CONFORMED
UNITED STATES
FORM 10-Q
(Mark One)
[
X
]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2002
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
Washington
91-0462470
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1411 East Mission Avenue, Spokane, Washington
99202-2600
(Address of principal executive offices)
(Zip Code)
Registrants telephone number, including area code: 509-489-0500
Web site: http://www.avistacorp.com
None
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 [ ]
As of July 31, 2002, 47,845,628 shares of Registrants Common Stock, no par value (the only class of common stock), were outstanding.
AVISTA CORPORATION
Index
Page No. | ||||||
|
||||||
Part I. Financial Information:
|
||||||
Item 1. Consolidated Financial Statements
|
||||||
Consolidated
Statements of Income and Comprehensive Income
Three Months Ended June 30, 2002 and 2001 |
3 | |||||
Consolidated
Statements of Income and Comprehensive Income
Six Months Ended June 30, 2002 and 2001 |
4 | |||||
Consolidated Balance Sheets June 30, 2002
and December 31, 2001
|
5 | |||||
Consolidated Statements of Capitalization June 30, 2002
and December 31, 2001
|
6 | |||||
Consolidated Statements of Cash Flows Six Months Ended
June 30, 2002 and 2001
|
7 | |||||
Schedule of Information by Business Segments Three Months Ended
June 30, 2002 and 2001
|
8 | |||||
Schedule of Information by Business Segments Six Months Ended
June 30, 2002 and 2001
|
10 | |||||
Notes to Consolidated Financial Statements
|
12 | |||||
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
27 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
50 | |||||
Part II. Other Information:
|
||||||
Item 1. Legal Proceedings
|
50 | |||||
Item 4. Submission of Matters to a Vote of Security Holders
|
50 | |||||
Item 6. Exhibits and Reports on Form 8-K
|
51 | |||||
Signature
|
52 |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Avista Corporation
For the Three Months Ended June 30
Dollars in thousands, except per share amounts
2002 | 2001 | |||||||||
|
|
|||||||||
OPERATING REVENUES
|
$ | 751,412 | $ | 1,546,493 | ||||||
|
|
|
||||||||
OPERATING EXPENSES:
|
||||||||||
Resource costs
|
611,304 | 1,386,458 | ||||||||
Operations and maintenance
|
29,423 | 34,885 | ||||||||
Administrative and general
|
37,082 | 34,793 | ||||||||
Depreciation and amortization
|
18,118 | 18,007 | ||||||||
Taxes other than income taxes
|
16,609 | 15,800 | ||||||||
|
|
|
||||||||
Total operating expenses
|
712,536 | 1,489,943 | ||||||||
|
|
|
||||||||
INCOME FROM OPERATIONS
|
38,876 | 56,550 | ||||||||
|
|
|
||||||||
OTHER INCOME (EXPENSE):
|
||||||||||
Interest expense
|
(26,754 | ) | (28,014 | ) | ||||||
Capitalized interest
|
2,095 | 2,470 | ||||||||
|
|
|
||||||||
Net interest expense
|
(24,659 | ) | (25,544 | ) | ||||||
Other income net
|
3,504 | 11,463 | ||||||||
|
|
|
||||||||
Total
other income (expense) net
|
(21,155 | ) | (14,081 | ) | ||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
17,721 | 42,469 | ||||||||
INCOME TAXES
|
8,390 | 16,489 | ||||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS
|
9,331 | 25,980 | ||||||||
|
|
|
||||||||
DISCONTINUED OPERATIONS (Note 3):
|
||||||||||
Income (loss) before minority interest and income taxes
|
1,557 | (5,546 | ) | |||||||
Minority interest
|
| 351 | ||||||||
Income tax benefit (expense)
|
(543 | ) | 1,940 | |||||||
|
|
|
||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
|
1,014 | (3,255 | ) | |||||||
|
|
|
||||||||
NET INCOME
|
10,345 | 22,725 | ||||||||
DEDUCT
Preferred stock dividend requirements
|
608 | 608 | ||||||||
|
|
|
||||||||
INCOME AVAILABLE FOR COMMON STOCK
|
$ | 9,737 | $ | 22,117 | ||||||
|
|
|
||||||||
Weighted-average common shares outstanding (thousands), Basic
|
47,774 | 47,372 | ||||||||
EARNINGS PER COMMON SHARE, BASIC AND DILUTED (Note 7):
|
||||||||||
Earnings per common share from continuing operations
|
$ | 0.18 | $ | 0.54 | ||||||
Earnings (loss) per common share from discontinued operations
|
0.02 | (0.07 | ) | |||||||
|
|
|
||||||||
Total earnings per common share, basic and diluted
|
$ | 0.20 | $ | 0.47 | ||||||
|
|
|
||||||||
Dividends paid per common share
|
$ | 0.12 | $ | 0.12 | ||||||
NET INCOME
|
$ | 10,345 | $ | 22,725 | ||||||
|
|
|
||||||||
OTHER COMPREHENSIVE INCOME (LOSS):
|
||||||||||
Foreign currency translation adjustment
|
517 | 72 | ||||||||
Unrealized loss on interest rate swap agreements
|
(344 | ) | | |||||||
Unrealized investments gains (losses) net of tax
|
(911 | ) | 649 | |||||||
|
|
|
||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
|
(738 | ) | 721 | |||||||
|
|
|
||||||||
COMPREHENSIVE INCOME
|
$ | 9,607 | $ | 23,446 | ||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Avista Corporation
For the Six Months Ended June 30
Dollars in thousands, except per share amounts
2002 | 2001 | |||||||||
|
|
|||||||||
OPERATING REVENUES
|
$ | 1,501,433 | $ | 3,571,375 | ||||||
|
|
|
||||||||
OPERATING EXPENSES:
|
||||||||||
Resource costs
|
1,220,292 | 3,246,640 | ||||||||
Operations and maintenance
|
60,527 | 64,803 | ||||||||
Administrative and general
|
62,300 | 68,380 | ||||||||
Depreciation and amortization
|
36,102 | 35,980 | ||||||||
Taxes other than income taxes
|
36,829 | 33,576 | ||||||||
|
|
|
||||||||
Total operating expenses
|
1,416,050 | 3,449,379 | ||||||||
|
|
|
||||||||
INCOME FROM OPERATIONS
|
85,383 | 121,996 | ||||||||
|
|
|
||||||||
OTHER INCOME (EXPENSE):
|
||||||||||
Interest expense
|
(55,666 | ) | (49,067 | ) | ||||||
Capitalized interest
|
4,390 | 4,546 | ||||||||
|
|
|
||||||||
Net interest expense
|
(51,276 | ) | (44,521 | ) | ||||||
Other income net
|
10,714 | 18,682 | ||||||||
|
|
|
||||||||
Total
other income (expense) net
|
(40,562 | ) | (25,839 | ) | ||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
44,821 | 96,157 | ||||||||
INCOME TAXES
|
19,970 | 38,056 | ||||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS
|
24,851 | 58,101 | ||||||||
|
|
|
||||||||
DISCONTINUED OPERATIONS (Note 3):
|
||||||||||
Income (loss) before minority interest and income taxes
|
1,139 | (10,637 | ) | |||||||
Minority interest
|
| 942 | ||||||||
Income tax benefit (expense)
|
(397 | ) | 3,722 | |||||||
|
|
|
||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
|
742 | (5,973 | ) | |||||||
|
|
|
||||||||
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
|
25,593 | 52,128 | ||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of tax) (Note 2)
|
(4,148 | ) | | |||||||
|
|
|
||||||||
NET INCOME
|
21,445 | 52,128 | ||||||||
DEDUCT
Preferred stock dividend requirements
|
1,216 | 1,216 | ||||||||
|
|
|
||||||||
INCOME AVAILABLE FOR COMMON STOCK
|
$ | 20,229 | $ | 50,912 | ||||||
|
|
|
||||||||
Weighted-average common shares outstanding (thousands), Basic
|
47,723 | 47,305 | ||||||||
EARNINGS PER COMMON SHARE, BASIC AND DILUTED (Note 7):
|
||||||||||
Earnings per common share from continuing operations
|
$ | 0.49 | $ | 1.21 | ||||||
Earnings (loss) per common share from discontinued operations
|
0.02 | (0.13 | ) | |||||||
|
|
|
||||||||
Earnings per common share before cumulative effect of accounting change
|
0.51 | 1.08 | ||||||||
Loss per common share from cumulative effect of accounting change
|
(0.09 | ) | | |||||||
|
|
|
||||||||
Total earnings per common share, basic and diluted
|
$ | 0.42 | $ | 1.08 | ||||||
|
|
|
||||||||
Dividends paid per common share
|
$ | 0.24 | $ | 0.24 | ||||||
NET INCOME
|
$ | 21,445 | $ | 52,128 | ||||||
|
|
|
||||||||
OTHER COMPREHENSIVE INCOME (LOSS):
|
||||||||||
Foreign currency translation adjustment
|
151 | 58 | ||||||||
Unrealized loss on interest rate swap agreements
|
(344 | ) | | |||||||
Unrealized investments gains (losses) net of tax
|
(934 | ) | 2,214 | |||||||
|
|
|
||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
|
(1,127 | ) | 2,272 | |||||||
|
|
|
||||||||
COMPREHENSIVE INCOME
|
$ | 20,318 | $ | 54,400 | ||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
4
CONSOLIDATED BALANCE SHEETS
Avista Corporation
Dollars in thousands
June 30, | December 31, | ||||||||||
2002 | 2001 | ||||||||||
|
|
||||||||||
ASSETS:
|
|||||||||||
CURRENT ASSETS:
|
|||||||||||
Cash and cash equivalents
|
$ | 142,475 | $ | 171,221 | |||||||
Temporary investments
|
| 1,872 | |||||||||
Accounts
and notes receivable less allowances of $47,319 and $50,211, respectively
|
293,428 | 388,083 | |||||||||
Energy commodity assets
|
463,460 | 477,037 | |||||||||
Materials and supplies, fuel stock and natural gas stored
|
20,298 | 21,776 | |||||||||
Taxes receivable
|
| 32,348 | |||||||||
Prepayments and other current assets
|
25,432 | 19,364 | |||||||||
Assets held for sale from discontinued operations
|
21,615 | 21,316 | |||||||||
|
|
|
|||||||||
Total current assets
|
966,708 | 1,133,017 | |||||||||
|
|
|
|||||||||
NET UTILITY PROPERTY:
|
|||||||||||
Utility plant in service
|
2,335,578 | 2,277,779 | |||||||||
Construction work in progress
|
26,814 | 54,964 | |||||||||
|
|
|
|||||||||
Total
|
2,362,392 | 2,332,743 | |||||||||
Less: Accumulated depreciation and amortization
|
795,796 | 767,101 | |||||||||
|
|
|
|||||||||
Total net utility property
|
1,566,596 | 1,565,642 | |||||||||
|
|
|
|||||||||
OTHER PROPERTY AND INVESTMENTS:
|
|||||||||||
Investment
in exchange power net
|
42,058 | 43,314 | |||||||||
Non-utility
properties and investments net
|
220,146 | 230,800 | |||||||||
Non-current energy commodity assets
|
331,193 | 383,497 | |||||||||
Other
property and investments net
|
13,258 | 13,620 | |||||||||
|
|
|
|||||||||
Total other property and investments
|
606,655 | 671,231 | |||||||||
|
|
|
|||||||||
DEFERRED CHARGES:
|
|||||||||||
Regulatory assets for deferred income tax
|
144,334 | 149,033 | |||||||||
Other regulatory assets
|
85,567 | 192,760 | |||||||||
Utility energy commodity derivative assets
|
19,138 | 1,889 | |||||||||
Power and natural gas deferrals
|
184,267 | 265,063 | |||||||||
Unamortized debt expense
|
54,109 | 41,222 | |||||||||
Other deferred charges
|
22,884 | 17,366 | |||||||||
|
|
|
|||||||||
Total deferred charges
|
510,299 | 667,333 | |||||||||
|
|
|
|||||||||
TOTAL ASSETS
|
$ | 3,650,258 | $ | 4,037,223 | |||||||
|
|
|
|||||||||
LIABILITIES AND CAPITALIZATION:
|
|||||||||||
CURRENT LIABILITIES:
|
|||||||||||
Accounts payable
|
$ | 304,768 | $ | 367,899 | |||||||
Energy commodity liabilities
|
367,094 | 373,837 | |||||||||
Current portion of long-term debt
|
13,102 | 1,827 | |||||||||
Short-term borrowings
|
74,499 | 75,099 | |||||||||
Interest accrued
|
22,447 | 18,583 | |||||||||
Other current liabilities
|
93,344 | 84,587 | |||||||||
Liabilities of discontinued operations
|
6,279 | 6,642 | |||||||||
|
|
|
|||||||||
Total current liabilities
|
881,533 | 928,474 | |||||||||
|
|
|
|||||||||
NON-CURRENT LIABILITIES AND DEFERRED CREDITS:
|
|||||||||||
Non-current liabilities
|
47,880 | 46,601 | |||||||||
Deferred revenue
|
15,936 | 35,824 | |||||||||
Non-current energy commodity liabilities
|
276,534 | 299,980 | |||||||||
Utility energy commodity derivative liabilities
|
72,396 | 159,418 | |||||||||
Deferred income taxes
|
484,541 | 517,428 | |||||||||
Other deferred credits
|
20,395 | 18,720 | |||||||||
|
|
|
|||||||||
Total non-current liabilities and deferred credits
|
917,682 | 1,077,971 | |||||||||
|
|
|
|||||||||
CAPITALIZATION (See Consolidated Statements of Capitalization)
|
1,851,043 | 2,030,778 | |||||||||
|
|
|
|||||||||
COMMITMENTS AND CONTINGENCIES (Note 9)
|
|||||||||||
TOTAL LIABILITIES AND CAPITALIZATION
|
$ | 3,650,258 | $ | 4,037,223 | |||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
5
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Avista Corporation
Dollars in thousands
June 30, | December 31, | ||||||||||
2002 | 2001 | ||||||||||
|
|
||||||||||
LONG-TERM DEBT:
|
|||||||||||
First Mortgage Bonds:
|
|||||||||||
Secured Medium-Term Notes:
|
|||||||||||
Series A
6.25% to 7.90% due 2003 through 2023
|
$ | 104,500 | $ | 104,500 | |||||||
Series B
6.50% to 7.89% due 2005 through 2010
|
59,000 | 59,000 | |||||||||
|
|
|
|||||||||
Total secured medium-term notes
|
163,500 | 163,500 | |||||||||
First
Mortgage Bonds 7.75% due 2007
|
150,000 | 150,000 | |||||||||
|
|
|
|||||||||
Total first mortgage bonds
|
313,500 | 313,500 | |||||||||
|
|
|
|||||||||
Unsecured Pollution Control Bonds:
|
|||||||||||
Colstrip 1999A, due 2032
|
66,700 | 66,700 | |||||||||
Colstrip 1999B, due 2034
|
17,000 | 17,000 | |||||||||
6% Series due 2023
|
4,100 | 4,100 | |||||||||
|
|
|
|||||||||
Total unsecured pollution control bonds
|
87,800 | 87,800 | |||||||||
|
|
|
|||||||||
Unsecured Notes:
|
|||||||||||
Unsecured Medium-Term Notes:
|
|||||||||||
Series A
7.94% due 2007
|
3,000 | 13,000 | |||||||||
Series B
7.42% to 8.23% due 2004 through 2023
|
74,000 | 79,000 | |||||||||
Series C
5.99% to 8.02% due 2007 through 2028
|
99,000 | 109,000 | |||||||||
Series D
9.125% due 2003
|
52,950 | 175,000 | |||||||||
|
|
|
|||||||||
Total unsecured medium-term notes
|
228,950 | 376,000 | |||||||||
Unsecured 9.75% Senior Notes due 2008
|
356,220 | 400,000 | |||||||||
|
|
|
|||||||||
Total unsecured notes
|
585,170 | 776,000 | |||||||||
|
|
|
|||||||||
Other long-term debt
|
508 | 962 | |||||||||
|
|
|
|||||||||
Unamortized debt discount
|
(2,346 | ) | (2,547 | ) | |||||||
|
|
|
|||||||||
Total long-term debt
|
984,632 | 1,175,715 | |||||||||
|
|
|
|||||||||
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED TRUST SECURITIES:
|
|||||||||||
7.875%, Series A, due 2037
|
60,000 | 60,000 | |||||||||
Floating Rate, Series B, due 2037
|
40,000 | 40,000 | |||||||||
|
|
|
|||||||||
Total company-obligated mandatorily redeemable preferred trust securities
|
100,000 | 100,000 | |||||||||
|
|
|
|||||||||
PREFERRED
STOCK CUMULATIVE:
|
|||||||||||
10,000,000 shares authorized:
|
|||||||||||
Subject to mandatory redemption:
|
|||||||||||
|
|
|
|||||||||
$6.95 Series K; 350,000 shares outstanding ($100 stated value)
|
35,000 | 35,000 | |||||||||
|
|
|
|||||||||
COMMON EQUITY:
|
|||||||||||
Common stock, no par value; 200,000,000 shares authorized;
47,830,058 and 47,632,678 shares outstanding
|
620,617 | 617,737 | |||||||||
Note receivable from employee stock ownership plan
|
(4,934 | ) | (5,679 | ) | |||||||
Capital stock expense and other paid in capital
|
(11,928 | ) | (11,924 | ) | |||||||
Accumulated other comprehensive loss
|
(1,227 | ) | (99 | ) | |||||||
Retained earnings
|
128,883 | 120,028 | |||||||||
|
|
|
|||||||||
Total common equity
|
731,411 | 720,063 | |||||||||
|
|
|
|||||||||
TOTAL CAPITALIZATION
|
$ | 1,851,043 | $ | 2,030,778 | |||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Avista Corporation
For the Six Months Ended June 30
Dollars in thousands
2002 | 2001 | ||||||||||
|
|
||||||||||
CONTINUING OPERATING ACTIVITIES:
|
|||||||||||
Net income
|
$ | 21,445 | $ | 52,128 | |||||||
Loss (income) from discontinued operations
|
(742 | ) | 5,973 | ||||||||
Cumulative effect of accounting change
|
4,148 | | |||||||||
Non-cash items included in net income:
|
|||||||||||
Depreciation and amortization
|
36,102 | 35,980 | |||||||||
Provision for deferred income taxes
|
(25,477 | ) | 55,593 | ||||||||
Power and natural gas cost amortizations (deferrals) including interest, net
|
81,737 | (141,075 | ) | ||||||||
Energy commodity assets and liabilities
|
34,796 | (16,440 | ) | ||||||||
Other-net
|
(11,153 | ) | 6,640 | ||||||||
Changes in working capital components:
|
|||||||||||
Sale of customer accounts receivable-net
|
(18,000 | ) | (4,000 | ) | |||||||
Receivables and prepaid expense
|
113,902 | 459,688 | |||||||||
Materials and supplies, fuel stock and natural gas stored
|
1,478 | 2,280 | |||||||||
Accounts payable and other accrued liabilities
|
(22,232 | ) | (418,150 | ) | |||||||
Other
|
(22,976 | ) | (12,773 | ) | |||||||
|
|
|
|||||||||
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
|
193,028 | 25,844 | |||||||||
|
|
|
|||||||||
CONTINUING INVESTING ACTIVITIES:
|
|||||||||||
Utility property construction expenditures (excluding AFUDC)
|
(32,928 | ) | (55,365 | ) | |||||||
Other capital expenditures
|
(4,750 | ) | (96,782 | ) | |||||||
Changes in other non-current balance sheet items-net
|
5,575 | (1,065 | ) | ||||||||
Assets acquired and investments in subsidiaries
|
(274 | ) | (349 | ) | |||||||
|
|
|
|||||||||
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
|
(32,377 | ) | (153,561 | ) | |||||||
|
|
|
|||||||||
CONTINUING FINANCING ACTIVITIES:
|
|||||||||||
Decrease in short-term borrowings
|
(600 | ) | (163,160 | ) | |||||||
Proceeds from issuance of long-term debt
|
| 400,000 | |||||||||
Redemption and maturity of long-term debt
|
(180,010 | ) | (24,976 | ) | |||||||
Issuance of common stock
|
3,702 | 5,423 | |||||||||
Cash dividends paid
|
(12,770 | ) | (12,586 | ) | |||||||
Other-net
|
201 | (3,249 | ) | ||||||||
|
|
|
|||||||||
NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES
|
(189,477 | ) | 201,452 | ||||||||
|
|
|
|||||||||
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS
|
(28,826 | ) | 73,735 | ||||||||
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS
|
80 | (21,165 | ) | ||||||||
|
|
|
|||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(28,746 | ) | 52,570 | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
171,221 | 197,238 | |||||||||
|
|
|
|||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 142,475 | $ | 249,808 | |||||||
|
|
|
|||||||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|||||||||||
Cash paid (received) during the period:
|
|||||||||||
Interest
|
$ | 47,494 | $ | 37,793 | |||||||
Income taxes
|
(25,951 | ) | (21,975 | ) | |||||||
Non-cash financing and investing activities:
|
|||||||||||
Intangibles acquired through issuance of subsidiary stock
|
| 1,286 | |||||||||
Property purchased under capitalized leases
|
| 469 | |||||||||
Unrealized investment gains (losses)
|
(1,436 | ) | 3,405 |
The Accompanying Notes are an Integral Part of These Statements.
7
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
Avista Corporation
For the Three Months Ended June 30
Dollars in thousands
2002 | 2001 | |||||||||
|
|
|||||||||
OPERATING REVENUES:
|
||||||||||
Avista Utilities
|
$ | 190,973 | $ | 317,066 | ||||||
Energy Trading and Marketing
|
574,258 | 1,263,484 | ||||||||
Information and Technology
|
4,030 | 3,142 | ||||||||
Other
|
3,452 | 3,534 | ||||||||
Intersegment eliminations
|
(21,301 | ) | (40,733 | ) | ||||||
|
|
|
||||||||
Total operating revenues
|
$ | 751,412 | $ | 1,546,493 | ||||||
|
|
|
||||||||
RESOURCE COSTS:
|
||||||||||
Avista Utilities:
|
||||||||||
Power purchased
|
$ | 12,159 | $ | 215,115 | ||||||
Natural gas purchased
|
32,081 | 33,211 | ||||||||
Fuel for generation
|
3,252 | 26,159 | ||||||||
Power and natural gas cost amortizations (deferrals), net
|
13,096 | (67,871 | ) | |||||||
Other
|
17,666 | 4,486 | ||||||||
Energy Trading and Marketing:
|
||||||||||
Cost of sales
|
554,351 | 1,216,091 | ||||||||
Intersegment eliminations
|
(21,301 | ) | (40,733 | ) | ||||||
|
|
|
||||||||
Total resource costs (Avista Utilities and Energy Trading and Marketing)
|
$ | 611,304 | $ | 1,386,458 | ||||||
|
|
|
||||||||
GROSS MARGINS (Avista Utilities and Energy Trading and Marketing):
|
||||||||||
Avista Utilities
|
$ | 112,719 | $ | 105,966 | ||||||
Energy Trading and Marketing
|
19,907 | 47,393 | ||||||||
|
|
|
||||||||
Total gross margins (Avista Utilities and Energy Trading and Marketing)
|
$ | 132,626 | $ | 153,359 | ||||||
|
|
|
||||||||
OPERATIONS AND MAINTENANCE EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 23,283 | $ | 27,530 | ||||||
Energy Trading and Marketing
|
| 195 | ||||||||
Information and Technology
|
2,603 | 3,367 | ||||||||
Other
|
3,537 | 3,793 | ||||||||
|
|
|
||||||||
Total operations and maintenance expenses
|
$ | 29,423 | $ | 34,885 | ||||||
|
|
|
||||||||
ADMINISTRATIVE AND GENERAL EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 16,108 | $ | 14,495 | ||||||
Energy Trading and Marketing
|
6,905 | 10,832 | ||||||||
Information and Technology
|
6,041 | 6,544 | ||||||||
Other
|
8,028 | 2,922 | ||||||||
|
|
|
||||||||
Total administrative and general expenses
|
$ | 37,082 | $ | 34,793 | ||||||
|
|
|
||||||||
DEPRECIATION AND AMORTIZATION EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 16,250 | $ | 15,405 | ||||||
Energy Trading and Marketing
|
309 | 474 | ||||||||
Information and Technology
|
1,127 | 1,285 | ||||||||
Other
|
432 | 843 | ||||||||
|
|
|
||||||||
Total depreciation and amortization expenses
|
$ | 18,118 | $ | 18,007 | ||||||
|
|
|
8
2002 | 2001 | |||||||||
|
|
|||||||||
INCOME FROM OPERATIONS (PRE-TAX):
|
||||||||||
Avista Utilities
|
$ | 41,194 | $ | 34,517 | ||||||
Energy Trading and Marketing
|
12,306 | 34,762 | ||||||||
Information and Technology
|
(6,060 | ) | (8,695 | ) | ||||||
Other
|
(8,564 | ) | (4,034 | ) | ||||||
|
|
|
||||||||
Total income from operations
|
$ | 38,876 | $ | 56,550 | ||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS:
|
||||||||||
Avista Utilities
|
$ | 12,004 | $ | 10,129 | ||||||
Energy Trading and Marketing
|
8,506 | 23,605 | ||||||||
Information and Technology
|
(4,315 | ) | (5,727 | ) | ||||||
Other
|
(6,864 | ) | (2,027 | ) | ||||||
|
|
|
||||||||
Total income from continuing operations
|
$ | 9,331 | $ | 25,980 | ||||||
|
|
|
||||||||
ASSETS (2001 amounts as of December 31):
|
||||||||||
Avista Utilities
|
$ | 2,180,948 | $ | 2,396,317 | ||||||
Energy Trading and Marketing
|
1,346,777 | 1,506,185 | ||||||||
Information and Technology
|
31,518 | 26,891 | ||||||||
Other
|
69,400 | 86,514 | ||||||||
Discontinued Operations
|
21,615 | 21,316 | ||||||||
|
|
|
||||||||
Total assets
|
$ | 3,650,258 | $ | 4,037,223 | ||||||
|
|
|
||||||||
CAPITAL EXPENDITURES (excluding AFUDC):
|
||||||||||
Avista Utilities
|
$ | 14,454 | $ | 36,187 | ||||||
Energy Trading and Marketing
|
2,266 | 52,868 | ||||||||
Information and Technology
|
13 | 880 | ||||||||
Other
|
63 | | ||||||||
|
|
|
||||||||
Total capital expenditures
|
$ | 16,796 | $ | 89,935 | ||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
9
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
Avista Corporation
For the Six Months Ended June 30
Dollars in thousands
2002 | 2001 | |||||||||
|
|
|||||||||
OPERATING REVENUES:
|
||||||||||
Avista Utilities
|
$ | 476,631 | $ | 732,693 | ||||||
Energy Trading and Marketing
|
1,067,639 | 2,992,385 | ||||||||
Information and Technology
|
7,979 | 6,117 | ||||||||
Other
|
6,379 | 9,225 | ||||||||
Intersegment eliminations
|
(57,195 | ) | (169,045 | ) | ||||||
|
|
|
||||||||
Total operating revenues
|
$ | 1,501,433 | $ | 3,571,375 | ||||||
|
|
|
||||||||
RESOURCE COSTS:
|
||||||||||
Avista Utilities:
|
||||||||||
Power purchased
|
$ | 41,941 | $ | 458,548 | ||||||
Natural gas purchased
|
102,723 | 150,094 | ||||||||
Fuel for generation
|
8,931 | 52,074 | ||||||||
Power and natural gas cost amortizations (deferrals), net
|
63,385 | (134,506 | ) | |||||||
Other
|
27,220 | (5,953 | ) | |||||||
Energy Trading and Marketing:
|
||||||||||
Cost of sales
|
1,033,287 | 2,895,428 | ||||||||
Intersegment eliminations
|
(57,195 | ) | (169,045 | ) | ||||||
|
|
|
||||||||
Total resource costs (Avista Utilities and Energy Trading and Marketing)
|
$ | 1,220,292 | $ | 3,246,640 | ||||||
|
|
|
||||||||
GROSS MARGINS (Avista Utilities and Energy Trading and Marketing):
|
||||||||||
Avista Utilities
|
$ | 232,431 | $ | 212,436 | ||||||
Energy Trading and Marketing
|
34,352 | 96,957 | ||||||||
|
|
|
||||||||
Total gross margins (Avista Utilities and Energy Trading and Marketing)
|
$ | 266,783 | $ | 309,393 | ||||||
|
|
|
||||||||
OPERATIONS AND MAINTENANCE EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 47,873 | $ | 50,454 | ||||||
Energy Trading and Marketing
|
| 205 | ||||||||
Information and Technology
|
5,694 | 5,933 | ||||||||
Other
|
6,960 | 8,211 | ||||||||
|
|
|
||||||||
Total operations and maintenance expenses
|
$ | 60,527 | $ | 64,803 | ||||||
|
|
|
||||||||
ADMINISTRATIVE AND GENERAL EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 30,550 | $ | 29,023 | ||||||
Energy Trading and Marketing
|
11,201 | 22,686 | ||||||||
Information and Technology
|
10,730 | 12,283 | ||||||||
Other
|
9,819 | 4,388 | ||||||||
|
|
|
||||||||
Total administrative and general expenses
|
$ | 62,300 | $ | 68,380 | ||||||
|
|
|
||||||||
DEPRECIATION AND AMORTIZATION EXPENSES:
|
||||||||||
Avista Utilities
|
$ | 32,477 | $ | 30,632 | ||||||
Energy Trading and Marketing
|
695 | 947 | ||||||||
Information and Technology
|
2,114 | 2,703 | ||||||||
Other
|
816 | 1,698 | ||||||||
|
|
|
||||||||
Total depreciation and amortization expenses
|
$ | 36,102 | $ | 35,980 | ||||||
|
|
|
10
2002 | 2001 | |||||||||
|
|
|||||||||
INCOME FROM OPERATIONS (PRE-TAX):
|
||||||||||
Avista Utilities
|
$ | 86,390 | $ | 72,172 | ||||||
Energy Trading and Marketing
|
21,430 | 70,845 | ||||||||
Information and Technology
|
(11,181 | ) | (15,902 | ) | ||||||
Other
|
(11,256 | ) | (5,119 | ) | ||||||
|
|
|
||||||||
Total income from operations
|
$ | 85,383 | $ | 121,996 | ||||||
|
|
|
||||||||
INCOME FROM CONTINUING OPERATIONS:
|
||||||||||
Avista Utilities
|
$ | 25,249 | $ | 23,201 | ||||||
Energy Trading and Marketing
|
16,686 | 48,344 | ||||||||
Information and Technology
|
(7,063 | ) | (10,713 | ) | ||||||
Other
|
(10,021 | ) | (2,731 | ) | ||||||
|
|
|
||||||||
Total income from continuing operations
|
$ | 24,851 | $ | 58,101 | ||||||
|
|
|
||||||||
ASSETS (2001 amounts as of December 31):
|
||||||||||
Avista Utilities
|
$ | 2,180,948 | $ | 2,396,317 | ||||||
Energy Trading and Marketing
|
1,346,777 | 1,506,185 | ||||||||
Information and Technology
|
31,518 | 26,891 | ||||||||
Other
|
69,400 | 86,514 | ||||||||
Discontinued Operations
|
21,615 | 21,316 | ||||||||
|
|
|
||||||||
Total assets
|
$ | 3,650,258 | $ | 4,037,223 | ||||||
|
|
|
||||||||
CAPITAL EXPENDITURES (excluding AFUDC):
|
||||||||||
Avista Utilities
|
$ | 32,928 | $ | 55,365 | ||||||
Energy Trading and Marketing
|
4,381 | 93,298 | ||||||||
Information and Technology
|
299 | 3,344 | ||||||||
Other
|
70 | 379 | ||||||||
|
|
|
||||||||
Total capital expenditures
|
$ | 37,678 | $ | 152,386 | ||||||
|
|
|
The Accompanying Notes are an Integral Part of These Statements.
11
AVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Avista Corporation (Avista Corp. or the Company) for the interim periods ended June 30, 2002 and 2001 are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of the results of operations for those interim periods. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The Consolidated Statements of Income for the interim periods are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements do not contain the detail or footnote disclosure concerning accounting policies and other matters which would be included in full fiscal year consolidated financial statements; therefore, they should be read in conjunction with the Companys audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001 (2001 Form 10-K).
Please refer to the section Acronyms and Terms in the 2001 Form 10-K for
definitions of terms such as capacity, energy and therm.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Companys operations are exposed to risks, including, but not limited to,
legislative and governmental regulations, the price and supply of purchased
power, fuel and natural gas, recovery of purchased power and purchased natural
gas costs, weather conditions, availability of generation facilities,
competition, technology and availability of funding. In addition, the energy
business exposes the Company to the financial, liquidity, credit and commodity
price risks associated with wholesale purchases and sales.
Basis of Reporting
Use of Estimates
Business Segments
Operating Revenues
12
AVISTA CORPORATION
management purposes in compliance with Emerging Issues Task Force (EITF)
Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. Avista Energy recognizes 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 settled. See Note 2 for a discussion of a
change in the accounting for realized gains and losses commencing in the third
quarter of 2002.
Intersegment Eliminations
Other Income-Net
Regulatory Accounting
The Companys primary regulatory assets include power and natural gas
deferrals, investment in exchange power, regulatory assets for deferred income
taxes, unamortized debt expense, regulatory asset offsetting energy commodity
derivative liabilities (see Note 4 for further information), demand side
management programs, conservation programs and the provision for postretirement
benefits. Those items without a specific line on the Consolidated Balance
Sheets are included in other regulatory assets. Other regulatory assets
consisted of the following as of June 30, 2002 and December 31, 2001 (dollars
in thousands):
Deferred credits include regulatory liabilities created when the Centralia
Power Plant was sold 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.
13
AVISTA CORPORATION
Natural Gas Benchmark Mechanism
The Natural Gas Benchmark Mechanism is a performance-based mechanism, providing
certain guaranteed benefits to retail customers. The mechanism also provides
the Company with the opportunity to improve earnings by allowing Avista Energy
to retain a portion of the benefits associated with asset optimization and the
efficiencies gained in purchasing natural gas for Avista Utilities. In the
first quarter of 2002, the WUTC approved the continuation of the Natural Gas
Benchmark Mechanism and related Agency Agreement through March 31, 2003 and the
IPUC and OPUC approved the continuation through March 31, 2005.
In accordance with SFAS No. 71, profits recognized by Avista Energy on natural
gas sales to Avista Utilities, including unrealized gains on natural gas
contracts, are not eliminated in the consolidated financial statements. This
is due to the fact that costs incurred by Avista Utilities for natural gas
purchases to serve retail customers and for fuel for electric generation are
recovered through future retail rates.
Power Cost Deferrals
In June 2002, the WUTC issued an order that became effective July 1, 2002 with
respect to a general electric rate case filed by Avista Utilities in December
2001. The order provides for an overall rate of return of 9.72 percent and a
return on equity of 11.16 percent. The order provided for no incremental rate
increase to Avista Utilities Washington electric customers above the rates
currently in effect. Rate increases previously approved by the WUTC totaling
31.2 percent (a 25 percent temporary surcharge approved in September 2001 for
the recovery of deferred power costs and a 6.2 percent increase approved in
March 2002) have been restructured. The general increase to base retail rates
is 19.3 percent (or $45.7 million in annual revenues) and the remaining 11.9
percent represents the continued recovery of deferred power costs over a period
currently projected to continue through 2007.
In the June 2002 rate order, the WUTC approved the establishment of an Energy
Recovery Mechanism (ERM). The ERM replaces a series of temporary deferral
mechanisms that have been in place in Washington since mid-2000. The ERM
allows Avista Utilities to increase or decrease electric rates over time to
reflect changes in power supply costs. The ERM provides for Avista Utilities
to incur the cost of, or receive the benefit from, the first $9 million in
annual power supply costs above or below the amount included in base retail
rates. As the ERM was implemented on July 1, 2002, the Companys expense or
benefit is limited to $4.5 million for 2002. Under the ERM, 90 percent of
annual power supply costs exceeding the initial $9 million ($4.5 million for
2002) will be deferred for future rebate or surcharge to Avista Utilities
customers. The remaining 10 percent will be an expense of, or benefit to, the
Company.
Avista Utilities has a power cost adjustment (PCA) mechanism in Idaho that
allows it to modify electric rates to recover or rebate a portion of the
difference between actual and allowed net power supply costs. The PCA
mechanism allows for the deferral of 90 percent of the difference between
actual net power supply expenses and the authorized level of net power supply
expense approved in the last Idaho general rate case. In October 2001, the
IPUC issued an order approving a 14.7 percent PCA surcharge for Idaho electric
customers and granted an extension of a 4.7 percent PCA surcharge implemented
earlier in 2001 that was to expire January 31, 2002. Both PCA surcharges will
remain in effect until October 2002. In August 2002, Avista Utilities filed a
status report with the
14
AVISTA CORPORATION
IPUC to request a continuation of the PCA surcharge. If review of the status
report and the actual balance of deferred power costs support continuation of
the PCA surcharge, the IPUC has indicated that it anticipates the PCA surcharge
will be extended for an additional period. Total deferred power costs for
Idaho customers were $46.7 million as of June 30, 2002, a decrease from $73.1
million as of December 31, 2001.
Natural Gas Cost Deferrals
Reclassifications
NOTE 2. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
142, Goodwill and Other Intangible Assets which applies to acquired
intangible assets whether acquired singly, as part of a group, or in a business
combination. This statement requires that goodwill not be amortized; however,
goodwill for each reporting unit must be evaluated for impairment on at least
an annual basis using a two-step approach. The first step used to identify
potential impairment compares the estimated fair value of a reporting unit to
its carrying amount, including goodwill. If the fair value of a reporting unit
is less than its carrying amount, the second step of the impairment evaluation
which compares the implied fair value of goodwill to its carrying amount, is
performed to determine the amount of the impairment loss, if any. This
statement also provides standards for financial statement disclosures of
goodwill and other intangible assets and related impairment losses. The
Company adopted this statement on January 1, 2002. In April 2002, the Company
completed its transitional test of goodwill. Accordingly, the Company
determined that goodwill related to Advanced Manufacturing and Development, a
subsidiary of Avista Ventures, included in the Other business segment was
impaired. This was due to a change in forecasted earnings based on the decline
in the performance of the business. The fair value of the reporting unit was
determined using the present value of projected future cash flows. The Company
has recorded an impairment of $4.1 million, net of taxes, as a cumulative
effect of accounting change in the Consolidated Statement of Income.
Goodwill amortization was $0.5 million, net of taxes, for the three months
ended June 30, 2001. Net income and basic and diluted earnings per common
share would have been $23.2 million and $0.48, respectively, excluding goodwill
amortization for the three months ended June 30, 2001. Goodwill amortization
was $1.0 million, net of taxes, for the six months ended June 30, 2001. Net
income and basic and diluted earnings per common share would have been $53.1
million and $1.10, respectively, excluding goodwill amortization for the six
months ended June 30, 2001.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement requires the recording of the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the associated costs
of the asset retirement obligation will be capitalized as part of the carrying
amount of the related long-lived asset. The liability will be accreted to its
present value each period and the related capitalized costs will be depreciated
over the useful life of the related asset. Upon retirement of the asset, the
Company will either settle the retirement obligation for its recorded amount or
incur a gain or loss. The Company will be required to adopt this statement on
January 1, 2003. The Company is in the process of determining the impact this
statement will have on the Companys financial condition and results of
operations.
In June 2002, the EITF reached a partial consensus on Issue 02-3 regarding the
accounting for contracts involved in energy trading and risk management
activities. The partial consensus will require that all mark-to-market gains
and losses arising from energy trading contracts (whether realized or
unrealized) accounted for under EITF Issue No. 98-10 Accounting for Contracts
Involved in Energy Trading and Risk Management Activities be presented on a
net basis in the income statement beginning in the first interim or annual
period ending after July 15, 2002. Reclassification of all historical
comparable periods will be required. The Company currently presents unrealized
15
AVISTA CORPORATION
gains and losses on energy trading contracts on a net basis. However, realized
contracts are presented on a gross basis for both revenue and resource costs.
The implementation of this EITF Issue, beginning in the third quarter of 2002,
will result in reduced operating revenues and resource costs with no impact on
the Companys net income or financial condition. The partial consensus also
requires certain energy trading disclosures in the footnotes to the financial
statements beginning in annual periods ending after July 15, 2002. The
disclosures will be similar to disclosures currently presented in Managements
Discussion and Analysis of Financial Condition and Results of Operations.
NOTE 3. DISCONTINUED OPERATIONS
In September 2001, the Company reached a decision that it would dispose of
substantially all of the assets of Avista Communications. In October 2001,
minority shareholders of Avista Communications acquired ownership of its
Montana and Wyoming operations as well as its dial-up internet access
operations in Spokane, Washington and Coeur dAlene, Idaho. In December 2001,
Avista Communications completed the sale of the assets and customer accounts of
its Yakima and Bellingham, Washington operations to Advanced Telcom Group, Inc.
In April 2002, Avista Communications completed the transfer of voice and
integrated services customer accounts in Spokane, Washington and Coeur dAlene,
Idaho to certain subsidiaries of XO Communications, Inc. In August 2002, the
Company has entered into an agreement to dispose of substantially all of the
remaining assets of Avista Communications. The divestiture is expected to be
completed by the end of 2002.
Revenues for Avista Communications were $1.1 million and $3.1 million for the
three months ended June 30, 2002 and 2001, respectively. Revenues for Avista
Communications were $3.1 million and $5.5 million for the six months ended June
30, 2002 and 2001, respectively. Total assets of $21.6 million as of June 30,
2002 were comprised of $16.6 million of deferred tax assets, $3.3 million of
fixed assets and $1.7 million of current assets including accounts receivable,
cash, inventory and prepaid expenses.
NOTE 4. UTILITY ENERGY COMMODITY DERIVATIVE ASSETS AND LIABILITIES
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as
amended by SFAS No. 138, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recording of all
derivatives as either assets or liabilities in the balance sheet measured at
estimated fair value and the recognition of the unrealized gains and losses.
In certain defined conditions, a derivative may be specifically designated as a
hedge for a particular exposure. The accounting for derivatives depends on the
intended use of the derivatives and the resulting designation.
Avista Utilities buys and sells energy under forward contracts that are
considered derivatives. Under forward contracts, Avista Utilities commits to
purchase or sell a specified amount of capacity and energy. These contracts
are entered into to manage Avista Utilities loads and resources as discussed
in Note 5. In conjunction with the issuance of SFAS No. 133, the WUTC and the
IPUC issued accounting orders requiring Avista Utilities to offset any
derivative assets or liabilities with a regulatory asset or liability. As a
result, unrealized gains or losses for Avista Utilities are not recognized in
the Consolidated Statements of Income and Comprehensive Income. Avista Energy
accounts for derivative commodity instruments using the mark-to-market method
of accounting. See Note 5 for further details.
Avista Utilities records derivative commodity assets and liabilities for
over-the-counter and exchange-traded derivative instruments as well as certain
long-term contracts. Avista Utilities believes the majority of its long-term
purchases and sales contracts for both capacity and energy qualify as normal
purchases and sales under SFAS No. 133 and are not required to be recorded as
derivative commodity assets and liabilities. Avista Utilities does not record
derivative commodity assets and liabilities for short-term contracts subject to
booking out, as it has concluded that these contracts qualify for the normal
purchases and sales exception. As of June 30, 2002, the utility derivative
commodity asset balance was $19.1 million, the derivative commodity liability
balance was $72.4 million and the offsetting net regulatory asset was $53.3
million. The derivative commodity asset balance is included in Deferred
Charges Utility energy commodity derivative assets, the derivative commodity
liability balance is included in Non-Current Liabilities and Deferred Credits
Utility energy commodity derivative liabilities, and the offsetting net
regulatory asset is included in Deferred Charges Other regulatory assets on
the Consolidated Balance Sheet.
