversion of interest rates, including "make
whole" provisions on fixed-rate loans.
9. COVENANTS:
The loan documents shall contain, among other covenants, the
following covenants:
After the closing of Loan Nos. A-9001 and A-9002, the
Borrower shall achieve a modified debt service coverage
ratio ("MDSC") of at least 1.35, based upon averaging the
two highest annual ratios during the most recent three
calendar years. The Borrower shall design its rates so that
such ratios shall be achieved
The Borrower shall not in any calendar year make any
distributions of patronage refunds, dividends, cash
distributions or any other return of equity to its members
or shareholders if, after giving effect to such
distribution, the Borrower's equity will be less than 20% of
its total assets.
The Borrower shall not incur any indebtedness of any kind or
nature, including subordinated indebtedness, without the
prior written consent of NCSC, except for trade debts
payable in the ordinary course.
Payment of principal on any subordinated indebtedness will
be contingent upon NCSC's approval if, after giving effect
to such payment, the Borrower's equity will be less than 20%
of its total assets.
The purchase and sale agreement executed by the Borrower and
the Seller, together with all schedules thereto and
contracts and agreements described therein, shall be
satisfactory to NCSC in its sole discretion, it being agreed
that the purchase and sale agreement dated as of February
11, 2000 is satisfactory to NCSC in all respects (the
"Approved Purchase and Sale Agreement"). Prior to funding,
all of the conditions precedent to Borrower's obligations to
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close in the purchase and sale agreement shall have been
completed in a manner satisfactory to NCSC. The Borrower
shall not amend or modify or waive any of the terms and
conditions of the purchase and sale agreement without the
prior written consent of NCSC.
The Borrower shall perform all of its obligations under the
documentation executed by the Borrower in connection with
the purchase of the Assets, including, but not limited, to
any indemnification obligations inuring to the benefit of
the Seller.
The Borrower shall prepare and furnish to NCSC: a full and
complete report of its financial condition and statement of
its operations within 45 days of the close of each fiscal
quarter of the Borrower, annual audited statements of the
Borrower within 120 days after the end of, each of the
Borrower's fiscal years, and such other financial and
operational information as NCSC may request from time to
time. Borrower shall be subject to an annual, on-site due
diligence meeting with NCSC staff, which will be arranged at
the convenience of the Borrower within 180 days of the close
of Borrower's fiscal year.
The Guaranty from Cap Rock Electric Cooperative shall be
accompanied by evidence that the execution and delivery
thereof has been duly authorized and is a valid and binding
obligation of Cap Rock Electric Cooperative, including such
opinions of counsel, regulatory approvals and third party
consents as NCSC shall require.
10.CONDITIONS OF CLOSING:
NCSC's obligation to close the Credit Facilities (other than
the issuance of Letter of Credit No. L-9003) shall be
subject to the following conditions precedent:
-- NCSC shall have received all permits, consents, waivers and approvals
required by any federal, state or local governmental boards, commissions,
authorities or other regulatory bodies in connection with the acquisition
of the Assets by the Borrower and approval of such Credit Facilities
contemplated by this commitment letter, including, but not limited to,
those required by any state public service commissions, other than those
the failure of which to obtain would not have a material adverse effect on
the operation, financial position or results of operation of the Assets,
and none of such approvals shall materially and adversely impact the
Borrower's ability to repay such Credit Facilities and perform the
covenants set forth in `the loan documents, as determined by NCSC in its
sole discretion. None of such approvals shall contain a term or condition
that would require a net reduction in the existing tariffed rates relating
to the Assets. The requests for State regulatory approvals of the
transaction shall expressly make clear that Borrower is required as a
condition and covenant of its indebtedness to meet and maintain Borrower's
MDSC requirements (regardless of whether Borrower is a cooperative or an
investor-owned utility), and the State regulatory order(s) approving the
transaction shall indicate, as determined by a prudent lender acting in a
commercially reasonable manner, the regulatory body's recognition of this
requirement.