Interpretations that may be issued by the Derivatives Implementation Group, a
task force created to assist the FASB in answering questions that companies
have in implementing SFAS No. 133, may change the conclusions that the
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AVISTA CORPORATION
Company has reached regarding accounting for energy contracts. As a result,
the accounting treatment and financial statement impact could change in future
periods.
NOTE 5. ENERGY COMMODITY TRADING
The Companys energy-related businesses are exposed to risks relating to, but
not limited to, changes in certain commodity prices and counterparty
performance. In order to manage the various risks relating to these exposures,
Avista Utilities 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. Avista Utilities and Avista
Energy have policies and procedures to manage both quantitative and qualitative
risks inherent in these activities. The Company has a comprehensive Risk
Management Committee, separate from the units that create such risk exposure
and that is overseen by the Audit Committee of the Companys Board of
Directors, to monitor compliance with the Companys risk management policies
and procedures.
Avista Utilities
Avista Utilities manages the impact of fluctuations in electric energy prices
by establishing volume limits for the imbalance between projected loads and
resources and through the use of derivative commodity instruments for hedging
purposes. Any imbalance is required to remain within limits, or management
action or decisions are triggered to address larger imbalance situations and
manage the exposure to market risk. Avista Energy is responsible for the daily
management of natural gas supplies to meet the requirements of Avista
Utilities customers in the states of Washington, Idaho and Oregon. In
addition, Avista Utilities utilizes derivative commodity instruments for
hedging price risk associated with natural gas. The Risk Management Committee
has limited the types of commodity instruments Avista Utilities 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. The market values of natural gas derivative commodity instruments
held by Avista Utilities as of June 30, 2002 and December 31, 2001, were a
$51.7 million net liability and a $133.2 million net liability, respectively.
The significant liability position as of December 31, 2001 was a result of
forward commitments to purchase natural gas entered into during 2000 and the
first part of 2001 at prices in excess of the market price for natural gas as
of December 31, 2001. The decrease from December 31, 2001 to June 30, 2002
reflects the settlement of contracts during the period as well as an increase
in the forward price of natural gas. Realized losses are reflected as
adjustments to deferred natural gas costs or the ERM.
Avista Energy
Avista Energy measures the risk in its power and natural gas portfolio daily
utilizing a Value-at-Risk (VAR) model, monitoring its risk in comparison to
established thresholds. VAR measures the expected portfolio loss under
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AVISTA CORPORATION
hypothetical adverse price movements, over a given time interval within a given
confidence level. Avista Energy also measures its open positions in terms of
volumes at each delivery location for each forward time period. The extent of
open positions is included in the risk management policy and is measured with
stress tests and VAR modeling.
Derivative commodity instruments sold and purchased by Avista Energy include:
forward contracts, which involve physical delivery of an energy commodity;
futures contracts, which involve the buying or selling of natural gas or
electricity 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 are primarily related to Canadian exchange rates and are managed using
standard instruments available in the foreign currency markets.
Avista Energys 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 unrealized gains
or losses in the period of change. Market prices are utilized in determining
the value of the electric, natural gas and related derivative commodity
instruments. For longer-term positions and certain short-term positions for
which market prices are not available, a model to estimate forward price curves
is utilized. 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 in the Consolidated
Statements of Income in operating revenues or resource costs, as appropriate,
and in 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. Net cash
flows are recognized in the period of settlement.
Contract Amounts and Terms
Under Avista Energys derivative instruments, Avista
Energy either (i) as fixed price payor, is obligated to pay a fixed price or
a fixed amount and is entitled to receive the commodity or a fixed amount or
(ii) as fixed price receiver, is entitled to receive a fixed price or a fixed
amount and is obligated to deliver the commodity or pay a fixed amount or (iii)
as index price payor, is obligated to pay an indexed price or an indexed
amount and is entitled to receive the commodity or a variable amount or (iv) as
index price receiver, is entitled to receive an indexed price or amount and
is obligated to deliver the commodity or pay a variable amount. The contract
or notional amounts and terms of Avista Energys derivative commodity
investments outstanding as of June 30, 2002 are set forth below (in thousands
of mmBTUs and MWhs):
Contract or notional amounts reflect the volume of transactions, but do not
necessarily represent the dollar amounts exchanged by the parties to the
derivative commodity instruments. Accordingly, contract or notional amounts do
not accurately measure Avista Energys 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.
Estimated Fair Value
The estimated fair value of Avista Energys derivative
commodity instruments outstanding as of June 30, 2002, and the average
estimated fair value of those instruments held during the six months ended June
30, 2002, are set forth below (dollars in thousands):
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AVISTA CORPORATION
The weighted average term of Avista Energys natural gas derivative commodity
instruments as of June 30, 2002 was approximately 5 months. The weighted
average term of Avista Energys electric derivative commodity instruments as of
June 30, 2002 was approximately 6 months. The change in the estimated fair
value position of Avista Energys energy commodity portfolio, net of the
reserves for credit and market risk for the six months ended June 30, 2002 was
an unrealized loss of $35.7 million and is included in the Consolidated
Statements of Income in operating revenues. The change in the fair value
position for the six months ended June 30, 2001 was an unrealized gain of $2.9
million.
NOTE 6. FINANCINGS
Accounts Receivable Sale
Short-term Borrowings Avista Corp. Committed Line of Credit
The committed line of credit agreement contains customary covenants and default
provisions, including covenants not to permit the ratio of consolidated total
debt to consolidated total capitalization of Avista Corp. to be, at the end
of any fiscal quarter, greater than 65 percent. As of June 30, 2002, the ratio
was in compliance with this covenant at 55.3 percent. The committed line of
credit also has a covenant requiring the ratio of earnings before interest,
taxes, depreciation and amortization to interest expense of Avista Utilities
for the three-fiscal quarter period ending June 30, 2002 to be greater than 1.6
to 1. As of June 30, 2002, the ratio was in compliance with this covenant at
2.06 to 1.
Avista Energy Credit Agreement
The Avista Energy credit agreement contains customary covenants and default
provisions, including covenants to maintain minimum net working capital and
minimum net worth, as well as a covenant limiting the amount of indebtedness
which the co-borrowers may incur. Avista Energy was in compliance with the
covenants of its credit agreement as of June 30, 2002. Covenants in Avista
Energys credit agreement also restrict the amount of cash dividends that can
be distributed to Avista Capital and ultimately to Avista Corp. During the six
months ended June 30, 2002, Avista Energy paid $81.1 million in dividends to
Avista Capital. Avista Capital used the cash proceeds to pay cash dividends
and repay debt to Avista Corp.
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AVISTA CORPORATION
Avista Corp. Interest Rate Swap Agreement
Subsidiary Interest Rate Swap Agreement
NOTE 7. EARNINGS PER COMMON SHARE
The following table presents the computation of basic and diluted earnings per
common share (in thousands, except per share amounts):
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AVISTA CORPORATION
NOTE 8. INFORMATION AND TECHNOLOGY SEGMENT INFORMATION
The Information and Technology line of business includes the results of Avista
Advantage and Avista Labs (including its 70 percent equity interest in H2fuel,
LLC). Additional financial information for each of these separate companies is
provided as follows for the three and six months ended June 30, 2002 and 2001
(dollars in thousands):
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company believes, based on the information presently known, that 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 condition of
the Company, but could be material to results of operations or cash flows for a
particular quarter or other reporting period. No assurance can be given,
however, as to the ultimate outcome with respect to any particular issue.
Federal Energy Regulatory Commission (FERC) Inquiry
In February 2002, the FERC issued an order commencing a fact-finding
investigation of potential manipulation of electric and natural gas prices in
the California energy markets by multiple companies. On May 8, 2002, the FERC
requested data and information with respect to certain trading strategies that
companies may have engaged in. Specifically, the requests inquired as to
whether or not the Company engaged in certain trading strategies that were the
same or similar to those used by Enron Corporation (Enron) and its affiliates.
These requests were made to all sellers of wholesale electricity and/or
ancillary services in the Western Interconnection during 2000 and 2001,
including Avista Corp. and Avista Energy. On May 22, 2002, Avista Corp. and
Avista Energy filed their responses to this request indicating that they had
engaged in sound business practices in accordance with established market
rules.
On June 4, 2002, the FERC issued an additional order to Avista Corp. and three
other companies requiring these companies to show cause within ten days as to
why their authority to charge market-based rates should not be revoked. In
this order, the FERC alleged that Avista Corp. failed to respond fully and
accurately to the data request made on May 8, 2002. On June 14, 2002, Avista
Corp. provided additional information in response to the June 4, 2002 FERC
order to establish that its initial response was appropriate and adequate, and
reiterated that it had not engaged in the trading strategies that were the
subject of the May 8, 2002 FERC request. The FERC has not issued any further
orders with respect to this matter or provided any further correspondence to
Avista Corp. The Company does not have any outstanding requests from the FERC
for information with respect to this matter. The FERC is expected to issue an
interim report to the United States Congress in August 2002 with respect to
their investigation and Avista Utilities, among other companies, may be
mentioned in the report.
U.S. Commodity Futures Trading Commission (CFTC) Subpoena
On June 17, 2002, the CFTC issued a subpoena to Avista Corp. requesting, among
other things, documents and records related to natural gas and electricity
trading involving round-trip trading practices, also known as wash trading
or sell/buyback trading, that may have occurred since January 2000. In a
previous response to the FERC, Avista Corp. indicated that it did not and does
not engage in wash or round-trip trading. For further information see
Federal Energy Regulatory Commission (FERC) Inquiry above. The CFTC subpoena
applies to both Avista Corp. and Avista Energy. The Company is cooperating
with the CFTC and is providing the information requested by the CFTC.
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AVISTA CORPORATION
Derivative Securities Litigation
On June 13, 2002, Gail West, derivatively on behalf of nominal defendant Avista
Corp., filed a lawsuit in the Superior Court of Washington, Spokane County,
against certain past and present members of the board of directors of Avista
Corp., as defendants, and Avista Corp., as nominal defendant. The complaint
alleges that the Companys board of directors breached their fiduciary duties
by causing the Company to engage in improper energy trading transactions and
then attempting to cover them up when questioned by the FERC. The complaint
alleges damages associated with the FERC investigation, potential loss of the
electricity trading license of Avista Utilities, and a loss of market
credibility. Avista Corp. believes the lawsuit is without merit and intends to
ask the court to dismiss the complaint. For further information see Federal
Energy Regulatory Commission (FERC) Inquiry above.
California Energy Markets
In April 2002, several subsidiaries of Reliant Energy, Inc. (Reliant) and Duke
Energy Corporation (Duke) filed cross-complaints against Avista Energy and
numerous other participants in the California energy markets. The
cross-complaints are for indemnification for any liability which may arise from
original complaints filed against Reliant and Duke with respect to charges of
unlawful and unfair business practices in the California energy markets under
California law. Avista Energy has filed motions to dismiss the
cross-complaints.
In March 2002, the Attorney General of the State of California (California AG)
filed a complaint with the FERC against certain specific companies (not
including Avista Corp. or its subsidiaries) and all other public utility
sellers in California. The complaint alleges that sellers with market-based
rates have violated their tariffs by not filing with the FERC
transaction-specific information about all of their sales and purchases at
market-based rates. As a result, all past sales should be subject to refund if
found to be above just and reasonable levels. In May 2002, the FERC issued an
order denying the claim to issue refunds. In July 2002, the California AG
requested a rehearing on the FERC order.
In April 2002, the California AG provided notice of intent to file a complaint
against Avista Energy in the California State Court on behalf of the State of
California. Complaints have been filed against approximately a dozen other
companies; many of which have filed motions to dismiss based upon federal
preemption and primary jurisdiction arguments. The threatened complaint
alleges that Avista Energy failed to file rates and changes to rates charged
for each sale of wholesale electricity in California markets with the FERC as
required by Federal Power Act regulations and FERC orders. The threatened
complaint asserts that each violation of law, regulation and order is an
unlawful and unfair business practice under the California Business and
Professions Code, subject to a penalty of $2,500 per violation. The threatened
complaint further alleges that certain rates charged for wholesale electricity
sold in California exceeded a just and reasonable rate. As such, the
threatened complaint alleges that these rates violate the Federal Power Act and
are also a violation under the California Business and Professions Code,
subject to penalty. A significant portion of the transactions involved in this
threatened complaint are also the subject of FERC proceedings to examine
potential refunds and in most cases are transactions for which Avista Energy is
still owed payment. As of the filing date of this report, the California AG
has not filed the threatened complaint against Avista Energy.
For further information with respect to California energy markets see Western
Power Market Issues in Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Enron Corporation
On December 2, 2001, Enron and certain of its affiliates filed for protection
under chapter 11 of the United States Bankruptcy Code. The bankruptcy filing
constituted an event of default under contracts between Avista Corp. and Avista
Energy, respectively, and certain Enron affiliates, namely, Enron Power
Marketing, Inc. (EPMI), Enron North America Company (ENA) and Enron Canada
Corp. (ECC), that are guaranteed by Enron. As a result, Avista Corp. and
Avista Energy terminated all but one of these contracts and suspended trading
activities with most Enron affiliates. Short-term balance-of-the-month deals
with EPMI are still being transacted through Avista Energy on a prepaid basis.
Both Avista Corp. and Avista Energy engage in physical and financial
transactions for the purchase and sale of electric energy and capacity and
natural gas. Both companies had done considerable business and had short-term
and long-term contracts with Enron affiliates. Avista Corp. has one three-year
purchase with remaining deliveries
22
AVISTA CORPORATION
scheduled from 2004 to 2006 with EPMI. Avista Energys long-term contracts
with Enron affiliates were terminated entirely.
As of June 30, 2002, Avista Corp. and Avista Energy had net accounts receivable
of $3.1 million and $14.1 million, respectively, from Enron affiliates. Avista
Corp.s and Avista Energys contracts with each Enron affiliate provide that,
upon termination, the net settlement of accounts receivable and accounts
payable with such entity will be netted against the net mark-to-market value of
the terminated forward contracts with such entity. It is estimated that, for
each of Avista Corp. and Avista Energy, netting the mark-to-market liability
against the defaulted net accounts receivable will result in no significant
loss due to non-collection from the Enron affiliates. The Company further
estimates that the net mark-to-market liability to Enron affiliates with
respect to the terminated forward contracts of Avista Corp. and Avista Energy,
taken together, exceeds total net accounts receivable from these entities by
less than $30 million. Any claims by the Enron entities for amounts that
Avista Corp. and Avista Energy might owe with respect to the terminated forward
contracts would be subject to any defenses and counterclaims which Avista Corp.
and Avista Energy may have. Any residual obligation by Avista Corp. or Avista
Energy for termination payments is not expected to have a material impact on
the Companys financial condition or results of operations.
The estimates of the mark-to-market values of terminated forward contracts are
based on available broker quotes for the respective periods, and on assumptions
as to future market prices and other information. While Avista Corp. and
Avista Energy believe these assumptions are reasonable, they are subject to
change and ultimately could be challenged by the Enron entities or their
bankruptcy trustees. The mark-to-market value of terminated contracts has not
been firmly established and could result in undercollection that is not
expected to be material to the financial condition or results of operations of
either Avista Corp. or Avista Energy.
National Energy Production Corporation (NEPCO), a wholly owned subsidiary of
Enron, was the contractor responsible for the engineering, procurement and
construction of the Coyote Springs 2 project (a 280 MW natural gas-fired power
plant near Boardman, Oregon). Avista Corp. owns 50 percent of the Coyote
Springs 2 project. NEPCO was not included in the initial bankruptcy filings
made by Enron and its affiliates in December 2001 (NEPCO subsequently filed for
bankruptcy on May 20, 2002). However, Enron guaranteed NEPCOs obligations,
and the bankruptcy filing by Enron was an event of default under the Coyote
Springs 2 construction contract. As a result of this default and other
defaults under the contract, NEPCO was removed as contractor for the project on
April 15, 2002. Black and Veatch Corporation replaced NEPCO as contractor for
the project.
Avista Corp. is party to a power exchange arrangement which expires in 2016.
Under this power exchange arrangement, EPMI purchases capacity from Avista
Corp. and sells capacity to Spokane Energy LLC (Spokane Energy), a subsidiary
of Avista Corp., formed in 1998 solely for the purpose of monetizing a
long-term capacity contract between Portland General Electric (PGE) and Avista
Corp. Spokane Energy sells the related capacity to PGE. Subsequently, PGE
became a subsidiary of Enron that has not been included in the bankruptcy
filing to date. This power exchange arrangement was originally established for
the purpose of monetizing a $145 million long-term capacity contract between
Avista Corp. and PGE. EPMI assisted in setting up the monetization structure
and acts as an intermediary to abide by certain regulatory restrictions that
currently prevent Spokane Energy and Avista Corp. from dealing directly with
each other. The transaction is structured such that Spokane Energy bears full
recourse risk for a monetization loan (balance of $128.5 million as of June 30,
2002) that matures in January 2015 with no recourse to Avista Corp. related to
the loan. EPMI is obligated to pay approximately $150,000 per month to Avista
Corp. for its capacity purchase. EPMI defaulted on two payments to Avista
Corp. prior to filing for bankruptcy. As a result, in December 2001, Avista
Corp. and EPMI entered an agreement that allows Avista Corp. to continue
receiving the monthly payments from EPMI while Avista Corp. evaluates
alternatives with respect to EPMIs involvement in the transaction going
forward. Since December 2001, Avista Corp. has received the monthly payments.
Securities and Exchange Commission Inquiry
In October 2000, the staff of the Securities and Exchange Commission requested
certain information and documentation from the Company regarding Avista
Utilities wholesale trading activities and its risk management policies and
procedures with respect thereto. The Company complied with this request.
During the three months ended March 31, 2002, the Company furnished additional
information with respect to current risk management practices. On May 7, 2002,
the staff advised the Company that it had concluded its informal inquiry and
would not be recommending any action at this time.
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AVISTA CORPORATION
Colorado River Commission of Nevada (CRCN) Complaint
On July 9, 2002, the CRCN filed a complaint in the United States District Court
for the District of Nevada against Pioneer Companies, Inc. (Pioneer), and
numerous other defendants, including Avista Energy. CRCN is an agency of the
State of Nevada, authorized to hold and administer rights to electric power
generated on the Colorado River and from other sources. CRCN claims they
purchased power as a purported agent for Pioneer from numerous vendors,
including Avista Energy. CRCN alleges that Pioneer has disavowed its
contractual liability to pay for power due to be delivered for its benefit in
the future, pursuant to transactions entered into for Pioneers benefit by
CRCN. CRCN alleges that it has funds available of approximately $35 million,
resulting from the sale of options and energy originally secured by CRCN for
the benefit of Pioneer, but believes the potential collective claims of all
electricity vendors may exceed $100 million. Accordingly, CRCN seeks to
interplead into court the $35 million and asks the court to assess the
competing claims of vendors to such funds. CRCN further requests that Pioneer
be ordered to pay vendors amounts owed for transactions between CRCN (as
Pioneers agent) and vendors, and that such contracts be specifically enforced.
Finally, CRCN seeks to be indemnified against the future claims of vendors.
The amount of Avista Energys potential liability is currently estimated to be
less than $4 million.
State of Washington Business and Occupation Tax
The State of Washingtons Business and Occupation Tax applies to gross revenue
from business activities. For most types of business, the tax applies to the
gross sales price received for goods or services. For certain types of
financial trading activities, including the sale of stocks, bonds and other
securities, the tax applies to the realized gain from the sale of the financial
asset. On an audit for the period from 1997 through June 2000, the Department
of Revenue (DOR) took the position that approximately 20 percent of the energy
futures trades of Avista Energy should not be treated as securities trades, but
rather as energy deliveries. As a result, the DOR applied tax against the
gross sales price of the energy contracts at issue. Avista Energy subsequently
received an assessment of $14.5 million for tax and interest related to the
disputed issue. It is the position of Avista Energy that all of its futures
trading activities are substantively the same and there is no proper basis for
the distinction made by the DOR. An administrative appeal was filed with the
DOR and a hearing was held on September 25, 2001. Avista Energy has not
received a determination related to this issue at this point. Avista Energy is
prepared to seek relief in the Washington courts if a satisfactory
determination is not received.
Sale of Certain Pentzer Corporation Subsidiaries
On February 26, 2001, IDX Corporation, formerly known as Store Fixtures Group,
Inc., filed a complaint against Pentzer in the United States District Court for
the District of Massachusetts, alleging breach of contract and negligent
misrepresentation relating to a stock purchase agreement. Pursuant to this
agreement, Pentzer sold the capital stock of a group of companies on August 31,
1999. Plaintiff alleges that Pentzer breached various representations and
warranties concerning financial statements and inventory, contending that
reliance on such representations and warranties caused them to pay more for the
group of companies than they were worth. In total, plaintiff claims damages in
the approximate amount of $7.8 million plus interest and attorneys fees. The
Court approved the parties joint motion to extend the discovery dates.
Mediation commenced during June 2002 in conjunction with the Creative Solutions
Group, Inc. case discussed below and has not been successful to date.
On August 9, 2002, an agreement in principle
was reached to settle a lawsuit filed by Creative Solutions Group,
Inc. (Creative Solutions) against Pentzer in April 2000. The
agreement provides for a settlement in the amount of
$9.25 million. In April 2000, Creative Solutions and Form House Holdings, Inc.
filed a complaint against Pentzer in the United States District Court for the
District of Massachusetts, alleging misrepresentations and breach of
representations and warranties made under a stock purchase agreement. Pursuant
to this agreement, Pentzer sold the capital stock of a group of companies on
March 31, 1999. In November 2001, plaintiffs filed a motion to amend their
complaint, which was granted. The amended pleading, among other things,
removed Form House Holdings, Inc. as a plaintiff; however, plaintiff Creative
Solutions continued to allege that Pentzer made misrepresentations
and breached various representations and warranties concerning financial
statements, cost of goods sold and inventory, contending that reliance on such
representations and warranties caused them to pay more for the group of
companies than they were worth. In total, plaintiff alleged
compensatory damages in the
approximate amount of $31 million, plus exemplary damages, interest and
attorneys fees.
24
AVISTA CORPORATION
Montana Hydroelectric Security Act Initiative
In January 2002, the Montana Secretary of State certified that it had approved
the form of a proposed initiative to create a public agency to own and operate
all hydroelectric generating facilities located within the state of Montana.
The initiative would allow for the new public agency to acquire through a
negotiated purchase or an acquisition at fair market value through a
condemnation proceeding all hydroelectric facilities larger than 5 MW that are
in the public interest to own and operate for the benefit of the people of
Montana. Funds for the payment of the purchase price would be obtained through
the issuance of revenue bonds. The output from the hydroelectric facilities
could be sold at wholesale or retail, with preferences for non-industrial
customers and customers with demand of less than 1 average megawatt (aMW). The
Companys largest generation plant, the Noxon Rapids Hydroelectric Generating
Station (Noxon Rapids) (550 MW), is located in Montana on the Clark Fork River.
In February 2000, Avista Utilities received a new 45-year operating license
from the FERC under the Federal Power Act that applies jointly to the Cabinet
Gorge (located in Idaho) and Noxon Rapids projects.
The proposal is being presented as a ballot initiative, which allows for the
enactment of law through public vote without legislative approval. The
initiative was reviewed and approved by the following parties in the state of
Montana: the Legislative Service Division, the Attorney General and the
Secretary of State. The supporters of the initiative gathered the required
signatures and the initiative is scheduled to be presented to the public in the
November 2002 General Election. The initiative will require a majority vote to
become law.
If this proposed initiative were passed into law and Noxon Rapids were to be
acquired from the Company; it could have significant negative ramifications for
the Company. As such, the Company is opposing this initiative and intends to
legally defend itself against the acquisition of Noxon Rapids. In July 2002,
the Company joined several other parties in filing a suit in Montana District
Court claiming this initiative violates the Constitution of the state of
Montana and should not be placed on the ballot in the November 2002 General
Election. Arguments with respect to this suit are currently scheduled to be
presented in the Montana District Court in September 2002.
The Company also believes that the initiative may be pre-empted by federal law
because, among other things, the Company operates Noxon Rapids under a license
issued by the FERC under the Federal Power Act.
If the current legal challenge is not successful, the Company is unable to
predict whether or not the initiative will pass in the November 2002 election.
Further, the Company is not able to predict whether any subsequent legal
challenges would be successful.
Hamilton Street Bridge Site
A portion of the Hamilton Street Bridge Site in Spokane, Washington (including
a former coal gasification plant site that operated for approximately 60 years
until 1948) was 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 Washingtons Department of Ecology (DOE) that
it had been designated as a potentially liable party (PLP) with respect to any
hazardous substances located on this site, stemming from the Companys past
ownership of the former gas plant site. 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 to 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. In the spring of 1999, the DOE named two other parties as additional
PLPs.
An Agreed Order was signed by the DOE, the Company and another PLP, Burlington
Northern & Santa Fe Railway Co. (BNSF) on March 13, 2000 that provided for the
completion of a remedial investigation and a feasibility study. The work to be
performed under the Agreed Order includes three major technical parts:
completion of the remedial investigation; performance of a focused feasibility
study; and implementation of an interim groundwater monitoring plan. During
the second quarter of 2000, the Company received comments from the DOE on its
initial remedial investigation, then submitted another draft of the remedial
investigation, which was accepted as final by the DOE. After responding to
comments from the DOE, the feasibility study was accepted by the DOE during the
fourth quarter of 2000. After receiving input from the Company and the other
PLPs, the final Cleanup Action Plan (CAP) was issued by the DOE on August 10,
2001. On September 10, 2001, the DOE issued an initial draft Consent Decree
for the PLPs to review. During the first quarter of 2002, the Company and BNSF
signed a cost sharing
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AVISTA CORPORATION
agreement. The Company, BNSF and the DOE have signed the Consent Decree to
implement the CAP. The third PLP has indicated they will not sign the Consent
Decree. It is expected that work on the CAP will begin during the second half
of 2002.
Spokane River
In March 2001, the DOE informed Avista Development, a subsidiary of Avista
Capital, of a health advisory concerning PCBs found in fish caught in a portion
of the Spokane River. In June 2001, Avista Development received official
notice that it has been designated as a PLP with respect to contaminated sites
on the Spokane River. The DOE discovered PCBs in fish and sediments in the
1970s and 1980s. In the 1990s, the DOE performed subsequent sampling of the
river and identified potential sources of the PCBs, including the Spokane
Industrial Park (SIP) and a number of other entities in the area. The SIP,
renamed Pentzer Development Corporation (Pentzer Development) in 1990, operated
a wastewater treatment plant at the site until it was closed in December 1993.
The SIPs treatment plant discharged to the Spokane River under the terms of a
National Pollutant Discharge Elimination System permit issued by the DOE.
Pentzer Development sold the property in 1996 and merged with Avista
Development in 1998. Avista Development filed a response to this notice in
August 2001. In December 2001, the DOE confirmed Avista Developments status
as a PLP and named at least two other PLPs in this matter. During the first
half of 2002, Avista and one other PLP met with the DOE to begin discussions
and provided comments to the DOE on a draft Consent Decree and Scope of Work
for a focused remedial investigation and feasibility study of the site. One
other PLP has not been participating in negotiations. The actual cleanup of
PCB sediments is not expected to occur until the EPA comes out with its final
plan to remove heavy metals from the Spokane River resulting from mining
contamination which occurred upstream in Idaho.
Lake Coeur dAlene
In July 1998, the United States District Court for the District of Idaho issued
its finding that the Coeur dAlene Tribe of Idaho owns portions of the bed and
banks of Lake Coeur dAlene and the St. Joe River lying within the current
boundaries of the Coeur dAlene Reservation. This action was brought by the
United States on behalf of the Tribe against the State of Idaho. While the
Company is not a party to this action, the Company is continuing to evaluate
the potential impact of this decision on the operation of its hydroelectric
facilities on the Spokane River, downstream of Lake Coeur dAlene. The United
States District Court decision was affirmed by the Ninth Circuit Court of
Appeals. The United States Supreme Court affirmed this decision in June 2001.
This will result in the Company being liable to the Coeur dAlene Tribe of
Idaho for payments for use of reservation lands under Section 10(e) of the
Federal Power Act.
Avista Labs
Logan Industries, Inc. (Logan) assembles and tests fuel cells for Avista Labs.
Logan has filed for bankruptcy under chapter 11 of the United States Bankruptcy
Code, purportedly to resolve a dispute with its principal lender. On June 25,
2002, Logan moved to dismiss the bankruptcy case, asserting that it no longer
required the protection of the bankruptcy code. Logan continues to operate
under protection of the bankruptcy code, and indicates that it will be able to
continue its operations following dismissal of the bankruptcy case. No
objections have been filed to Logans motion to dismiss, and the time for
objection has passed. No other substantial issues have been raised in the
bankruptcy proceeding. Avista Labs is currently obtaining assembly and testing
services from Logan and is also using an alternate supplier such that Logan is
no longer its only manufacturer.
Other Contingencies
In the normal course of business, the Company has various other legal claims
and contingent matters outstanding. The Company believes that any ultimate
liability arising from these actions will not have a material adverse impact on
the Companys financial condition or results of operations.
26
AVISTA CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor for Forward-Looking Statements
This Report on Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. Avista Corporation
(Avista Corp. or the Company) is including the following cautionary statement
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, projections
of future events or performance, and underlying assumptions (many of which are
based, in turn, upon further assumptions). Forward-looking statements are all
statements other than statements of historical fact, including without
limitation those that are identified by the use of words such as, but not
limited to, will, anticipates, seeks to, 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.
Such statements are inherently subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those expressed.
Such risks and uncertainties include, among others:
The Companys expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitation managements examination of historical operating trends, data
contained in the Companys records and other data available from third parties.
However, there can be no assurance that the Companys 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. 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 Companys 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.
The following discussion and analysis is provided for the consolidated
financial condition and results of operations of Avista Corp., including its
subsidiaries. This discussion focuses on significant factors concerning the
Companys financial condition and results of operations and should be read
along with the consolidated financial statements.
Avista Corp. Lines of Business
Avista Corp. is an energy company involved in the generation, transmission and
distribution of energy as well as other energy-related businesses. The Company
is organized into four lines of business Avista Utilities, Energy Trading and
Marketing, Information and Technology, and Other. Avista Utilities, an
operating division of Avista Corp. and not a separate entity, represents the
regulated utility operations. Avista Capital, a wholly owned subsidiary of
Avista Corp., is the parent company of all of the subsidiary companies engaged
in the non-utility lines of business. As of June 30, 2002, the Company had
common equity investments of $444.4 million and $287.0 million in Avista
Utilities and Avista Capital, respectively.
27
AVISTA CORPORATION
Avista Utilities generates, transmits and distributes electricity and
distributes natural gas. Avista Utilities owns and operates eight
hydroelectric projects, a wood-waste fueled generating station and a two-unit
natural gas-fired combustion turbine (CT) generating facility. It also owns a
15 percent share in a two-unit coal-fired generating facility and leases and
operates a two-unit natural gas-fired CT generating facility. These facilities
have a total net capability of approximately 1,480 megawatts, of which 65
percent is hydroelectric and 35 percent is thermal. By the end of 2002, Avista
Utilities expects to have two small generating projects (total of 31 megawatts)
and its ownership interest in the Coyote Springs 2 project (140 megawatts) in
operation.
In addition to company owned resources, Avista Utilities has a number of
long-term power purchase and exchange contracts that increase its available
resources. Avista Utilities sells and purchases electric capacity and energy
to and from utilities and other entities in the wholesale market under
long-term contracts having terms of more than one year. In addition, Avista
Utilities engages in an ongoing process of resource optimization which involves
short-term purchases and sales in the wholesale market in pursuit of an
economic selection of resources to serve retail and wholesale loads. Avista
Utilities makes continuing projections of (1) future retail and wholesale loads
based on, among other things, forward estimates of factors such as customer
usage and weather as well as historical data and contract terms and (2)
resource availability based on, among other things, estimates of streamflows,
generating unit availability, historic and forward market information and
experience. On the basis of these continuing projections, Avista Utilities
makes purchases and sales of energy on a quarterly, monthly, daily and hourly
basis to match actual resources to actual energy requirements and to sell any
surplus at the best available price. This process includes hedging
transactions.
During a year having normal water conditions, Avista Utilities would expect to
have generation from its hydroelectric resources (both owned and purchased
under long-term hydroelectric contracts) of approximately 550 aMW. Average
hydroelectric production for the year 2001 was 369 aMW (67 percent of normal),
which was 181 aMW below normal and the lowest level in the 73 years in which
records have been kept. Current forecasts indicate streamflow conditions will
be 110 percent of normal and hydroelectric generation will be slightly above
normal for 2002.
Developments in wholesale energy markets, compounded by the record low
availability of hydroelectric resources in 2001, have had an adverse effect on
Avista Corp.s financial condition, results of operations, cash flows and
liquidity. See Avista Utilities Regulatory Matters, Results of
Operations and Liquidity and Capital Resources.
The Energy Trading and Marketing line of business is comprised of Avista
Energy, Inc. (Avista Energy) and Avista Power, LLC (Avista Power). Avista
Energy is an electricity and natural gas marketing and trading business,
operating primarily in the Western Electricity Coordinating Council (WECC)
geographical area, which is comprised of eleven Western states. Avista Power
was originally formed to develop and own generation assets. During 2001, the
Company decided that Avista Power would no longer pursue the development of
additional non-regulated generation projects. Avista Power continues to manage
the generation assets it currently owns.
The Information and Technology line of business is comprised of Avista
Advantage, Inc. (Avista Advantage) and Avista Laboratories, Inc. (Avista Labs).
Avista Advantage is a provider of internet-based facility intelligence, cost
management, billing and information services to retail customers throughout
North America. Its primary product lines include consolidated billing,
resource accounting, energy analysis, load profiling and maintenance and repair
billing services. Avista Labs has developed a unique modular Proton Exchange
Membrane (PEM) fuel cell that delivers reliable and clean distributed power
solutions. In addition to its PEM fuel cell, Avista Labs seeks to
commercialize selected components to complement its fuel cell in order to
deliver system solutions to industrial, commercial and residential markets.
Avista Labs holds a 70 percent equity interest in H2fuel, LLC, a developer of
fuel processors for the production of hydrogen.
The Other line of business includes Avista Ventures, Inc. (Avista Ventures),
Avista Capital (parent company only amounts), Pentzer Corporation (Pentzer) and
several other minor subsidiaries. The Company continues to limit its future
investment in this line of business.
Avista Communications, Inc. (Avista Communications), formerly part of the
Information and Technology line of business, provided local dial tone, data
transport, internet services, voice messaging and other telecommunications
services to several communities in the western United States. In September
2001, Avista Corp. decided that it would dispose of substantially all of the
assets of Avista Communications. As such, these operations are reported as a
discontinued operation. Avista Corp. began its divestiture of this business
during the fourth quarter of 2001, and the divestiture is expected to be
completed by the end of 2002.
28
AVISTA CORPORATION
Avista Utilities Regulatory Matters
Beginning in the second quarter of 2000, the price of power in the wholesale
markets of the western United States increased considerably and became much
more volatile. While prices and volatility decreased during the second half of
2001, the effects of contracts entered during the period of high wholesale
prices continue to have an impact on Avista Corp.s financial condition and
results of operations. In the second half of 2000 and continuing through 2001,
Avista Utilities was required to purchase above-normal amounts of power in the
wholesale market to meet its retail demand. This was primarily due to the
reduced availability of hydroelectric resources as a result of low streamflow
conditions. The combination of high wholesale market prices and increased
amounts required to be purchased increased power supply costs to amounts far in
excess of the amounts recovered from retail customers under rates in effect at
the time.
As authorized by the WUTC and the IPUC, Avista Utilities defers the recognition
in the income statement of certain power supply costs that are in excess of the
level currently recovered from retail customers. Deferred power supply costs
are recorded as a deferred charge on the balance sheet for future review and
the opportunity for recovery through retail rates. The specific power costs
deferred are a percentage of the difference between certain actual power supply
costs incurred by Avista Utilities and the costs included in base retail rates.
This difference is primarily related to changes in short-term wholesale market
prices, changes in the level of hydroelectric generation and changes in the
level of thermal generation (including changes in fuel prices).
In June 2002, the WUTC issued an order that became effective July 1, 2002 with
respect to a general electric rate case filed by Avista Utilities in December
2001. The order provides for an overall rate of return of 9.72 percent and a
return on equity of 11.16 percent. The order provided for no incremental rate
increase to Avista Utilities Washington electric customers above the rates
currently in effect. Rate increases previously approved by the WUTC totaling
31.2 percent (a 25 percent temporary surcharge approved in September 2001 for
the recovery of deferred power costs and a 6.2 percent increase approved in
March 2002) have been restructured. The general increase to base retail rates
is 19.3 percent (or $45.7 million in annual revenues) and the remaining 11.9
percent represents the continued recovery of deferred power costs over a period
currently projected to continue through 2007.
In the June 2002 rate order, the WUTC approved the establishment of an Energy
Recovery Mechanism (ERM). The ERM replaces a series of temporary deferral
mechanisms that have been in place in Washington since mid-2000. The ERM
allows Avista Utilities to increase or decrease electric rates over time to
reflect changes in power supply costs. The ERM provides for Avista Utilities
to incur the cost of, or receive the benefit from, the first $9 million in
annual power supply costs above or below the amount included in base retail
rates. As the ERM was implemented on July 1, 2002, the Companys expense or
benefit is limited to $4.5 million for 2002. Under the ERM, 90 percent of the
power supply costs exceeding the initial $9 million ($4.5 million for 2002)
will be deferred for future rebate or surcharge to Avista Utilities customers.
The remaining 10 percent will be an expense of, or benefit to, the Company.
In the December 2001 general rate case filing, Avista Corp. requested, and the
WUTC approved, the implementation of a temporary accounting mechanism for the
deferral of power costs incurred in excess of the amount recovered through
rates effective January 1, 2002 until the conclusion of the general rate case.
This temporary mechanism provided for the deferral of 90 percent of the
difference between actual net power supply costs and the amount of power supply
costs authorized in current rates. This temporary mechanism was replaced by
the ERM effective July 1, 2002.
Avista Utilities has a PCA mechanism in Idaho that allows it to modify electric
rates to recover or rebate a portion of the difference between actual and
allowed net power supply costs. The PCA mechanism allows for the deferral of
90 percent of the difference between certain actual net power supply expenses
and the authorized level of net power supply expense approved in the last Idaho
general rate case. In October 2001, the IPUC issued an order approving a 14.7
percent PCA surcharge for Idaho electric customers and granted an extension of
a 4.7 percent PCA surcharge implemented earlier in 2001 that was to expire
January 31, 2002. Both PCA surcharges will remain in effect until October
2002. In August 2002, Avista Utilities filed a status report with the IPUC to
request a continuation of the PCA surcharge. If review of the status report
and the actual balance of deferred power costs support continuation of the PCA
surcharge, the IPUC has indicated that it anticipates the PCA surcharge will be
extended for an additional period.
As of June 30, 2002, total deferred power costs were $163.0 million, including
$116.3 million in Washington and $46.7 million in Idaho. Based on current
projections, total deferred power costs are expected to be approximately $144
million at the end of 2002.
29
AVISTA CORPORATION
The following table shows activity in deferred power costs for Washington and
Idaho during 2001 and the six months ended June 30, 2002 (dollars in
thousands):
Enron Exposure
See Enron Corporation in Note 9 of the Notes to Consolidated Financial
Statements.
Western Power Market Issues
Avista Utilities and Avista Energy are directly and indirectly involved in the
power markets in the western United States. Developments in these markets have
impacted both Avista Utilities and Avista Energy. Federal and state officials,
including the FERC and the California Public Utility Commission (CPUC),
commenced reviews in 2000 to determine the causes of the changes in the
wholesale energy markets to develop legal and regulatory remedies to address
alleged market failures or abuses and large defaults by certain parties in the
wholesale markets. The proceedings are continuing and their ultimate outcome
and the resulting impact on the Company cannot be predicted at this time.
In early 2001, Californias two largest utilities, Southern California Edison
(SCE) and Pacific Gas & Electric Company (PG&E), defaulted on payment
obligations owed to various energy sellers, including the California Power
Exchange (CalPX), California Independent System Operator (CalISO), and
Automated Power Exchange (APX). Consequently, CalPX, CalISO and APX defaulted
on their payment obligations to Avista Energy. PG&E and CalPX filed voluntary
petitions under chapter 11 of the bankruptcy code for protection from
creditors. On March 1, 2002, SCE paid its past due obligations to the CalPX
and various other creditors; however, these funds did not flow directly to
Avista Energy. As of June 30, 2002, Avista Energys accounts receivable
outstanding related to defaulting parties in California did not exceed its
reserves for uncollected amounts, cost of collection, and refunds. Avista
Energy is currently pursuing recovery of the defaulted obligations.
In April 2001, the FERC issued a price mitigation order that affected the
CalISO spot market. In June 2001, the FERC expanded its price mitigation plan
for the California spot market to 24 hours a day, seven days a week and
broadened the price caps to the eleven-state Western region. In July 2002, the
FERC extended the price mitigation plan past October 1, 2002 and increased the
price cap from $92/MWh to $250/MWh. Price caps and changes in the price of
electricity do not currently have a significant impact on Avista Utilities
because it currently has resources and long-term contracts sufficient to meet
its loads.
In July 2001, the FERC issued an order to commence a fact-finding hearing to
determine if refunds should be owed and if so, the amounts of such refunds, for
sales during the period from October 2, 2000 to June 20, 2001 in the California
spot market. The order provides that any refunds owed could be offset against
unpaid energy debts due to the same party. The FERC schedule for this
proceeding has been postponed repeatedly and is currently scheduled for August
19, 2002. Avista Energy is participating in this proceeding pursuant to the
FERC order and cannot predict its outcome at this time. If retroactive price
caps or refunds were imposed, Avista Energy could assert offsetting claims.
30
AVISTA CORPORATION
The July 2001 FERC order also directed an evidentiary proceeding to explore
wholesale power market issues in the Pacific Northwest to determine whether
there were excessive charges for spot market sales in the Pacific Northwest
during the period from December 25, 2000 to June 20, 2001. Based on their
application of selected retroactive pricing methods, certain parties asserted
claims for significant refunds from Avista Energy and lesser refunds from
Avista Utilities. Avista Energy and Avista Utilities joined with numerous
other wholesale market participants to vigorously oppose proposals for
retroactive price caps and refund claims. In September 2001, the FERCs
administrative law judge for this proceeding issued a recommendation that the
FERC should not order refunds for the Pacific Northwest for the period in
question and that the FERC should take no further action on these matters. The
FERC has not yet issued a decision in the Pacific Northwest refund proceeding.
If retroactive price caps or refunds were imposed, Avista Utilities and Avista
Energy could assert offsetting claims.
See further information under Federal Energy Regulatory Commission (FERC)
Inquiry, U.S. Commodity Futures Trading Commission (CFTC) Subpoena and
California Energy Markets in Note 9 of the Notes to Consolidated Financial
Statements.
Avista Corp. is participating with nine other utilities in the Pacific
Northwest in the possible formation of a Regional Transmission Organization
(RTO), RTO West, a non-profit organization. The potential formation of RTO
West is in response to a FERC order requiring all utilities subject to FERC
regulation to file a proposal to form a RTO, or a description of efforts to
participate in a RTO, and any existing obstacles to RTO participation. RTO
West filed its Stage 2 proposal with the FERC in March 2002 and currently
expects to receive a response from the FERC in September 2002. Avista Corp.
and two other Western utilities have also taken steps toward the formation of a
for-profit Independent Transmission Company, TransConnect, which would be a
member of RTO West, serve portions of five states and own or lease the high
voltage transmission facilities of the participating utilities. TransConnect
filed its proposal with FERC in November 2001. The final proposals must both
be approved by the FERC, the boards of directors of the filing companies and
regulators in various states. The companies decision to move forward with the
formation of TransConnect or RTO West will ultimately depend on the conditions
related to the formation of the entities, as well as the economics and
conditions imposed in the regulatory approval process. If TransConnect were
formed, it could result in Avista Utilities divesting its electric transmission
assets. The formation of RTO West or TransConnect could have an impact on the
Companys transmission costs. However, the Company believes that any changes
to transmission costs would be reflected as an adjustment to retail rates.
On July 31, 2002, the FERC issued a Notice of Proposed Rulemaking (NOPR)
proposing standard market design rules that would significantly alter the
markets for wholesale electricity and transmission and ancillary services in
the United States. The new rules would establish a generation adequacy
requirement for load-serving entities and a standard platform for the sale of
electricity and transmission services. Under the new rules, Independent
Transmission Providers would administer spot markets for wholesale power,
ancillary services and transmission congestion rights, and electric utilities,
including Avista Utilities, would be required to transfer control over
transmission facilities to the applicable Independent Transmission Provider.
The NOPR is open for a 75-day comment period with final rules expected to be
issued by the end of 2002. Once the final rules are issued, a phased
compliance schedule will begin with final implementation expected to take
effect no later than September 30, 2004. The Company is currently in the
process of determining the impact the proposed rules would have on its
operations.
Results of Operations
Overall Operations
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
Income from continuing operations was $9.3 million for the three months ended
June 30, 2002 compared to income from continuing operations of $26.0 million
for the three months ended June 30, 2001. The decrease is primarily due to
reduced net income recorded by the Energy Trading and Marketing line of
business. Energy Trading and Marketing recorded net income of $8.5 million for
the three months ended June 30, 2002 compared to $23.6 million for the three
months ended June 30, 2001. The primary reason for the decrease in net income
was a reduction in Avista Energys gross margin, both realized and unrealized.
During the second half of 2001 and the first half of 2002, volatility in
wholesale energy markets in the western United States decreased relative to the
first half of 2001, which reduced Avista Energys earnings potential. Net
income recorded by Avista Utilities was $12.0 million for the three months
ended June 30, 2002, compared to net income of $10.1 million for the three
months ended June 30, 2001.
31
AVISTA CORPORATION
The Information and Technology line of business incurred a net loss of $4.3
million for the three months ended June 30, 2002 compared to a net loss of $5.7
million for three months ended June 30, 2001.
The Other line of business incurred a net loss of
$6.9 million for three months
ended June 30, 2002 compared to a net loss of $2.0 million for the three months
ended June 30, 2001. The increase in the net loss is primarily
due to litigation costs.
The discontinued operations of Avista Communications recorded net income of
$1.0 million for three months ended June 30, 2002 compared to a net loss of
$3.3 million for the three months ended June 30, 2001. Net income for the
three months ended June 30, 2002 is primarily due to the favorable settlement
of a lawsuit during the period.
Total revenues decreased $795.1 million for the three months ended June 30,
2002 compared to the three months ended June 30, 2001. Avista Utilities
revenues decreased $126.1 million, or 40 percent, primarily due to decreased
wholesale electric sales, partially offset by increased electric retail
revenues. Wholesale sales volumes decreased primarily due to the expiration of
several wholesale electric sales contracts, including two 100 MW index-based
sales contracts that expired in July 2001. The increase in retail revenues is
primarily a result of higher rates approved by state regulatory agencies to
recover deferred power costs. Revenues from Energy Trading and Marketing
decreased $689.2 million, or 55 percent, primarily due to decreased energy
commodity prices and reduced market volatility partially offset by an increase
in energy trading volumes. Revenues from the Information and Technology
companies increased 28 percent to $4.0 million primarily as a result of
customer growth at Avista Advantage. Revenues from the Other line of business
were $3.5 million in each of the three-month periods ended June 30, 2002 and
2001. Intersegment eliminations represent the transactions between Avista
Utilities and Avista Energy for commodities and services. Intersegment
eliminations decreased $19.4 million due to a decrease in prices for natural
gas to serve Avista Utilities retail customers and to fuel natural gas-fired
turbines to generate electricity.
Total resource costs decreased $775.2 million for the three months ended June
30, 2002 compared to the three months ended June 30, 2001. Avista Utilities
resource costs decreased $132.8 million, or 63 percent, primarily due to
reduced power purchase expenses and decreased fuel for generation expenses.
Power purchase expenses and fuel for generation decreased due to lower
wholesale market prices, increased hydroelectric generation, reduced wholesale
obligations and decreased thermal generation. Decreases in power and fuel for
generation were partially offset by $13.1 million of net amortization of
deferred power and natural gas costs for the three months ended June 30, 2002,
compared to net deferrals of $67.9 million for the three months ended June 30,
2001. Energy Trading and Marketings resource costs decreased $661.7 million,
or 54 percent, primarily due to decreased energy commodity prices and reduced
market volatility partially offset by increased energy trading volumes.
Operations and maintenance expenses decreased $5.5 million primarily due to
reduced expenses for Avista Utilities. The decrease is primarily due to
management initiatives designed to reduce operating expenses to improve
liquidity and operating cash flows.
Administrative and general expenses increased $2.3 million primarily due to
increased litigation costs for the Other business segment partially
offset by decreased expenses for Energy Trading and Marketing. The
decrease for Energy Trading and Marketing was primarily a result
of reduced incentive compensation expenses as a result of decreased earnings as
well as reduced professional fees.
Interest expense decreased $1.3 million for the three months ended June 30,
2002 compared to the three months ended June 30, 2001, primarily due to reduced
levels of outstanding debt during the period.
Other income-net decreased $8.0 million primarily due to reduced interest
income.
Income taxes decreased $8.1 million for the three months ended June 30, 2002
compared to the three months ended June 30, 2001, primarily due to decreased
earnings before income taxes. The effective tax rate was 47.3 percent for the
three months ended June 30, 2002 compared to 38.8 percent for the three months
ended June 30, 2001. The increase in the effective tax rate is primarily due
to decreased earnings and the increased effect of permanent tax differences,
such as accelerated tax depreciation.
Diluted earnings per share from continuing
operations were $0.18 for the three
months ended June 30, 2002 compared to earnings from continuing operations of
$0.54 per diluted share for the three months ended June 30, 2001. Avista
Utilities contributed $0.24 per diluted share for the three months ended June
30, 2002 compared to $0.20 per diluted share for the three months ended June
30, 2001. Energy Trading and Marketing contributed $0.18 per diluted share for
the three months ended June 30, 2002 compared to $0.50 per diluted share for
three months ended June 30, 2001. The Information and Technology operations
recorded a net loss of $0.09 per diluted share for
32
AVISTA CORPORATION
the three months ended June
30, 2002 compared to a net loss of $0.12 per diluted share for the three months
ended June 30, 2001. The Other line of business recorded a net
loss of $0.15
per diluted share for the three months ended June 30, 2002 compared to a net
loss of $0.04 per diluted share for the three months ended June 30, 2001. The
discontinued operations of Avista Communications recorded net income of $0.02
per diluted share for the three months ended June 30, 2002 compared to a net
loss of $0.07 per diluted share for the three months ended June 30, 2001.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
Income from continuing operations was $24.9 million for the six months ended
June 30, 2002 compared to income from continuing operations of $58.1 million
for the six months ended June 30, 2001. The decrease is primarily due to
reduced net income recorded by the Energy Trading and Marketing line of
business. Energy Trading and Marketing recorded net income of $16.7 million
for the six months ended June 30, 2002 compared to $48.3 million for the six
months ended June 30, 2001. The primary reason for the decrease in net income
was a reduction in Avista Energys gross margin, both realized and unrealized.
During the second half of 2001 and the first half of 2002, volatility in
wholesale energy markets in the western United States decreased relative to the
first half of 2001, which reduced Avista Energys earnings potential. Net
income recorded by Avista Utilities was $25.2 million for the six months ended
June 30, 2002, compared to net income of $23.2 million for the six months ended
June 30, 2001.
The Information and Technology line of business incurred a net loss of $7.1
million for the six months ended June 30, 2002 compared to a net loss of $10.7
million for six months ended June 30, 2001.
The Other line of business incurred a net loss of
$10.0 million for the six
months ended June 30, 2002 compared to a net loss of $2.7 million for the six
months ended June 30, 2001. The increase in the net loss is
primarily due to litigation costs.
The discontinued operations of Avista Communications recorded net income of
$0.7 million for the six months ended June 30, 2002 compared to a net loss of
$6.0 million for the six months ended June 30, 2001. Consistent with the
quarter, net income for the six months ended June 30, 2002 is primarily due to
the favorable settlement of a lawsuit during the period.
Total revenues decreased $2,069.9 million for the six months ended June 30,
2002 compared to the six months ended June 30, 2001. Avista Utilities
revenues decreased $256.1 million, or 35 percent, primarily due to decreased
wholesale electric sales, partially offset by increased retail revenues from
both electric and natural gas sales. Wholesale sales volumes decreased
primarily due to the expiration of several wholesale electric sales contracts,
including two 100 MW index-based sales contracts that expired in July 2001.
The increase in retail revenues is primarily a result of higher rates approved
by state regulatory agencies to recover deferred power and natural gas costs.
Revenues from Energy Trading and Marketing decreased $1,924.7 million, or 64
percent, primarily due to decreased energy commodity prices as well as reduced
market volatility. Revenues from the Information and Technology companies
increased 30 percent to $8.0 million primarily as a result of customer growth
at Avista Advantage. Revenues from the Other line of business decreased $2.8
million reflecting decreased activity in this line of business. Intersegment
eliminations represent the transactions between Avista Utilities and Avista
Energy for commodities and services. Intersegment eliminations decreased
$111.9 million due to a decrease in prices for natural gas to serve Avista
Utilities retail customers and to fuel natural gas-fired turbines to generate
electricity.
Total resource costs decreased $2,026.3 million for the six months ended June
30, 2002 compared to the six months ended June 30, 2001. Avista Utilities
resource costs decreased $276.1 million, or 53 percent, primarily due to
reduced power purchase expenses, decreased cost of natural gas purchased to
serve retail customers and the decreased fuel for generation expenses. Power
purchase expenses, natural gas purchased and fuel for generation decreased due
to lower wholesale market prices, increased hydroelectric generation, reduced
wholesale obligations and decreased thermal generation. Decreases in power and
natural gas purchases as well as fuel for generation were partially offset by
$63.4 million of net amortization of deferred power and natural gas costs for
the six months ended June 30, 2002, compared to net deferrals of $134.5 million
for the six months ended June 30, 2001. Energy Trading and Marketings
resource costs decreased $1,862.1 million, or 64 percent, primarily due to
decreased energy commodity prices as well as reduced market volatility.
Operations and maintenance expenses decreased $4.3 million primarily due to
reduced expenses for Avista Utilities. The decrease is primarily due to
management initiatives designed to reduce operating expenses to improve
liquidity and operating cash flows.
Administrative and general expenses decreased $6.1 million primarily due to
reduced expenses for Energy Trading
33
AVISTA CORPORATION
and Marketing. This was primarily a result
of reduced incentive compensation expenses as a result of decreased earnings as
well as reduced professional fees. This was partially offset by an
increase in the Other business segment due to litigation costs.
Other income-net decreased $8.0 million primarily due to reduced interest
income.
Interest expense increased $6.6 million for the six months ended June 30, 2002
compared to the six months ended June 30, 2001, primarily due to higher average
levels of outstanding debt during the period.
Income taxes decreased $18.1 million for the six months ended June 30, 2002
compared to the six months ended June 30, 2001, primarily due to decreased
earnings before income taxes. The effective tax rate was 44.6 percent for the
six months ended June 30, 2002 compared to 39.6 percent for the six months
ended June 30, 2001. The increase in the effective tax rate is primarily due
to decreased earnings and the increased effect of permanent tax differences.
In April 2002, the Company completed its transitional test of goodwill related
to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
Accordingly, the Company determined that $6.4 million of goodwill related to
Advanced Manufacturing and Development, a subsidiary of Avista Ventures, was
impaired. The Company has recorded this impairment of $4.1 million, net of
tax, as a cumulative effect of accounting change in the Consolidated Statement
of Income.
Diluted earnings per share from continuing
operations were $0.49 for the six
months ended June 30, 2002 compared to earnings from continuing operations of
$1.21 per diluted share for the six months ended June 30, 2001. Avista
Utilities contributed $0.50 per diluted share for the six months ended June 30,
2002 compared to $0.47 per diluted share for the six months ended June 30,
2001. Energy Trading and Marketing contributed $0.35 per diluted share for the
six months ended June 30, 2002 compared to $1.02 per diluted share for the six
months ended June 30, 2001. The Information and Technology operations recorded
a net loss of $0.15 per diluted share for the six months ended June 30, 2002
compared to a net loss of $0.22 per diluted share for the six months ended June
30, 2001. The Other line of business recorded a net loss of $0.21 per diluted
share for the six months ended June 30, 2002 compared to a net loss of $0.06
per diluted share for the six months ended June 30, 2001. The discontinued
operations of Avista Communications recorded net income of $0.02 per diluted
share for the six months ended June 30, 2002 compared to a net loss of $0.13
per diluted share for the six months ended June 30, 2001. The cumulative
effect of accounting change resulted in a charge of $0.09 per diluted share for
the six months ended June 30, 2002.
Avista Utilities
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
Avista Utilities recorded net income of $12.0 million for the three months
ended June 30, 2002 compared to net income of $10.1 million for the three
months ended June 30, 2001. Avista Utilities pre-tax income from operations
was $41.2 million for the three months ended June 30, 2002 compared to $34.5
million for the three months ended June 30, 2001. This increase was primarily
due to an increase in gross margin. Avista Utilities operating revenues
decreased $126.1 million and resource costs decreased $132.8 million resulting
in an increase of $6.8 million in gross margin for the three months ended June
30, 2002 as compared to the three months ended June 30, 2001.
Retail electric revenues increased $14.8 million for the three months ended
June 30, 2002 from the three months ended June 30, 2001. This increase was
primarily due to the electric surcharges implemented in Washington and Idaho to
recover deferred power costs, partially offset by decreased use per customer
and total kWhs sold. Wholesale electric revenues decreased $145.5 million, or
89 percent, reflecting wholesale sales volumes which decreased 52 percent from
2001 and average sales prices that were 76 percent lower than the prior year.
Wholesale sales volumes decreased primarily due to the expiration of several
wholesale electric sales contracts, including two 100 MW index-based sales that
expired in July 2001. The extent of future wholesale transactions will be
based on changes to resources, loads, and contractual obligations.
Other electric revenues increased $4.9 million primarily due to the sale of
natural gas purchased for generation that was not used in Avista Utilities own
generation.
Natural gas revenues decreased $0.3 million for the three months ended June 30,
2002 from the three months ended June 30, 2001. Retail natural gas revenues
increased $0.4 million and wholesale natural gas revenues decreased $0.7
million.
Power purchased for the three months ended June 30, 2002 decreased $203.0
million, or 94 percent, compared to the
34
AVISTA CORPORATION
three months ended June 30, 2001
primarily due to the decreased volume and price of power purchases. Average
purchased power prices for the three months ended June 30, 2002 were 86 percent
lower than the three months ended June 30, 2001 and volumes purchased decreased
60 percent compared to the three months ended June 30, 2001. The decrease in
the volume of purchased power was primarily the result of decreases in the
volume of wholesale electric sales as discussed above. Increased hydroelectric
resource availability also decreased wholesale power purchase requirements to
meet retail demand.
During the three months ended June 30, 2002 Avista Utilities recovered $10.1
million in deferred power costs in Washington and $5.8 million in Idaho. The
total balance of deferred power costs was $116.3 million for Washington and
$46.7 million for Idaho as of June 30, 2002. In September 2001, the WUTC
approved a temporary electric surcharge of 25 percent. The June 2002 WUTC
order with respect to the general electric rate case modified the electric
surcharge such that 11.9 percent represents the continued recovery of deferred
power costs and the remainder will be applied to offset the Companys general
operating costs. In October 2001, the IPUC approved a PCA surcharge and the
extension of a previously approved PCA surcharge for a total of 19.4 percent.
During the three months ended June 30, 2002, $6.9 million of a deferred
non-cash credit was offset against the Idaho share of deferred power costs.
See further description of the issues related to deferred power costs in the
section Avista Utilities Regulatory Matters.
During the three months ended June 30, 2002 Avista Utilities had $4.5 million
of net amortization of deferred natural gas costs. Total deferred natural gas
costs were $21.3 million as of June 30, 2002.
The cost of fuel for generation for the three months ended June 30, 2002
decreased $22.9 million from the three months ended June 30, 2001 primarily due
to a decrease in thermal generation. Thermal generation decreased 51 percent
primarily due to increased hydroelectric generation and lower wholesale market
prices. As such, less thermal generation was needed to meet retail demand.
The expense for natural gas purchased for the three months ended June 30, 2002
decreased $1.1 million compared to the three months ended June 30, 2001.
Other resource costs for the three months ended June 30, 2002 increased $13.2
million compared to the three months ended June 31, 2001. This increase was
primarily due to the increased cost of natural gas purchased as fuel for
generation that was not used. This excess natural gas was sold with the
associated revenues reflected as other electric revenues.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
Avista Utilities recorded net income of $25.2 million for the six months ended
June 30, 2002 compared to net income of $23.2 million for the six months ended
June 30, 2001. Avista Utilities pre-tax income from operations was $86.4
million for the six months ended June 30, 2002 compared to $72.2 million for
the six months ended June 30, 2001. This increase was primarily due to an
increase in gross margin. Avista Utilities operating revenues decreased
$256.1 million and resource costs decreased $276.1 million resulting in an
increase of $20.0 million in gross margin for the six months ended June 30,
2002 as compared to the six months ended June 30, 2001.
Retail electric revenues increased $39.7 million for the six months ended June
30, 2002 from the six months ended June 30, 2001. This increase was primarily
due to the electric surcharges implemented in Washington and Idaho to recover
deferred power costs, partially offset by decreased use per customer and total
kWhs sold. The increase in retail electric revenues was also due to refunds to
customers in January 2001 from the gain on the sale of Avista Utilities
interest in the Centralia Power Plant which reduced revenues for the six months
ended June 30, 2001. Wholesale electric revenues decreased $324.6 million, or
90 percent, reflecting wholesale sales volumes which decreased 69 percent from
2001 and average sales prices that were 69 percent lower than the prior year.
Wholesale sales volumes decreased primarily due to the expiration of several
wholesale electric sales contracts, including two 100 MW index-based sales that
expired in July 2001. The extent of future wholesale transactions will be
based on changes to resources, loads, and contractual obligations.
Other electric revenues increased $7.9 million primarily due to the sale of
natural gas purchased for generation that was not used in generation.
Natural gas revenues increased $21.0 million for the six months ended June 30,
2002 from the six months ended June 30, 2001 due to increased prices approved
by state commissions to recover increased natural gas costs.
35
AVISTA CORPORATION
Power purchased for the six months ended June 30, 2002 decreased $416.6
million, or 91 percent, compared to the six months ended June 30, 2001
primarily due to the decreased volume and price of power purchases. Average
purchased power prices for the six months ended June 30, 2002 were 76 percent
lower than the six months ended June 30, 2001 and volumes purchased decreased
61 percent compared to the six months ended June 30, 2001. The decrease in the
volume of purchased power was primarily the result of decreases in the volume
of wholesale electric sales as discussed above. Increased hydroelectric
resource availability also decreased wholesale power purchase requirements to
meet retail demand.
During the six months ended June 30, 2002, Avista Utilities recovered $25.6
million in deferred power costs in Washington and $12.8 million in Idaho.
During the six months ended June 30, 2002, $13.9 million of a deferred non-cash
credit was offset against the Idaho share of deferred power costs. See further
description of issues related to deferred power costs in the section Avista
Utilities Regulatory Matters.
During the six months ended June 30, 2002, Avista Utilities had $32.3 million
of net amortization of deferred natural gas costs. Total deferred natural gas
costs were $21.3 million as of June 30, 2002.
The cost of fuel for generation for the six months ended June 30, 2002
decreased $43.1 million from the six months ended June 30, 2001 primarily due
to a decrease in thermal generation. Thermal generation decreased 48 percent
primarily due to increased hydroelectric generation and wholesale market
prices. As such, less thermal generation was needed to meet retail demand.
The expense for natural gas purchased for the six months ended June 30, 2002
decreased $47.4 million compared to the six months ended June 30, 2001
primarily due to the decreased cost of natural gas.
Other resource costs for the six months ended June 30, 2002 increased $33.2
million compared to the six months ended June 30, 2001. During January 2001,
$16.2 million related to the gain on the sale of Avista Utilities interest in
the Centralia Power Plant was amortized as a credit to other resource costs.
Also contributing to the increase in other resource costs was an increase in
natural gas purchased as fuel for generation that was not used. This excess
natural gas was sold with the associated revenues reflected as other electric
revenues.
Construction is continuing on the 280 MW combined cycle natural gas-fired
turbine power plant at the Coyote Springs 2 site near Boardman, Oregon which is
currently 50 percent owned by Avista Power and 50 percent owned by an affiliate
of Mirant Americas Development, Inc. (Mirant). Avista Powers 50 percent
ownership interest in the plant is included in the Energy Trading and Marketing
line of business. Avista Corp. and Mirant will share equally in the costs of
construction, operation and output from the plant. On May 6, 2002, a
transformer at the site failed and caught fire resulting in the release of an
estimated 17,000 gallons of coolant oil. While the cause of the failure is
still being investigated, the Company anticipates the cost of the cleanup as
well as the cost of replacing the damaged transformer will be considered
covered losses under the relevant insurance policies. Additionally, the
Company continues to evaluate the merits of possible claims against those
parties that may be responsible for the failure. The damage to the transformer
has delayed the scheduled completion of the project from the third quarter of
2002 to the fourth quarter of 2002. As of June 30, 2002, the Company had
invested $97.4 million in the Coyote Springs 2 project (including capitalized
interest) and the Companys total investment in the project is expected to be
$108.4 million (including capitalized interest) at completion. The Companys
50 percent ownership interest in the plant will be transferred from Avista
Power to Avista Corp. to be operated as an asset of Avista Utilities upon the
completion of construction.
Energy Trading and Marketing
Energy Trading and Marketing includes the results of Avista Energy and Avista
Power. Avista Energy maintains an energy trading portfolio that it marks to
estimated fair market value on a daily basis (mark-to-market accounting), which
causes earnings variability. Market prices are utilized in determining the
value of electric, natural gas and related derivative commodity instruments.
For longer-term positions and certain short-term positions for which market
prices are not available, models based on forward price curves are utilized.
These models incorporate a variety of estimates and assumptions most of which
are beyond Avista Energys control, including, among others, estimates and
assumptions as to demand growth, fuel price escalation, availability of
existing generation and costs of new generation. Actual experience can vary
significantly from these estimates and assumptions.
Avista Energy trades electricity and natural gas, along with derivative
commodity instruments including futures, options, swaps and other contractual
arrangements. Most transactions are conducted on a largely unregulated
over-the-counter basis, there being no central clearing mechanism (except in
the case of specific instruments traded on
36
AVISTA CORPORATION
the commodity exchanges). Avista
Energys trading operations continue to be affected by, among other things,
volatility of prices within the electric energy and natural gas markets, the
demand for and availability of energy, lower unit margins on new sales
contracts, FERC-ordered price caps, deregulation of the electric utility
industry, the creditworthiness of counterparties and the reduced liquidity in
energy markets. See Business Risk for further information.
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
Energy Trading and Marketings net income was $8.5 million for the three months
ended June 30, 2002, compared to $23.6 million for the three months ended June
30, 2001. The primary reason for the decrease in net income was a decrease in
gross margin, both realized and unrealized. Gross margin was $19.9 million for
the three months ended June 30, 2002 compared to $47.4 million for the three
months ended June 30, 2001.
Energy Trading and Marketings operating revenues and cost of sales decreased
$689.2 million and $661.7 million, respectively, for the three months ended
June 30, 2002 compared to the three months ended June 30, 2001, resulting in a
decrease in gross margin of $27.5 million. The decrease in revenues and cost
of sales is the result of decreased energy commodity prices partially offset by
increased sales volumes from 2001. Realized gross margin decreased to $31.6
million for the three months ended June 30, 2002 from $37.8 million for the
three months ended June 30, 2001. The decrease was primarily due to a decrease
in the underlying commodity values that settled, as well as a decrease in the
volatility in the wholesale energy markets. The total mark-to-market
adjustment for Energy Trading and Marketing was an unrealized loss of $11.7
million for the three months ended June 30, 2002 compared to an unrealized gain
of $9.6 million for the three months ended June 30, 2001. The decrease is
primarily due to the settlement of contracts and the realization of previously
unrealized gains and decreased volatility in the wholesale energy markets.
Administrative and general expenses decreased $3.9 million, or 36 percent, from
the three months ended June 30, 2001 primarily due to reduced incentive
compensation expense based on lower earnings in 2002.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
Energy Trading and Marketings net income was $16.7 million for the six months
ended June 30, 2002, compared to $48.3 million for the six months ended June
30, 2001. The primary reason for the decrease in net income was a decrease in
gross margin, both realized and unrealized. Gross margin was $34.4 million for
the six months ended June 30, 2002 compared to $97.0 million for the six months
ended June 30, 2001.
Energy Trading and Marketings operating revenues and cost of sales decreased
$1,924.7 million and $1,862.1 million, respectively, for the six months ended
June 30, 2002 compared to the six months ended June 30, 2001, resulting in a
decrease in gross margin of $62.6 million. The decrease in revenues and cost
of sales is the result of decreased energy commodity prices. Realized gross
margin decreased to $63.5 million for the six months ended June 30, 2002 from
$94.1 million for the six months ended June 30, 2001. The decrease was
primarily due to a decrease in the underlying commodity values that settled, as
well as a decrease in the volatility in the wholesale energy markets. The
total mark-to-market adjustment for Energy Trading and Marketing was an
unrealized loss of $29.1 million for the six months ended June 30, 2002
compared to an unrealized gain of $2.9 million for the six months ended June
30, 2001. The decrease is primarily due to the settlement of contracts and the
realization of previously unrealized gains and decreased volatility in the
wholesale energy markets.
Administrative and general expenses decreased $11.5 million, or 51 percent,
from the six months ended June 30, 2001 primarily due to reduced incentive
compensation expense based on lower earnings in 2002. Reduced professional
fees also contributed to the decrease in administrative and general expenses.
Professional fees were high during the six months ended June 30, 2001 due to
expenses associated with the California energy crisis (see Western Power
Market Issues) and the CFTC investigation related to certain trades in 1998,
which was resolved in 2001.
Energy Trading and Marketings total assets decreased $159.4 million from
December 31, 2001 to June 30, 2002 primarily due to a decrease in total current
and non-current energy commodity assets. This decrease in commodity assets
primarily reflects the settlement of contracts during the six months ended June
30, 2002.
37
AVISTA CORPORATION
The following summarizes information with respect to Avista Energys trading
activities during the six months ended June 30, 2002 (dollars in thousands):
The following discloses summarized information with respect to valuation
techniques and contractual maturities of Avista Energys energy commodity
contracts outstanding as of June 30, 2002 (dollars in thousands):
Avista Energy conducts frequent stress tests on the valuation of its portfolio.
By changing the input assumptions to the internally developed market curves,
these stress tests attempt to capture Avista Energys sensitivity to changes in
portfolio valuation. These stress tests indicate that, for the portfolio
valued under internally developed market curves, the valuations can be
reasonably certain to be within a 20 percent range, upwards or downwards, of
the reported values listed above.
38
AVISTA CORPORATION
Avista Power is a 49 percent owner of a 270 MW natural gas-fired combustion
turbine plant in Rathdrum, Idaho, which commenced commercial operation in
September 2001. All of the output from this plant is contracted to Avista
Energy for 25 years. In addition, Avista Power and co-owner Mirant are in the
process of constructing the 280 MW Coyote Springs 2 Power Plant. Upon the
completion of the plant, Avista Powers 50 percent ownership interest will be
transferred to Avista Corp. for inclusion in Avista Utilities power generation
resource portfolio. On May 6, 2002, a transformer at the Coyote Springs 2
Power Plant caught fire resulting in the release of an estimated 17,000 gallons
of coolant oil. The damaged transformer has delayed the scheduled completion
of the project from the third quarter of 2002 to the fourth quarter of 2002.
See Results of Operations: Avista Utilities for further information.
Information and Technology
The Information and Technology line of business includes the results of Avista
Advantage and Avista Labs (including its 70 percent equity interest in H2fuel,
LLC). Avista Labs continues discussions with selected companies in its search
for a strategic partner while moving forward with developing its products.
Avista Advantage remains focused on growing revenue, improving margins,
reducing fixed and variable costs and client satisfaction.
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
Information and Technologys net loss was $4.3 million for the three months
ended June 30, 2002 compared to a net loss of $5.7 million for the three months
ended June 30, 2001. Operating revenues for this line of business increased
$0.9 million and operating expenses decreased $1.7 million, respectively, as
compared to the three months ended June 30, 2001. Avista Advantage accounted
for the increase in revenues primarily due to the expansion of its customer
base. The decrease in operating expenses primarily reflects reduced expenses
for Avista Advantage due to improved efficiencies and a focus on reducing
operating expenses.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
Information and Technologys net loss was $7.1 million for the six months ended
June 30, 2002 compared to a net loss of $10.7 million for the six months ended
June 30, 2001. Operating revenues for this line of business increased $1.9
million and operating expenses decreased $2.9 million, respectively, as
compared to the six months ended June 30, 2001. Avista Advantage accounted for
the increase in revenues primarily due to the expansion of its customer base.
The decrease in operating expenses primarily reflects reduced expenses for
Avista Advantage due to improved efficiencies and a focus on reducing operating
expenses. Certain non-recurring items in both periods also contributed to the
decrease in operating expenses.
Improved results for this line of business also reflects the $0.6 million
recovery of a previously recognized allowance for investment loss at Avista
Advantage.
Other
The Other line of business includes Avista Ventures, Avista Capital (parent
company only amounts), Pentzer and several other minor subsidiaries.
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
The net loss from this line of business was $6.9 million for the three months
ended June 30, 2002, compared to a net loss of $2.0 million for the three
months ended June 30, 2001. The increase in the net loss is primarily due to a
decrease in income from operations and partially due to an increase in interest
expense as well as losses on the disposition of assets. Operating revenues
from this line of business decreased $0.1 million and operating expenses
increased $4.4 million, respectively, for the three months ended June 30, 2002
as compared to the three months ended June 30, 2001. The decrease in income
from operations is primarily due to an increase
in litigation costs for Pentzer.
39
AVISTA CORPORATION
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
The net loss before cumulative effect of accounting change from this line of
business was $10.0 million for the six months ended June 30, 2002, compared to a
net loss of $2.7 million for the six months ended June 30, 2001. The increase
in the net loss is primarily due to a decrease in income from operations and
partially due to an increase in interest expense as well as losses on the
disposition of assets. Operating revenues from this line of business decreased
$2.8 million and operating expenses increased $3.3 million, respectively, for
the six months ended June 30, 2002 as compared to the six months ended June 30,
2001. The decrease in income from operations is primarily due to a decrease in
income from Advanced Manufacturing and Development, a subsidiary of Avista
Ventures and an increase in litigation costs for Pentzer.
Discontinued Operations
In September 2001, the Company reached a decision that it would dispose of
substantially all of the assets of Avista Communications. The divestiture is
expected to be completed by the end of 2002. In October 2001, minority
shareholders of Avista Communications acquired ownership of its Montana and
Wyoming operations as well as its dial-up internet access operations in
Spokane, Washington and Coeur dAlene, Idaho. In December 2001, Avista
Communications completed the sale of the assets and customer accounts of its
Yakima and Bellingham, Washington operations to Advanced Telcom Group, Inc. In
April 2002, Avista Communications completed the transfer of voice and
integrated services customer accounts in Spokane, Washington and Coeur dAlene,
Idaho to certain subsidiaries of XO Communications, Inc. In August 2002, the
Company has entered into an agreement to dispose of substantially all of the
remaining assets of Avista Communications.
Three months ended June 30, 2002 compared to the three months ended June 30,
2001
Net income for the three months ended June 30, 2002 was $1.0 million, compared
to a net loss of $3.3 million for the three months ended June 30, 2001. Net
income for the three months ended June 30, 2002 is primarily due to the
favorable settlement of a lawsuit during the period.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
Net income for the six months ended June 30, 2002 was $0.7 million, compared to
a net loss of $6.0 million for the six months ended June 30, 2001. Net income
for the six months ended June 30, 2002 is primarily due to the favorable
settlement of a lawsuit during the period.
Earnings Outlook
The Company expects to post consolidated earnings of between $0.70 and $0.80
per diluted share for the full year 2002 and consolidated earnings are expected
to exceed $1.10 per diluted share in 2003. These expectations are based on
current streamflow and weather projections, anticipated purchased power prices
and the continued ability to defer and recover excess purchased power costs.
The projection for 2003 anticipates that the Coyote Springs 2 Power Plant and
two small generation projects will come on-line by the end of 2002 and the
Idaho PCA surcharge will be renewed in October 2002. These projections are
subject to a variety of risks and uncertainties that could cause actual results
to differ from this estimate, including those described above and listed under
Safe Harbor for Forward Looking Statements. See Liquidity and Capital
Resources for additional information.
40
AVISTA CORPORATION
Liquidity and Capital Resources
Review of Cash Flow Statement
Continuing Operating Activities
Net cash
provided by continuing operating activities
was $193.0 million for the six months ended
June 30, 2002 compared to net cash provided
by continuing operating activities of $25.8
million for the six months ended June 30,
2001. The primary reason for the increase in
net cash provided by continuing operating
activities was power and natural gas cost
amortization, net of deferrals and interest,
of $81.7 million for the six months ended
June 30, 2002 compared to net deferrals of
$141.1 million for the six months ended June
30, 2001. This was primarily due to
increased retail rates approved by the
respective utility commissions to recover
increased deferred power supply and natural
gas costs incurred during 2000 and 2001. Net
power and natural gas cost amortizations and
deferrals are non-cash expenses that are
added back or deducted from net income to
determine net cash flows from operating
activities using the indirect method. Net
cash provided by working capital components
was $52.2 million for the six months ended
June 30, 2002, an increase from $27.0 million
for the six months ended June 30, 2001.
Changes in commodity prices and energy
transactions that affected both Avista
Utilities and Avista Energy were primarily
responsible for the large changes in various
working capital components, such as accounts
receivable and accounts payable and other
accrued liabilities. Significant changes in
non-cash items also included a $51.2 million
change in energy commodity assets and
liabilities, primarily related to Avista
Energy as well as a $81.1 million decrease in
the provision for deferred income taxes.
Continuing Investing Activities
Net cash used
in continuing investing activities was $32.4
million for the six months ended June 30,
2002 compared to $153.6 million for the six
months ended June 30, 2001. This decrease
was primarily due to a decrease in other
capital expenditures. Other capital
expenditures during the six months ended June
30, 2001 were primarily for the construction
of the Coyote Springs 2 Power Plant and the
purchase of turbines by Avista Power that
were planned to be used in a non-regulated
generation project. Utility property
construction expenditures also decreased to
$32.9 million for the six months ended June
30, 2002 compared to $55.4 million for the
six months ended June 30, 2001.
Continuing Financing Activities
Net cash used in continuing financing
activities was $189.5 million for the six months ended June 30, 2002 compared
to net cash provided of $201.5 million for the six months ended June 30, 2001.
During the six months ended June 30, 2002 short-term borrowings decreased $0.6
million and the Company repurchased $178.8 million of long-term debt scheduled
to mature in future years. The overall decrease in long-term debt during the
six months ended June 30, 2002 reflects increased cash flows from operations
primarily related to the recovery of deferred power and natural gas costs that
was partially used to repurchase long-term debt.
In April 2001, the Company issued $400.0 million of 9.75 percent Senior Notes
due in 2008. During the three months ended June 30, 2001 short-term borrowings
decreased $163.2 million and $25.0 million of Medium-Term Notes matured. The
overall increase in borrowings during the six months ended June 30, 2001
reflected increased cash needs to fund capital expenditures and increased power
and natural gas costs.
Discontinued Operations
Net cash provided by discontinued operations was $0.1
million for the six months ended June 30, 2002 compared to $21.2 million of net
cash used in discontinued operations for the six months ended June 30, 2001.
The decrease was primarily due to a decrease in operating costs and capital
expenditures by Avista Communications as the Company decided to dispose of the
operations.
Overall Liquidity
During the second half of 2000 and the year 2001, the Companys cash outlays
for purchased power exceeded the related amounts paid to the Company by its
retail customers. This condition was primarily due to the reduced availability
of hydroelectric resources compared to historical periods, increased prices in
the wholesale market and increased volumes purchased to meet retail customer
demand. In addition to operating expenses, the Company has continuing
commitments for capital expenditures for construction, improvement and
maintenance of facilities. In 2001, the Company incurred substantial levels of
indebtedness, both short and long-term, to finance these requirements and to
otherwise maintain adequate levels of working capital. Debt service is another
significant cash requirement.
The general electric rate case order issued by the WUTC in June 2002 should
allow the Company to continue to improve its liquidity. The general rate case
order provides for the restructuring and continuation of previously approved
rate increases totaling 31.2 percent (a 25 percent temporary surcharge approved
in September 2001 and a 6.2 percent increase approved in March 2002). The
general increase to base retail rates is 19.3 percent (or $45.7 million
41
AVISTA CORPORATION
in annual revenues) and the remaining 11.9 percent represents the continued
recovery of deferred power costs over a period currently projected to extend
through 2007. Additionally, the Company has PCA surcharges totaling 19.4
percent in place in Idaho. See further description of issues related to
deferred power costs and the Companys general electric rate case in the
section Avista Utilities Regulatory Matters.
In addition to the rate increases described above, the Company has taken other
steps to improve its liquidity. The Company completed the sale of 50 percent
of its interest in the Coyote Springs 2 project to Mirant during the fourth
quarter of 2001. The Company received $53.6 million in proceeds from Mirant.
In addition, Mirant is also providing the majority of the remaining funds to
complete the project. The Company also sold three turbines owned by Avista
Power with $22.7 million of proceeds received during the fourth quarter of 2001
and $22.7 million of proceeds received during 2002. Additionally, the Company
significantly reduced capital expenditures for 2002 from the amount originally
budgeted. The Companys disposal of Avista Communications reduces future cash
investments in the Information and Technology line of business.
These measures are largely related to the Companys efforts to improve cash
flows and should provide the Company the ability to maintain access to adequate
levels of credit with its banks.
If Avista Utilities purchased power and natural gas costs were to exceed the
levels recovered from retail customers, its cash flows would be negatively
affected. Factors that could cause purchased power costs to return to levels
higher than recovered from customers include, but are not limited to, a return
to high prices in wholesale markets and high volumes of energy purchased in the
wholesale markets. Factors beyond the Companys control that could result in
high volumes of energy purchased include, but are not limited to, increases in
demand (either due to weather or customer growth), low availability of
hydroelectric resources, outages at generating facilities and failure of third
parties to deliver on energy or capacity contracts.
Capital Resources
The Company has incurred significant indebtedness to support capital
expenditures, to fund power and natural gas costs that were in excess of the
amount recovered currently through rates and to maintain working capital. As
of June 30, 2002, the Company had total debt outstanding of $1,072.2 million, a
decrease from $1,252.6 million as of December 31, 2001. The decrease was
primarily due to the repurchase of long-term debt. The Company needs to
finance capital expenditures and obtain additional working capital from time to
time. The cash requirements to service the indebtedness, both short-term and
long-term, could reduce the amount of cash flow available to fund working
capital, purchased power and natural gas costs, capital expenditures, dividends
and other corporate requirements.
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 depending
on a variety of factors. Cash provided by utility operating activities and
cash generated by Avista Energy is expected to be the Companys primary source
of funds for operating needs, dividends and capital expenditures in 2002 and
2003. In 2002 and subsequent years, the Company expects cash flows from
operations to improve primarily from the recovery of deferred power and natural
gas costs and from the electric rate increase approved by the WUTC. This
should allow the Company to continue to reduce total debt outstanding. Capital
expenditures are expected to be funded either with cash flows from operations
or on an interim basis with short-term borrowings.
On May 21, 2002, the Company entered into a committed line of credit with
various banks in the total amount of $225.0 million. The committed line of
credit expires on May 20, 2003 and replaces the $220.0 million committed line
of credit that expired on May 29, 2002. As of June 30, 2002, the Company had
borrowed $55.0 million under this committed line of credit. Under this
committed line of credit, the Company may have up to $50.0 million in letters
of credit outstanding. As of June 30, 2002, there were $15.1 million of
letters of credit outstanding. The Companys obligation under the committed
line of credit is secured with First Mortgage Bonds in the amount of the
commitment.
The committed line of credit agreement contains customary covenants and default
provisions, including covenants not to permit the ratio of consolidated total
debt to consolidated total capitalization of Avista Corp. to be, at the end
of any fiscal quarter, greater than 65 percent. As of June 30, 2002, the ratio
was in compliance with this covenant at 55.3 percent. The committed line of
credit also has a covenant requiring the ratio of earnings before interest,
taxes, depreciation and amortization to interest expense of Avista Utilities
for the three-fiscal quarter period ending June 30, 2002 to be greater than 1.6
to 1. As of June 30, 2002, the ratio was in compliance with this covenant at
2.06 to 1.
42
AVISTA CORPORATION
Any default on its committed line of credit or other financing arrangements
could result in cross-defaults to other agreements and could induce vendors and
other counterparties to demand collateral. In the event of a default, it would
be difficult for the Company to obtain financing on any reasonable terms to pay
creditors or fund operations, and the Company would likely be prohibited from
paying dividends on its common stock. As of June 30, 2002 Avista Corp. was in
compliance with the covenants of all of its financing agreements.
As part of its ongoing cash management practices and operations, Avista Corp.
may, at any time, have short-term notes receivable and payable with Avista
Capital. In turn, Avista Capital may also have short-term notes receivable and
payable with its subsidiaries. As of June 30, 2002, Avista Corp. had
short-term notes receivable of $150.9 million from Avista Capital of which
$108.5 million of the receivables represents loans to Avista Power, primarily
for the Coyote Springs 2 project and the acquisition of a turbine in 2001.
During the six months ended June 30, 2002, the Company repurchased $125.1
million of Medium-Term Notes scheduled to mature in 2003, $43.8 million of
Unsecured Senior Notes scheduled to mature in 2008 and $10.0 million of
Medium-Term Notes scheduled to mature in 2028. Subsequent to June 30, 2002,
the Company has repurchased $11.8 million of Unsecured Senior Notes scheduled
to mature in 2008 and $1.7 million of Medium-Term Notes scheduled to mature in
2003. Total net premiums paid to repurchase debt were $9.6 million and are
being amortized over the average maturity period of outstanding debt.