-- The Borrower shall execute and deliver promissory
notes, loan agreements, security agreements,
assignments, mortgages, pledge agreements, and such
other documents as required by NCSC, in form and
substance reasonably satisfactory to NCSC and its
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counsel, it being agreed that the form of loan agreement and other
loan documents that are attached to this commitment letter (the
"Approved Loan Documents") are satisfactory in form and substance
to NCSC and its counsel.
-- The Borrower shall cause its legal counsel to deliver such opinions of
counsel covering such matters as NCSC may require in connection with the
acquisition of the Assets and the financing contemplated by this
commitment.
This commitment is subject to further negotiation and completion of agreeable
financing terms and documentation which will include terms, provisions,
representations, warranties, covenants, conditions precedent, defaults,
indemnities, remedies, and waiver of jury trial provisions, that are customary
in acquisition financing transactions, although not expressly described in this
letter, it being agreed that the Approved Loan Documents include all conditions
precedent to NCSC's obligation to close such Credit Facilities.
This commitment is delivered to you with the express understanding that NCSC or
its affiliates may provide financing and other financial or consulting services
to other entities and their affiliates, and that these companies may have
conflicting or competing interests with you regarding the proposed acquisition.
However, in providing such financing and other financial or consulting services,
neither NCSC nor any of its affiliates will share with any other entity or
person any confidential information you disclose to us in connection with the
transaction described in this letter. Similarly, you acknowledge and agree that
neither NCSC nor any of its affiliates has any obligation to disclose to you
confidential information that NCSC receives from any other entity or person
regarding the subject acquisition or financing.
This commitment is delivered to you with the further understanding that you will
not disclose its contents or the financing terms of the transaction with any
party other than governmental or regulatory bodies which require such
disclosure, or to those who are in a confidential relationship with you in
connection with this transaction, such as your legal counsel, consultants, Board
of Directors, and the Seller, or as otherwise required by law.
All of the provisions of this conditional commitment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, except that the Borrower may not assign or transfer any of its
rights or obligations under this conditional commitment and any purported
assignment or transfer by the Borrower shall be void. No rights are intended to
be created under this commitment for the benefit of any third party.
The Borrower shall indemnify and hold harmless NCSC and its officers, directors,
employees, agents and affiliates from and against any and all liabilities
arising out of the transaction contemplated by this commitment letter.
If the terms of this commitment are acceptable to you, please sign where
indicated below and return the executed copy to NCSC. This commitment shall
become effective only upon your signature below and receipt by NCSC of the
signed commitment,
NCSC's obligations under this commitment shall terminate upon the earlier to
occur of (i) the rejection by the Seller of the Borrower's bid to purchase the
Assets, (ii) the date the Borrower consummates the closing of the acquisition,
and (iii) April 30, 2001.
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Concurrently with the issuance by NCSC of this conditional commitment (the
"Arizona Commitment") to finance the acquisition by the Borrower of the Seller's
assets located in the State of Arizona (the "Arizona Assets"), NCSC has also
issued the following conditional commitments: (i) a conditional commitment (the
"Hawaii Commitment") to finance the acquisition by the Borrower of the Seller's
assets located in Kaua'i, Hawaii (the "Hawaii Assets") and (ii) a conditional
commitment (the "Joint commitment") to finance the acquisition by the Borrower
of the Arizona Assets and the Hawaii Assets. By acceptance of the Arizona
Commitment, the borrower acknowledges and agrees that all of NCSC's obligations
under the Hawaii commitment and the Joint Commitment are automatically
terminated and the Hawaii commitment and Joint Commitment are null and void and
of no further force or effect.
This letter supercedes that certain commitment letter dated January 10, 2000
from NCSC to the Borrower which is of o further force of effect.
We at NCSC look forward to working with you toward a successful completion of
this transaction.
Very truly yours,
NATIONAL COOPERATIVE SERVICES CORPORATION
By: ____________________________
Its: _______________________
ACKNOWLEDGED AND AGREED TO:
Borrower:
CAP ROCK ENERGY CORPORATION
By: ___________________________
Its: _____________________
Date: _________________________
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