The Mortgage and Deed of Trust securing the Companys First Mortgage Bonds
contains limitations on the amount of First Mortgage Bonds which may be issued
based on, among other things, a 70 percent debt-to-collateral ratio and a 2.00
to 1 net earnings to First Mortgage Bond interest ratio. Under various
financing agreements, the Company is also restricted as to the amount of
additional First Mortgage Bonds that it can issue. As of June 30, 2002, the
Company could issue $146.7 million of additional First Mortgage Bonds under the
most restrictive of these financing agreements.
In July 2001, the Company filed a
registration statement on Form S-3 with the
Securities and Exchange Commission for the
purpose of issuing up to 3.7 million shares
of common stock. No common stock has been
issued and the Company currently does not
have any plans to issue common stock under
this registration statement.
Off-Balance Sheet Arrangements
Avista Receivables Corp. (ARC), formerly known as WWP Receivables Corp., is a
wholly owned, bankruptcy-remote subsidiary of the Company formed in 1997 for
the purpose of acquiring or purchasing interests in certain accounts
receivable, both billed and unbilled, of the Company. On May 29, 2002, ARC and
the Company entered into a three-year agreement whereby ARC can sell without
recourse, on a revolving basis, up to $100.0 million of those receivables. ARC
is obligated to pay fees that approximate the purchasers cost of issuing
commercial paper equal in value to the interests in receivables sold. As of
June 30, 2002, $57.0 million in receivables were sold pursuant to the
agreement.
WP Funding LP is an entity that was formed
for the purpose of acquiring the Companys
natural gas-fired combustion turbine
generating facility in Rathdrum, Idaho
(Rathdrum CT). WP Funding LP purchased the
Rathdrum CT from the Company with funds
provided by unrelated investors of which 97
percent represented debt and 3 percent
represented equity. The Company operates the
Rathdrum CT and leases it from WP Funding LP
and currently makes lease payments of $4.5
million per year. The total amount of WP
Funding LP debt outstanding that is not
included on the Companys balance sheet was
$54.5 million as of June 30, 2002. The lease
term expires in February 2020; however, the
current debt matures in October 2005 and will
need to be refinanced at that time. The FASB
has issued an Exposure Draft relating to the
identification of, and accounting for,
special-purpose entities such as WP Funding
LP. The current Exposure Draft would require
the Company to begin consolidating WP Funding
LP in 2003.
Total Company Capitalization
The Companys total common equity increased
$11.3 million during the six months ended
June 30, 2002 to $731.4 million as of June
30, 2002. This increase is primarily due to
net income and the issuance of common stock
through stock compensation plans, the
employee 401(k) plan and the Dividend
Reinvestment Plan, partially offset by
dividends. The Companys consolidated
capital structure, including the current
portion of long-term debt and short-term
borrowings as of June 30, 2002, was 55.3 percent debt, 7.0 percent preferred
securities and 37.7 percent common equity,
compared to 59.4 percent debt, 6.4 percent
preferred securities and 34.2 percent common
equity as of December 31, 2001. The Company
has a target capital structure of 50 percent
debt and 50 percent preferred and
43
AVISTA CORPORATION
common equity. The Company plans to achieve this
capital structure primarily with the
reduction of total debt and the retention of
net earnings.
Credit Ratings
The following table summarizes the Companys current credit ratings:
These security ratings are not recommendations to buy, sell or hold securities.
The ratings are subject to change or withdrawal at any time by the respective
credit rating agencies. Each credit rating should be evaluated independently
of any other rating.
Avista Energy Operations
Avista Energy funds its ongoing operations
with a combination of internally generated
cash and a bank line of credit. On June 28,
2002 Avista Energy and its subsidiary, Avista
Energy Canada, Ltd., as co-borrowers, renewed
their credit agreement with a group of banks
in the aggregate amount of $110.0 million
expiring June 30, 2003. This credit
agreement may be terminated by the banks at
any time and all extensions of credit under
the agreement are payable upon demand, in
either case at the lenders sole discretion.
This agreement also provides, on an
uncommitted basis, for the issuance of
letters of credit to secure contractual
obligations to counterparties. This facility
is guaranteed by Avista Capital and secured
by Avista Energys assets. The maximum
amount of credit extended by the banks for
the issuance of letters of credit is the
subscribed amount of the facility less the
amount of outstanding cash advances, if any.
The maximum amount of credit extended by the
banks for cash advances is $30 million. As
of June 30, 2002, there were no cash advances
(demand notes payable) outstanding and
letters of credit outstanding under the
facility totaled $30.4 million.
The Avista Energy credit agreement contains
customary covenants and default provisions,
including covenants to maintain minimum net
working capital and minimum net worth as
well as a covenant limiting the amount of
indebtedness which the co-borrowers may
incur.
Avista Capital provides guarantees for Avista
Energys credit agreement and, in the course
of business, may provide guarantees to other
parties with whom Avista Energy may be doing
business. Avista Capital had $60.9 million
of such guarantees outstanding as of June 30,
2002. Avista Capitals investment in Avista
Energy totaled $231.0 million as of June 30,
2002.
Periodically, Avista Capital may loan funds to Avista Energy to support its
short-term cash and collateral needs. These loans are subordinate to any
obligations of Avista Energy to the banks under the credit agreements. As of
June 30, 2002 there were no loans between Avista Capital and Avista Energy
outstanding.
Avista Energy manages collateral requirements with counterparties by providing
letters of credit, providing guarantees from Avista Capital and offsetting
transactions with counterparties. In addition to the letters of credit and
other items included above, cash deposited with counterparties totaled $1.8
million as of June 30, 2002, and is included in the consolidated balance sheet
in prepayments and other current assets. Avista Energy held cash deposits from
other parties in the amount of $23.1 million as of June 30, 2002, and such
amounts are subject to refund if conditions warrant because of continuing
portfolio value fluctuations with those parties.
44
AVISTA CORPORATION
As of June 30, 2002, Avista Energy had $132.8
million in cash, including the $23.1 million
of cash deposits from other parties.
Covenants in Avista Energys credit agreement
restrict the amount of cash dividends that
can be distributed to Avista Capital and
ultimately to Avista Corp. During the six
months ended June 30, 2002, in accordance
with the modified covenants of its credit
agreement, Avista Energy paid $81.1 million
in dividends to Avista Capital. Avista
Capital used the cash proceeds to pay cash
dividends and repay debt to Avista Corp.
Contractual Obligations
The Companys future contractual obligations
have not changed materially from the amounts
disclosed in the 2001 Form 10-K with the
following exceptions:
During the six months ended June 30, 2002 the Company repurchased $125.1
million of Medium-Term Notes scheduled to mature in 2003, $43.8 million of
Unsecured Senior Notes scheduled to mature in 2008 and $10.0 million of
Medium-Term Notes scheduled to mature in 2028. Subsequent to June 30, 2002,
the Company has repurchased $11.8 million of Unsecured Senior Notes scheduled
to mature in 2008 and $1.7 million of Medium-Term Notes scheduled to mature in
2003.
Short-term debt of Avista Utilities decreased
from $130.0 million as of December 31, 2001
to $112.0 million as of June 30, 2002. The
amount outstanding as of June 30, 2002 was
$55.0 million under the Companys $225.0
million line of credit and $57.0 million
under a $100.0 million accounts receivable
financing facility. Both of these credit
facilities were entered into during May 2002
and replace previous agreements that expired.
During the six months ended June 30, 2002
Avista Utilities entered into power purchase
contracts in the total amount of $54.2
million for the period 2007 through 2010.
Avista Energys contractual commitments to
purchase energy commodities in future periods
were as follows as of June 30, 2002 (dollars
in millions):
Avista Energy also has sales commitments
related to energy commodities in future
periods.
Other Commercial Commitments
The following table summarizes the Companys
other commercial commitments outstanding as
of June 30, 2002 (dollars in millions):
As of June 30, 2002, Avista Corp. did not have any commitments outstanding with
equity triggers. When the Companys corporate credit rating was reduced to
below investment grade in October 2001, additional collateral requirements due
to rating triggers were met and further requirements are not currently
anticipated. The Company
45
AVISTA CORPORATION
does not expect any material impact from rating
triggers as any remaining triggers primarily relate to changes in pricing under
certain financing agreements.
Additional Financial Data
As of June 30, 2002, the total long-term debt
of the Company and its consolidated
subsidiaries, as shown in the Companys
consolidated financial statements, was $984.6
million. Of such amount, $673.0 million
represents long-term unsecured and
unsubordinated indebtedness of the Company,
and $313.5 million represents secured
indebtedness of the Company. The unamortized
debt discount was $2.3 million. The
subsidiaries had long-term debt of $0.5
million. Consolidated long-term debt does
not include the Companys subordinated
indebtedness held by the issuers of
Company-obligated preferred trust securities.
In addition to long-term secured
indebtedness, $55.0 million of the Companys
short-term debt outstanding under or backed
by its $225.0 million committed line of
credit is secured indebtedness.
Future Outlook
Business Strategy
Avista Utilities seeks to maintain a strong,
low-cost and efficient electric and natural
gas utility business focused on providing
reliable, high quality service to its
customers. The utility business is expected
to grow modestly, consistent with historical
trends. Expansion will primarily result from
economic growth in its service territory. It
is Avista Utilities strategy to own or
control a sufficient amount of resources to
meet its retail and wholesale electric
requirements on an average annual basis.
Avista Energy works primarily within the WECC
and continues to seek to optimize its
asset-backed trading base around gas storage
and transportation and long-term electric
supply and transmission contracts. Avista
Energys marketing efforts are driven by its
base of knowledge and experience in the
operation of both electric energy and natural
gas physical systems in the WECC, as well as
its relationship-focused approach with its
customers. During 2001, the Company decided
that Avista Power would no longer pursue the
development of additional non-regulated
generation plants. Avista Labs continues
discussions with selected companies in its
search for a strategic partner while moving
forward with developing its products. Avista
Advantage remains focused on growing revenue,
improving margins, reducing fixed and
variable costs and client satisfaction. The
Company plans to dispose of assets and phase
out of operations in the Other business
segment that are not related to its energy
operations.
Business Risk
The Companys operations are exposed to
risks, including legislative and governmental
regulations, the price and supply of
purchased power, fuel and natural gas,
recovery of purchased power and natural gas
costs, weather conditions, availability of
generation facilities, competition,
technology and availability of funding. See
further discussion of risks at Safe Harbor
for Forward-Looking Statements.
As described under Avista Corp. Lines of
Business, hydroelectric conditions in 2001
were significantly below normal, leading to
greater than normal reliance on purchased
power. The earnings impact of these factors
is mitigated by regulatory mechanisms that
are intended to defer increased power supply
costs for recovery in future periods. In
order to recover deferred power costs, the
WUTC approved a temporary 25 percent electric
rate surcharge to Washington customers in
September 2001 and the IPUC approved a total
of a 19.4 percent PCA surcharge to Idaho
customers in October 2001. In December 2001,
the Company filed a general rate case with
the WUTC. In March 2002, the WUTC issued an
order approving the prudence and
recoverability of 90 percent (or $196
million) of deferred power supply costs
incurred by the Company during the period
from July 1, 2000 through December 31, 2001.
In June 2002, the WUTC issued an order with
respect to the Companys general rate case
filing. The order continues and restructures
rate increases totaling 31.2 percent
previously approved by the WUTC. The general
increase to base rates is 19.3 percent and
the remaining 11.9 percent will represent the
continued recovery of deferred power costs.
Avista Utilities is not able to fully predict
how the combination of energy resources,
energy loads, prices, rate recovery and other
factors will ultimately drive deferred power
costs and the timing of recovery of these
costs in future periods. Current estimates
and projections by the Company indicate that
deferred power costs would be recovered by
2007. See further information at Avista
Utilities Regulatory Matters.
Challenges facing Avista Utilities electric
operations include, among other things, the
timing of the recovery of deferred power and
natural gas costs, changes in the
availability of and volatility in the prices
of power and fuel, generating unit
availability, legislative and governmental
regulations, and weather conditions. Avista
Utilities believes it faces minimal risk for
stranded utility assets resulting from
deregulation, primarily due to its relatively
low-
46
AVISTA CORPORATION
cost generation portfolio. In a
deregulated environment, however, evolving
technologies that provide alternate energy
supplies could affect the market price of
power, and certain generating assets could
have capital and operating costs above the
prevailing market prices.
Natural gas commodity prices increased
dramatically during 2000 and remained at
relatively high levels during the first half
of 2001 before declining in the second half
of the year. Market prices for natural gas
continue to be competitive compared to
alternative fuel sources for residential,
commercial and industrial customers. Avista
Utilities believes that natural gas should
sustain its market advantage based on the
levels of existing reserves and potential
natural gas development in the future.
Growth has occurred in the natural gas
business in recent years due to increased
demand for natural gas in new construction,
as well as conversions from electric space
and water heating to natural gas. Challenges
facing Avista Utilities natural gas
operations include, among other things,
volatility in the price of natural gas,
changes in the availability of natural gas,
legislative and governmental regulations,
weather conditions, conservation and the
timing for recovery of increased commodity
costs. Avista Utilities natural gas
business also faces the potential for large
natural gas customers to by-pass its natural
gas system. To reduce the potential for such
by-pass, Avista Utilities prices its natural
gas services, including transportation
contracts, competitively and has varying
degrees of flexibility to price its
transportation and delivery rates by means of
individual contracts. Avista Utilities has
long-term transportation contracts with seven
of its largest industrial customers, which
reduces the risk of these customers
by-passing the system in the foreseeable
future.
Avista Energy trades electricity and natural gas, along with derivative
commodity instruments, including futures, options, swaps and other contractual
arrangements. As a result of these trading activities, Avista Energy is
subject to various risks, including commodity price risk and credit risk, as
well as possible new risks resulting from the recent imposition of market
controls by federal and state agencies. The FERC is conducting separate
proceedings related to market controls within California and within the Pacific
Northwest that include proposals by certain parties to retroactively impose
price caps. As a result, certain parties have asserted claims for significant
refunds from Avista Energy and lesser refunds from Avista Utilities which could
result in liabilities for refunding revenues recognized in prior periods.
Avista Energy and Avista Utilities have joined other parties in vigorously
opposing these proposals. If retroactive price caps were imposed, Avista
Energy and Avista Utilities could assert offsetting claims for certain
transactions.
In connection with matching loads and
resources, Avista Utilities engages in
wholesale sales and purchases of electric
capacity and energy, and, accordingly, is
also subject to commodity price risk, credit
risk and other risks associated with these
activities.
Commodity Price Risk.
Both Avista Utilities and Avista Energy are subject to
energy commodity price risk. The price of power in wholesale markets is
affected primarily by production costs and by other factors including
streamflows, the availability of hydroelectric and thermal generation and
transmission capacity, weather and the resulting retail loads, and the price of
coal, natural gas and oil to operate thermal generating units. Any combination
of these factors that resulted in a shortage of energy generally caused the
market price of power to move upward. As discussed above and in the section
Western Power Market Issues the FERC imposed a price mitigation plan in the
western United States in June 2001.
Price risk is, in general, the risk of
fluctuation in the market price of the
commodity needed, held or traded. In the
case of electricity, prices can be affected
by the adequacy of generating reserve
margins, scheduled and unscheduled outages of
generating facilities, availability of
streamflows for hydroelectric generation, the
price of thermal generating plant fuel, and
disruptions or constraints to transmission
facilities. Demand changes (caused by
variations in the weather and other factors)
can also affect market prices. Price risk
also includes the risk of fluctuation in the
market price of associated derivative
commodity instruments (such as options and
forward contracts). Price risk may also be
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. Wholesale market prices for power
and natural gas in the western United States
and western Canada were significantly higher
in 2000 and the first half of 2001 than at
any time in history, with unprecedented
levels of volatility. Prices and volatility
decreased considerably during the second half
of 2001 and the first half of 2002 relative
to 2000 and the first half of 2001.
Credit Risk.
Credit risk relates to the
risk of loss that Avista Utilities and/or
Avista Energy would incur as a result of
non-performance by counterparties of their
contractual obligations to deliver energy and
make financial settlements. 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 that relate to other market
participants that have a direct or indirect
relationship with such counterparty. Avista
Utilities and Avista Energy seek to mitigate
credit risk
47
AVISTA CORPORATION
by applying specific eligibility
criteria to existing and prospective
counterparties and by actively monitoring
current credit exposures. However, despite
mitigation efforts, defaults by
counterparties periodically occur. Avista
Energy experienced payment receipt defaults
from certain parties impacted by the
California energy crisis. Avista Energy and
Avista Corp. (through the Avista Utilities
division) have engaged in physical and
financial transactions with Enron and certain
of its affiliates and experienced disruptions
to forward contract commitments as a result
of Enrons December 2001 bankruptcy. The
Enron bankruptcy and other changes,
uncertainties and regulatory proceedings has
resulted in reduced liquidity in the energy
markets. See Enron Corporation in Note 9
of Notes to Consolidated Financial Statements
for more information.
A trend of declining credit quality has been
evident in 2002, particularly in the energy
industry. Rating agencies have downgraded
the credit ratings of several of the
counterparties of Avista Energy and Avista
Utilities. Avista Energy and Avista
Utilities regularly evaluate counterparties
credit exposure for future settlements and
delivery obligations. Avista Energy and
Avista Utilities have taken a conservative
position by reducing or eliminating open
(unsecured) credit limits for parties
perceived to have increased default risk.
Counterparty collateral is used to offset the
Companys credit risk where unsettled net
positions and future obligations by
counterparties to pay Avista Utilities and/or
Avista Energy or deliver to Avista Utilities
and/or Avista Energy warrant.
Credit risk also involves the exposure that
counterparties perceive related to
performance by Avista Utilities and Avista
Energy to perform deliveries and settlement
of energy transactions. These counterparties
may seek assurance of performance in the form
of letters of credit, prepayment or cash
deposits, and, in the case of Avista Energy,
parent company performance guarantees. In
periods of price volatility, the level of
exposure can change significantly, with the
result that sudden and significant demands
may be made against the Companys capital
resource reserves (credit facilities and
cash). Avista Utilities and Avista Energy
actively monitor the exposure to possible
collateral calls and take steps to minimize
capital requirements.
Other Operating Risks.
In addition to
commodity price risk, Avista Utilities
commodity positions are subject to
operational and event risks including, among
others, increases in load demand,
transmission or transport disruptions, fuel
quality specifications, forced outages at
generating plants and disruptions to
information systems and other administrative
tools required for normal operations. Avista
Utilities also has exposure to weather
conditions and natural disasters that can
cause physical damage to property, requiring
immediate repairs to restore utility service.
Interest Rate Risk.
The Company is subject
to the risk of fluctuating interest rates in
the normal course of business. 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. The interest rate on $40 million
of Company-Obligated Mandatorily Redeemable
Preferred Trust Securities Series B adjusts
quarterly, reflecting current market
conditions. In order to lower interest
payments during a period of declining
interest rates, Avista Corp. has entered into
an interest rate swap agreement, effective
July 17, 2002, that terminates on June 1,
2008. This interest rate swap agreement
effectively changes the interest rate on $25
million of Unsecured Senior Notes from a
fixed rate of 9.75 percent to a variable rate
based on LIBOR.
The Companys credit ratings were downgraded
during the fourth quarter of 2001 resulting
in an overall corporate credit rating that is
below investment grade. These downgrades
increased the cost of debt and other
securities going forward and may affect the
Companys ability to issue debt and equity
securities at reasonable interest rates. The
downgrades also created requirements for the
Company to provide letters of credit and/or
collateral to certain parties.
Foreign Currency Risk.
The Company has
investments in Canadian companies through
Avista Energy Canada, Ltd. and Copac
Management, Inc. The Companys exposure to
foreign currency risk and other foreign
operations risk was immaterial to the
Companys consolidated results of operations
and financial position during the six months
ended June 30, 2002 and is not expected to
change materially in the near future.
Risk Management
Risk Policies and Oversight.
Avista
Utilities and Avista Energy use a variety of
techniques to manage risks. The Company has
risk management oversight for these risks for
each area of the Companys energy-related
business. The Company has a Risk Management
Committee, separate from the units that
create such risk exposure and that is
overseen by the Audit Committee of the
Companys Board of Directors, to monitor
compliance with the Companys risk management
policies and procedures. Avista Utilities
and Avista Energy have policies and
procedures in place to manage the risks, both
quantitative and qualitative, inherent in
their businesses. The Companys Risk
Management Committee reviews the status of
risk exposures through regular reports and
meetings and it monitors compliance with the
Companys risk management policies and
procedures on a regular basis. Nonetheless,
adverse changes in
48
AVISTA CORPORATION
commodity prices, generating capacity, customer loads, and
other factors may result in losses in
earnings, cash flows and/or fair values.
Quantitative Risk Measurements.
Avista Utilities has volume limits for its
imbalance between projected loads and resources. Normal operations result in
seasonal mismatches between power loads and available resources. Avista
Utilities is able to vary the operation of its generating resources to help
match hourly, daily and weekly load fluctuations. Avista Utilities uses the
wholesale power markets to sell projected resource surpluses and obtain
resources when deficits are projected in the 24-month forward planning horizon.
Any imbalance is required to remain within limits, or management action or
decisions are triggered to address larger imbalance situations. Volume limits
for forward periods are based on monthly and quarterly averages that may vary
materially from the actual load and resource variations within any given month
or operating day. Future projections of resources are updated as forecasted
streamflows and other factors differ from prior estimates. Forward power
markets may be illiquid, and market products available may not match Avista
Utilities desired transaction size and shape. Therefore, open imbalance
positions exist at any given time.
Avista Energy measures the risk in its power
and natural gas portfolio daily utilizing a
Value-at-Risk (VAR) model, monitoring its
risk in comparison to established thresholds.
VAR measures the expected portfolio loss
under hypothetical adverse price movements,
over a given time interval within a given
confidence level. Avista Energy also
measures its open positions in terms of
volumes at each delivery location for each
forward time period. The extent of open
positions is included in the risk management
policy and is measured with stress tests and
VAR modeling.
The VAR computations are based on a
historical simulation, utilizing price
movements over a specified period to simulate
forward price curves in the energy markets to
estimate the potential unfavorable impact of
price movement in the portfolio of
transactions scheduled to settle within the
following eight calendar quarters. The
quantification of market risk using VAR
provides a consistent measure of risk across
Avista Energys continually changing
portfolio. 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 Energys VAR computations utilize
several key assumptions, including a 95
percent confidence level for the resultant
price movement and holding periods of one and
three days. The calculation includes
derivative commodity instruments held for
trading purposes and excludes the effects of
embedded physical options in the trading
portfolio.
As of June 30, 2002, Avista Energys
estimated potential one-day unfavorable
impact on gross margin was $0.4 million, as
measured by VAR, related to its commodity
trading and marketing business, compared to
$0.4 million as of December 31, 2001. The
average daily VAR for the six months ended
June 30, 2002 was $0.5 million. Avista
Energy was in compliance with its one-day VAR
limits during the six months ended June 30,
2002. 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
as of June 30, 2002.
For forward transactions that settle beyond
the immediate eight calendar quarters, Avista
Energy applies other risk measurement
techniques, including price sensitivity
stress tests, to assess the future market
risk. Volatility in longer-dated forward
markets tends to be significantly less than
near-term markets.
Spokane River Relicensing
The Company operates six hydroelectric plants on the Spokane River, and five of
these (Long Lake, Nine Mile, Upper Falls, Monroe Street and Post Falls) are
under one FERC license and called the Spokane River Project. The sixth, Little
Falls, is not licensed by the FERC. The license for the Spokane River Project
expires in August 2007; the Company filed a Notice of Intent to Relicense on
July 29, 2002. The formal consultation process involving planning and
information gathering with stakeholder groups is underway. The Companys goal
is to develop with the stakeholders a comprehensive settlement agreement to be
filed with the Companys license application in July 2005.
Clark Fork Settlement Agreement
The issue of high levels of dissolved gas which exceed Idaho water quality
standards downstream of the Cabinet Gorge Hydroelectric Generating Development
(Cabinet Gorge) during spill periods continues to be studied, as agreed to in
the Clark Fork Settlement Agreement. To date, intensive biological studies in
the lower Clark Fork River and Lake Pend Oreille have documented minimal
biological effects of high dissolved gas levels on free ranging fish. An
49
AVISTA CORPORATION
engineering feasibility study identified several possible structural
alternatives at Cabinet Gorge that may reduce dissolved gas levels. Under the
terms of the Clark Fork Settlement Agreement, the Company will develop an
abatement and/or mitigation strategy in the second half of 2002 in conjunction
with the other signatories to the agreement. The Company believes that any
costs for modification of Cabinet Gorge would be capitalized and recovered in
future period through retail rates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Liquidity and Capital Resources:
Business Risk.
Avista Corp. is an energy company involved in the generation, transmission and
distribution of energy as well as other energy-related businesses. The utility
portion of the Company, doing business as Avista Utilities, an operating
division of Avista Corp. and not a separate entity, provides electric and
natural gas service to customers in four western states and is subject to state
and federal regulation. Avista Capital, a wholly owned subsidiary of Avista
Corp., is the parent company of all of the subsidiary companies engaged in the
other non-utility lines of business.
The consolidated financial statements include the assets, liabilities, revenues
and expenses of the Company and its subsidiaries. The accompanying financial
statements include the Companys proportionate share of utility plant and
related operations resulting from its interests in jointly owned plants.
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect amounts
reported in the consolidated financial statements. Changes in these estimates
and assumptions are considered reasonably possible and may have a material
impact on the consolidated financial statements and thus actual results could
differ from the amounts reported and disclosed herein.
Financial information for each of the Companys lines of business is reported
in the Schedule of Information by Business Segments. Such information is an
integral part of these consolidated financial statements. The business segment
presentation reflects the basis currently used by the Companys management to
analyze performance and determine the allocation of resources. Avista
Utilities business is managed based on the total regulated utility operation.
The Energy Trading and Marketing line of business operations primarily include
non-regulated electricity and natural gas marketing and trading activities
including derivative commodity instruments such as futures, options, swaps and
other contractual arrangements. The Information and Technology line of
business operations includes utility internet billing services and fuel cell
technology. The Other line of business includes other investments and
operations of various subsidiaries as well as the operations of Avista Capital
on a parent company only basis.
Operating revenues are recorded on the basis of service rendered, which
includes estimated unbilled revenue. Avista Energy follows the mark-to-market
method of accounting for energy contracts entered into for trading and price
risk
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Intersegment eliminations represent the transactions between Avista Utilities
and Avista Energy for energy commodities and services.
Other income-net consisted of the following (dollars in thousands):
Three months
Six months
ended June 30,
ended June 30,
2002
2001
2002
2001
$
1,898
$
8,276
$
4,111
$
12,834
2,407
2,850
5,443
4,471
(601
)
1,291
1,702
3,443
90
544
241
846
(290
)
(1,498
)
(783
)
(2,912
)
$
3,504
$
11,463
$
10,714
$
18,682
The Company prepares its consolidated financial statements in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation. The Company
prepares its financial statements in accordance with SFAS No. 71 because (i)
the Companys 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 Companys 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 can be charged to and
collected from customers at levels that will recover the Companys costs. SFAS
No. 71 requires the Company to reflect the impact of regulatory decisions in
its financial statements. SFAS No. 71 requires that certain costs and/or
obligations (such as incurred power and natural gas costs not currently
recovered through rates, but expected to be recovered in the future) are
reflected as deferred charges on the balance sheet. These costs and/or
obligations are not reflected in the statement of income until the period
during which 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 SFAS No. 71 with respect to all or a portion of the Companys
regulated operations, the Company could be required to write off its regulatory
assets. The Company could also be precluded from the future deferral 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.
June 30,
December 31,
2002
2001
$
53,258
$
157,529
4,964
5,200
26,730
28,813
615
1,218
$
85,567
$
192,760
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Avista Utilities received regulatory approval of its Natural Gas Benchmark
Mechanism in 1999 from the Idaho Public Utilities Commission (IPUC), Washington
Utilities and Transportation Commission (WUTC) and Oregon Public Utilities
Commission (OPUC). The mechanism eliminated the majority of natural gas
procurement operations within Avista Utilities and consolidated gas procurement
operations under Avista Energy, the Companys non-regulated affiliate. The
ownership of the natural gas assets remains with Avista Utilities; however, the
assets are managed by Avista Energy through an Agency Agreement. Avista
Utilities continues to manage natural gas procurement for its California
operations, which currently represents approximately four percent of its total
natural gas therm sales.
Avista Utilities defers the recognition in the income statement of certain
power supply costs as approved by the WUTC. Deferred power supply costs are
recorded as a deferred charge on the balance sheet for future review and the
opportunity for recovery through retail rates. The specific power costs
deferred include certain differences between actual power supply costs incurred
by Avista Utilities and the costs included in base retail rates. This
difference in power supply costs primarily results from changes in short-term
wholesale market prices, changes in the level of hydroelectric generation and
changes in the level of thermal generation (including changes in fuel prices).
Total deferred power costs were $116.3 million for Washington customers as of
June 30, 2002, a decrease from $140.2 million as of December 31, 2001.
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Under established regulatory practices in each respective state, Avista
Utilities is allowed to adjust its natural gas rates periodically with
appropriate regulatory approval 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. Total
deferred natural gas costs were $21.3 million as of June 30, 2002, a decrease
from $52.7 million as of December 31, 2001.
Certain prior period amounts were 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 equity.
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Avista Utilities sells and purchases electric capacity and energy at wholesale
to and from utilities and other entities under long-term contracts having terms
of more than one year. In addition, Avista Utilities engages in an ongoing
process of resource optimization which involves short-term purchases and sales
in the wholesale market in pursuit of an economic selection of resources to
serve retail and wholesale loads. Avista Utilities makes continuing
projections of (1) future retail and wholesale loads based on, among other
things, forward estimates of factors such as customer usage and weather as well
as historical data and contract terms and (2) resource availability based on,
among other things, estimates of streamflows, generating unit availability,
historic and forward market information and experience. On the basis of these
continuing projections, Avista Utilities purchases and sells energy on a
quarterly, monthly, daily and hourly basis to match actual resources to actual
energy requirements and sells any surplus at the best available price. This
process includes hedging transactions.
Avista Energy purchases natural gas and electricity 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 Energys 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 trades natural
gas and electricity derivative commodity 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 positions
expose Avista Energy to the risk that fluctuating market prices may adversely
impact its financial condition or results of operations. However, the net open
position is actively managed with strict policies designed to limit the
exposure to market risk and requires daily reporting to management of potential
financial exposure.
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Fixed
Fixed
Maximum
Index
Index
Maximum
Price
Price
Terms in
Price
Price
Terms in
Payor
Receiver
Years
Payor
Receiver
Years
113,559
108,247
8
876,502
904,575
3
90,841
88,005
15
320
21
3
Estimated Fair Value
Average Estimated Fair Value for the
as of June 30, 2002
six months ended June 30, 2002
Current
Long-term
Current
Long-term
Current
Long-term
Current
Long-term
Assets
Assets
Liabilities
Liabilities
Assets
Assets
Liabilities
Liabilities
$
231,010
$
54,673
$
204,261
$
42,413
$
161,601
$
63,664
$
139,633
$
42,506
232,450
276,520
162,833
234,121
257,698
293,571
179,196
245,574
$
463,460
$
331,193
$
367,094
$
276,534
$
419,299
$
357,235
$
318,829
$
288,080
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In 1997, Avista Receivables Corp. (ARC), formerly known as WWP Receivables
Corp., was formed 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. On May 29,
2002, ARC, the Company and a third-party financial institution entered into a
three-year agreement whereby ARC can sell without recourse, on a revolving
basis, up to $100.0 million of those receivables. ARC is obligated to pay fees
that approximate the purchasers 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. As of
June 30, 2002 and December 31, 2001, $57.0 million and $75.0 million,
respectively, in accounts receivables were sold.
On May 21, 2002, the Company entered into a committed line of credit with
various banks in the total amount of $225.0 million. The committed line of
credit expires on May 20, 2003 and replaces the $220.0 million committed line
of credit that expired on May 29, 2002. As of June 30, 2002, the Company had
borrowed $55.0 million under this committed line of credit. Under this
committed line of credit, the Company may have up to $50.0 million in letters
of credit outstanding. As of June 30, 2002, there were $15.1 million of
letters of credit outstanding. The Companys obligation under the committed
line of credit is secured with First Mortgage Bonds in the amount of the
commitment.
On June 28, 2002 Avista Energy and its subsidiary, Avista Energy Canada, Ltd.,
as co-borrowers, renewed their credit agreement with a group of banks in the
aggregate amount of $110.0 million, expiring June 30, 2003. This credit
agreement may be terminated by the banks at any time and all extensions of
credit under the agreement are payable upon demand, in either case at the
lenders sole discretion. This agreement also provides, on an uncommitted
basis, for the issuance of letters of credit to secure contractual obligations
to counterparties. This facility is guaranteed by Avista Capital and secured
by Avista Energys assets. The maximum amount of credit extended by the banks
for the issuance of letters of credit is the subscribed amount of the facility
less the amount of outstanding cash advances, if any. The maximum amount of
credit extended by the banks for cash advances is $30 million. No cash
advances were outstanding as of June 30, 2002. Letters of credit in the
aggregate amount of $30.4 million were outstanding as of June 30, 2002.
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In order to lower interest payments during a period of declining interest
rates, Avista Corp. has entered into an interest rate swap agreement effective
July 17, 2002 and terminating on June 1, 2008. This interest rate swap
agreement effectively changes the interest rate on $25 million of Unsecured
Senior Notes from a fixed rate of 9.75 percent to a variable rate based on
LIBOR. This interest rate swap agreement has been designated as a fair value
hedge, which hedges the variability of the fair value of the long-term debt
attributable to interest rate risk. This interest rate swap meets the
conditions of a highly effective fair value hedge in accordance with SFAS No.
133. As such, this hedge will be accounted for by recording the fair value of
the interest rate swap on the balance sheet as either an asset or liability
with a corresponding offset recorded to mark the Unsecured Senior Notes to fair
value.
Rathdrum Power, LLC (Rathdrum), an unconsolidated entity that is 49 percent
owned by Avista Power, operates a 270 MW natural gas-fired combustion turbine
plant in northern Idaho. As of June 30, 2002, Rathdrum had $119.4 million of
debt outstanding that is not included in the consolidated financial statements
of the Company. There is no recourse to the Company with respect to this debt.
Rathdrum has entered into two interest rate swap agreements, maturing in 2006,
to manage the risk that changes in interest rates may affect the amount of
future interest payments. Rathdrum agreed to pay fixed rates of interest with
the differential paid or received under the interest rate swap agreements
recognized as an adjustment to interest expense. These interest rate swap
agreements are considered hedges against fluctuations in future cash flows
associated with changes in interest rates in accordance with SFAS No. 133. The
fair value of the interest rate swap agreements was determined by reference to
market values obtained from various third party sources. As Avista Powers 49
percent ownership interest in Rathdrum is accounted for under the equity method
of accounting, the effect on the financial statements for the three and six
months ended June 30, 2002 is a $0.3 million unrealized loss recorded as other
comprehensive loss and a corresponding decrease in non-utility property and
investments in the Consolidated Balance Sheet.
Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
$
9,331
$
25,980
$
24,851
$
58,101
1,014
(3,255
)
742
(5,973
)
10,345
22,725
25,593
52,128
(4,148
)
10,345
22,725
21,445
52,128
608
608
1,216
1,216
$
9,737
$
22,117
$
20,229
$
50,912
47,774
47,372
47,723
47,305
2
6
3
6
81
114
83
41
47,857
47,492
47,809
47,352
$
0.18
$
0.54
$
0.49
$
1.21
0.02
(0.07
)
0.02
(0.13
)
0.20
0.47
0.51
1.08
(0.09
)
$
0.20
$
0.47
$
0.42
$
1.08
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Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
$
3,964
$
2,994
$
7,763
$
5,865
$
(1,894
)
$
(4,492
)
$
(4,308
)
$
(8,606
)
$
(1,354
)
$
(2,988
)
$
(2,646
)
$
(5,855
)
$
66
$
148
$
216
$
252
$
(4,166
)
$
(4,203
)
$
(6,873
)
$
(7,296
)
$
(2,961
)
$
(2,739
)
$
(4,417
)
$
(4,858
)
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changes in the utility regulatory environment in the individual states in which the Company operates and the western United
States in general
the impact of regulatory and legislative decisions, including FERC price controls, and including possible retroactive price
caps and resulting refunds
the availability and prices of purchased energy, volatility and illiquidity in wholesale energy markets
wholesale and retail competition (including but not limited to electric retail wheeling and transmission costs)
future streamflow conditions and the impact on the availability of hydroelectric resources
outages at any Company owned generating facilities
changes in future demand, either due to weather conditions or customer growth
failure to deliver on the part of any parties from which the Company purchases capacity or energy
changes in the creditworthiness of customers and energy trading counterparties
the Companys ability to obtain financing through debt and/or equity issuances
the outcome of the proposed Montana Hydroelectric Security Act Initiative (See Note 9 of the Notes to Consolidated Financial
Statements)
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Washington
Idaho
Total
$
34,580
$
2,693
$
37,273
167,196
73,677
240,873
8,232
4,077
12,309
16,027
5,643
21,670
(53,794
)
(6,927
)
(60,721
)
(10,223
)
(6,076
)
(16,299
)
(21,780
)
(21,780
)
140,238
73,087
213,325
4,172
2,155
6,327
(5,991
)
(2,967
)
(8,958
)
3,467
1,112
4,579
(13,856
)
(13,856
)
(25,598
)
(12,821
)
(38,419
)
$
116,288
$
46,710
$
162,998
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Natural Gas
Electric
Total
Assets and
Assets and
Unrealized Gain
Liabilities
Liabilities
(Loss) (4)
$
38,392
$
148,325
$
186,717
(25,507
)
(38,024
)
(63,531
)
26,124
1,715
27,839
$
39,009
$
112,016
$
151,025
(1)
Contracts settled during the six months ended June 30, 2002 include those
contracts that were open in 2001 but settled during the six months ended
June 30, 2002 as well as new contracts entered into and settled during the
six months ended June 30, 2002. Amount represents realized gains
associated with these settled transactions.
(2)
Avista Energy has not entered into any origination transactions during
2002 in which dealer profit or mark-to-market gain or loss was recorded at
inception.
(3)
During the six months ended June 30, 2002, Avista Energy did not
experience a change in fair value as a result of changes in valuation
techniques.
(4)
Change in unrealized gain (loss) does not reconcile to totals for the
Energy Trading and Marketing segment due to an intercompany elimination
between Avista Energy and Avista Power related to Avista Energys contract
for the output from a generation plant that is 49 percent owned by Avista
Power.
Greater
Greater
than one
than three
Greater
Less than
and less than
and less than
than
one year
three years
five years
five years
Total
$
11,809
$
12,464
$
$
$
24,273
14,941
(2,287
)
1,196
886
14,736
$
26,750
$
10,177
$
1,196
$
886
$
39,009
$
75,205
$
37,538
$
$
$
112,743
(5,589
)
683
6,372
(2,193
)
(727
)
$
69,616
$
38,221
$
6,372
$
(2,193
)
$
112,016
(1)
The fair value is determined based upon actively traded,
over-the-counter market quotes received from third party brokers. For
natural gas assets and liabilities, these market quotes are generally
available through three years. For electric assets and liabilities, these
market quotes are generally available through two years.
(2)
Represents contracts for delivery at basis locations not actively traded
in the over-the-counter markets. In addition, this includes all
contracts with a delivery period greater than three years, for which
active quotes are not available. These internally developed market curves
are based upon published New York Mercantile Exchange prices through seven
years, as well as basis spreads using historical and broker estimates.
After seven years, an escalation is used to estimate the valuation.
(3)
Represents contracts for delivery at basis locations not actively traded
in the over-the-counter markets. In addition, this includes all
contracts with a delivery period greater than two years, for which active
quotes are not available. These internally developed market curves are
determined using a production cost model with inputs for assumptions
related to power prices (including, without limitation, natural gas
prices, generation on line, transmission constraints, future demand and
weather).
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Standard
& Poor's
Moody's
Fitch, Inc.
*
Only assets are subordinated debentures of Avista Corporation
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Greater
Greater
than one
than three
Greater
Less than
and less than
and less than
than
one year
three years
five years
five years
Total
$
763
$
577
$
284
$
357
$
1,981
984
238
1,222
$
1,747
$
815
$
284
$
357
$
3,203
Commitment
Commitment
Outstanding
Expiration
$
48
2003
$
61
(1)
Represents letters of credit issued
under the $110.0 million credit
agreement at Avista Energy and the $50.0
million available for letters of credit
under Avista Corp.s $225.0 million line
of credit. As of June 30, 2002, letters
of credit totaled $30.4 million at
Avista Energy and $15.1 million at
Avista Corp. and primarily relate to
energy purchase contracts. Also
includes $3.0 million of other letters
of credit that are backed by cash
deposits.
(2)
The face value of all performance
guarantees issued by Avista Capital for
energy trading contracts at Avista
Energy was approximately $771.7 million
as of June 30, 2002. At any point in
time, Avista Capital is only liable for
the outstanding portion of the
guarantee, which was $60.9 million as of
June 30, 2002. Most guarantees do not
have set expiration dates; however,
either party may terminate the guarantee
at any time with minimal written notice.
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Part II. Other Information
Item 1. Legal Proceedings
See Note 9 of the Notes to Consolidated Financial Statements, which is incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The 2002 Annual Meeting of Shareholders of Avista Corp. was held on May 9,
2002. The election of three directors with expiring terms was the only matter
voted upon at the meeting. There were 47,734,097 shares of common stock issued
and outstanding as of March 19, 2002, the proxy record date, with 41,812,629
shares represented at said meeting. The results of the voting are shown below:
Against or
Term
Director
For
Withheld
Expires
40,727,796
1,084,833
2005
40,739,804
1,072,825
2005
40,421,476
1,391,153
2005
50
AVISTA CORPORATION
Item 6. Exhibits and Reports on Form 8-K
(a) | Exhibits. |
4(d) | Credit Agreement, dated as of May 21, 2002, among Avista Corporation, the Banks Party Hereto, Keybank and Washington Mutual Bank, as Co-Agents, U.S. Bank, National Association, as Managing Agent, Fleet National Bank and Wells Fargo Bank, as Documentation Agents, Union Bank of California, N.A., as Syndication Agent and The Bank of New York, as Administrative Agent and Issuing Bank. | |
4(e) | Receivables Purchase Agreement, dated as of May 29, 2002, among Avista Receivables Corp., as Seller, Avista Corporation, as initial Servicer and Eaglefunding Capital Corporation, as Conduit Purchaser and Fleet National Bank, as Committed Purchaser and Fleet Securities, Inc. as Administrator | |
4(f) | Thirtieth Supplemental Indenture, dated as of May 1, 2002. | |
12 | Computation of ratio of earnings to fixed charges and preferred dividend requirements. | |
99(a) | Statements of Corporate Officers (Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) |
(b) | Reports on Form 8-K. | ||
Dated May 21, 2002 with respect to a Settlement Stipulation on the remaining issues of the Washington electric rate case, new financing agreements and the issuance of a FERC order. | |||
Dated May 22, 2002 with respect to the responses of Avista Corp. and Avista Energy to the FERC regarding certain trading strategies in California markets during 2000 and 2001. | |||
Dated June 13, 2002 with respect to a shareholder lawsuit, a subpoena issued to Avista Corp. by the U.S. Commodity Futures Trading Commission and the WUTC order on the Washington electric rate case. | |||
Dated June 14, 2002 with respect to Avista Corp.s response to a FERC order. |
51
AVISTA CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AVISTA CORPORATION
(Registrant) |
||
Date: August 12, 2002 | /s/ Jon E. Eliassen | |
|
||
Jon E. Eliassen
Senior Vice President and
Chief Financial Officer (Principal Accounting and Financial Officer) |
52
EXHIBIT 4(d)
EXECUTION COPY
CREDIT AGREEMENT
dated as of May 21, 2002
among
AVISTA CORPORATION,
THE BANKS PARTY HERETO,
KEYBANK and WASHINGTON MUTUAL BANK,
as Co-Agents,
U.S. BANK, NATIONAL ASSOCIATION
as Managing Agent,
FLEET NATIONAL BANK and WELLS FARGO BANK,
as Documentation Agents,
UNION BANK OF CALIFORNIA, N.A.,
as Syndication Agent,
and
THE BANK OF NEW YORK,
as Administrative Agent and Issuing Bank
BNY CAPITAL MARKETS, INC. and UNION BANK OF CALIFORNIA, N.A.
Lead Arrangers and Book Managers
TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS........................................................................1 Section 1.01 Defined Terms..................................................1 Section 1.02 Terms Generally...............................................11 ARTICLE II THE CREDITS.......................................................................12 Section 2.01 Commitments...................................................12 Section 2.02 Loans.........................................................12 Section 2.03 Notice of Borrowings..........................................13 Section 2.04 Repayment of Loans; Evidence of Debt..........................14 Section 2.05 Letters of Credit.............................................14 (a) General.......................................................14 (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions............................................15 (c) Expiration Date...............................................15 (d) Participations................................................15 (e) Reimbursement.................................................15 (f) Obligations Absolute..........................................16 (g) Disbursement Procedures.......................................17 (h) Interim Interest..............................................17 (i) Cash Collateralization........................................17 Section 2.06 Fees..........................................................18 Section 2.07 Interest on Loans.............................................18 Section 2.08 Default Interest..............................................19 Section 2.09 Alternate Rate of Interest....................................19 Section 2.10 Termination, Reduction and Extension of Commitments...........20 Section 2.11 Prepayment....................................................20 Section 2.12 Reserve Requirements; Change in Circumstances.................20 Section 2.13 Change in Legality............................................22 Section 2.14 Indemnity.....................................................22 Section 2.15 Pro Rata Treatment............................................23 |
Section 2.16 Sharing of Setoffs............................................23 Section 2.17 Payments......................................................23 Section 2.18 Taxes.........................................................24 Section 2.19 Termination or Assignment of Commitments Under Certain Circumstances.........................................26 ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................27 Section 3.01 Organization; Powers..........................................27 Section 3.02 Authorization.................................................27 Section 3.03 Enforceability................................................27 Section 3.04 Governmental Approvals........................................28 Section 3.05 Financial Statements..........................................28 Section 3.06 No Material Adverse Change....................................28 Section 3.07 Litigation; Compliance with Laws..............................28 Section 3.08 Federal Reserve Regulations...................................28 Section 3.09 Investment Company Act; Public Utility Holding Company Act....29 Section 3.10 No Material Misstatements.....................................29 Section 3.11 Employee Benefit Plans........................................29 Section 3.12 Environmental and Safety Matters..............................29 Section 3.13 Significant Subsidiaries......................................30 ARTICLE IV CONDITIONS TO BORROWINGS AND LETTERS OF CREDIT....................................30 Section 4.01 All Borrowings and Letters of Credit..........................30 Section 4.02 First Borrowing or Letter of Credit...........................31 ARTICLE V AFFIRMATIVE COVENANTS.............................................................33 Section 5.01 Existence; Businesses and Properties..........................33 Section 5.02 Insurance.....................................................33 Section 5.03 Taxes and Obligations.........................................34 Section 5.04 Financial Statements, Reports, etc............................34 |
Section 5.05 Litigation and Other Notices..................................35 Section 5.06 ERISA.........................................................35 Section 5.07 Maintaining Records; Access to Properties and Inspections.....36 Section 5.08 Use of Proceeds and Letters of Credit.........................36 Section 5.09 Notes Credit Support..........................................36 ARTICLE VI NEGATIVE COVENANTS................................................................36 Section 6.01 Liens.........................................................36 Section 6.02 Sale-Leaseback Transactions...................................39 Section 6.03 Mergers, Consolidations and Acquisitions......................39 Section 6.04 Disposition of Assets.........................................40 Section 6.05 Consolidated Total Debt to Consolidated Total Capitalization Ratio..........................................41 Section 6.06 Avista Utilities Interest Coverage Ratio......................41 Section 6.07 Public Utility Regulatory Borrowing Limits....................41 Section 6.08 Avista Energy Guarantees......................................41 Section 6.09 Investments...................................................41 ARTICLE VII EVENTS OF DEFAULT.................................................................41 ARTICLE VIII THE ADMINISTRATIVE AGENT..........................................................44 Section 8.01 Appointment and Powers........................................44 Section 8.02 Limitation on Liability.......................................45 Section 8.03 Other Transactions with the Borrower..........................46 Section 8.04 Reimbursement; Indemnification................................46 Section 8.05 Absence of Reliance...........................................46 Section 8.06 Syndication Agent; Documentation Agents; Managing Agent; Co-Agents..............................................47 ARTICLE IX MISCELLANEOUS.....................................................................47 Section 9.01 Notices.......................................................47 |
Section 9.02 Survival of Agreement.........................................48 Section 9.03 Binding Effect; Successors and Assigns........................48 Section 9.04 Successors and Assigns........................................48 Section 9.05 Expenses; Indemnity...........................................51 Section 9.06 Right of Setoff...............................................52 Section 9.07 Applicable Law................................................52 Section 9.08 Waivers; Amendment............................................52 Section 9.09 Interest Rate Limitation......................................53 Section 9.10 Entire Agreement..............................................53 Section 9.11 Waiver of Jury Trial..........................................53 Section 9.12 Severability..................................................54 Section 9.13 Counterparts..................................................54 Section 9.14 Headings......................................................54 Section 9.15 Jurisdiction; Consent to Service of Process...................54 |
Exhibit A Form of Note Exhibit B Form of Assignment and Assumption Exhibit C Form of Administrative Questionnaire Schedule 2.01 Names, Commitments, Addresses of Initial Banks Schedule 3.13 Significant Subsidiaries Schedule 4.02(a)(ii) Required Governmental Approvals Schedule 6.01 Existing Secured Indebtedness |
CREDIT AGREEMENT dated as of May 21, 2002, among AVISTA CORPORATION, a Washington corporation, the Banks listed in Schedule 2.01, KEYBANK and WASHINGTON MUTUAL BANK, as Co-Agents, U.S. BANK, NATIONAL ASSOCIATION, as Managing Agent, FLEET NATIONAL BANK and WELLS FARGO BANK, as Documentation Agents, UNION BANK OF CALIFORNIA, N.A., as Syndication Agent, and THE BANK OF NEW YORK, as Administrative Agent and Issuing Bank.
The Borrower has requested that the Banks agree to make loans and buy participations in letters of credit issued by the Issuing Bank on a revolving credit basis during the period commencing with the date hereof and ending on the Expiration Date (as defined herein) in an aggregate principal amount not in excess of $225,000,000 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 Agent" shall mean The Bank of New York, as administrative agent for the Banks and the Issuing Bank under the Loan Documents, and any successor Administrative Agent appointed pursuant to Section 8.06.
"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 indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.
"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 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 Administrative 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. 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.
"Applicable Rate" shall mean on any date (a) with respect to Eurodollar Loans, ABR Loans or the LC Participation Fee, the rate per annum set forth in the following table in the "Eurodollar Margin", "ABR Margin" or "LC Participation Fee" column, as applicable, for the Pricing Level in effect for such date and (b) with respect to the Commitment Fee, the rate per annum set forth in the following table in the "Commitment Fee" column for the applicable Usage as of such date, for the Pricing Level in effect on such date.
--------------------------------------------------------------------------------------------------------------------- Commitment Fee Commitment Fee (> 33.33% but Pricing (less than or equal to less than or equal to Commitment Fee Eurodollar LC Participation ABR Levels 33.33% Usage) 50.0% Usage) (> 50.0% Usage) Margin Fee Margin --------------------------------------------------------------------------------------------------------------------- I 0.250% 0.200% 0.150% 1.250% 1.250% 0.250% --------------------------------------------------------------------------------------------------------------------- II 0.375% 0.250% 0.200% 1.500% 1.500% 0.500% --------------------------------------------------------------------------------------------------------------------- III 0.500% 0.375% 0.250% 1.750% 1.750% 0.750% --------------------------------------------------------------------------------------------------------------------- IV 0.625% 0.500% 0.375% 2.000% 2.000% 1.000% --------------------------------------------------------------------------------------------------------------------- V 0.750% 0.625% 0.500% 2.500% 2.500% 1.500% --------------------------------------------------------------------------------------------------------------------- |
For purposes of the foregoing table:
"Pricing Level I" will be applicable for so long as (i) the Senior Debt Rating is BBB+ or higher by S&P and (ii) the Senior Debt Rating is Baa1 or higher by Moody's;
"Pricing Level II" will be applicable for so long as (i) the Senior Debt Rating is BBB or higher by S&P, (ii) the Senior Debt Rating is Baa2 or higher by Moody's and (iii) Pricing Level I is not applicable;
"Pricing Level III" will be applicable for so long as (i) the Senior Debt Rating is BBB- or higher by S&P, (ii) the Senior Debt Rating is Baa3 or higher by Moody's and (iii) Pricing Levels I and II are not applicable;
"Pricing Level IV" will be applicable for so long as (i) the Senior Debt Rating is BB+ or higher by S&P, (ii) the Senior Debt Rating is Ba1 or higher by Moody's and (iii) Pricing Levels I, II, and III are not applicable;
"Pricing Level V" will be applicable for so long as (i) the Senior Debt Rating is less than BB+ by S&P or there is no Senior Debt Rating by S&P or (ii) the Senior Debt Rating less than Ba1 by Moody's or there is no Senior Debt Rating by Moody's; and
"Usage" shall mean the percentage equivalent to the quotient of (i) total Revolving Credit Exposure divided by (ii) total Commitments.
If the Senior Debt 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 Assumption" shall mean an assignment and assumption agreement entered into by a Bank and an assignee in the form of Exhibit B or such other form as shall be approved by the Administrative Agent.
"Attributable Debt" shall mean, in connection with any Sale-Leaseback, the present value (discounted in accordance with GAAP at the discount rate implied in the lease) of the obligations of the lessee for rental payments during the term of the lease.
"Availability Period" shall mean the period from and including the date of this Agreement to but excluding the Expiration Date.
"Avista Utilities" means the operating division of the Borrower which represents all the regulated utility operations of the Borrower that are responsible for retail electric and natural gas distribution, electric transmission services and electric generation and production.
"Avista Utilities EBITDA" means, for any period, (a) Avista Utilities Net Income for such period plus (b) in each case, without duplication and to the extent deducted in computing Avista Utilities Net Income for such period, the sum for such period of (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) any extraordinary or non-recurring losses and (v) other non-cash items reducing such Avista Utilities Net Income for such period, minus (c) in each case, without duplication and to the extent added in computing Avista Net Income for such period, the sum of for such period of (i) any extraordinary or non-recurring gains and (ii) other non-cash items increasing Avista Utilities Net Income for such period, all as determined in accordance with GAAP, plus (d) for any period including the fiscal quarter ended December 31, 2001, $20,600,000 of power cost deferrals deducted in computing Avista Utilities Net Income for such fiscal quarter but incurred with respect to prior fiscal quarters.
"Avista Utilities Interest Expense" means, for any period, interest expense of Avista Utilities for such period determined in accordance with GAAP.
"Avista Utilities Net Income" means, for any period, the net income or loss of Avista Utilities for such period determined in accordance with GAAP.
"Bank" shall mean (a) any person listed on Schedule 2.01 and (b) any person that has been assigned any or all of the rights or obligations of a Bank pursuant to Section 9.04.
"Board" shall mean the Board of Governors of the Federal Reserve System of the United States.
"Bond Delivery Agreement" shall mean the Bond Delivery Agreement, dated as of the date of this Agreement, between the Borrower and the Administrative Agent.
"Borrower" shall mean Avista Corporation, a Washington corporation, and its successors and assigns.
"Borrowing" shall mean a group of Loans of the same Type made on the same date and, in the case of Eurodollar Loans, 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; provided that when used in connection with a Eurodollar Loan the term "Business Day" shall also exclude any day on which banks are not open for dealings in deposits in dollars in the London interbank market.
"Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, 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.
"Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; provided, that no event described in clause (a) or clause (b) shall constitute a "Change in Control" if the senior secured long-term debt rating of the Borrower shall be at least BBB- or higher by S&P and Baa3 or higher by Moody's immediately after giving effect to the transaction that would otherwise constitute a Change in Control.
"Code" shall mean the Internal Revenue Code of 1986, as the same maybe amended from time to time.
"Commitment" shall mean, with respect to each Bank, (a) (i) in the case
of a Bank listed on Schedule 2.01, the amount set forth opposite such Bank's
name under the heading "Commitment" on such Schedule and (ii) in the case of a
Bank that becomes a Bank pursuant to an assignment under Section 9.04, the
amount specified as assigned to such Bank in the Assignment and Assumption
pursuant to which such Bank becomes a Bank, in each case, as the same may be
reduced from time to time pursuant to Section 2.10(b), or reduced or increased
from time to time pursuant to assignments in accordance with Section 9.04, or
(b) as the context
may require, the obligation of such Bank to make Loans or acquire participations in Letters of Credit in an aggregate unpaid principal amount not exceeding such amount.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Consolidated Total Capitalization" on any date means the sum, without duplication, of the following with respect to the Borrower and its consolidated subsidiaries: (a) total capitalization as of such date, as determined in accordance with GAAP, (b) the current portion of liabilities which as of such date would be classified in whole or part as long-term debt in accordance with GAAP (it being understood that the noncurrent portion of such liabilities is included in the total capitalization referred to in clause (a)), (c) all obligations as lessee which, in accordance with GAAP, are capitalized as liabilities (including the current portion thereof), and (d) all other liabilities which would be classified as short-term debt in accordance with GAAP.
"Consolidated Total Debt" on any date means the sum, without duplication, of the following with respect to the Borrower and its consolidated subsidiaries: (a) all liabilities which as of such date would be classified in whole or in part as long-term debt in accordance with GAAP (including the current portion thereof), (b) all obligations as lessee which, in accordance with GAAP, are capitalized as liabilities (including the current portion thereof), (c) all other liabilities which would be classified as short-term debt in accordance with GAAP, and (d) all Guarantees of or by the Borrower.
"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.
"dollars" or "$" shall mean lawful money of the United States of America.
"Equity Interests" shall mean shares of stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a person, and all options, warrants or other rights to acquire any such equity ownership interests in a person.
"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, for any Interest Period, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available for any Interest Period, "Eurodollar Rate" shall mean, for such Interest Period, the arithmetic mean (rounded upward, if necessary, to the nearest 1/16 of 1%) of the rates quoted by major banks in New York City selected by the Administrative Agent and reasonably acceptable to the Borrower at approximately 11:00 a.m. (New York City time) two Business Days prior to the first day of such Interest Period for loans in dollars to leading European banks for a term comparable to such Interest Period commencing on the first day of such Interest Period and in an amount of $1,000,000.
"Event of Default" shall have the meaning assigned to such term in Article VII.
"Existing Credit Agreement" shall mean the Amended and Restated Credit Agreement dated as of May 31, 2001 among Avista Corporation, the banks listed in Schedule 2.01 thereof, Toronto Dominion (Texas), Inc., as agent for the banks, and The Bank of New York, as documentation agent, as the same has been amended, modified or supplemented to date.
"Existing LC Exposure" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Existing Letters of Credit at such time plus (b) the aggregate amount of all unreimbursed drawings under Existing Letters of Credit at such time.
"Existing Letters of Credit" shall mean all letters of credit issued and outstanding under the Existing Credit Agreement as of the date of this Agreement.
"Expiration Date" shall mean May 20, 2003.
"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 Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"Fees" shall mean the Commitment Fee and the other fees referred to in
Section 2.06.
"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.
"First Mortgage Bond" shall mean a bond of the Twenty-Eighth Series issued under the Supplemental Indenture, in a principal amount equal to the total Commitments on the date of this Agreement, payable to the Administrative Agent.
"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 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 (a) in the case of any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and (b) in addition, in the case of a Eurodollar Loan that is part 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.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, and (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing and ending on the earlier of (i) the next succeeding March 31, June 30, September 30 or December 31 and (ii) the Expiration Date; 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.
"Investment" by any person shall mean (a) the purchase or other
acquisition of any Equity Interest in any other person, (b) any loan, advance or
extension of credit to any other person, (c) any contribution to the capital of
any other person, (d) any Guarantee of the Liabilities of any other person or
(e) any other investment in any other person.
"Issuing Bank" shall mean The Bank of New York in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity. 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 Pro Rata Share of the total LC Exposure at such time.
"LC Participation Fee" shall have the meaning assigned to such term in
Section 2.06(b).
"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 with respect to such securities.
"Loan Documents" shall mean this Agreement, the First Mortgage Bond, the First Mortgage, the Supplemental Indenture, the Bond Delivery Agreement, any Notes, and any letter of credit applications executed and delivered by the Borrower in connection with Letters of Credit.
"Loans" shall mean loans made by the Banks to the Borrower pursuant to this Agreement.
"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 any promissory notes of the Borrower, substantially
in the form of Exhibit A, evidencing Loans, as may be delivered pursuant to
Section 2.04.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
"person" shall mean a corporation, association, partnership, trust, limited liability company, 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" means the prime U.S. commercial lending rate of The Bank of New York, as publicly announced to be in effect from time to time. The Prime Rate shall be adjusted automatically, without notice, on the effective date of any change in such prime U.S. commercial lending rate. The Prime Rate is not necessarily The Bank of New York's lowest rate of interest.
"Pro Rata Share" 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 Pro Rata Shares of the Banks shall be determined based upon the Commitments most recently in effect.
"Register" shall have the meaning given to such term in Section 9.04(c).
"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.
"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 Credit Exposures representing more than 66 2/3% of the aggregate Revolving Credit Exposures or, if there shall be no Revolving Credit Exposure, Banks having Commitments representing more than 66 2/3% of the aggregate Commitments.
"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 Loans and its LC Exposure at such time.
"RTO Transaction" shall mean any sale, transfer or other disposition of transmission assets entered into in connection with the formation of a regional transmission organization pursuant to or in a manner consistent with regulatory requirements applicable to the Borrower.
"S&P" shall mean Standard & Poor's Ratings Services.
"Sale-Leaseback" shall mean any arrangement whereby any person shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred.
"Senior Debt Rating" shall mean the rating by Moody's or S&P, as applicable, of the Borrower's senior secured long-term debt obligations.
"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 principles 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, with respect to any Eurodollar Loan for any date, 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) in effect for such date with respect to Eurodollar funding (including with respect to Eurocurrency Liabilities as defined in Regulation D) in an amount approximately equal to such 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 Administrative 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.
"Subsidiary" shall mean a subsidiary of the Borrower.
"Supplemental Indenture" shall mean the Thirtieth Supplemental Indenture, dated as of May 1, 2002, between the Borrower and Citibank, N.A., as trustee under the First Mortgage.
"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 Loan or Borrowing, the Eurodollar Rate or the Alternate Base 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 if the Borrower notifies the Administrative Agent that the
Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Banks request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
Section 2.01 Commitments. (a)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 Loans to the Borrower, at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (a) the Revolving Credit Exposure of any Bank exceeding such Bank's Commitment or (b) the total Revolving Credit Exposures exceeding the total Commitments (less any Existing LC Exposure). Within the limits set forth in the preceding sentence, the Borrower may borrow, pay or prepay and reborrow Loans during the Availability Period, subject to the terms, conditions and limitations set forth herein.
Section 2.02 Loans. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Commitments. 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 of not less than $1,000,000.
(b) Subject to Section 2.09, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans, as the Borrower may request pursuant to Section 2.03. 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 or any applicable Note. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing which, if made, would result in an aggregate of more than seven 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.
(b) Subject to paragraph (e) below, each Bank shall make a Loan in the amount of its Pro Rata Share of each Borrowing on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 2:00 p.m., New York City time, and the Administrative 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 Bank of America, N.A., Account Number 12332 29152; ABA # 121000358, 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 Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's portion of such Borrowing, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative 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 Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative 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 Administrative 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 Administrative 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 new Borrowing of the same or a different Type, 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 2.04 or 2.11, as applicable, with the proceeds of the 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 Administrative Agent or by the Administrative Agent to the Borrower
pursuant to paragraph (c) above.
Section 2.03 Notice of Borrowings. (a) To request a Borrowing, the
Borrower shall give the Administrative Agent notice thereof (a) in the case of a
Eurodollar Borrowing, not later than 12:00 noon, 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 or
given notice to the Administrative Agent not later than 12:00 noon, New York City time, on the last day of the Interest Period applicable to such Borrowing that it will not refinance such Borrowing, then the Borrower shall be deemed to have given notice of an election to refinance such Borrowing with an ABR Borrowing. The Administrative 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 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay each Bank the then unpaid principal amount of each Loan of such Bank on the last day of the Interest Period applicable to such Loan and on the Expiration Date. Each Loan shall bear interest on the outstanding principal balance thereof as set forth in Section 2.07.
(b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount and date of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal, interest or fees due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any principal, interest or fees received by the Administrative Agent hereunder for the account of the Banks and each Bank's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Bank or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Bank may request that Loans made by it be evidenced by a Note. In such event, the Borrower shall prepare, execute and deliver to such Bank a Note payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns). Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such Note is a registered Note, to such payee and its registered assigns).
Section 2.05 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 Administrative 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 Administrative 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 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 $50,000,000 (less any Existing LC Exposure) and (ii) the total Revolving Credit Exposures shall not exceed the total Commitments (less any Existing LC Exposure).
(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 Pro Rata Share 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 Administrative Agent, for the account of the Issuing Bank, such Bank's Pro Rata Share of (i) 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 and (ii) 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.
(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 Administrative 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 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 Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Bank of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Bank's Pro Rata Share thereof. Promptly following receipt of such notice, each Bank shall pay to the Administrative Agent its Pro Rata Share 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 Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Banks. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative 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 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, 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 Administrative Agent, the Banks nor the Issuing Bank, nor any of their respective directors, officers, employees or agents, 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 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 Administrative 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 Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.08 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 Administrative Agent, at the request of the Issuing Bank or the Required Banks, demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Issuing Bank and 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, 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 Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under the Loan Documents. The Administrative 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 Administrative 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 Administrative 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 the Loan Documents. 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 2.06 Fees. (a) The Borrower agrees to pay to each Bank, through the Administrative Agent, on the first Business Day of January, April, July and October of each year and on the date on which the Commitment of such Bank shall be reduced or terminated as provided herein, a commitment fee at the Applicable Rate (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 reduced or terminated). 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 a year of 365 or 366 days, as the case may be, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). 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 (i) to the Administrative 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
(an "LC Participation Fee") 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 date of this Agreement
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 Administrative Agent for the account of the Issuing Bank a fronting
fee for Letters of Credit, which shall accrue at the rate per annum of 0.125% 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 date of this Agreement 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. LC Participation Fees and Letter of Credit fronting fees shall be
payable on the first Business Day of January, April, July and October of each
year and on the date on which the Commitments terminate as provided herein;
provided that all such fees accruing after the date on which the Commitments
terminate shall be payable on demand. All LC Participation Fees and Letter of
Credit fronting fees shall be computed on the basis of a year of 365 or 366
days, as the case may be, 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 Administrative Agent, for its own account, the fees separately agreed between the Administrative Agent and the Borrower.
(d) 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 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 at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement.
(d) Interest computed on the basis of the Alternative Base Rate (including interest payable on overdue amounts under Section 2.08) shall be computed on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days elapsed so long as the Prime Rate is the applicable rate for calculation of the Alternate Base Rate, and on the basis of a year of 360 days for the actual number of days elapsed so long as the Federal Funds Effective Rate is the applicable rate for calculation of the Alternate Base Rate. Interest computed on the basis of the Eurodollar Rate (including interest payable on overdue amounts under Section 2.08) shall be computed on the basis of a year of 360 days for the actual number of days elapsed.
(e) 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 Administrative 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 under the Loan Documents, 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 equal to the Alternate Base Rate plus the Applicable Rate plus 2% (except that the interest rate applicable to an overdue amount of principal of a Eurodollar Borrowing that became due on a day other than on the last day of the Interest Period applicable thereto shall, for the period until the last day of such Interest Period, be equal to 2% above the rate that would otherwise be applicable thereto during such Interest Period).
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 Administrative 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 Administrative Agent shall, as soon as practicable thereafter, give notice of such determination to the Borrower and the Banks. In the event of any such determination, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 shall, until the Administrative 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. Each determination by the Administrative 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 notice to the Administrative 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 aggregate amount of not less than $5,000,000 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 Exposures would exceed the total Commitments.
(c) The Borrower may request an extension of this Agreement upon 60 days' prior notice to the Administrative Agent; provided, that, such extension will be at the sole option of the Banks and the Issuing Bank and will require the written agreement of each Bank and the Issuing Bank in order to become effective.
Section 2.11 Prepayment. 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 notice to the Administrative Agent; provided, however, that each partial prepayment shall be in an amount of not less than $1,000,000. 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 (but excluding) 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 any Bank (except any such reserve requirement which is reflected in the Eurodollar Rate) or shall impose on such Bank or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Bank or any Letter of Credit or participation therein, 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 increase the cost to such Bank or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Bank or the Issuing Bank hereunder or under any Notes (whether of principal, interest or otherwise) by an amount deemed by such Bank to be material, then the Borrower will pay to such Bank or the Issuing Bank, as the case may be, upon demand such additional amount or amounts as will compensate such Bank or the Issuing Bank for such additional costs incurred or reduction suffered.
(b) If any Bank or the Issuing 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 the Issuing Bank (or any lending office thereof) or any Bank's or the Issuing Bank's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or the Issuing Bank's capital or on the capital of such Bank's or the Issuing Bank's holding company, if any, with respect to this Agreement or Loans made by such Bank or any Letter of Credit or participation therein to a level below that which such Bank or the Issuing Bank or such Bank's or the Issuing Bank's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Bank's or the Issuing Bank's policies and the policies of such Bank's or the Issuing Bank's holding company with respect to capital adequacy) by an amount deemed by such Bank or the Issuing Bank to be material, then from time to time the Borrower shall pay to such Bank or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Bank or the Issuing Bank or such Bank's or the Issuing Bank's holding company for any such reduction suffered. It is acknowledged that this Agreement is being entered into by the Banks and the Issuing Bank on the understanding that the Banks and the Issuing Bank will not be required to maintain capital against their obligations to make Loans or issue Letters of Credit or purchase participations therein under currently applicable laws, regulations and regulatory guidelines. In the event Banks or the Issuing Bank shall be advised by any Governmental Authority or shall otherwise determine on the basis of pronouncements of any Governmental Authority that such understanding is incorrect, it is agreed that the Banks and the Issuing Bank will be entitled to make claims under this paragraph based upon market requirements prevailing on the date hereof for commitments under comparable credit facilities against which capital is required to be maintained.
(c) A certificate of a Bank or the Issuing Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank or the Issuing Bank or such Bank's or the Issuing Bank's holding company as specified in paragraph (a) or (b) above, as the case may be, and the manner in which such Bank or the Issuing Bank has determined the same, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay the Bank or the Issuing Bank, as the case may be, 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 or the Issuing 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 or the Issuing 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 and the Issuing 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 2.13 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 notice to the Borrower and to the Administrative Agent, such Bank may:
(i) declare that Eurodollar Loans will not thereafter 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 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 any Eurodollar Loan hereunder after irrevocable notice of
such borrowing has been given or deemed given pursuant to Section 2.03, (c) any
payment or prepayment of a Eurodollar Loan required by any provision of this
Agreement or otherwise made or deemed made on a date other than the last day of
the Interest Period applicable thereto, (d) any assignment of a Eurodollar Loan
pursuant to Section 2.19(b) made or deemed made on a date other than the last
day of the Interest Period applicable thereto, or (e) 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,
assigned or not borrowed (assumed to be the Eurodollar Rate applicable thereto)
for the period from the date of such payment, prepayment, assignment 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, assigned 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 Section 2.13, each Borrowing, each payment or prepayment of principal of any Borrowing or LC Disbursement, each payment of interest on the Loans or LC Disbursements, each payment of the Fees, and each reduction of the Commitments shall be allocated among the Banks in accordance with their respective Pro Rata Shares. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Bank's Pro Rata Share of such Borrowing 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 its Loans or participations in LC Disbursements as a result of which the unpaid principal portion of its Loans or participations in LC Disbursements shall be proportionately less than the unpaid principal portion of the 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 Loans or participations in LC Disbursements, as applicable, of such other Bank ("Sharing Participations"), so that (i) the aggregate unpaid principal amount of the Loans, participations in LC Disbursements and Sharing Participations held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Loans and LC Disbursements then outstanding as (ii) the principal amount of its Loans, participations in LC Disbursements and Sharing Participations prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Loans and 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 Loan or in a participation 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 or had acquired a participation in an LC Disbursement directly from the Issuing Bank, as the case may be, 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 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 Administrative Agent at its offices at One Wall Street, New York, New York, 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 2.18 Taxes. (a) Any and all payments by the Borrower hereunder and under any other Loan Document 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 Administrative 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 Administrative Agent, any Bank or the Issuing Bank (or Transferee) by the United States or any jurisdiction under the laws of which the Administrative 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 under any Loan Document to the Banks or the Issuing Bank (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions of Taxes (including deductions applicable to additional sums payable under this Section 2.18) such Bank or the Issuing Bank (or such Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions of Taxes 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 except to the extent that such greater payment arises from circumstances not in existence at the time such assignment, participation or transfer shall have been made.
(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 under any Loan Document 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 Administrative Agent for the full amount of any Taxes and Other Taxes paid by such Bank (or such Transferee), the Issuing Bank (or such Transferee) or the Administrative 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
Administrative Agent, as the case may be, makes written demand therefor. If a
Bank or the Issuing Bank (or Transferee) or the Administrative 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.
(d) If any Bank or the Issuing Bank (or Transferee) or the Administrative 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 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 or the Issuing Bank (or Transferee) and without interest (other than interest included in such refund); provided that the Borrower, upon the request of such Bank or the Issuing Bank (or such Transferee) or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Bank or the Issuing Bank (or such Transferee) or the Administrative Agent in the event such Bank or the Issuing Bank (or such Transferee) or the Administrative 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 Administrative 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.
(e) 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 Administrative Agent, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt received by the Borrower evidencing payment thereof.
(f) 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.
(g) On or prior to the execution of this Agreement and on or
before the transfer to a Transferee, the Administrative 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 not a United States Person within the meaning of
Section 770(a)(30) of the Code (a "Non-U.S. Person") shall, if legally able to
do so, deliver to the Borrower and the Administrative Agent (i) one duly
completed and executed copy of United States Internal Revenue Service Form
W-8BEN or W-8ECI, (ii) if claiming exemption from United States Federal
withholding tax pursuant to Sections 871(h) or 881(c) of the Code, one
duly completed and executed copy of a United States Internal Revenue Service Form W-8BEN and a certificate representing that such Non-U.S. Person is not a bank for purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within the meaning of Section 871(h)(3)(b) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code) or (iii) any successor applicable form of any thereof, establishing in each case that such Bank or Issuing Bank (or Transferee) is entitled to receive payments under the Loan Documents payable to it without deduction or withholding of any United States Federal income taxes, or subject to a reduced rate thereof. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that such payments under the Loan Documents 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.
(h) 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 (g) 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 (g).
Section 2.19 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 2.12 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 or such Issuing Bank, be otherwise disadvantageous to such Bank or such Issuing Bank (or Transferee).
(b) In the event that any Bank shall have delivered a notice
or certificate pursuant to Section 2.13, or the Borrower shall be required to
make additional payments under Section 2.12 or 2.18 to any Bank or the Issuing
Bank (or Transferee) or to the Administrative 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
Administrative Agent (and, if a Commitment is being terminated or 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 the Loan Documents 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 under the Loan Documents and, in the case of a termination or assignment by the Issuing Bank, shall cause all Letters of Credit to be surrendered for cancellation 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 and the Issuing Bank 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 Loan Documents and the Borrowings and procurement of
Letters of Credit 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 or the
Issuing Bank 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
enforceability of this Agreement or any other Loan Document, or materially
impair the rights of or benefits available to the Banks or the Issuing Bank
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 or the Issuing Bank 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 or the
Issuing Bank 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 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 and the Issuing Bank its consolidated balance sheets and statements of income and statements of cash flow as of and for the fiscal year ended December 31, 2001, audited by and accompanied by the opinion of Deloitte & Touche LLP, 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, 2001, 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, 2001 and in any document filed after December 31, 2001, but prior to the date of this Agreement pursuant to Sections 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, 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, 2001, 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, 2001 or in any document filed after December 31, 2001, but 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.
(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 No Material Misstatements. No information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower to the Administrative 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 3.11 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 3.12 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 all cases 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 3.12 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, 2001 and in any document filed after
December 31, 2001, but prior to the date of this Agreement pursuant to Sections
13(a), 14 or 15(d) of the Securities Exchange Act of 1934; 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, 2001 or in any document filed after December 31, 2001, but prior to the date
of this Agreement pursuant to Sections 13(a), 14 or 15(d) of the Securities
Exchange Act of 1934) 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 3.13 Significant Subsidiaries. Schedule 3.13 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.
ARTICLE IV
CONDITIONS TO BORROWINGS AND LETTERS OF CREDIT
The obligations of the Banks to make Loans and of the Issuing Bank to issue, amend, renew or extend Letters of Credit, are subject to the satisfaction of the following conditions:
Section 4.01 All Borrowings and Letters of Credit. On the date of each Borrowing (including each Borrowing in which Loans are refinanced with new Loans as contemplated by Section 2.02(e)) or issuance, amendment, renewal or extension of a Letter of Credit:
(a) The Administrative Agent shall have received (i) in the case of a Borrowing, a notice of such Borrowing as required by Section 2.03 and (ii) in the case of an issuance, amendment, renewal or extension of a Letter of Credit, a notice requesting the same and any letter of application as required by Section 2.05.
(b) The representations and warranties set forth in Article III hereof (excluding, in the case of a refinancing of Loans or the issuance, amendment, renewal or extension of a Letter of Credit or the refinancing of an LC Disbursement that does not increase the Revolving Credit Exposure of any Bank, 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 extension of such Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (b) and
(c) of this Section 4.01.
Section 4.02 First Borrowing or Letter of Credit. On the date of this Agreement:
(a) The Administrative Agent shall have received each of the following, in form and substance satisfactory to it:
(i) Opinions of Heller Ehrman White & McAuliffe, LLP, counsel to the Borrower, and Thelen Reid & Priest, dated the date of this Agreement and addressed to the Administrative Agent, the Banks and the Issuing Bank, with respect to such matters relating to the Borrower and the Loan Documents as the Administrative Agent, the Issuing Bank or any Bank may reasonably request. The Borrower hereby instructs such counsel to deliver such opinion to the Administrative Agent.
(ii) Evidence satisfactory to the Administrative Agent and set forth on Schedule 4.02(a)(ii) 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 or the Issuing Bank, could adversely affect their rights or interests under the Loan Documents.
(iii) 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.
(iv) A certificate of the Secretary or Assistant Secretary of the Borrower dated the date of this Agreement and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Borrower as in effect on the date of this Agreement 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 borrowings and procurement of letters of credit 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 (iii) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection therewith on behalf of the Borrower
(v) A certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (iv) above.
(vi) A certificate, dated the date of this Agreement 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.
(vii) Evidence satisfactory to the Administrative Agent that this Agreement, the Supplemental Indenture, the Bond Delivery Agreement, the First Mortgage Bond and any Notes requested by the Banks for issuance on the date of this Agreement, have been executed and delivered by all parties thereto.
(viii) A copy of the First Mortgage, certified by the Secretary or Assistant Secretary of the Borrower.
(ix) A paid mortgage title insurance policy, naming the trustee under the First Mortgage as the insured, insuring the Borrower's title to the real property subject to Lien of the First Mortgage, and the validity and first priority of the Lien of the First Mortgage (subject to Liens permitted to exist by the terms of the First Mortgage), in an amount not less than the principal amount of the First Mortgage Bond.
(x) Such other documents as the Administrative Agent, the Banks, the Issuing Bank or their respective legal counsel may reasonably request.
(b) All fees payable by the Borrower to the Administrative Agent, the Issuing Bank, the Banks or any of their Affiliates or any on or prior to the date of this Agreement with respect to this Agreement, and all amounts payable by the Borrower pursuant to Section 9.05 for which invoices have been delivered to the Borrower on or prior to such date, shall have been paid in full or arrangements satisfactory to the Administrative Agent shall have been made to cause them to be paid in full concurrently with the disbursement of the proceeds of any Borrowing to be made on such date.
(c) The Lenders shall have received a copy of each document filed after December 31, 2001, but prior to the date of this Agreement pursuant to Sections 13(a), 14 or 15(d) of the Securities Exchange Act of 1934.
(d) The Administrative Agent shall be satisfied that (i) on the date of this Agreement, all commitments to make loans or issue letters of credit under the Existing Credit Agreement will be terminated, and all amounts accrued or owing under the Existing Credit Agreement will be paid in full, and (ii) all Existing Letters of Credit will expire on May 22, 2002.
(e) All legal matters incident to the Loan Documents and the transactions contemplated thereby shall be reasonably satisfactory to the Administrative Agent, the Banks, the Issuing Bank and their respective legal counsel.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Bank and the Issuing Bank that so long as any Commitment shall remain in effect or the principal of or interest on any Loan or LC Disbursement, any Fees or any other amounts payable under any Loan Document shall be unpaid or any Letter of Credit remains outstanding:
Section 5.01 Existence; Businesses and Properties. (a) The
Borrower shall, and shall cause each Significant Subsidiary to, 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 6.03.
(b) The Borrower shall, and shall cause each Significant
Subsidiary to, (i) 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 its 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; (ii) 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
(iii) at all times maintain and preserve all property material to the conduct of
its 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 or any Significant Subsidiary
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 or such Significant Subsidiary, 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 or a Significant Subsidiary 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) The Borrower shall, and shall cause each Significant Subsidiary to, 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 it 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
it operates and the reserves maintained with respect to such self-insured amounts are deemed adequate by its officer or officers responsible for insurance matters.
Section 5.03 Taxes and Obligations. The Borrower shall, and shall cause each Significant Subsidiary to, 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. The Borrower shall furnish to the Administrative Agent, each Bank and the Issuing Bank:
(a) within 105 days after the end of each fiscal year,
consolidated and consolidating balance sheets and related statements of
income and statements of cash flow, showing the financial condition of
(i) Avista Utilities and (ii) the Borrower and its consolidated
Subsidiaries, in each case as of the close of such fiscal year, and the
results of each of their operations during such year, all (A) in the
case of Avista Utilities, certified by one of the Borrower's Financial
Officers as fairly presenting the financial condition and results of
operations of Avista Utilities in accordance with GAAP consistently
applied and (B) in the case of the Borrower and its consolidated
subsidiaries, 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, 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 (i) Avista Utilities and (ii) the Borrower and its consolidated subsidiaries, in each case as of the close of such fiscal quarter, and the results of each of their operations 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 Avista Utilities or the Borrower on a consolidated basis, as applicable, 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, (i) 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, and (ii) a certificate of a Financial Officer setting forth in reasonable detail such calculations as are required to establish whether the Borrower was in compliance with Sections 6.05 and 6.06 on the date of such financial statements;
(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 Administrative Agent, any Bank or the Issuing Bank may reasonably request.
Section 5.05 Litigation and Other Notices. The Borrower shall furnish to the Administrative Agent, each Bank and the Issuing Bank prompt 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) The Borrower shall, and shall cause each Significant Subsidiary to, comply in all material respects with the applicable provisions of ERISA and (b) the Borrower shall furnish to the Administrative Agent, each Bank and the Issuing 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. The Borrower shall, and shall cause each Significant Subsidiary to, (a) maintain all financial records in accordance with GAAP and (b) permit any representatives designated by the Administrative Agent, any Bank or the Issuing Bank to visit and inspect its financial records and properties 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 the Administrative Agent, any Bank or the Issuing Bank to discuss its affairs, finances and condition with its chief financial officer, or other person designated by the chief financial officer, and independent accountants therefor.
Section 5.08 Use of Proceeds and Letters of Credit. The Borrower shall use the proceeds of the Loans and the Letters of Credit only for the purposes set forth in the preamble to this Agreement.
Section 5.09 Notes Credit Support. At any time that the Borrower's 9.75% Senior Notes due June 1, 2008, or any other medium term notes of the Borrower (other than notes issued under the First Mortgage), are required to be secured by any assets of the Borrower or any of its Subsidiaries or shall benefit from any Guarantee or other form of credit enhancement provided by the Borrower or any of its Subsidiaries (other than bonds issued under the First Mortgage), the Borrower shall cause the obligations under the Loan Documents to be secured by or to benefit from all such collateral and each such Guarantee or other form of credit enhancement on a ratable basis with the holders of such notes and any other creditors entitled to share therein.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees with each Bank and the Issuing Bank that so long as any Commitment shall remain in effect or the principal of or interest on any Loan or LC Disbursement, any Fees or any other amounts payable under any Loan Document shall be unpaid or any Letter of Credit remains outstanding:
Section 6.01 Liens. The Borrower shall not 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,
2001, to the extent that such Liens secure only obligations arising under such existing documents, agreements or instruments and the amount of Indebtedness secured thereby does not exceed the amount thereof as of the date hereof as set forth on Schedule 6.01;
(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 and 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 to the extent such Liens, collectively, secure Indebtedness in an aggregate amount not exceeding the amount secured by the Lien of the First Mortgage on the date hereof as set forth in Schedule 6.01;
(d) Liens permitted under the First Mortgage or the Collateral Trust Mortgage (whether or not such permitted Liens cover properties or assets subject to the Lien of the First Mortgage or the Collateral Trust Mortgage) and any other Liens to which the Lien of the First Mortgage or the Collateral Trust Mortgage is expressly made subject, but only, in the case of Liens securing Indebtedness, to the extent the aggregate amount of Indebtedness secured thereby does not exceed the amount thereof as of the date hereof as set forth on Schedule 6.01;
(e) Liens for taxes, assessments or governmental charges not yet due or which are being contested in compliance with Section 5.03;
(f) 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;
(g) 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;
(h) 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 alike nature incurred in the ordinary course of business;
(i) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries;
(j) 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;
(k) 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, contract 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;
(l) 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;
(m) 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;
(n) 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;
(o) 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;
(p) 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;
(q) leases and subleases entered into in the ordinary course of business;
(r) banker's Liens and other Liens in the nature of a right of setoff;
(s) renewals, replacements, amendments, modifications,
supplements, refinancings or extensions of Liens set forth in clauses
(a)-(d) 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;
(t) security deposits or amounts paid into trust funds for the reclamation of mining properties;
(u) restrictions on transfer or use of properties and assets, first rights of refusal, and rights to acquire properties and assets granted to others;
(v) non-consensual equitable Liens on the Borrower's tenant-in-common or other interest in joint projects;
(w) 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;
(x) cash collateral contemplated under Section 2.05(i);
(y) Liens on receivables and related properties or interests therein; and
(z) Liens not otherwise permitted under clauses (a)-(y) above (including Liens referred to in such clauses to the extent securing Indebtedness in excess of the amounts permitted thereunder), provided that the aggregate amount of Indebtedness secured by such Liens (exclusive of amounts permitted under such other clauses) does not exceed $150,000,000.
Section 6.02 Sale-Leaseback Transactions. The Borrower shall not enter into any Sale-Leaseback if as a result thereof the aggregate outstanding principal amount of Attributable Debt outstanding in connection with all Sale-Leasebacks entered into after the date hereof would exceed 5% of the total tangible assets of Avista Utilities as of the date of the financial statements most recently delivered under Section 5.04(a) or (b) at such time.
Section 6.03 Mergers, Consolidations and Acquisitions. The Borrower shall not, and shall not permit any Significant Subsidiary (without the consent of the Required Banks, not to be unreasonably withheld) to, merge with or into or consolidate with any other person, 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 or 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, (a) the Borrower or any Significant Subsidiary may merge with or into or consolidate with the Borrower or any Subsidiary provided that, in any transaction involving the Borrower, the Borrower is the surviving person, (b) the Borrower or any Significant Subsidiary may purchase, lease or otherwise acquire from any Subsidiary all or substantially all of its assets, (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, (A) if the Borrower is the surviving person, the senior secured long-term debt rating of the Borrower shall be at least BBB- or higher by S&P and Baa3 or higher by Moody's immediately after such merger or consolidation and (B) if the Borrower is not the surviving person, (1) the surviving
person shall assume in writing the obligations of the Borrower under this Agreement and any other Loan Documents and (2) the senior secured long-term debt rating of the surviving person shall be at least BBB or higher by S&P and Baa2 or higher by Moody's immediately after such merger or consolidation and (ii) in the case where such other person's business does not entirely or primarily consist of an electric or gas utility business, (A) 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 (B) if the Borrower is not the surviving person, the surviving person shall assume in writing the obligations of the Borrower under this Agreement and any other Loan Documents, (d) the Borrower may purchase, lease or otherwise acquire all or substantially all of the assets of any other person (including by purchase or other acquisition of all or substantially all of the capital stock of such 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, (e) any 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 (f) any Significant Subsidiary may purchase, lease or otherwise acquire all or substantially all of the assets of any other person (including by purchase or other acquisition of all or substantially all of the capital stock of such person) so long as the assets being 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; provided, however, that notwithstanding anything in this Section 6.03 to the contrary, this Section 6.03 shall not be deemed to prohibit any merger, consolidation or acquisition involving a Significant Subsidiary (and not also the Borrower) if, after giving effect to the consummation of such transaction, such Significant Subsidiary shall have or 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.
Section 6.04 Disposition of Assets. The Borrower shall not, and shall not permit any Significant Subsidiary (without the consent of the Required Banks, not to be unreasonably withheld) to, sell, lease, transfer, assign or otherwise dispose of any assets or any interest therein (whether now owned or hereafter acquired), except (a) dispositions of obsolete or retired property not used or useful in its business, (b) grants of Liens by the Borrower permitted under Section 6.01 and grants of Liens by Significant Subsidiaries, (c) disposition by the Borrower 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, (d) disposition by the Borrower of all or any portion of its transmission assets in one or more RTO Transactions, (e) disposition by the Borrower of its
interests in the Colstrip Project and related assets, (f) disposition by Avista
Energy, Inc. of its assets in the ordinary course of its trading operations, (g)
disposition of receivables and related properties or interests therein, (h)
other dispositions of assets (not otherwise permitted by clauses (a)-(g) of this
Section) made in the ordinary course of business not exceeding in any fiscal
year 5% of the assets of the Borrower and its Subsidiaries as of the end of the
prior fiscal year, computed and consolidated in accordance with GAAP
consistently applied, and (i) other dispositions of assets (not otherwise
permitted by clauses (a)-(h) of this Section) not exceeding in any fiscal year
10% of the assets of the Borrower and its Subsidiaries as of the end of the
prior fiscal year, computed and consolidated in accordance with GAAP
consistently applied; provided, however, that notwithstanding anything in this
Section 6.04 to the contrary, this Section 6.04 shall not be deemed to prohibit
any disposition by a Significant Subsidiary if, after giving effect to the
consummation of such transaction, such Significant Subsidiary shall have or 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.
Section 6.05 Consolidated Total Debt to Consolidated Total Capitalization Ratio. The Borrower shall not permit the ratio of Consolidated Total Debt to Consolidated Total Capitalization to be, at any time, greater than 0.65 to 1.00.
Section 6.06 Avista Utilities Interest Coverage Ratio. The Borrower shall not permit the ratio of Avista Utilities EBITDA to Avista Utilities Interest Expense to be less than 1.6 to 1 for (a) the two-fiscal-quarter period ending March 31, 2002, (b) the three-fiscal-quarter period ending June 30, 2002 or (c) any four-fiscal-quarter period ending thereafter.
Section 6.07 Public Utility Regulatory Borrowing Limits. The Borrower shall not incur actual borrowings or commitments or issued and outstanding debt of the Borrower in excess of the amount authorized by statute or by orders of public utility commissions, as in effect from time to time.
Section 6.08 Avista Energy Guarantees. The Borrower shall not permit itself to be obligated, at any time, under Guarantees of obligations of Avista Energy, Inc. under which the Borrower's liability, in the aggregate for all such Guarantees, might exceed $50,000,000.
Section 6.09 Investments. The Borrower shall not make any new Investments in any Subsidiary, except for (a) Investments constituting Guaranties permitted under Section 6.08 and (b) other Investments (including Guaranties not permitted under Section 6.08) in an aggregate amount (calculated, in the case of any acquisition or Investment, based on the amount of consideration payable, and obligations incurred, by the Borrower for such acquisition or Investment) not exceeding $75,000,000 for 2002 and 2003 combined, net of any distributions or other amounts received by the Borrower during such period on Investments in Subsidiaries.
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 or the issuance of any Letter of Credit, or any representation or warranty contained in any certificate or other document 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 or deemed made;
(b) default shall be made in the payment of any principal of any Loan or LC Disbursement when and as the same shall become due and payable, whether at the scheduled maturity 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 LC Disbursement 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), 5.05, 5.07(b) or 5.08 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 Administrative Agent, any Bank or the Issuing 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 Indebtedness 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 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)(1) 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 Administrative Agent or after the receipt
by the Administrative Agent of the statement required pursuant to
Section 5.06, the Administrative 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
alien 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;
(k) any Loan Document, at any time after its execution and delivery and for any reason, shall cease to be in full force and effect, or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect; or the Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document;
(l) a Change in Control shall occur;
(m) the Lien purported to be created in any substantial portion of the property of the Borrower purported to be made subject thereto pursuant to the First Mortgage shall at any time fail to be a valid, perfected, first priority Lien (subject to Liens permitted to exist by the terms of the First Mortgage) securing the obligations of the Borrower under the First Mortgage (including the obligations of the First Mortgage Bond) and such failure shall constitute or have resulted in a "Completed Default" under the First Mortgage; or
(n) the mortgage title insurance policy referred to in Section 4.02(a)(ix) or any other mortgage title insurance policy purported to be issued for the benefit of the trustee under the First Mortgage, at any time after its issuance and for any reason, shall cease to be in full force and effect, or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect; or the issuer of such policy denies that it has any or further liability or obligation under such policy, or purports to revoke, terminate or rescind such policy.
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 Administrative Agent, at the request of the Required Banks, shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments, (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 (iii) deliver to the Borrower notice demanding redemption of the First Mortgage Bond; 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 ADMINISTRATIVE AGENT
Section 8.01 Appointment and Powers. In order to expedite the various transactions contemplated by the Loan Documents, The Bank of New York is hereby appointed to act as Administrative Agent on behalf of the Banks and the Issuing Bank. Each of the Banks and the Issuing Bank hereby irrevocably authorizes and directs the Administrative Agent to take such action on behalf of such Bank or the Issuing Bank under the terms and provisions of the Loan
Documents, and to exercise such powers thereunder as are specifically delegated to or required of the Administrative Agent by the terms and provisions thereof, together with such powers as are reasonably incidental thereto. The Administrative 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 and the Issuing Bank any payment of principal of or interest on the Loans outstanding hereunder, LC Reimbursements and all other amounts accrued under the Loan Documents paid to the Administrative Agent, and to distribute to each Bank and the Issuing 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 and the Issuing Bank to the Borrower of any Event of Default of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute promptly to each Bank and the Issuing Bank copies of all notices, agreements and other material as provided for in the Loan Documents as received by such Administrative Agent.
Section 8.02 Limitation on Liability. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable to any Bank or the Issuing Bank as such for any action taken or omitted by any of them under the Loan Documents except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation therein or the contents of any document delivered in connection therewith 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 the Loan Documents. The Administrative Agent shall not be responsible to the Banks or the Issuing Bank for the due execution, genuineness, validity, enforceability or effectiveness of the Loan Documents or any other instrument to which reference is made therein. The Administrative 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 and the Issuing Bank. The Administrative 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 Administrative 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 under the Loan Documents or to any Bank or the Issuing Bank on account of the failure of or delay in performance or breach by any other Bank, the Issuing Bank or the Borrower of any of their respective obligations thereunder or in connection therewith. The Administrative Agent may execute any of its duties under the Loan Documents 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 Administrative 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 Administrative Agent which constitutes gross negligence or wilful misconduct. Delegation to an attorney or Administrative Agent shall not release the Administrative Agent from its obligation to perform or cause to be performed the delegated duty. The Administrative Agent shall be entitled to advice of legal counsel selected by it with respect to all matters arising under the Loan Documents and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel.
Section 8.03 Other Transactions with the Borrower. The Administrative 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 Administrative Agent.
Section 8.04 Reimbursement; Indemnification. Each Bank agrees (a) to reimburse the Administrative Agent in the amount of such Bank's Pro Rata Share of any expenses incurred for the benefit of the Banks by the Administrative 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 (b) to indemnify and hold harmless the Administrative 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 Administrative Agent or any of them in any way relating to or arising out of the Loan Documents or any action taken or omitted by it or any of them under the Loan Documents, to the extent not reimbursed by the Borrower; provided, however, that no Bank shall be liable to the Administrative 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 Administrative Agent or any of its directors, officers, employees or agents.
Section 8.05 Absence of Reliance. Each of the Banks and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent, the Issuing Bank 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 of the Banks and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Issuing Bank 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 the Loan Documents, any related agreement or any document furnished thereunder.
Section 8.06 Resignation of the Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Issuing Bank, the Banks and the Borrower. Upon receipt of any such notice of resignation, the Required Banks may, with the consent of the Borrower (which consent shall not be unreasonably withheld and shall not be required during an Event of Default), appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Issuing Bank and the Banks and after consultation with the Issuing Bank, the Banks and the Borrower, appoint a successor Administrative Agent. Upon the acceptance by any Person of its appointment as a successor Administrative Agent, such Person shall thereupon succeed to and become vested with all the rights, powers, privileges, duties and obligations of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations as Administrative Agent under the Loan Documents. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Article VIII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent.
Section 8.07 Syndication Agent; Documentation Agents; Managing Agent; Co-Agents. None of the Syndication Agent, the Documentation Agents, the Managing Agent or the Co-Agents shall have any rights, powers, obligations, liabilities, responsibilities or duties under the Loan Document other than those applicable to all Banks as such. Without limiting the foregoing, none of the Banks identified as "Syndication Agent," "Documentation Agent," "Managing Agent" or "Co-Agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each of the Banks and the Issuing 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:
Avista Corporation
East 1411 Mission Avenue (99202)
P.O. Box 3727
Spokane, Washington 99220
Attention: Senior Vice President and Chief Financial
Officer
Telecopy: 509-495-4879
(b) if to the Administrative Agent or the Issuing Bank, to:
The Bank of New York
One Wall Street
Agency Function Administration
18th Floor
New York, New York 10286
Attention: Sandra Morgan
Telecopy: 212-635-6365 or 6366 or 6376
with a copy to:
The Bank of New York
Energy Industries Division
One Wall Street
19th Floor
New York, New York 10286
Attention: Steven Kalachman
Telecopy: 212-635-7923 or 7924
(c) if to a Bank, to it at its address (or telecopy number) set forth in Schedule 2.01 or in the Assignment and Assumption 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 in the Loan Documents and in the certificates or other instruments prepared or delivered in connection therewith or pursuant thereto shall be considered to have been relied upon by the Banks and the Issuing Bank and shall survive the making by the Banks of the Loans and issuance by the Issuing Bank of any Letters of Credit, and the execution and delivery to the Banks of any Notes evidencing such Loans, regardless of any investigation made by the Banks or the Issuing Bank, or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated.
Section 9.03 Binding Effect; Successors and Assigns. This Agreement and the amendment and restatement reflected hereby shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative 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 Administrative Agent, the Issuing Bank and each Bank and their respective successors and permitted assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, the Administrative Agent, the Issuing Bank or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns.
Section 9.04 Successors and Assigns. (a) Subject to Section 6.03, the Borrower may not assign or delegate any of its rights or duties under any of the Loan Documents without the prior written consent of each of the Banks and the Issuing Bank.
(b) Each Bank (including the Administrative Agent or the Issuing Bank when acting as a Bank) may assign to one or more assignees all or a portion of its interests, rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment and the same portion of the applicable Loan or Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Bank or Affiliate of a Bank, the Borrower and the Administrative Agent must give their prior written consent to such
assignment (which consents shall not be unreasonably withheld), provided that the consent of the Borrower shall not be required if an Event of Default shall exist, (ii) in the case of an assignment to a person other than a Bank of all or a portion of a Bank's Commitment or its obligation in respect of its LC Exposure, the Issuing Bank must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (iii) that no assignee of any Bank shall be entitled to receive any greater payment or protection under Sections 2.12, 2.13(a) 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, (iv) the amount of the Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative 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 Administrative Agent an Assignment and Assumption and a processing and recordation fee of $3,500 and (vi) the assignee, if it shall not be a Bank, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (d) of this Section 9.04, from and after the effective date specified in each Assignment and Assumption, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Bank under the Loan Documents and (B) the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under the Loan Documents (and, in the case of an Assignment and Assumption covering all or the remaining portion of an assigning Bank's rights and obligations under the Loan Documents, 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) The Administrative Agent shall maintain a copy of each Assignment and Assumption 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 Administrative 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 the Loan Documents. 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.
(d) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Bank and an assignee, 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, to the extent required, the written consent of the Borrower, the Administrative Agent and the Issuing Bank to such assignment, the Administrative Agent shall (i) accept such Assignment and Assumption, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Issuing Bank and the Borrower. Upon the request of the assignee, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent, 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 Assumption and, if the assigning Bank has retained a Commitment, upon the request of the assigning Bank, the Borrower shall execute and deliver a new Note to the order of such assigning Bank in a principal amount equal to the applicable Commitment retained by it. Canceled Notes shall be returned to the Borrower.
(e) Each Bank may without the consent of the Borrower, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under the Loan Documents (including all or a portion of its Commitment and the Loans owing to it and any Notes held by it); provided, however, that (i) such Bank's obligations under the Loan Documents 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 Administrative 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 the Loan Documents, 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 the Loan Documents (other than amendments, modifications or waivers (i) decreasing any Fees or the amount of principal of or the rate at which interest is payable on the Loans or LC Disbursements, (ii) extending any scheduled date for the payment of Fees or principal of or interest on Loans or LC Disbursements, (iii) extending the expiration date of the Commitments or extending the expiration date of any Letter of Credit to a date after the expiration date of the Commitments or (iv) releasing the First Mortgage Bond or releasing all or substantially all of the collateral therefor.
(f) 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) to preserve the confidentiality of such confidential information.
(g) Notwithstanding anything to the contrary contained herein,
any Bank (a "Granting Bank") may grant to a special purpose funding vehicle (an
"SPC") the option to fund all or any part of any Loan that such Granting Bank
would otherwise be obligated to fund pursuant to this Agreement; provided that
(i) nothing herein shall constitute a commitment by any SPC to fund any Loan,
and (ii) if an SPC elects not to exercise such option or otherwise fails to fund
all or any part of such Loan, the Granting Bank shall be obligated to fund such
Loan pursuant to the terms hereof. The funding of a Loan by an SPC hereunder
shall utilize the Commitment of the Granting Bank to the same extent, and as if,
such Loan were funded by such Granting Bank. Each party hereto hereby agrees
that no SPC shall be liable for any indemnity or payment under the Loan
Documents for which a Bank would otherwise be liable for so long as,
and to the extent, the Granting Bank provides such indemnity or makes such payment. Notwithstanding anything to the contrary contained in this Agreement, any SPC may disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee to such SPC. This paragraph may not be amended without the prior written consent of each Granting Bank, all or any part of whose Loan is being funded by an SPC at the time of such amendment.
(h) Any Bank may at any time assign for security purposes all or any portion of its rights under the Loan Documents to a Federal Reserve Bank; provided that no such assignment shall release a Bank from any of its obligations thereunder.
Section 9.05 Expenses; Indemnity, Damage Waiver. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses (including the reasonable fees, charges and disbursements of internal or external legal counsel) (i) incurred by the Administrative Agent in connection with the preparation of the Loan Documents or in connection with any amendments, modifications or waivers of the provisions thereof (whether or not the transactions thereby contemplated shall be consummated), (ii) 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, or (iii) incurred by the Administrative Agent, any Bank or the Issuing Bank in connection with the enforcement or protection of their rights in connection with the Loan Documents or any Loan or any Letter of Credit or participation therein.
(b) The Borrower agrees that it shall indemnify the Administrative Agent, the Issuing Bank and 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.
(c) The Borrower agrees to indemnify the Administrative 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 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 willful misconduct of such Indemnitee.
(d) To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof; provided that such waiver shall not, as to any Indemnitee, apply to special, indirect or consequential damages to the extent resulting from, or punitive damages awarded on account of, conduct by such Indemnitee that is determined by a court of competent jurisdiction by final and nonappealable judgment to have constituted gross negligence or willful misconduct by such Indemnitee.
(e) 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 Administrative 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 of the Banks and the Issuing 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 the Issuing Bank (or bank Controlling such Bank or the Issuing 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 or the Issuing Bank, irrespective of whether or not such Lender or the Issuing Bank shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower are owed to a branch or office of such Lender or the Issuing Bank different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Bank and the Issuing Bank under this Section are in addition to other rights and remedies (including other rights of setoff) which such Bank or the Issuing Bank may have. Any Bank or the Issuing Bank, as the case may be, shall promptly notify the Borrower 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 Administrative Agent, the Issuing Bank or any Bank in exercising any power or right under the Loan Documents 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 Administrative 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 the Loan Documents nor any provision thereof (excluding letter of credit applications, which may be waived, amended or modified by agreement of the Borrower and the Issuing Bank) 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) without the consent of the applicable Bank, (A) decrease the principal of or the rate of interest on such Bank's Loans or the Fees payable to such Bank, (B) extend the date for any scheduled payment of principal of or interest on such Bank's Loans or the Fees payable to such Bank, or (C) increase the amount or extend the expiration date of such Bank's Commitment, or (ii) without the consent of each Bank, (A) decrease the principal of or the rate of interest on any LC Disbursement, (B) extend the date for any scheduled payment of principal of or interest on any LC Disbursement, (C) extend the expiration date of any Letter of Credit to a date after the Expiration Date, (D) release the First Mortgage Bond or release all or substantially all of the collateral therefor or (E) amend or modify the provisions of Section 2.15, the provisions of this Section, the definition of "Required Banks", or any other provision requiring the consent or agreement of each of the Banks; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Bank under the Loan Documents without the prior written consent of the Administrative 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 any 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 maybe contracted for, charged, taken, received or reserved by such Bank in accordance with applicable law, the rate of interest payable under any 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. Each Loan Document constitutes the entire contract between the parties relative to the subject matter thereof, and any previous agreement among the parties with respect to the subject matter thereof is superseded by such Loan Document. 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,
Administrative 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 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 Administrative 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.
AVISTA CORPORATION
Title:
THE BANK OF NEW YORK,
as Administrative Agent, Issuing Bank
and a Bank
Title:
UNION BANK OF CALIFORNIA, N.A.,
as Syndication Agent and a Bank
Title:
FLEET NATIONAL BANK,
as Documentation Agent and a Bank
Title:
WELLS FARGO BANK,
as Documentation Agent and a Bank
Title:
U.S. BANK, NATIONAL ASSOCIATION,
as Managing Agent and a Bank
Title:
KEYBANK,
as Co-Agent and a Bank
Title:
WASHINGTON MUTUAL BANK,
as Co-Agent and a Bank
Title:
BANK HAPOALIM, B.M.,
as a Bank
Title:
Title:
EXHIBIT 4(e)
RECEIVABLES PURCHASE AGREEMENT
Dated as of May 29, 2002
Among
AVISTA RECEIVABLES CORP.
as Seller
and
AVISTA CORPORATION
as initial Servicer
and
EAGLEFUNDING CAPITAL CORPORATION
as Conduit Purchaser
and
FLEET NATIONAL BANK
as Committed Purchaser
and
FLEET SECURITIES, INC.
as Administrator
RECEIVABLES PURCHASE AGREEMENT
Dated as of May 29, 2002
THIS IS A RECEIVABLES PURCHASE AGREEMENT, among AVISTA RECEIVABLES CORP., a Washington corporation ("Seller"), AVISTA CORPORATION, a Washington corporation ("Parent"), as initial Servicer, EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation (the "Conduit Purchaser"), FLEET NATIONAL BANK, a national banking association (together with any other financial institution hereafter party hereto, each a "Committed Purchaser", and collectively with the Conduit Purchaser, the "Purchasers") and FLEET SECURITIES, INC., a New York corporation ("Fleet Securities"), as administrator for Purchasers (in such capacity, the "Administrator"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A.
Background
1. The Originator is engaged in the business of generating, transmitting and distributing energy, as well as other energy-related businesses.
2. Seller is a single purpose corporation formed for the purpose of purchasing, and accepting contributions of, Receivables generated by the Originator.
3. Seller has, and expects to have, Pool Receivables in which Seller, subject to the terms and conditions of this Agreement, intends to sell an undivided interest. Seller has requested Purchasers, and Conduit Purchaser may (and if Conduit Purchaser does not, Committed Purchasers shall), subject to the terms and conditions contained in this Agreement, fund the purchase of such undivided interest, referred to herein as the Asset Interest, from Seller from time to time during the term of this Agreement.
4. Seller and Purchasers also desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Asset Interest be reinvested in Pool Receivables, which reinvestment shall constitute part of the Asset Interest.
5. Parent has been requested, and is willing, to act as initial Servicer.
6. Fleet Securities has been requested, and is willing, to act as the Administrator.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE I
PURCHASES AND REINVESTMENTS
SECTION 1.01. Commitment to Purchase; Limits on Purchasers' Obligations. Upon the terms and subject to the conditions of this Agreement, from time to time prior to the Termination Date, Seller may request that Administrator, for the benefit of Purchasers, purchase from Seller an undivided ownership interest in the Pool Assets (each being a "Purchase") and Conduit Purchaser may, in its sole discretion, fund each Purchase. If Conduit Purchaser elects not to fund such Purchase, each Committed Purchaser shall fund its Percentage of such Purchase, and the Administrator, for the benefit of Purchasers, shall make such Purchase with the proceeds of such funding by the Committed Purchasers; provided that no Purchase shall be funded by any Purchaser if, after giving effect thereto, either (a) the Capital after giving effect to such Purchase would exceed $100,000,000 (the "Purchase Limit"), as such Purchase Limit may be decreased from time to time as provided in Section 1.05, or (b) the Asset Interest would exceed 100% (the "Allocation Limit"); and provided further that each Purchase made pursuant to this Section 1.01 shall have a purchase price of at least $1,000,000.
SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests.
(a) Notice of Purchase. Each Purchase from Seller shall be made on notice from Seller to the Administrator received by the Administrator not later than 11:00 a.m. (Boston, Massachusetts time) on the third Business Day next preceding the date of such proposed Purchase. Each such notice of a proposed Purchase shall be substantially in the form of Exhibit 1.02(a) (each a "Purchase Notice"), and shall specify the desired amount and date of such Purchase, which shall be a Business Day, provided that there shall be no more than one Purchase in any calendar week and if the Purchase occurs in the same calendar week as a Settlement Date, such Purchase shall be funded on such Settlement Date.
(b) Funding of Purchase. On the date of each Purchase, Conduit Purchaser (or, if Conduit Purchaser has elected not to fund such Purchase, each Committed Purchaser) shall, upon satisfaction of the applicable conditions set forth in Article V, make available to the Administrator at the Administrator's Office the amount of its Purchase in immediately available funds, and after receipt by the Administrator of such funds, the Administrator shall wire-transfer immediately available funds to an account designated by Seller in the related Purchase Notice.
(c) Assignment of Asset Interest. Seller hereby sells, assigns, grants and transfers to Administrator, for the benefit of Purchasers, the Asset Interest.
SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining Collections. (a) As of the close of business on each day during the period from the date hereof to the Termination Date, Servicer shall, out of all Collections received on such day:
(i) determine the portion of Collections attributable on any day to the Asset Interest by multiplying (x) the amount of all Collections received on such day times (y) the Asset Interest;
(ii) out of the portion of Collections allocated to the Asset Interest pursuant to clause (i), set aside and hold in trust for Purchasers an amount equal to the sum of the estimated amount of Earned Discount accrued in respect of the Capital (based on rate information provided by the Administrator pursuant to Section 2.04), the accrued Fees,
all other amounts due to Purchasers, the Administrator, the Affected Parties or the Indemnified Parties hereunder (other than the Capital) and the Purchasers' Share of Servicer's Fee (in each case, accrued through such day) and not so previously set aside;
(iii) apply the Collections allocated to the Asset Interest pursuant to clause (i) and not set aside pursuant to clause (ii) to the purchase from Seller of ownership interests in Pool Assets (each such purchase being a "Reinvestment"); provided that (A) if there is an Excess Amount after giving effect to other Collections previously set aside pursuant to this clause (iii) and then so held, then Servicer shall not make a Reinvestment to such extent, but shall set aside and hold for the benefit of Purchasers, a portion of such Collections which, together with other Collections previously set aside and then so held, shall equal the Excess Amount; and (B) if the conditions precedent to Reinvestment in Section 5.02 are not satisfied, then Servicer shall not reinvest any of such Collections;
(iv) pay to Seller (A) the portion of Collections not allocated to the Asset Interest pursuant to clause (i), less Seller's Share of Servicer's Fee accrued through such day, and (B) the Collections applied to Reinvestment pursuant to clause (iii); and
(v) out of the portion of Collections not allocated to the Asset Interest pursuant to clause (i), pay to Servicer Seller's Share of Servicer's Fee accrued through such day.
(b) Unreinvested Collections. Servicer shall set aside and hold in
trust for the benefit of Purchasers all Collections which pursuant to clause
(ii) or (iii) of Section 1.03(a) may not be reinvested in Pool Assets; provided
that unless the Administrator shall request it to do so in writing, Servicer
shall not be required to hold Collections that have been set aside in a separate
deposit account containing only such Collections. If, prior to the date when
such Collections are required to be paid to the Administrator pursuant to
Section 3.01, the amount of Collections set aside pursuant to clause (iii) of
Section 1.03(a) exceeds the Excess Amount, if any, and the conditions precedent
to Reinvestment set forth in Section 5.02 are satisfied, then Servicer shall
apply such Collections (or, if less, a portion of such Collections equal to the
amount of such excess) to the making of a Reinvestment.
SECTION 1.04. Asset Interest. (a) Components of Asset Interest. On any
date the Asset Interest will represent Administrator's (for the benefit of
Purchasers) combined undivided percentage ownership interest in (i) all Pool
Receivables, (ii) all Related Security with respect to such Pool Receivables,
(iii) all of Seller's right and claims under the Purchase Agreement, (iv) all
Lock-Boxes and Lock-Box Accounts, all funds and investments therein and all
related agreements between the Seller or the Originator and the Lock-Box Banks,
(v) all Collections with respect to, and other proceeds of, the foregoing and
(vi) all books and records (including computer disks, tapes and software)
evidencing or relating to any of the foregoing, in each case, whether now owned
by Seller or hereafter acquired or arising, and wherever located (all of the
foregoing, collectively referred to as "Pool Assets").
(b) Computation of Asset Interest. On any date of computation, the Asset Interest will be equal to a percentage, expressed as the following fraction:
C
NPB x (1 - RRP)
where:
C = the Capital on such date.
RRP = the Required Reserve Percentage on such date.
NPB = the Net Pool Balance on such date;
provided, however, that from and after the Termination Date, the Asset Interest will be 100%.
(c) Frequency of Computation. The Asset Interest shall be computed as of the Cut-Off Date for each Settlement Period. In addition, the Administrator may require Servicer to provide a Servicer Report for purposes of computing the Asset Interest as of any other date, and Servicer agrees to do so within five Business Days of its receipt of the Administrator's request in writing.
SECTION 1.05. Voluntary Termination of Purchase and Reinvestment Obligations or Reduction of Purchase Limit. Seller may, upon at least 60 days' prior written notice to the Administrator, either (a) terminate Conduit Purchaser's option to fund, and each Committed Purchaser's commitment to fund, Purchases and Reinvestments hereunder, or (b) reduce the Purchase Limit to an amount not less than $25,000,000; provided, however, that (i) each partial reduction of the Purchase Limit shall be in an amount equal to $1,000,000 or an integral multiple thereof, and (ii) after giving effect to such reduction, the Capital will not exceed the Purchase Limit as so reduced. Any such reduction of the Purchase Limit shall reduce each Committed Purchaser's Commitment on a pro rata basis. The Purchase Limit may be increased upon the request of Seller and the written consent of the Administrator and each Purchaser thereto, which consent may be granted or withheld in their sole discretion and may be subject to such conditions as they may require.
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Capital. In making any determination of Capital, the following rules shall apply:
(a) Capital shall not be considered reduced by any allocation, setting aside or distribution of any portion of Collections unless such Collections shall have been actually delivered to the Administrator pursuant hereto for application to the Capital; and
(b) Capital shall not be considered reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or must otherwise be returned for any reason.
SECTION 2.02. Computation of Concentration Limit. In the case of any Obligor that is (a) a Subsidiary of any other Obligor, (b) a parent of any other Obligor, or (c) a Subsidiary of the same parent as any other Obligor, the Concentration Limit and the aggregate Unpaid Balance of Pool Receivables of such Obligors shall be calculated as if such Obligors were one Obligor.
SECTION 2.03. Computation of Earned Discount. In making any determination of Earned Discount, the following rules shall apply:
(a) no provision of this Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by Applicable Law; and
(b) Earned Discount for any period shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason.
SECTION 2.04. Estimates of Earned Discount Rate, Fees, Etc. For purposes of determining the amounts required to be set aside by Servicer pursuant to Section 1.03, the Administrator shall notify Servicer from time to time of the Earned Discount Rate applicable to the Capital and the rates at which fees and other amounts are accruing hereunder. It is understood and agreed that (i) the Earned Discount Rate may change from time to time, (ii) certain rate information provided by the Administrator to Servicer shall be based upon the Administrator's good faith estimate, (iii) the amount of Earned Discount actually accrued with respect to the Capital during any Settlement Period may exceed, or be less than, the amount set aside with respect thereto by Servicer, and (iv) the amount of fees or other payables accrued hereunder with respect to any Settlement Period may exceed, or be less than, the amount set aside with respect thereto by Servicer. Failure to set aside any amount so accrued shall not relieve Servicer of its obligation to remit Collections to the Administrator with respect to such accrued amount, as and to the extent provided in Section 3.01.
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures.
The parties hereto will take the following actions with respect to each Settlement Period:
(a) Servicer Report. On or before the tenth (10th) Business Day of each month prior to the Final Payout Date (each, a "Reporting Date"), Servicer shall deliver to the Administrator a report containing the information described in Exhibit 3.01(a) (each, a "Servicer Report"). On or before the second Business Day to occur after the tenth (10th) Business Day of each month prior to the Final Payout Date, Servicer shall deliver to the Administrator a report containing the
information described in Exhibit 3.01(a)-M for the period from the first day of the related month to, and including, the tenth (10th) Business Day of such month (each, a "Mid-Month Report").
(b) Earned Discount; Other Amounts Due. Two Business Days prior to each Reporting Date, the Administrator shall notify Servicer of (i) the amount of Earned Discount that will have accrued in respect of the Capital as of the next Settlement Date and (ii) all Fees and other amounts that will have accrued and be payable by Seller under this Agreement on the next Settlement Date (other than Capital).
(c) Settlement Date Procedure - Reinvestment Period. On the second Business Day after each Reporting Date (each, a "Settlement Date") prior to the Termination Date, Servicer shall distribute from Collections set aside pursuant to Sections 1.03(a)(ii) and (iii) during the immediately preceding Settlement Period the following amounts in the following order:
(1) to the Administrator, an amount equal to the Earned Discount accrued during such Settlement Period, plus any previously accrued Earned Discount not paid on a prior Settlement Date, which amount shall be distributed by the Administrator to each Purchaser for application to the accrued Earned Discount with respect to such Purchaser's Capital;
(2) to the Administrator, an amount equal to the Program Fee and Commitment Fee accrued during such Settlement Period, plus any previously accrued Program Fee and Commitment Fee not paid on a prior Settlement Date;
(3) to Servicer, if Servicer is not Parent, an amount equal to the Purchasers' Share of Servicer's Fee accrued during such Settlement Period, plus any previously accrued Purchasers' Share of Servicer's Fee not paid on a prior Settlement Date (it being understood that so long as Servicer is Parent, no amount shall be distributed pursuant to this clause (3));
(4) to the Administrator, an amount equal to the Excess Amount, if any, which amount shall be distributed by the Administrator to each Purchaser, based upon such Purchaser's Funded Percentage, for application to such Purchaser's outstanding Capital;
(5) to the Administrator, all other amounts (other than Capital) then due under this Agreement to the Administrator, the Purchasers, the Affected Parties or the Indemnified Parties;
(6) to Servicer, if Servicer is Parent, an amount equal to the Purchasers' Share of Servicer's Fee accrued during such Settlement Period, plus any previously accrued Purchasers' Share of Servicer's Fee not paid on a prior Settlement Day (it being understood that so long as Servicer is not the Parent, no amount shall be distributed pursuant to clause (6)); and
(7) to Seller, any remaining amounts.
(d) Settlement Date Procedure - Liquidation Period. On each Settlement
Date occurring after the Termination Date, Servicer shall distribute from
Purchasers' Share of Collections received, or deemed received pursuant to
Section 3.02, during the immediately preceding Settlement Period the following
amounts in the following order:
(1) to the Administrator, an amount equal to the Earned Discount accrued during such Settlement Period, plus any previously accrued Earned Discount not paid on a prior Settlement Date, which amount shall be distributed by the Administrator to each Purchaser for application to the accrued Earned Discount with respect to such Purchaser's Capital;
(2) to the Administrator, an amount equal to the Program Fee and Commitment Fee accrued during such Settlement Period, plus any previously accrued Program Fee and Commitment Fee not paid on a prior Settlement Date;
(3) to Servicer, if Servicer is not Parent, an amount equal to the Purchasers' Share of Servicer's Fee accrued during such Settlement Period, plus any previously accrued Purchasers' Share of Servicer's Fee not paid on a prior Settlement Date (it being understood that so long as Servicer is Parent, no amount shall be distributed pursuant to this clause (3));
(4) to the Administrator, an amount equal to the remaining Purchasers' Share of Collections until the Capital is reduced to zero, which amount shall be distributed by the Administrator to each Purchaser, based upon such Purchaser's Funded Percentage, for application to such Purchaser's outstanding Capital;
(5) to the Administrator, all other amounts (other than Capital) then due under this Agreement to the Administrator, the Purchasers, the Affected Parties or the Indemnified Parties;
(6) to Servicer, if Servicer is Parent, an amount equal to the Purchasers' Share of Servicer's Fee accrued during such Settlement Period, plus any previously accrued Purchasers' Share of Servicer's Fee not paid on a prior Settlement Date (it being understood that so long as Servicer is not the Parent, no amount shall be distributed pursuant to clause (6)); and
(7) to Seller, any remaining amounts.
(e) Delayed Payment. If on any day described in this Section 3.01, because Collections during the relevant Settlement Period were less than the aggregate amounts payable, Servicer does not make any payment described in clauses (1) through (6) of Section 3.01(c) or (d), as applicable, the next available Collections in respect of the Asset Interest shall be applied to such payment, and no Reinvestment shall be permitted hereunder until such amount payable has been paid in full.
SECTION 3.02. Deemed Collections; Reduction of Capital, Etc.
(a) Deemed Collections. If
(i) a Dilution occurs or the Unpaid Balance of any Pool Receivable is less than the amount included in calculating the Net Pool Balance for purposes of any Servicer Report for any other reason, or
(ii) any of the representations or warranties of Seller set forth in Section 6.01(k) or (o) with respect to any Pool Receivable were not true when made with respect to any Pool Receivable, or any of the representations or warranties of Seller set forth in Section 6.01(k) are no longer true with respect to any Pool Receivable, or
(iii) without duplication, Seller receives a Deemed Collection pursuant to the Purchase Agreement,
then, on the next succeeding Settlement Date (or, if earlier, on the date the Originator pays a Deemed Collection pursuant to the Purchase Agreement), Seller shall be deemed to have received a Collection of such Pool Receivable
(I) in the case of clause (i) above, in the amount of such Dilution or the difference between the actual Unpaid Balance and the amount included in calculating such Net Pool Balance, as applicable; and
(II) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Pool Receivable; and
(III) in the case of clause (iii) above, in the amount of such Deemed Collection.
(b) Seller's Optional Reduction of Capital. Seller may at any time elect to reduce the Capital as follows:
(i) Seller shall give the Administrator at least five (5) Business Days' prior written notice of such reduction (including the amount of such proposed reduction and the proposed date on which such reduction will commence),
(ii) on the proposed date of commencement of such reduction and on each day thereafter, Servicer shall refrain from reinvesting Collections pursuant to Section 1.03 until the amount thereof not so reinvested shall equal the desired amount of reduction, and
(iii) Servicer shall hold such Collections in trust for Purchasers, pending payment to the Administrator on the next Settlement Date, as provided in Section 1.03;
provided that,
(A) the amount of any such reduction shall be not less than $1,000,000, and the Capital after giving effect to such reduction shall be not less than $25,000,000 (unless Capital shall thereby be reduced to zero), and
(B) Seller shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that such reduction shall commence and conclude in the same Settlement Period.
SECTION 3.03. Payments and Computations, Etc.
(a) Payments. All amounts to be paid or deposited by Seller or Servicer to the Administrator hereunder shall be paid or deposited in accordance with the terms hereof no later than 10:00 a.m. (Boston, Massachusetts time) on the day when due in lawful money of the United States of America in immediately available funds to Bankers Trust Company at ABA# 0210-0103-3, account # 014196; reference: Eaglefunding-Avista, attention: CP Group.
(b) Late Payments. Seller or Servicer, as applicable, shall, to the extent permitted by law, pay to the Administrator, interest on all amounts not paid or deposited when such amount is due hereunder at 2% per annum above the Alternate Base Rate, payable on demand, provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by Applicable Law.
(c) Method of Computation. All computations of interest, Earned Discount and any fees payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed.
ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees. Seller shall pay to the Administrator and Purchasers the fees in the amounts and at the times set forth in the fee letter, dated as of the date hereof, among the Administrator, Parent and Seller (as amended or supplemented from time to time, the "Fee Letter").
SECTION 4.02. Yield Protection.
(a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof
(A) shall subject an Affected Party to any tax, duty or other charge with respect to any Asset Interest owned by or funded by it, or any obligations or right to make Purchases or Reinvestments or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any Capital or Earned Discount owned by, owed to or funded in whole or in part by it or any other amounts due under this
Agreement in respect of the Asset Interest owned by or funded by it or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor (except for franchise taxes or changes in the rate of tax on the net income of such Affected Party imposed by any jurisdiction); or
(B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board), special deposit, compulsory loan or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party, but excluding any reserve, special deposit or similar requirement included in the determination of Earned Discount; or
(C) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; or
(D) shall impose any other condition affecting any Asset Interest owned or funded in whole or in part by any Affected Party, or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor; or
(E) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or a successor thereto) assesses, deposit insurance premiums or similar charges;
and the result of any of the foregoing is
(x) to increase the cost to or to impose a cost on an Affected Party funding or making or maintaining any Purchases or Reinvestments, any purchases, reinvestments, or loans or other extensions of credit under any Program Agreement, or any commitment of such Affected Party with respect to any of the foregoing,
(y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement, or under any Program Agreement with respect thereto, or
(z) to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or under any Program Agreement or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved,
then within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for, calculation of, and amount of such additional costs or reduced amount receivable; provided, however, that no Affected Party shall be required to disclose any confidential or tax planning information in any such statement), Seller shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction, but without duplication of any other similar additional amounts due under any other Program Agreement.
(b) In determining any amount provided for or referred to in this
Section 4.02, an Affected Party may use any reasonable averaging and attribution
methods that it shall deem applicable. Any Affected Party when making a claim
under this Section 4.02 shall submit to Seller a statement as to such increased
cost or reduced return (including reasonable calculations and an explanation in
connection therewith), which statement shall, in the absence of manifest error,
be conclusive and binding upon Seller.
SECTION 4.03. Funding Losses. In the event that any Affected Party
shall incur any loss or expense (including any loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Affected Party to make or maintain any funding with respect to the Asset
Interest) as a result of (i) any settlement with respect to any portion of
Capital funded by such Affected Party being made on any day other than the
scheduled last day of an applicable Settlement Period with respect thereto, or
(ii) any Purchase not being made in accordance with a request therefor under
Section 1.02, or, then, upon demand by the Administrator to Seller, Seller shall
pay to the Administrator for the account of such Affected Party, the amount of
such loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding upon Seller.
ARTICLE V
CONDITIONS TO PURCHASES
SECTION 5.01. Conditions Precedent to Initial Purchase. The initial Purchase hereunder is subject to the condition precedent that the Administrator shall have received, on or before the date of such Purchase, the following, each (unless otherwise indicated) dated such date and in form and substance reasonably satisfactory to the Administrator:
(a) Good standing certificates for each of Parent and Seller issued by the Secretaries of State of the jurisdiction of its incorporation and its principal place of business;
(b) A certificate of the Secretary or Assistant Secretary of each of Seller and Parent certifying (i) a copy of the resolutions of its Board of Directors approving the Transaction Documents to be delivered by it hereunder and the transactions contemplated hereby; (ii) the names and true signatures of the officers authorized on its behalf to sign the Transaction Documents to be delivered by it hereunder (on which certificate the Administrator and each Purchaser may conclusively rely until such time as the Administrator shall receive from Seller or Parent, as the case may be, a revised certificate meeting the requirements of this subsection (b)); (iii) a copy of its by-laws; and (iv) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Transaction Documents to which such Person is a party;
(c) The Certificate of Incorporation or Articles of Incorporation, as applicable, of each of Seller and Parent, duly certified by the Secretary of State of the jurisdiction of its incorporation, as of a recent date;
(d) Acknowledgment copies, or time stamped receipt copies, of proper financing statements (Form UCC-1), filed on or prior to the date of the initial Purchase, naming (i) the Originator as the debtor and seller of Receivables, Seller as the secured party and purchaser and Administrator, for the benefit of Purchasers, as the assignee and (ii) Seller as the debtor and seller of Receivables or an undivided interest therein and Administrator, for the benefit of Purchasers, as the secured party and purchaser, or other, similar instruments or documents, as may be necessary or, in the opinion of the Administrator, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect Seller's and Purchasers' interests in the Pool Assets;
(e) A search report provided in writing to and approved by the Administrator listing all effective financing statements that name the Originator or Seller as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection (d) above and in such other jurisdictions that Administrator shall reasonably request, together with copies of such financing statements (none of which shall cover any Pool Assets, unless executed termination statements and/or partial releases with respect thereto have been delivered to the Administrator), and tax and judgment lien search reports from a Person satisfactory to Servicer and the Administrator showing no evidence of such liens filed against the Originator or Seller;
(f) Duly executed copies of a Lock-Box Agreement with U.S. Bank, National Association, duly executed copies of an undated notice with respect to the Lock-Box Account at Bank of America, National Association and duly executed notices in substantially the form of Exhibit 5.01(f)-2 (a "Postmaster Notice") to the appropriate postmasters with respect to all Lock-Boxes;
(g) Opinions of Heller, Ehrman, White & McAuliffe, counsel to Parent and Seller covering such matters as the Administrator may request;
(h) Such powers of attorney as the Administrator shall reasonably request to enable the Administrator to collect all amounts due under any and all Pool Assets;
(i) A pro forma Servicer Report, prepared in respect of the proposed initial Purchase, assuming a Cut-Off Date of April 30, 2002;
(j) Satisfactory results of a review and audit, conducted by Fleet Securities, of Parent's collection, operating and reporting systems, Credit and Collection Policy, historical receivables data and accounts, including satisfactory results of a review of the Parent's operating location(s) and satisfactory review and approval of the Eligible Receivables in existence on the date of the initial Purchase;
(k) Evidence of payment of Seller by all accrued and unpaid fees (including those contemplated by the Fee Letter), costs and expenses to the extent then due and payable on the date thereof, together with attorneys' fees of the Administrator to the extent invoiced prior to such date, including any such costs, fees and expenses arising under or referenced in Section 14.05;
(l) The Liquidity Agreement, duly executed by Purchaser, the Liquidity Agent and each Liquidity Bank;
(m) The Purchase Agreement, duly executed by the Originator and Seller, and a copy of all documents required to be delivered thereunder;
(n) Duly executed copies of the Fee Letter;
(o) A reassignment and termination agreement in form and substance satisfactory to the Administrator, with respect to the existing receivables purchase facility; and
(p) Copies of the notices to the state Public Utility Commissions to which Parent is subject of the transactions contemplated hereby.
SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments. Each Purchase (including the initial Purchase) and each Reinvestment hereunder, shall be subject to the further conditions precedent that:
(a) in the case of each Purchase, Servicer shall have delivered to the Administrator on or prior to such Purchase, in form and substance reasonably satisfactory to the Administrator, a completed Servicer Report with respect to the immediately preceding calendar month, dated within two (2) Business Days prior to the date of such Purchase, together with such additional information as may be reasonably requested by the Administrator; and
(b) on the date of such Purchase or Reinvestment the following statements shall be true (and Seller by accepting the amount of such Purchase or by receiving the proceeds of such Reinvestment shall be deemed to have certified that):
(i) the representations and warranties contained in Article VI are correct on and as of such day in all material respects as though made on and as of such day and shall be deemed to have been made on such day (except that any such representation or warranty that is expressly stated as being made only as of a specified earlier date shall be true and correct in all material respects as of such earlier date),
(ii) no event has occurred and is continuing, or would result from such Purchase or Reinvestment, that constitutes a Liquidation Event or Unmatured Liquidation Event,
(iii) after giving effect to each proposed Purchase or Reinvestment, Capital will not exceed the Purchase Limit and the Asset Interest will not exceed the Allocation Limit, and
(iv) the Termination Date shall not have occurred;
provided, however, the absence of the occurrence and continuance of an Unmatured Liquidation Event shall not be a condition precedent to any Reinvestment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller. Seller represents and warrants as follows:
(a) Organization and Good Standing. Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Washington, with power and authority to own its properties as such properties are presently owned and to conduct its business as such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Pool Assets.
(b) Due Qualification. Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all other jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals, except where the failure to so qualify or have such licenses or approvals has not had, and could not reasonably be expected to have, a Material Adverse Effect.
(c) Power and Authority; Due Authorization. Seller (i) has all necessary corporate power, authority and legal right to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) carry out the terms of the Transaction Documents to which it is a party, and (C) sell and assign the Asset Interest on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the sale and assignment of the Asset Interest on the terms and conditions herein provided.
(d) Valid Transfer; Binding Obligations. This Agreement constitutes a valid transfer and assignment of the Asset Interest to the Administrator, for the benefit of Purchasers; and this Agreement constitutes, and each other Transaction Document to be signed by Seller when duly executed and delivered will constitute, a legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents to which Seller is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, Seller's certificate of incorporation or by-laws, (ii) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under any Contractual Obligation of Seller that has had, or could reasonably be expected to have, a Material Adverse Effect, (iii) result in the creation or imposition of any Lien upon any of Seller's properties pursuant to the terms of any such Contractual Obligation, other than any
Lien created pursuant to this Agreement or any other Transaction Document, or
(iv) violate any Applicable Law, the violation of which has had, or could
reasonably be expected to have, a Material Adverse Effect.
(f) No Proceedings. There is no litigation, proceeding or investigation pending, or to the best of Seller's knowledge, threatened, before any Governmental Authority or arbitrator (i) asserting the invalidity of this Agreement or any other Transaction Document to which Seller is a party, (ii) seeking to prevent the sale and assignment of the Asset Interest or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document, or (iii) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.
(g) Bulk Sales Act. No transaction contemplated hereby requires compliance with any bulk sales act or similar law.
(h) Government Approvals. No Governmental Action is required for the due execution, delivery and performance by Seller of this Agreement or any other Transaction Document to which Seller is a party, except for the filing of the UCC financing statements referred to in Article V, all of which, at the time required in Article V, shall have been duly made and shall be in full force and effect.
(i) Financial Condition. Since the date of Seller's formation, there has been no material adverse change in Seller's results of operations, financial condition or assets.
(j) Margin Regulations. The use of all funds obtained by Seller under this Agreement will not conflict with or contravene any of Regulations T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time.
(k) Quality of Title. Each Pool Asset is legally and beneficially owned by Seller free and clear of any Lien (other than any Lien created hereby or arising solely as the result of any action taken by a Purchaser or the Administrator); when the Administrator, for the benefit of Purchasers, makes a Purchase or Reinvestment, it shall acquire a valid and enforceable perfected first priority undivided percentage interest to the extent of the Asset Interest in each Pool Asset, free and clear of any Lien (other than any Lien created hereby or arising solely as the result of any action taken by a Purchaser or the Administrator), enforceable against any creditor of, or purchaser from, Seller or the Originator; and no financing statement or other instrument similar in effect covering any Pool Asset is on file in any recording office except such as may be filed (i) in favor of Seller in accordance with the Purchase Agreement, or (ii) in favor of a Purchaser or the Administrator in accordance with this Agreement or in connection with any Lien arising solely as the result of any action taken by a Purchaser or the Administrator.
(l) Accurate Reports. No information included in any Servicer Report or Mid-Month Report to the extent supplied by Seller, or other information, exhibit, financial statement, document, book, record or report furnished by or on behalf of Seller to the Administrator or any Purchaser in connection with this Agreement was inaccurate in any material respect as of the date it was dated or (except as otherwise disclosed in writing to the Administrator at such time) as of the date so furnished, or contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
(m) Offices. The principal place of business and chief executive office
of Seller are located at the address of Seller referred to in Section 14.02, and
the offices where Seller keeps all its books, records and documents evidencing
or relating to Pool Receivables are located at the addresses specified in
Schedule 6.01(m) (or at such other locations, notified to the Administrator in
accordance with Section 7.01(f), in jurisdictions where all action required by
Section 8.05 has been taken and completed).
(n) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts of Seller at such Lock-Box Banks, are specified in Schedule 6.01(n) (or have been notified to the Administrator in accordance with Section 7.03(d)).
(o) Eligible Receivables. Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Purchase, Reinvestment or other calculation of Net Pool Balance was an Eligible Receivable on such date.
(p) Accounting Sale. Seller has accounted for each sale of undivided percentage ownership interests in Receivables in its books and financial statements as sales, consistent with GAAP.
(q) Credit and Collection Policy. Seller has complied in all material respects with the Credit and Collection Policy with regard to each Receivable.
(r) Corporate Name. Seller's complete corporate name is set forth in the preamble to this Agreement, and Seller does not use and has not during the last six years used any other corporate name, trade name, doing business name or fictitious name, other than WWP Receivables Corp.
SECTION 6.02. Representations and Warranties of Parent. Parent represents and warrants as follows:
(a) Organization and Good Standing. Parent has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Washington, with power and authority to own its properties as such properties are presently owned and to conduct its business as such business is presently conducted.
(b) Due Qualification. Parent is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals, except where the failure to so qualify or have such licenses or approvals has not had, and could not reasonably be expected to have, a Material Adverse Effect.
(c) Power and Authority; Due Authorization. Parent (i) has all necessary corporate power, authority and legal right to (A) execute and deliver this Agreement and the other
Transaction Documents to which it is a party and (B) carry out the terms of the Transaction Documents to which it is a party and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each other Transaction Document to be signed by Parent when duly executed and delivered will constitute, a legal, valid and binding obligation of Parent enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which Parent is a party
and the fulfillment of the terms hereof and thereof will not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under the Parent's
articles of incorporation or by-laws, (ii) conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under any Contractual Obligation of Parent that
has had, or could reasonably be expected to have, a Material Adverse Effect,
(iii) result in the creation or imposition of any Lien upon any of Parent's
properties pursuant to the terms of any such Contractual Obligation (other than
any Lien created pursuant to the Transaction Documents), or (iv) violate any
Applicable Law, the violation of which has had, or could reasonably be expected
to have, a Material Adverse Effect.
(f) No Proceedings. Except as set forth in the Annual Report of Parent on Form 10-K for the year ended December 31, 2001, or in any document filed prior to the date of this Agreement pursuant to Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, there is no litigation, proceeding or investigation pending or, to the best of Parent's knowledge, threatened, before any Governmental Authority or arbitrator (i) asserting the invalidity of this Agreement or any other Transaction Document to which Parent is a party, (ii) seeking to prevent the sale and assignment of the Asset Interest or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document, or (iii) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required for the due execution, delivery and performance by Parent of this Agreement or any other Transaction Document to which it is a party, other than the filing of the UCC financing statements and the notice to the relevant state Public Utility Commissions referred to in Article V, all of which, at the time required in Article V, shall have been duly made and shall be in full force and effect.
(h) Financial Condition. The audited consolidated balance sheets of Parent as at December 31, 1999, December 31, 2000 and December 31, 2001, and the related consolidated statements of income and cash flows for the fiscal years ended on such dates reported on by and accompanied by an unqualified report from Deloitte & Touche, present fairly the consolidated financial position of Parent as at such dates and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of Parent as at March 31, 2001, and the related unaudited consolidated statements
of income and cash flows for the three-month period ended on such date, present fairly the consolidated financial position of Parent as at such date, and the consolidated results of its operations and its consolidated cash flows for the three-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and any notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). Since December 31, 2001 there has been no material adverse change in any such business, results of operations, assets or financial position.
(i) Accurate Reports. No information included in any Servicer Report or Mid-Month Report to the extent supplied by Parent, or other information, exhibit, financial statement, document, book, record or report furnished by or on behalf of Parent to the Administrator or any Purchaser, in connection with this Agreement was inaccurate in any material respect as of the date it was dated or (except as otherwise disclosed in writing to the Administrator at such time) as of the date so furnished, or contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
(j) Lock-Box Accounts. Less than 3% of the monthly Collections are sent to, or deposited in, the Lock-Box Accounts located at Wells Fargo Bank and Washington Mutual Bank.
ARTICLE VII
GENERAL COVENANTS
SECTION 7.01. Affirmative Covenants. From the date hereof until the Final Payout Date:
(a) Compliance with Laws, Etc. Each of Seller and Parent will comply in all material respects with all Applicable Laws, including those with respect to the Pool Receivables and the related Contracts, except where noncompliance could not reasonably be expected to have a Material Adverse Effect.
(b) Preservation of Corporate Existence. Each of Seller and Parent will preserve and maintain its corporate existence in the jurisdiction of its formation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence and qualification could reasonably be expected to have a Material Adverse Effect.
(c) Audits. (i) Each of Parent and Seller will from time to time during regular business hours and, unless a Liquidation Event has occurred and is continuing, on reasonable prior written notice, permit the Administrator or any of its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in its possession or under its control relating to Pool Assets, (B) to visit its offices and properties for the purpose of examining such materials
described in clause (i)(A) above, and to discuss matters relating to Pool Assets or its performance hereunder with any of its officers or employees having knowledge of such matters, and (C) to verify the existence and amount of the Receivables; and (ii) without limiting the provisions of clause (i) above, from time to time on the written request of Administrator during regular business hours, permit certified public accountants or other auditors acceptable to the Administrator, at Seller's or Parent's, as the case may be, expense, a review of its books and records with respect to the Pool Receivables; provided, however that unless a Liquidation Event has occurred and is continuing, Seller and Parent shall not be obligated to pay for more than one such review in each calendar year.
(d) Keeping of Records and Books of Account. Each of Seller and Parent will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof) and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Assets (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable).
(e) Performance and Compliance with Receivables and Contracts. Seller will timely and fully perform and comply (or cause the Originator to perform and comply pursuant to the Purchase Agreement) with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all other agreements related to such Pool Receivables, except where failure to do so would not materially adversely affect the validity, enforceability or collectibility of the related Pool Receivable.
(f) Location of Records. Each of Seller and Parent will keep its principal place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables and all related Contracts and all other agreements related to such Pool Receivables (and all original documents relating thereto), at its address(es) referred to in Section 14.02 or, upon 30 days' prior written notice to the Administrator, at such other locations in jurisdictions where all action required by Section 8.05 shall have been taken and completed.
(g) Credit and Collection Policies. Each of Seller and Parent, at its own expense, will timely and fully perform and comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contracts.
(h) Collections. Each of Seller and Parent will (i) instruct all
Obligors to cause all Collections to be sent to a Lock-Box that is the subject
of a Postmaster Notice and (ii) deposit, and instruct each Lock-Box Bank to
deposit, all such Collections directly into a Lock-Box Account that is the
subject of a Lock-Box Agreement, provided that the Lock-Box Accounts at Wells
Fargo Bank, Bank of America and Washington Mutual Bank shall not be subject to a
Lock-Box Agreement as of the date hereof. Seller and Servicer hereby agree to
(i) deliver to the Administrator Lock-Box Agreement executed by Wells Fargo Bank
and Washington Mutual Bank on or before June 21, 2002, (ii) from and after June
10, 2002, deposit all checks and other payments received in the Lock-Boxes into
a Lock-Box Account that is subject to a Lock-Box Agreement and (iii) close the
Lock-Box Account located at Bank of America on or before August 30, 2002. In the
event that Parent or Seller receives Collections directly from any
Obligor, Parent or Seller, as the case may be, shall deposit such Collections into a Lock-Box Account within two Business Days of receipt thereof.
(i) Net Worth. Seller will maintain a Tangible Net Worth of at least $1,000,000.
(j) Quality of Title. Each of Seller and Parent will take all action reasonably necessary or advisable to establish and maintain a valid and enforceable perfected first priority undivided percentage interest in favor of the Administrator, for the benefit of the Purchasers, to the extent of the Asset Interest in each Pool Asset, free and clear of any Lien (other than any Lien created by this Agreement or any other Transaction Document or arising solely as a result of any action taken by a Purchaser or the Administrator), enforceable against any creditor of, or purchaser from, Seller or Parent.
(k) Financial Covenants. Parent will not permit (i) Consolidated Total Debt to Consolidated Total Capitalization to be, at any time, greater than 0.65 to 1.00, or (ii) the ratio of the Avista Utilities EBITDA to Avista Utilities Interest Expense to be less than 1.6 to 1 for (a) the two-quarter fiscal quarter period ending March 31, 2002, (b) the three-fiscal quarter period ending June 30, 2002, or (c) any four-fiscal quarter period ending thereafter.
SECTION 7.02. Reporting Requirements. From the date hereof until the Final Payout Date:
(a) Quarterly Financial Statements. As soon as available and in any event within 50 days after the end of each of the first three quarterly periods of each fiscal year (i) Seller will furnish to the Administrator copies of its unaudited financial statements, consisting of at least a balance sheet of Seller as at the close of such quarter and the related unaudited statements of income and of cash flows for such quarter and for the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by the chief financial officer or treasurer of Seller as being fairly stated in all material respects (subject to normal year-end audit adjustments) and (ii) Parent will furnish to the Administrator copies of the unaudited consolidated financial statements of Parent, consisting of at least an unaudited consolidated balance sheet of Parent and its Subsidiaries as at the end of such quarter and the related unaudited statements of income and cash flows for such quarter and for the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by the principal financial officer of Parent as being fairly stated in all material respects (subject to normal year-end audit adjustments); all of the foregoing financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such officer and disclosed therein, provided that such financial statements need not contain footnotes);
(b) Annual Financial Statements. As soon as available and in any event within 105 days after the end of each fiscal year (i) Seller will furnish to the Administrator copies of its unaudited financial statements, consisting of at least a balance sheet of Seller as at the end of such year and the related unaudited consolidated statements of income and cash flows for such year, setting forth in each case in comparative form the figures for the previous year certified by
the chief financial officer or treasurer of Seller as being fairly stated in all material respects; and (ii) Parent will furnish to the Administrator copies of its audited financial statements, consisting of at least the audited consolidated balance sheet of Parent and its Subsidiaries as at the end of such year and a related audited consolidated statements of income and of cash flow for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going-concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche or other independent certified public accountants of national recognized standing; all of the foregoing financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants and disclosed therein);
(c) Compliance Certificate. Together with each quarterly and annual financial statement delivered in accordance with the preceding paragraphs, Parent will furnish to the Administrator a compliance certificate showing a calculation of the financial covenants set forth in Section 7.01(k) certified by the chief financial officer or treasurer of Parent;
(d) Liquidation Events. Each of Seller and Parent will furnish to the Administrator, as soon as possible and in any event within three Business Days after an officer of Seller or Parent obtains actual knowledge of the occurrence of each Liquidation Event and each Unmatured Liquidation Event, a written statement of the chief financial officer or chief accounting officer of Seller or Parent, as the case may be, setting forth details of such event and the action that Seller or Parent, as the case may be, proposes to take with respect thereto;
(e) Litigation. Each of Seller and Parent will furnish to the Administrator, as soon as possible and in any event within five Business Days of Seller's or Parent's actual knowledge thereof, notice of (i) any litigation, investigation or proceeding which may exist at any time which is not fully covered by insurance and which could be reasonably expected to have a Material Adverse Effect and (ii) any material adverse development in previously disclosed litigation;
(f) Change in Credit and Collection Policy. Each of Seller and Parent will furnish to the Administrator, prior to its effective date, notice of any material change in the Credit and Collection Policy;
(g) Change in Name. Seller will furnish to the Administrator, at least thirty days prior to any change in Seller's name, jurisdiction of organization or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof; and
(h) Other Information. Each of Seller and Parent will furnish to the Administrator such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Parent or Seller or any of Parent's Subsidiaries as the Administrator may from time to time reasonably request.
SECTION 7.03. Negative Covenants. From the date hereof until the Final Payout Date:
(a) Sales, Liens, Etc. Seller will not, except as otherwise provided herein or in the other Transaction Documents, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Asset or any interest therein.
(b) Extension or Amendment of Receivables. Neither Parent nor Seller will, except as otherwise permitted in Section 8.02, extend, amend or otherwise modify, or permit Servicer to extend, amend or otherwise modify, the terms of any Pool Receivable; or amend, modify or waive, or permit Servicer to amend, modify or waive, any term or condition of any Contract related to a Pool Receivable.
(c) Change in Business or Credit and Collection Policy. Neither Servicer nor Seller will make any change in the character of its business or in the Credit and Collection Policy (with the understanding that Servicer may adjust, modify or otherwise affect Receivables as permitted in Section 8.02(c)), which change, in either case, could materially impair the collectibility of a significant portion of the Pool Receivables or otherwise materially adversely affect the interests or remedies of the Administrator or any Purchaser under this Agreement or any other Transaction Document.
(d) Change in Payment Instructions to Obligors. Neither Parent nor Seller will add or terminate any Lock-Box, or any bank as a Lock-Box Bank or any Lock-Box Account from those listed in Schedule 6.01(n) or make any change, or permit Servicer to make any change, in its instructions to Obligors regarding payments to be made to Seller or Servicer or payments to be made to any Lock-Box or Lock-Box Bank, unless the Administrator shall have received prior notice of such addition, termination or change and duly executed copies of Postmaster Notices to the applicable postmaster, or Lock-Box Agreements with each new Lock-Box Bank or with respect to each new Lock-Box Account, as the case may be.
(e) Mergers, Acquisitions, Sales, etc.
(i) Parent will not merge into or consolidate with any other Person or permit any other Person (without the prior written consent of the Administrator, not to be unreasonably withheld) to merge with or 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 Parent's business, except that, if at the time of such merger, consolidation, or acquisition, and immediately after giving effect to such merger, consolidation, or acquisition, no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, then (A) Parent may merge with or into or consolidate with any Subsidiary (other than Seller) in a transaction in which Parent is the surviving corporation, (B) Parent may purchase, lease or otherwise acquire from any Subsidiary (other than Seller) 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) Parent may merge with or
into, or consolidate with, any other Person or an Affiliate of such
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, (a) if
Parent is the surviving entity, the senior secured long-term debt
rating of Parent shall be at least BBB- or higher by S&P and Baa3 or
higher by Moody's immediately after such merger or consolidation, or
(b) in the case of a merger or consolidation in which Parent is not the
surviving entity, (1) the surviving entity shall assume in writing the
obligation of Parent under this Agreement and each other Transaction
Document and (2) 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 Baa2 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 Parent
and its Subsidiaries after giving effect to such merger or
consolidation, computed and consolidated in accordance with GAAP
consistently applied, or (D) Parent 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 Parent's proportionate share of the assets of the Person whose
capital stock is being acquired) do not exceed 10% of the total assets
of Parent and its Subsidiaries, after giving effect to such
acquisition, computed and consolidated in accordance with GAAP
consistently applied.
(ii) Seller will not merge or consolidate with any other Person, or permit any other Person to merge 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 or 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 the acquisition of the Receivables and Related Assets pursuant to the Purchase Agreement and the sale of an interest in the Pool Receivables and Related Assets hereunder.
(f) Deposits to Special Accounts. Neither Parent nor Seller will deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Pool Receivables.
(g) Other Business. Seller will not (i) engage in any business other than the transactions contemplated by the Transaction Documents; (ii) incur any indebtedness, obligation, liability or contingent obligation of any kind other than pursuant to this Agreement or the Purchase Agreement; or (iii) form any Subsidiary or make any investments in any other Person.
(h) Certificate of Incorporation; Purchase Agreement. Seller will not amend, modify, terminate, revoke or waive any provision of its certificate of incorporation, the Initial Purchaser Note or the Purchase Agreement.
(i) Restricted Payments. Seller will not declare or make any dividend or other distributions to any of its shareholders, redeem or purchase any of its capital stock or make any loan or other payments to any of its shareholders (other than (1) payments of the purchase price of Receivables as set forth in the Purchase Agreement, (2) the turn-over of Collections of Reconveyed Receivables to the Originator as set forth in the Purchase Agreement, (3) payment of Servicer's Fee so long as Parent is Servicer and (4) payment of reasonable management fees and reimbursement of reasonable expenses of Parent incurred in connection with managing Seller) unless, in each case, no Liquidation Event or Unmatured Liquidation Event has occurred and is continuing or would result therefrom.
(j) Change of Name or Location. Seller will not change its name or the location of its principal place of business or chief executive office or its corporate structure or its jurisdiction or organization, unless Seller has given the Administrator at least thirty (30) days prior notice thereof, and has taken all steps necessary or advisable under the UCC to continue the perfection and priority of the Administrator's and each Purchaser's interest in the Pool Assets.
SECTION 7.04. Separate Existence. Each of Seller and Parent hereby acknowledges that each Purchaser, the Program Support Providers and the Administrator are entering into the transactions contemplated by this Agreement and the other Transaction Documents in reliance upon Seller's identity as a legal entity separate from Parent. Therefore, from and after the date hereof, each of Seller and Parent shall take all steps specifically required by this Agreement or by any Purchaser or the Administrator to continue Seller's identity as a separate legal entity and to make it apparent to third Persons that Seller is an entity with assets and liabilities distinct from those of Parent and any other Person, and is not a division of Parent or any other Person. Without limiting the generality of the foregoing and in addition to and consistent with the other covenants set forth herein, each of Seller and Parent shall take such actions as shall be required in order that:
(a) Seller will be a limited purpose corporation whose primary activities are restricted in its certificate of incorporation to purchasing or otherwise acquiring from the Originator, owning, holding, granting security interests, or selling interests, in Pool Assets, entering into agreements for the selling and servicing of the Receivables Pool, and conducting such other activities as it deems necessary or appropriate to carry out its primary activities;
(b) Seller shall not engage in any business or activity, or incur any indebtedness or liability other than as expressly permitted by the Transaction Documents;
(c) Not less than one member of Seller's Board of Directors shall be an Independent Director. The certificate of incorporation of Seller shall provide that (i) Seller's Board of Directors shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy or insolvency petition or similar proceeding or a merger or dissolution with respect to Seller unless the Independent Director shall approve the taking of such action in writing prior to
the taking of such action and (ii) such provision cannot be amended without the prior written consent of the Independent Director;
(d) The Independent Director shall not at any time serve as a trustee in bankruptcy for Seller, Parent or any Affiliate thereof;
(e) Any employee, consultant or agent of Seller will be compensated from Seller's funds for services provided to Seller. Seller will not engage any agents other than its attorneys, auditors and other professionals, and a Servicer as contemplated by the Transaction Documents for the Receivables Pool, which Servicer will be fully compensated for its services by payment of Servicer's Fee and a manager, which manager will be fully compensated from Seller's funds;
(f) Seller will not incur any material indirect or overhead expenses for items shared with Parent (or any other Affiliate thereof) which are not reflected in Servicer's Fee or the fee to Parent in its role as manager for Seller. To the extent, if any, that Seller (or any other Affiliate thereof) share items of expenses not reflected in Servicer's Fee or the manager's fee, such as legal, auditing and other professional services, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered, it being understood that Parent shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including, without limitation, legal and other fees;
(g) Seller's operating expenses will not be paid by Parent or any other Affiliate thereof;
(h) Seller will have its own stationery;
(i) Seller's books and records will be maintained separately from those of Parent and any other Affiliate thereof;
(j) All financial statements of Parent or any Affiliate thereof that are consolidated to include Seller will contain detailed notes clearly stating that (A) all of Seller's assets are owned by Seller, and (B) Seller is a separate entity with creditors who have received security interests in Seller's assets;
(k) Seller's assets will be maintained in a manner that facilitates their identification and segregation from those of Parent or any Affiliate thereof;
(l) Seller will strictly observe corporate formalities in its dealings with Parent or any Affiliate thereof, and funds or other assets of Seller will not be commingled with those of Parent or any Affiliate thereof except as permitted by this Agreement in connection with servicing the Pool Receivables. Seller shall not maintain joint bank accounts or other depository accounts to which Parent or any Affiliate thereof (other than Parent in its capacity as Servicer) has independent access;
(m) Seller will maintain arms'-length relationships with Parent (and any Affiliate thereof). Any Person that renders or otherwise furnishes services to Seller will be compensated by Seller at market rates for such services it renders or otherwise furnishes to Seller. Neither
Seller nor Parent will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other. Seller and Parent will immediately correct any known misrepresentation with respect to the foregoing, and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity; and
(n) Seller and Parent will take such other actions as may be necessary to ensure that the facts and assumptions set forth in the opinion issued by Heller, Ehrman, White & McAuliffe in connection with the initial Purchase and in the certificate accompanying such opinion remain true and correct.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.
(a) Parent as Initial Servicer. The servicing, administering and
collection of the Pool Receivables shall be conducted by the Person designated
as servicer hereunder ("Servicer") from time to time in accordance with this
Section 8.01. Until the Administrator gives to Parent a Successor Notice, Parent
is hereby designated as, and hereby agrees to perform the duties and obligations
of, Servicer pursuant to the terms hereof.
(b) Successor Notice; Servicer Transfer Events. Upon Parent's receipt of notice from the Administrator of the Administrator's designation of a new Servicer (a "Successor Notice"), Parent agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrator reasonably believes will facilitate the transition of the performance of such activities to the new Servicer, and the new Servicer shall assume each and all of Parent's obligations to service and administer such Pool Receivables, on the terms and subject to the conditions herein set forth, and Parent shall use its commercially reasonable efforts to assist the new Servicer in assuming such obligations. The Administrator agrees not to give Parent a Successor Notice until after the occurrence of a Liquidation Event (any such Liquidation Event being herein called a "Servicer Transfer Event"), in which case such Successor Notice may be given at any time in the Administrator's discretion.
(c) Resignation. The Parent acknowledges that the Administrator and each Purchaser have relied on the Parent's agreement to act as Servicer hereunder in making their decision to execute and deliver this Agreement. Accordingly, the Parent agrees that it will not voluntarily resign as Servicer.
(d) Subcontracts. Servicer may, with the prior consent of the Administrator, subcontract with any other Person for servicing, administering or collecting the Pool Receivables, provided that (i) such sub-servicer shall agree in writing to perform its duties and obligations in a manner not inconsistent with the duties and obligations of Servicer pursuant to the terms hereof; (ii) Servicer shall remain primarily liable for the performance of the duties and obligations of Servicer pursuant to the terms hereof, (iii) Seller, the Administrator and each
Purchaser shall have the right to look solely to Servicer for performance, and
(iv) any such subcontract may be terminated at the option of the Administrator
upon the occurrence of a Servicer Transfer Event.
(e) Servicing Programs. In the event that Servicer uses any software program in servicing the Pool Receivables that it licenses from a third party, upon the occurrence of a Servicer Transfer Event, Servicer shall use its commercially reasonable efforts to obtain whatever licenses or approvals are necessary to allow the Administrator or the new Servicer to use such program.
SECTION 8.02. Duties of Servicer.
(a) Appointment; Duties in General. Each of Seller, each Purchaser and the Administrator hereby appoints Servicer as its agent, as from time to time designated pursuant to Section 8.01, to enforce its rights and interests in and under the Pool Assets. Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with Applicable Law and the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. Servicer shall set aside for the account of Seller and Purchasers their respective allocable shares of the Collections of Pool Receivables in accordance with Section 1.03 but shall not be required (unless otherwise instructed by the Administrator) to segregate the funds constituting such portions of such Collections prior to the remittance thereof in accordance with Section 3.01. If instructed by the Administrator, Servicer shall segregate and deposit with a bank designated by the Administrator, Purchasers' Share of Collections, on the second Business Day following receipt by Servicer of such Collections in immediately available funds.
(c) Modification of Receivables. So long as no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, Servicer (i) may in accordance with the Credit and Collection Policy, adjust the Unpaid Balance of any Defaulted Receivable or extend the time for payment of any Defaulted Receivable (but in no event to a date later than 45 days from the date of the original invoice), provided that (A) such extension or adjustment shall not alter the status of such Pool Receivable as an Overdue Receivable or a Defaulted Receivable or limit the rights of any Purchaser or the Administrator under this Agreement, and (B) the aggregate amount of all such adjustments made in any Settlement Period, plus the aggregate Unpaid Balance of all Pool Receivables that have been extended during such Settlement Period, shall not exceed 2% of the aggregate Unpaid Balance of all Pool Receivables as at the Cut-Off Date for such Settlement Period and (ii) shall adjust the Unpaid Balance of any Receivable to reflect the reductions or cancellations described in the first sentence of Section 3.02(a).
(d) Documents and Records. Seller shall deliver to Servicer, and Servicer shall hold in trust for Seller and Purchasers in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence Pool Receivables.
(e) Certain Duties to Seller. Servicer shall, as soon as practicable following receipt, turn over to Seller that portion of Collections of Pool Receivables representing Seller's undivided interest therein, less Seller's Share of Servicer's Fee. Seller hereby directs Servicer to pay any Collections of any Reconveyed Receivable directly to the Originator to be applied pursuant to the Purchase Agreement. Servicer shall, as soon as practicable upon demand, deliver to Seller copies of documents, instruments and records in its possession that evidence Pool Receivables.
(f) Termination. Servicer's authorization under this Agreement shall terminate upon the Final Payout Date.
(g) Power of Attorney. Seller hereby grants to Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of Seller all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by Seller or transmitted or received by a Purchaser (whether or not from Seller) in connection with any Receivable. Notwithstanding anything to the contrary contained herein, the Administrator may direct Servicer to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security; provided, however, that no such direction may be given unless either (i) a Liquidation Event has occurred or (ii) the Administrator believes in good faith that failure to commence, settle, or effect such legal action, foreclosure or repossession, could adversely affect Receivables constituting a material portion of the Pool Receivables, provided that the Administrator has given Servicer at least two Business Days' notice of its intention to give such direction.
SECTION 8.03. Rights of the Administrator.
(a) Notice to Obligors. At any time after the occurrence of a Liquidation Event, the Administrator may notify the Obligors of Pool Receivables, or any of them, of the ownership of the Asset Interest by the Administrator, for the benefit of Purchasers.
(b) Notice to Lock-Box Banks. At any time following the earlier to occur of (i) the occurrence of a Liquidation Event, and (ii) the commencement of the Liquidation Period, the Administrator is hereby authorized to give notice to the related postmaster(s) and/or Lock-Box Banks, as provided in the Lock-Box Agreements, of the transfer to the Administrator of dominion and control over the lock-boxes and Lock-Box Accounts. Each of Servicer and Seller hereby transfers to the Administrator, effective when the Administrator shall give notice to the related postmaster(s) and/or Lock-Box Banks as provided in the Lock-Box Agreements, the exclusive dominion and control over such lock-boxes and accounts, and shall take any further action that the Administrator may reasonably request to effect such transfer. Any proceeds of Pool Receivables received by Seller or Parent, as Servicer or otherwise, thereafter shall be sent immediately to the Administrator.
(c) Rights on Servicer Transfer Event. At any time following the designation of a Servicer other than Parent pursuant to Section 8.01:
(i) The Administrator may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Administrator or its designee.
(ii) Parent shall, at the Administrator's request and at Parent's expense, give notice of such ownership to each said Obligor and direct that payments be made directly to the Administrator or its designee.
(iii) Parent and Seller shall, at the Administrator's request,
(A) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and disks)
which evidence the Pool Receivables and the related Contracts and
Related Security, or which are otherwise necessary or desirable to
collect such Pool Receivables and make the same available to the
Administrator at a place selected by the Administrator, and (B)
segregate all cash, checks and other instruments received by it from
time to time constituting Collections in a manner acceptable to the
Administrator and promptly upon receipt, remit all such cash, checks
and instruments, duly endorsed or with duly executed instruments of
transfer, to the Administrator.
(iv) Each of Seller and each Purchaser hereby authorizes the Administrator, and grants to the Administrator an irrevocable power of attorney, to take any and all steps in Seller's name and on behalf of Seller and any Purchaser which are necessary or desirable, in the reasonable determination of the Administrator, to collect all amounts due under any and all Pool Receivables including, without limitation, endorsing Seller's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts.
SECTION 8.04. Responsibilities of Seller. Anything herein to the contrary notwithstanding:
(a) Contracts. Seller shall perform, or cause the Originator to perform under the Purchase Agreement, all of its material obligations under the Contracts related to the Pool Receivables and under the other agreements related thereto to the same extent as if the Asset Interest had not been sold hereunder, and the exercise by the Administrator or its designee of its rights hereunder shall not relieve Seller from any obligations under such Contracts and other agreements.
(b) Limitation of Liability. Neither the Administrator nor any Purchaser shall have any obligation or liability with respect to any Pool Receivables, the related Contracts or any other related agreements, nor shall any of them be obligated to perform any of the obligations of Seller or the Originator thereunder.
SECTION 8.05. Further Action Evidencing Purchases and Reinvestments.
(a) Further Assurances. Seller shall, at its expense, take all action necessary or advisable to establish and maintain a valid and enforceable first priority perfected undivided ownership interest, to the extent of the Asset Interest, in the Pool Assets, free and clear of any Lien, in favor of the Administrator, for the benefit of Purchasers. Without limiting the generality of the foregoing, Seller will upon the request of the Administrator or its designee execute and file
such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate to evidence or perfect the interest described in the previous sentence.
(b) Data Processing Records. Each of Parent and Seller will mark its master data processing records evidencing the Pool Receivables with the legend set forth below evidencing that the Asset Interest has been sold in accordance with this Agreement.
AN OWNERSHIP AND SECURITY INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN GRANTED AND ASSIGNED TO FLEET SECURITIES, INC., AS ADMINISTRATOR, PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF MAY 29, 2002, AMONG AVISTA CORPORATION, AVISTA RECEIVABLES CORP., EAGLEFUNDING CAPITAL CORPORATION, FLEET NATIONAL BANK AND FLEET SECURITIES, INC., AS THE ADMINISTRATOR.
(c) Additional Financing Statements; Performance by Administrator. Seller hereby authorizes the Administrator or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any portion of the Asset Interest now existing or hereafter arising in the name of Seller without the signature of Seller to the extent permitted by Applicable Law. If Seller or Parent fails to perform any of its agreements or obligations under this Agreement, the Administrator or its designee may (but shall not be required to), after notice to Seller or Parent (unless immediate action is reasonably required to protect the interests of the Administrator or Purchasers), itself perform, or cause performance of, such agreement or obligation, and the expenses of the Administrator or its designee incurred in connection therewith shall be payable by Seller or Parent, as the case may be.
(d) Continuation Statements; Opinion. Without limiting the generality of subsection (a), Seller will, not earlier than six (6) months and not later than three (3) months prior to the fifth anniversary of the date of filing of the financing statement referred to in Section 5.01(d) or any other financing statement filed pursuant to this Agreement or in connection with any Purchase hereunder, unless the Final Payout Date shall have occurred, (i) execute, if required, and deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement and (ii) deliver an opinion of counsel, from counsel reasonably satisfactory to the Administrator, to the effect that the Administrator has a perfected interest in the Pool Assets, free and clear of all other Liens (subject to customary assumptions and exclusions).
SECTION 8.06. Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to Seller shall, (i) except as otherwise specified by such Obligor, (ii) except as otherwise required by the underlying Contract or law or (iii) unless the Administrator instructs otherwise, be applied, first, as a Collection of any Pool Receivable or Receivables then outstanding of such Obligor in the order of the age of such Pool Receivables,
starting with the oldest of such Pool Receivable and, second, to any other indebtedness of such Obligor.
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest. To secure all obligations of Seller arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, payments on account of Collections of Pool Receivables received or deemed to be received and fees, Seller hereby assigns and grants to Administrator, for the benefit of the Secured Parties, a security interest in all of Seller's right, title and interest (including specifically any undivided interest retained by Seller hereunder) now or hereafter existing in, to and under all of the Pool Assets.
SECTION 9.02. Further Assurances. The provisions of Section 8.05 shall apply to the security interest granted under Section 9.01 as well as to the Purchases, Reinvestments and the Asset Interest hereunder.
SECTION 9.03. Remedies. Upon the occurrence of a Liquidation Event, the Administrator and Purchasers shall have, with respect to the collateral granted pursuant to Section 9.01, and in addition to all other rights and remedies available to Purchaser or the Administrator under this Agreement or other applicable law, all the rights and remedies of a secured party upon default under the UCC.
ARTICLE X
LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events. The following events shall be "Liquidation Events" hereunder:
(a) (i) Servicer (if Parent or an Affiliate of Parent is Servicer) shall fail to perform or observe any obligation of Servicer to provide any Servicer Report or Mid-Month Report when due hereunder, (ii) Servicer (if Parent or an Affiliate of Parent is Servicer) shall fail to perform any obligation of Servicer pursuant to Section 8.02(a) or (c) and such failure shall remain unremedied for more than three Business Days after written notice thereof shall have been given by the Administrator to Servicer or (iii) Seller or Servicer (if Parent or its Affiliate is Servicer) shall fail to make any payment or deposit to be made by it hereunder within two (2) Business Days of the date when due; or
(b) Any representation or warranty made or deemed to be made by Seller, Parent or the Originator under or in connection with this Agreement, any other Transaction Document, any
Mid-Month Report or any Servicer Report or other information or report delivered pursuant hereto shall prove to have been inaccurate in any material respect when made; or
(c) Seller, Parent or the Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any of the other Transaction Documents on its part to be performed or observed and any such failure shall continue unremedied for thirty (30) days after written notice thereof shall have been given by the Administrator to Seller or Parent, as the case may be; or
(d) A default shall have occurred and be continuing under any instrument or agreement evidencing, securing or relating to Indebtedness in excess of $25,000,000 of, or guaranteed by, Parent or any Subsidiary thereof, which default is a payment default or if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration; or
(e) This Agreement or any Purchase or any Reinvestment pursuant to this
Agreement shall for any reason (other than pursuant to the terms hereof) (i)
cease to create, or the Asset Interest shall for any reason cease to be, a valid
and enforceable perfected undivided percentage interest to the extent of the
Asset Interest in each Pool Asset, free and clear of any other Lien (other than
a Lien arising solely as the result of any action taken by a Purchaser or the
Administrator) or (ii) cease to create with respect to the items described in
Section 9.01, or the interest of the Administrator (for the benefit of
Purchasers) with respect to such items shall cease to be, a valid and
enforceable first priority perfected security interest, free and clear of any
other Lien (other than a Lien arising solely as the result of any action taken
by a Purchaser or the Administrator); or
(f) An Event of Bankruptcy shall have occurred and remain continuing with respect to Seller, Parent or the Originator; or
(g) The average of the Sales-Based Dilution Ratios for any three successive Cut-Off Dates exceeds 2.50%; or
(h) The average of the Default Ratios for any three successive Cut-Off Dates exceeds 1.25%; or
(i) On any Settlement Date, after giving effect to the payments made under Section 3.01(c), the Asset Interest exceeds the Allocation Limit; or
(j) The average of the Delinquency Ratios for any three successive Cut-Off Dates is greater than 3.60%; or
(k) The average of the Collection Ratios for any two consecutive Cut-Off Dates is less than 84%; or
(l) There shall exist any event or occurrence that has caused a Material Adverse Effect; or
(m) Seller or Parent is subject to a Change-in-Control; or
(n) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the assets of Seller or Parent and such lien shall not have been released within seven (7) days, or the Pension Benefit Guaranty Corporation shall file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of Seller or Parent and such lien shall not have been released within seven (7) days.
SECTION 10.02. Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation Event (other than a Liquidation Event described in subsection (f) of Section 10.01), the Administrator shall, at the request, or may with the consent, of Purchasers, by notice to Seller declare the Purchase Termination Date to have occurred and the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation Event described in (i) subsection (f) of Section 10.01 with respect to Parent or Seller or (ii) subsection (i) of Section 10.01 and the continuance thereof for more than two (2) Business Days, the Purchase Termination Date shall occur and the Liquidation Period shall commence automatically.
(c) Additional Remedies. Upon any Purchase Termination Date occurring pursuant to this Section 10.02, no Purchases or Reinvestments thereafter will be made, and the Administrator and each Purchaser shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other Applicable Law, which rights shall be cumulative, including the right to foreclose upon and sell all, or any portion, of the Pool Assets in a public or private sale (and Seller hereby agrees that ten (10) days prior notice of any such sale shall be commercially reasonable notice thereof).
ARTICLE XI
THE ADMINISTRATOR
SECTION 11.01. Authorization and Action. Pursuant to the Program Agreements, each Purchaser has appointed and authorized the Administrator (or its designees) to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrator by the terms hereof, together with such powers as are reasonably incidental thereto.
SECTION 11.02. Administrator's Reliance, Etc. The Administrator and its
directors, officers, agents or employees shall not be liable for any action
taken or omitted to be taken by it or them under or in connection with the
Transaction Documents (including, without limitation, the servicing,
administering or collecting of Pool Receivables as Servicer pursuant to Section
8.01), except for its or their own gross negligence, bad faith or willful
misconduct. Without limiting the generality of the foregoing, the Administrator:
(a) may consult with legal counsel,
independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Purchaser or any other holder of any interest in Pool Receivables and shall not be responsible to any Purchaser or any such other holder for any statements, warranties or representations made in or in connection with any Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Transaction Document on the part of Seller or Parent or to inspect the property (including the books and records) of Seller, the Originator or Parent; (d) shall not be responsible to Purchaser or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document or any Receivable; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile) believed by it in good faith to be genuine and signed or sent by the proper party or parties.
SECTION 11.03. Fleet and Affiliates. Fleet and any of its Affiliates may generally engage in any kind of business with Seller, Parent, the Originator or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of Seller, Parent, the Originator or any Obligor or any of their respective Affiliates, all as if Fleet were not the Administrator, and without any duty to account therefor to any Purchaser or any other holder of an interest in Pool Receivables.
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.
(a) Neither Seller nor Parent may assign its rights, or delegate its duties, hereunder or any interest herein without the prior written consent of the Administrator. No Purchaser may assign its rights hereunder (although it may delegate its duties hereunder as expressly indicated herein) or the Asset Interest (or any portion thereof) to any Person without the prior written consent of Seller, which consent shall not be unreasonably withheld; provided, however, that, without such consent, Conduit Purchaser may assign all of its rights and interests in the Transaction Documents, together with all its interest in the Asset Interest, to (i) Fleet or any Subsidiary thereof, or (ii) to any "bankruptcy remote" special purpose entity the business of which is administered by Fleet or any Subsidiary thereof, so long as such entity has the ability to issue commercial paper notes, or to cause the issuance of commercial paper notes, to fund the Asset Interest or (iii) to any Liquidity Bank (or agent on behalf of the Liquidity Banks). If Conduit Purchaser notifies Seller and Parent that it has decided to assign its rights and delegate its duties hereunder to the Liquidity Banks (or an agent therefor) and the Liquidity Banks agree to assume the obligations of the Conduit Purchaser hereunder, Seller and Parent agree to enter into such amendments hereto and to the other Transaction Documents as the Administrator may reasonably request to reflect such assignment and delegation.
(b) Seller agrees to advise the Administrator within five (5) Business Days after notice to Seller of any proposed assignment by a Purchaser of the Asset Interest (or any portion thereof), not otherwise permitted under subsection (a), of Seller's consent or non-consent to such assignment. All of the aforementioned assignments shall be upon such terms and conditions as the assigning Purchaser and the assignee may mutually agree.
SECTION 12.02. Rights of Assignee. Upon the assignment by a Purchaser in accordance with this Article XII, the assignee receiving such assignment shall have all of the rights and shall assume in writing all of the obligations of the assigning Purchaser with respect to the Transaction Documents and the Asset Interest (or such portion thereof as has been assigned), and the assigning Purchaser shall be released from such obligations.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities.
(a) General Indemnity by Seller. Without limiting any other rights which any such Person may have hereunder or under Applicable Law, Seller hereby agrees to indemnify each of the Administrator, each Purchaser, each Program Support Provider, each of their respective Affiliates, and all successors, permitted transferees, participants and permitted assigns and all officers, directors, shareholders, members, controlling persons, employees and agents of any of the foregoing (each an "Indemnified Party"), within five (5) Business Days of demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or relating to the Transaction Documents or the ownership or funding of the Asset Interest or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent determined by a court of competent jurisdiction to have resulted from gross negligence, bad faith or willful misconduct on the part of such Indemnified Party or (b) Indemnified Amounts which have the effect of recourse for non-payment of the Pool Receivables due to credit problems of the Obligors (except as otherwise specifically provided in this Agreement). Without limiting the foregoing, Seller shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to:
(i) the transfer by Seller of any interest in any Pool Receivable other than the transfer of an Asset Interest to the Administrator, for the benefit of Purchasers, pursuant to this Agreement and the grant of a security interest to the Administrator pursuant to Section 9.01;
(ii) any representation or warranty made by Seller under or in connection with any Transaction Document, any Servicer Report, any Mid-Month Report or any other information or report delivered by or on behalf of Seller pursuant hereto, which shall have been false, incorrect or misleading in any respect when made;
(iii) the failure by Seller to comply with any Applicable Law, or the nonconformity of any Pool Receivable or the related Contract with any Applicable Law;
(iv) the failure to vest and maintain vested in the Administrator, for the benefit of Purchasers, an undivided percentage ownership interest, to the extent of the Asset Interest, in the Pool Assets, free and clear of any Lien, other than a Lien created pursuant to this Agreement or any other Transaction Document or arising solely as a result of an act of a Purchaser or the Administrator, whether existing at the time of any Purchase or Reinvestment of such Asset Interest or at any time thereafter;
(v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Pool Assets, whether at the time of any Purchase or Reinvestment or at any time thereafter;
(vi) any dispute, claim, offset or defense (other than discharge in bankruptcy or payment) of any Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services;
(vii) any breach by Seller of any of its covenants or agreements under this Agreement or any other Transaction Document;
(viii) any products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable;
(ix) any litigation, proceeding or investigation against Seller; or
(x) any tax or governmental fee or charge (but not including taxes upon or measured by net income or representing a franchise or unincorporated business tax of such Person), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Asset Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables.
(b) Indemnity by Servicer. Without limiting any other rights which any such Person may have hereunder or under applicable law, Servicer hereby agrees to indemnify each Indemnified Party, within five (5) Business Days of demand, from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or relating to (i) any representation or warranty made by Servicer under or in connection with any Transaction Document, any Servicer Report, any Mid-Month Report or any other information or report delivered by or on behalf of Servicer pursuant hereto, which shall have been false, incorrect or misleading when made, (ii) the failure by Servicer to comply with any Applicable Law, (iii) any breach by Servicer of any of its covenants or agreements under this Agreement or any other
Transaction Document or (iv) the commingling of any Collections with other
funds. Notwithstanding the foregoing, in no event shall any Indemnified Party be
awarded any Indemnified Amounts pursuant to this Section 13.01(b) (a) to the
extent determined by a court of competent jurisdiction to have resulted from
gross negligence or willful misconduct on the part of such Indemnified Party or
(b) for recourse for Defaulted Receivables.
(c) After-Tax Basis. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the receipt of the indemnity provided hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by any party therefrom shall in any event be effective unless the same shall be in writing and signed by (a) Seller, the Administrator, Parent and each Purchaser (with respect to an amendment) or (b) the Administrator and each Purchaser (with respect to a waiver or consent by them) or Seller or Parent (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The parties acknowledge that, before entering into such an amendment or granting such a waiver or consent, Conduit Purchaser may also be required to obtain the approval of some or all of the Program Support Providers or to obtain confirmation from certain rating agencies that such amendment, waiver or consent will not result in a withdrawal or reduction of the ratings of the Commercial Paper Notes.
SECTION 14.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on Schedule 14.02 or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means, if sent during business hours on a Business Day or on the next Business Day in all other cases.
SECTION 14.03. No Waiver; Remedies. No failure on the part of the Administrator, any Affected Party, any Indemnified Party, any Purchaser or any other holder of the Asset Interest (or any portion thereof) to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
SECTION 14.04. Binding Effect; Survival. This Agreement shall be
binding upon and inure to the benefit of Seller, Parent, the Administrator, each
Purchaser and their respective successors and assigns, and the provisions of
Section 4.02 and Article XIII shall inure to the benefit of the Affected Parties
and the Indemnified Parties, respectively, and their respective successors and
assigns; provided, however, nothing in the foregoing shall be deemed to
authorize any assignment not permitted by Section 12.01. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until the
Final Payout Date. The rights and remedies with respect to any breach of any
representation and warranty made by Seller or Parent pursuant to Article VI and
the provisions of Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and
14.15 shall be continuing and shall survive any termination of this Agreement.
SECTION 14.05. Costs, Expenses and Taxes. In addition to its obligations under Article XIII, Seller or Parent, as the case may be, agrees to pay within five Business Days of demand;
(a) all costs and expenses incurred by the Administrator, any Program
Support Provider and any Purchaser and their respective Affiliates, in
connection with the enforcement after the occurrence of a Liquidation Event
against Seller or Parent, as the case may be, of, or any breach by Seller or
Parent, as the case may be, of, this Agreement and the other Transaction
Documents, including, without limitation (A) the reasonable fees and expenses of
counsel to any of such Persons incurred in connection with any of the foregoing
or in advising such Persons as to their respective rights and remedies under any
of the Transaction Documents, and (B) all reasonable out-of-pocket expenses
(including reasonable fees and expenses of independent accountants incurred in
connection with any review of Seller's or Parent's, as the case may be, books
and records either prior to the execution and delivery hereof or pursuant to
Section 7.01(c) or otherwise); and
(b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents, and agrees to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 14.06. No Proceedings; Limitations on Recourse. Seller, Parent, Servicer, each Purchaser (other than Conduit Purchaser) and Fleet Securities (individually and as Administrator) each hereby agrees that it will not institute against Conduit Purchaser, or join any other Person in instituting against Conduit Purchaser, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The parties hereto agree that Conduit Purchaser shall have no obligations to make any payments hereunder (collectively, "Purchaser Payments"), and that such Purchaser Payments shall not constitute a claim against Conduit Purchaser as defined in Section 101 of the Bankruptcy Code, unless and until Conduit Purchaser has amounts sufficient to pay such Purchaser Payments from the Asset Interest or pursuant to the Liquidity Agreement and such amounts are not required to repay Commercial Paper Notes of Conduit Purchaser or loans to Conduit Purchaser funded by
Commercial Paper Notes. Conduit Purchaser shall not have any obligation to pay any amounts owing hereunder unless and until Conduit Purchaser has received such amounts.
SECTION 14.07. Confidentiality of Program Information.
(a) Confidential Information. Each party hereto acknowledges that Fleet Securities regards the structure of the transactions contemplated by this Agreement to be proprietary, and each such party severally agrees that:
(i) it will not disclose without the prior consent of Fleet
Securities or as is required or authorized by the Transaction Documents
(other than to the directors, employees, agents, auditors, counsel or
affiliates (collectively, "representatives") of such party, each of
whom shall be informed by such party of the confidential nature of the
Program Information (as defined below) and of the terms of this Section
14.07), (A) any information regarding the pricing in, or copies of,
this Agreement or any transaction contemplated hereby, (B) any
information regarding the organization, business or operations of
Conduit Purchaser generally or the services performed by the
Administrator for Conduit Purchaser, or (C) any information which is
furnished by Fleet Securities to such party and which is designated by
Fleet Securities to such party in writing as confidential or not
otherwise available to the general public (the information referred to
in clauses (A), (B) and (C) is collectively referred to as the "Program
Information"); provided, however, that such party may disclose any such
Program Information (I) to any other party to this Agreement for the
purposes contemplated hereby, (II) as may be required by any
Governmental Authority having or claiming to have jurisdiction over
such party, (III) in order to comply with Applicable Law, including,
without limitation, by filing the Transaction Documents with the
Securities and Exchange Commission (provided that neither Seller nor
Parent shall file the Fee Letter, or, if required by Applicable Law to
file the Fee Letter, Parent or Seller, as the case may be, shall
request confidential treatment therefor) or (IV) subject to subsection
(c), in the event such party is legally compelled (by interrogatories,
requests for information or copies, subpoena, civil investigative
demand or similar process) to disclose any such Program Information,
unless legally compelled not to do so;
(ii) it will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and
(iii) it will, upon demand, return (and cause each of its representatives to return) to Fleet Securities, all documents or other written material (other than documents executed by such party) received from Fleet Securities, as the case may be, in connection with (a)(i)(B) or (C) above and all copies thereof made by such party which contain the Program Information.
(b) Availability of Confidential Information. This Section 14.07 shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than Fleet Securities or were known to such party on a nonconfidential basis prior to its disclosure by Fleet Securities.
(c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Program Information, such party will, to the extent that it may legally do so,
(i) provide Fleet Securities with prompt written notice so that Fleet Securities may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 14.07; and
(ii) unless Fleet Securities waives compliance by such party with the provisions of this Section 14.07, make a timely objection to the request or confirmation to provide such Program Information on the basis that such Program Information is confidential and subject to the agreements contained in this Section 14.07.
In the event that such protective order or other remedy is not obtained, or Fleet Securities waives compliance with the provisions of this Section 14.07, such party will furnish only that portion of the Program Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Program Information.
(d) Survival. This Section 14.07 shall survive termination of this Agreement.
SECTION 14.08. Confidentiality of Parent Information.
(a) Confidential Information. Each party hereto acknowledges that each of Seller and Parent regards certain information to be proprietary, and each such party severally agrees that:
(i) it will not disclose without the prior consent of Parent or as is required or authorized by the Transaction Documents (other than to the directors, employees, agents, auditors, counsel or affiliates (collectively, "representatives") of such party, each of whom shall be informed by such party of the confidential nature of the Parent Information (as defined below) and of the terms of this Section 14.08), any information which is furnished by Parent to such party and which is designated by Parent or Seller to such party in writing as confidential or not otherwise available to the general public ("Parent Information"); provided, however, that such party may disclose any such Parent Information (I) to any other party to this Agreement for the purposes contemplated hereby, (II) as may be required by any Governmental Authority having or claiming to have jurisdiction over such party, (III) in order to comply with any Applicable Law, (IV) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Parent Information, (V) to any Affected Party or any Program Support Provider, (VI) to the Rating Agencies, or (VII) to any potential Liquidity Bank or any potential assignee or participant of any Liquidity Bank (provided such Person has agreed to be bound by the terms of this Section 14.08), and any placement agent for, or investor or potential investor in, the Commercial Paper Notes; and
(ii) it will use the Parent Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto.
(b) Availability of Confidential Information. This Section 14.08 shall be inoperative as to such portions of the Parent Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than Parent or were known to such party on a nonconfidential basis prior to its disclosure by Parent.
(c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives transmits the Parent Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Parent Information, such party will, to the extent that it may legally do so,
(i) provide Parent with prompt written notice so that Parent may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 14.08; and
(ii) unless Parent waives compliance by such party with the provisions of this Section 14.08, make a timely objection to the request or confirmation to provide such Parent Information on the basis that such Parent Information is confidential and subject to the agreements contained in this Section 14.08.
In the event that such protective order or other remedy is not obtained, or Parent waives compliance with the provisions of this Section 14.08, such party will furnish only that portion of the Parent Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Parent Information.
(d) Survival. This Section 14.08 shall survive termination of this Agreement.
SECTION 14.09. Captions and Cross References. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause.
SECTION 14.10. Integration. This Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings.
SECTION 14.11. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE ADMINISTRATOR IN THE POOL ASSETS IS GOVERNED BY THE LAWS OF THE JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 14.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY BE IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY TRIAL.
SECTION 14.13. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT:
(a) IT HEREBY IRREVOCABLY (i) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN THE BOROUGH OF
MANHATTAN, STATE OF NEW YORK, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY TRANSACTION DOCUMENT; (ii) AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR UNITED
STATES FEDERAL COURT; (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF SUCH ACTION OR PROCEEDING; (iv) CONSENTS TO THE SERVICE OF ANY AND ALL
PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION 14.02; AND (v) TO THE
EXTENT ALLOWED BY LAW, 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
SECTION 14.13 SHALL AFFECT THE ADMINISTRATOR'S OR ANY PURCHASER'S RIGHT TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR
PROCEEDING AGAINST ANY OF SELLER OR PARENT OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTIONS.
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.
SECTION 14.14. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.
SECTION 14.15. No Recourse Against Other Parties. No recourse under any obligation, covenant or agreement of Conduit Purchaser contained in this Agreement shall be had against any stockholder (solely in its capacity as stockholder), employee, officer, director, member or incorporator of Conduit Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
AVISTA RECEIVABLES CORP.,
as Seller
AVISTA CORPORATION, as initial Servicer
EAGLEFUNDING CAPITAL CORPORATION,
as Conduit Purchaser
By: Fleet Securities, Inc., its
attorney-in-fact
FLEET NATIONAL BANK,
as Committed Purchaser
Commitment: $100,000,000
FLEET SECURITIES, INC., as Administrator
TABLE OF CONTENTS
Page ARTICLE I PURCHASES AND REINVESTMENTS SECTION 1.01. Commitment to Purchase; Limits on Purchasers' Obligations.............................1 SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests..............................2 SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining Collections................2 SECTION 1.04. Asset Interest........................................................................3 SECTION 1.05. Voluntary Termination of Purchase and Reinvestment Obligations or Reduction of Purchase Limit........................................................................4 ARTICLE II COMPUTATIONAL RULES SECTION 2.01. Computation of Capital................................................................4 SECTION 2.02. Computation of Concentration Limit....................................................5 SECTION 2.03. Computation of Earned Discount........................................................5 SECTION 2.04. Estimates of Earned Discount Rate, Fees, Etc..........................................5 ARTICLE III SETTLEMENTS SECTION 3.01. Settlement Procedures.................................................................5 SECTION 3.02. Deemed Collections; Reduction of Capital, Etc.........................................8 SECTION 3.03. Payments and Computations, Etc........................................................9 ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.01. Fees..................................................................................9 SECTION 4.02. Yield Protection......................................................................9 SECTION 4.03. Funding Losses.......................................................................11 ARTICLE V CONDITIONS TO PURCHASES SECTION 5.01. Conditions Precedent to Initial Purchase.............................................11 SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments..............................13 |
TABLE OF CONTENTS
(continued)
Page ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01. Representations and Warranties of Seller.............................................14 SECTION 6.02. Representations and Warranties of Parent.............................................16 ARTICLE VII GENERAL COVENANTS SECTION 7.01. Affirmative Covenants................................................................18 SECTION 7.02. Reporting Requirements...............................................................20 SECTION 7.03. Negative Covenants...................................................................22 SECTION 7.04. Separate Existence...................................................................24 ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.01. Designation of Servicer..............................................................26 SECTION 8.02. Duties of Servicer...................................................................27 SECTION 8.03. Rights of the Administrator..........................................................28 SECTION 8.04. Responsibilities of Seller...........................................................29 SECTION 8.05. Further Action Evidencing Purchases and Reinvestments................................29 SECTION 8.06. Application of Collections...........................................................30 ARTICLE IX SECURITY INTEREST SECTION 9.01. Grant of Security Interest...........................................................31 SECTION 9.02. Further Assurances...................................................................31 SECTION 9.03. Remedies.............................................................................31 ARTICLE X LIQUIDATION EVENTS SECTION 10.01. Liquidation Events...................................................................31 SECTION 10.02. Remedies.............................................................................33 ARTICLE XI THE ADMINISTRATOR |
TABLE OF CONTENTS
(continued)
Page SECTION 11.01. Authorization and Action.............................................................33 SECTION 11.02. Administrator's Reliance, Etc........................................................33 SECTION 11.03. Fleet and Affiliates.................................................................34 ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST SECTION 12.01. Restrictions on Assignments..........................................................34 SECTION 12.02. Rights of Assignee...................................................................35 ARTICLE XIII INDEMNIFICATION SECTION 13.01. Indemnities..........................................................................35 ARTICLE XIV MISCELLANEOUS SECTION 14.01. Amendments, Etc......................................................................37 SECTION 14.02. Notices, Etc.........................................................................37 SECTION 14.03. No Waiver; Remedies..................................................................37 SECTION 14.04. Binding Effect; Survival.............................................................37 SECTION 14.05. Costs, Expenses and Taxes............................................................38 SECTION 14.06. No Proceedings; Limitations on Recourse..............................................38 SECTION 14.07. Confidentiality of Program Information...............................................39 SECTION 14.08. Confidentiality of Parent Information................................................40 SECTION 14.09. Captions and Cross References........................................................41 SECTION 14.10. Integration..........................................................................41 SECTION 14.11. Governing Law........................................................................41 SECTION 14.12. Waiver Of Jury Trial.................................................................42 SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities........................................42 SECTION 14.14. Execution in Counterparts............................................................43 SECTION 14.15. No Recourse Against Other Parties....................................................43 |
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(m) List of Offices of Seller where Records Are Kept SCHEDULE 6.01(n) List of Lock-Box Banks and Lock-Box Accounts SCHEDULE 7.01(g) Description of Credit and Collection Policy SCHEDULE 14.02 Notice Addresses |
EXHIBITS
EXHIBIT 1.02(a) Form of Purchase Notice EXHIBIT 3.01(a) Form of Servicer Report EXHIBIT 3.01(a)-M Form of Mid-Month Report EXHIBIT 5.01(f) Form of Lock-Box Agreement EXHIBIT 5.01(f)-2 Form of Notice to Postmaster |
EXHIBIT 4(f)
AVISTA CORPORATION
TO
CITIBANK, N.A.
As Successor Trustee under
Mortgage and Deed of Trust,
dated as of June 1, 1939
THIRTIETH SUPPLEMENTAL INDENTURE
Providing among other things for a series of bonds designated "First Mortgage Bonds, Collateral Series due 2003" Due May 20, 2003
Dated as of May 1, 2002
THIRTIETH SUPPLEMENTAL INDENTURE
THIS INDENTURE, dated as of the 1st day of May 2002, between AVISTA CORPORATION (formerly known as The Washington Water Power Company), a corporation of the State of Washington, whose post office address is 1411 East Mission Avenue, Spokane, Washington 99202 (the "Company"), and CITIBANK, N.A., formerly First National City Bank (successor by merger to First National City Trust Company, formerly City Bank Farmers Trust Company), a national banking association incorporated and existing under the laws of the United States of America, whose post office address is 111 Wall Street, New York, 10043 New York (the "Trustee"), as Trustee under the Mortgage and Deed of Trust, dated as of June 1, 1939 (the "Original Mortgage"), executed and delivered by the Company to secure the payment of bonds issued or to be issued under and in accordance with the provisions thereof, this indenture (the "Thirtieth Supplemental Indenture") being supplemental to the Original Mortgage, as heretofore supplemented and amended.
WHEREAS pursuant to a written request of the Company made in accordance with Section 103 of the Original Mortgage, Francis M. Pitt (then Individual Trustee under the Mortgage, as supplemented) ceased to be a trustee thereunder on July 23, 1969, and all of his powers as Individual Trustee have devolved upon the Trustee and its successors alone; and
WHEREAS by the Original Mortgage the Company covenanted that it would execute and deliver such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Original Mortgage and to make subject to the lien of the Original Mortgage any property thereafter acquired intended to be subject to the lien thereof; and
WHEREAS the Company has heretofore executed and delivered, in addition to the Original Mortgage, the indentures supplemental thereto, and has issued the series of bonds, set forth in Exhibit A hereto (the Mortgage, as supplemented and amended by the First through Twenty-ninth Supplemental Indentures being herein sometimes called collectively, the "Mortgage"); and
WHEREAS the Original Mortgage and the First through Twenty-eighth Supplemental Indentures have been appropriately filed or recorded in various official records in the States of Washington, California, Idaho, Montana and Oregon, as set forth in the First through Twenty-ninth Supplemental Indenture and the Instrument of Further Assurance dated December 15, 2001; and
WHEREAS the Twenty-ninth Supplemental Indenture, dated as of December 1, 2001, has been appropriately filed or recorded in the various official records in the States of Washington, California, Idaho, Montana and Oregon set forth in Exhibit B hereto; and
WHEREAS for the purpose of confirming or perfecting the lien of the Mortgage on certain of its properties, the Company has heretofore executed and delivered a Short Form Mortgage and Security Agreement, in multiple counterparts dated as of various dates in 1992, and such instrument has been appropriately filed or recorded in the various official records in the States of California, Montana and Oregon; and
WHEREAS for the purpose of conforming or perfecting the lien of the Mortgage on certain of its properties, the Company has heretofore executed and delivered an Instrument of Further Assurance, dated as of December 15, 2001, and such instrument has been appropriately filed or recorded in the various official records in the States of Washington, California, Idaho, Montana and Oregon; and
WHEREAS in addition to the property described in the Mortgage the Company has acquired certain other property, rights and interests in property; and
WHEREAS Section 8 of the Original Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company; that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof; and that such series may also contain such provisions not inconsistent with the provisions of the Mortgage as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and
WHEREAS Section 120 of the Original Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Mortgage shall be situated; and
WHEREAS the Company now desires to create a new series of bonds; and
WHEREAS the execution and delivery by the Company of this Thirtieth Supplemental Indenture, and the terms of the bonds of the Twenty-eighth Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate Resolutions of said Board of Directors, and all things necessary to make this Thirtieth Supplemental Indenture a valid, binding and legal instrument have been performed;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: That the Company, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, hereby confirms the estate, title and rights of the Trustee (including without limitation the lien of the Mortgage on the property of the Company subjected thereto, whether now owned or hereafter acquired) held as security for the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage according to their tenor and effect and the performance of all the provisions of the Mortgage and of such bonds, and, without limiting the generality of the foregoing, hereby
confirms the grant, bargain, sale, release, conveyance, assignment, transfer, mortgage, pledge, setting over and confirmation unto the Trustee, contained in the Mortgage, of all the following described properties of the Company, whether now owned or hereafter acquired, namely:
All of the property, real, personal and mixed, of every character and wheresoever situated (except any hereinafter or in the Mortgage expressly excepted) which the Company now owns or, subject to the provisions of Section 87 of the Mortgage, may hereafter acquire prior to the satisfaction and discharge of the Mortgage, as fully and completely as if herein or in the Mortgage specifically described, and including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing or of any general description contained in Mortgage) all lands, real estate, easements, servitudes, rights of way and leasehold and other interests in real estate; all rights to the use or appropriation of water, flowage rights, water storage rights, flooding rights, and other rights in respect of or relating to water; all plants for the generation of electricity, power houses, dams, dam sites, reservoirs, flumes, raceways, diversion works, head works, waterways, water works, water systems, gas plants, steam heat plants, hot water plants, ice or refrigeration plants, stations, substations, offices, buildings and other works and structures and the equipment thereof and all improvements, extensions and additions thereto; all generators, machinery, engines, turbines, boilers, dynamos, transformers, motors, electric machines, switchboards, regulators, meters, electrical and mechanical appliances, conduits, cables, pipes and mains; all lines and systems for the transmission and distribution of electric current, gas, steam heat or water for any purpose; all towers, mains, pipes, poles, pole lines, conduits, cables, wires, switch racks, insulators, compressors, pumps, fittings, valves and connections; all motor vehicles and automobiles; all tools, implements, apparatus, furniture, stores, supplies and equipment; all franchises (except the Company's franchise to be a corporation), licenses, permits, rights, powers and privileges; and (except as hereinafter or in the Mortgage expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature.
TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Original Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof.
THE COMPANY HEREBY CONFIRMS that, subject to the provisions of
Section 87 of the Original Mortgage, all the property, rights, and franchises
acquired by the Company after the date thereof (except any hereinbefore or
hereinafter or in the Mortgage expressly excepted) are and shall be as fully
embraced within the lien of the Mortgage as if such property, rights and
franchises had been owned by the Company at the date of the Original Mortgage
and had been specifically described therein.
PROVIDED THAT the following were not and were not intended to be then or now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed under the Mortgage and were, are and shall be expressly excepted from the lien and operation namely: (l) cash, shares of stock and obligations (including bonds, notes and other securities) not hereafter specifically pledged, paid, deposited or delivered under the Mortgage or covenanted so to be; (2) merchandise, equipment, materials or supplies held for the purpose of sale in the usual course of business or for consumption in the operation of any properties of the Company; (3) bills, notes and accounts receivable, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or covenanted so to be; (4) electric energy and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; and (5) any property heretofore released pursuant to any provisions of the Mortgage and not heretofore disposed of by the Company; provided, however, that the property and rights expressly excepted from the lien and operation of the Mortgage in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event that the Trustee or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XII of the Original Mortgage by reason of the occurrence of a Completed Default as defined in said Article XII.
TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company in the Mortgage as aforesaid, or intended so to be, unto the Trustee, and its successors, heirs and assigns forever.
IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as set forth in the Mortgage, this Thirtieth Supplemental Indenture being supplemental to the Mortgage.
AND IT IS HEREBY FURTHER CONFIRMED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage shall affect and apply to the property in the Mortgage described and conveyed, and to the estates, rights, obligations and duties of the Company and the Trustee and the beneficiaries of the trust with respect to said property, and to the Trustee and its successors in the trust, in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Original Mortgage, and had been specifically and at length described in and conveyed to said Trustee by the Original Mortgage as a part of the property therein stated to be conveyed.
The Company further covenants and agrees to and with the Trustee and its successor or successors in such trust under the Mortgage, as follows:
ARTICLE I
TWENTY-EIGHTH SERIES OF BONDS
SECTION 1. (I) There shall be a series of bonds designated "Collateral Series due 2003" (herein sometimes referred to as the "Twenty-eighth Series"), each of which shall also
bear the descriptive title First Mortgage Bond, and the form thereof, which has
been established by Resolution of the Board of Directors of the Company, is set
forth on Exhibit C hereto. Bonds of the Twenty-eighth Series shall be issued as
fully registered bonds in denominations of One Thousand Dollars and, at the
option of the Company, any amount in excess thereof (the exercise of such option
to be evidenced by the execution and delivery thereof) and shall be dated as in
Section 10 of the Mortgage provided. Each bond of the Twenty-eighth Series shall
mature on May 20, 2003 and shall bear interest, be redeemable and have such
other terms and provisions as set forth below.
(II) The Bonds of the Twenty-eighth Series shall have the following terms and characteristics:
(a) the Bonds of the Twenty-eighth Series shall be initially authenticated and delivered under the Indenture in the aggregate principal amount of $225,000,000;
(b) the Bonds of the Twenty-eighth Series shall bear interest at the rate of ten per centum (10%) per annum; interest on such bonds shall accrue from and including the date of the initial authentication and delivery thereof, except as otherwise provided in the form of bond attached hereto as Exhibit C; interest on such bonds shall be payable on each Interest Payment Date and at Maturity (as each of such terms is hereafter defined); and interest on such bonds during any period less than one year for which payment is made shall be computed in accordance with the Credit Agreement (as hereinafter defined);
(c) the principal of and premium, if any, and interest on each bond of the Twenty-eighth Series payable at Maturity shall be payable upon presentation thereof at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency as at the time of payment is legal tender for public and private debts. The interest on each Bond of the Twenty-eighth Series (other than interest payable at Maturity) shall be payable directly to the registered owners thereof;
(d) the Bonds of the Twenty-eighth Series shall not be redeemable, in whole or in part, at the option of the Company;
(e) (i) the Bonds of the Twenty-eighth Series are to be issued and delivered to the Administrative Agent (as hereinafter defined) in order to provide the benefit of the lien of the Mortgage as security for the obligation of the Company under the Credit Agreement to pay the Obligations (as hereinafter defined), to the extent and subject to the limitations set forth in clauses (iii) and (iv) of this subdivision;
(ii) upon the earliest of (A) the occurrence of an Event of Default under the Credit Agreement, and further upon the condition that, in accordance with the terms of the Credit Agreement, the Commitments (as hereinafter defined) shall have been or shall have terminated and any Loans (as hereinafter defined) outstanding shall have been declared to be or shall have otherwise become due and payable immediately and the Administrative Agent shall have delivered to the Company a notice demanding redemption of the Bonds of the Twenty-eighth Series which notice states that it is being
delivered pursuant to Article VII of the Credit Agreement, (B) the occurrence of an Event of Default under clause (g) or (h) of Article VII of the Credit Agreement, and (C) May 20, 2003, then all Bonds of the Twenty-eighth Series shall be redeemed or paid immediately at the principal amount thereof plus accrued interest to the date of redemption or payment;
(iii) the obligation of the Company to pay the accrued interest on Bonds of the Twenty-eighth Series on any Interest Payment Date prior to Maturity (a) shall be deemed to have been satisfied and discharged in full in the event that all amounts then due in respect of the Obligations shall have been paid or (b) shall be deemed to remain unsatisfied in an amount equal to the aggregate amount then due in respect of the Obligations and remaining unpaid (not in excess, however, of the amount otherwise then due in respect of interest on the Bonds of the Twenty-eighth Series);
(iv) the obligation of the Company to pay the principal of and accrued interest on Bonds of the Twenty-eighth Series at or after Maturity (x) shall be deemed to have been satisfied and discharged in full in the event that all amounts then due in respect of the Obligations shall have been paid or (y) shall be deemed to remain unsatisfied in an amount equal to the aggregate amount then due in respect of the Obligations and remaining unpaid (not in excess, however, of the amount otherwise then due in respect of principal of and accrued interest on the Bonds of the Twenty-eighth Series).
(v) the Trustee shall be entitled to presume that the obligation of the Company to pay the principal of and interest on the Bonds of the Twenty-eighth Series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the Administrative Agent, signed by an authorized officer thereof, stating that the principal of and/or interest on the Bonds of the Twenty-eighth Series has become due and payable and has not been fully paid, and specifying the amount of funds required to make such payment;
(f) no service charge shall be made for the registration of transfer or exchange of Bonds of the Twenty-eighth Series;
(g) in the event of an application by the Administrative Agent for a substituted Bond of the Twenty-eighth Series pursuant to Section 16 of the Original Mortgage, the Administrative Agent shall not be required to provide any indemnity or pay any expenses or charges as contemplated in said Section 16; and
(h) the Bonds of the Twenty-eighth Series shall have such other terms as are set forth in the form of bond attached hereto as Exhibit C.
Anything in this Supplemental Indenture or in the Bonds of the Twenty-eighth Series to the contrary notwithstanding, if, at the time of the Maturity of such Bonds, the stated aggregate principal amount of such Bonds then Outstanding shall exceed the aggregate Revolving Credit Exposures (as hereinafter defined), the aggregate principal amount of such Bonds shall be deemed to have been reduced by the amount of such excess.
(III) For all purposes of this Thirtieth Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires, the terms defined below shall have the meanings specified:
"ADMINISTRATIVE AGENT" means The Bank of New York, in its capacity as Administrative Agent under the Credit Agreement.
"BOND DELIVERY AGREEMENT" means the Bond Delivery Agreement, dated May 21, 2002 between the Company and the Administrative Agent.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of May 21, 2002, among the Company, the banks parties thereto, Keybank and Washington Mutual Bank, as Co-Agents, U.S. Bank, National Association, as Managing Agent, Fleet National Bank and Wells Fargo Bank, as Documentation Agents, Union Bank of California, N.A., as Syndication Agent, and The Bank of New York as Administrative Agent and Issuing Bank, as amended, supplemented or otherwise modified from time to time.
"INTEREST PAYMENT DATE" means June 30, 2002, September 30, 2002, December 31, 2002 and March 31, 2003.
"MATURITY" means the date on which the principal of the Bonds of the Twenty-eighth Series becomes due and payable, whether at stated maturity, upon redemption or acceleration, or otherwise.
"OBLIGATIONS" shall have the meaning specified in the Bond Delivery Agreement.
"COMMITMENTS", "LOANS" and "REVOLVING CREDIT EXPOSURES" shall
have the meanings specified in the Credit Agreement:
A copy of the Credit Agreement is on file at the office of the Administrative Agent at One Wall Street, 18th Floor, New York, NY 10286 and at the office of the Company at 1411 East Mission Avenue, Spokane, WA 99202.
(IV) Upon the delivery of this Thirtieth Supplemental Indenture, bonds of the Twenty-eighth Series in an aggregate principal amount not to exceed $225,000,000 are to be issued and will be Outstanding, in addition to $313,500,000 aggregate principal amount of bonds of prior series Outstanding at the date of delivery of this Thirtieth Supplemental Indenture.
ARTICLE II
MISCELLANEOUS PROVISIONS
SECTION 1. The terms defined in the Original Mortgage shall, for all purposes of this Thirtieth Supplemental Indenture, have the meanings specified in the Original Mortgage.
SECTION 2. The Trustee hereby confirms its acceptance of the trusts in the Original Mortgage declared, provided, created or supplemented and agrees to perform the same upon the terms and conditions in the Original Mortgage set forth, including the following:
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Thirtieth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. Each and every term and condition contained in Article XVI of the Original Mortgage, shall apply to and form part of this Thirtieth Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Thirtieth Supplemental Indenture.
SECTION 3. Whenever in this Thirtieth Supplemental Indenture either of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XV and XVI of the Original Mortgage be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Thirtieth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee, or either of them, shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not.
SECTION 4. Nothing in this Thirtieth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Mortgage, any right, remedy or claim under or by reason of this Thirtieth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Thirtieth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and of the coupons Outstanding under the Mortgage.
SECTION 5. This Thirtieth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
SECTION 6. The titles of the several Articles of this Thirtieth Supplemental Indenture shall not be deemed to be any part thereof.
IN WITNESS WHEREOF, on the ___ day of May 2002, AVISTA CORPORATION has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President or one of its Vice Presidents, and its corporate seal to be attested by its Corporate Secretary or one of its Assistant Corporate Secretaries for and in its behalf, all in The City of Spokane, Washington, as of the day and year first above written; and on the ___ day of May, 2002, CITIBANK, N.A., has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President or one of its Vice Presidents or one of its Senior Trust Officers or one of its Trust Officers and its corporate seal to be attested by one of its Vice Presidents or one of its Trust Officers, all in The City of New York, New York, as of the day and year first above written.
AVISTA CORPORATION
By /s/ Jon E. Eliassen -------------------------------------- Senior Vice President Attest: /s/ Susan Y. Miner -------------------------------------- Assistant Corporate Secretary |
Executed, sealed and delivered
by AVISTA CORPORATION
in the presence of:
/s/ Diane C. Thoren -------------------------------------- /s/ Paul W. Kimball -------------------------------------- |
CITIBANK, N.A., AS TRUSTEE
By /s/ Wafaa Orfy ------------------------------------- Wafaa Orfy, Vice President Attest: /s/ Cindy Tsang --------------------------------------- Cindy Tsang, Assistant Vice President |
Executed, sealed and delivered
by CITIBANK, N.A.,
as trustee. in the presence of:
/s/ John J. Byrnes --------------------------------------- John J. Byrnes Vice President /s/ P. DeFelice --------------------------------------- P. DeFelice Vice President |
STATE OF WASHINGTON ) ) ss.: COUNTY OF SPOKANE ) |
On the ___ day of __________ 2002, before me personally appeared Jon E. Eliassen, to me known to be a Senior Vice President of AVISTA CORPORATION, one of the corporations that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said Corporation for the uses and purposes therein mentioned and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said Corporation.
On the _____ day of ___________ 2002, before me, Sue Miner, a Notary Public in and for the State and County aforesaid, personally appeared Jon E. Eliassen, known to me to be a Senior Vice President of AVISTA CORPORATION, one of the corporations that executed the within and foregoing instrument and acknowledged to me that such Corporation executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written.
/s/ Sue Miner ----------------------------------------- Notary Public |
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 17th day of May 2002, before me personally appeared |
Wafaa Orfy, to me known to be a Vice President of CITIBANK, N.A., one of the corporations that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said Corporation for the uses and purposes therein mentioned and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said Corporation.
On the 17th day of May 2002, before me, a Notary Public in and for the State and County aforesaid, personally appeared Cindy Tsang, known to me to be an Assistant Vice President of CITIBANK, N.A., one of the corporations that executed the within and foregoing instrument and acknowledged to me that such Corporation executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written.
/s/ Peter M. Pavlyshin ----------------------------------------- Notary Public |
Peter M. Pavlyshin Notary Public, State of New York No. 41-4991297 Qualified in Queens County Certificate Filed in New York County Commission Expires January 27, 2006
EXHIBIT A
MORTGAGE, SUPPLEMENTAL INDENTURES
AND SERIES OF BONDS
MORTGAGE OR SERIES PRINCIPAL PRINCIPAL SUPPLEMENTAL DATED AS ------------------------- AMOUNT AMOUNT INDENTURE OF NO. DESIGNATION ISSUED OUTSTANDING ------------ -------- --- ----------- --------- ----------- Original June 1, 1939 1 3-1/2% Series due 1964 $22,000,000 None First October 1, 1952 2 3-3/4% Series due 1982 30,000,000 None Second May 1, 1953 3 3-7/8% Series due 1983 10,000,000 None Third December 1, 1955 None Fourth March 15, 1957 None Fifth July 1, 1957 4 4-7/8% Series due 1987 30,000,000 None Sixth January 1, 1958 5 4-1/8% Series due 1988 20,000,000 None Seventh August 1, 1958 6 4-3/8% Series due 1988 15,000,000 None Eighth January 1, 1959 7 4-3/4% Series due 1989 15,000,000 None Ninth January 1, 1960 8 5-3/8% Series due 1990 10,000,000 None Tenth April 1, 1964 9 4-5/8% Series due 1994 30,000,000 None Eleventh March 1,1965 10 4-5/8% Series due 1995 10,000,000 None Twelfth May 1, 1966 None Thirteenth August 1, 1966 11 6 % Series due 1996 20,000,000 None Fourteenth April 1, 1970 12 9-1/4% Series due 2000 20,000,000 None Fifteenth May 1, 1973 13 7-7/8% Series due 2003 20,000,000 None Sixteenth February 1, 1975 14 9-3/8% Series due 2005 25,000,000 None Seventeenth November 1, 1976 15 8-3/4% Series due 2006 30,000,000 None Eighteenth June 1, 1980 None Nineteenth January 1, 1981 16 14-1/8% Series due 40,000,000 None 1991 Twentieth August 1, 1982 17 15-3/4% Series due 60,000,000 None 1990-1992 Twenty-First September 1, 18 13-1/2% Series due 60,000,000 None 1983 2013 Twenty-Second March 1, 1984 19 13-1/4% Series due 60,000,000 None 1994 Twenty-Third December 1, 1986 20 9-1/4% Series due 2016 80,000,000 None Twenty-Fourth January 1, 1988 21 10-3/8% Series due 50,000,000 None 2018 Twenty-Fifth October 1, 1989 22 7-1/8% Series due 2013 66,700,000 None 23 7-2/5% Series due 2016 17,000,000 None Twenty-Sixth April 1, 1993 24 Secured Medium-Term 250,000,000 104,500,000 Notes, Series A ($250,000,000 authorized) Twenty-Seventh January 1, 1994 25 Secured Medium-Term 161,000,000 59,000,000 Notes, Series B ($250,000,000 authorized) Twenty-Eighth September 1, 26 Collateral Series due 220,000,000 220,000,000* 2001 2002 Twenty-Ninth December 1, 2001 27 7.75% Series due 2007 150,000,000 150,000,000 |
* To be retired in connection with the authentication and delivery of the bonds of the Twenty-eighth series.
EXHIBIT 12
AVISTA CORPORATION
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividend Requirements Consolidated
(Thousands of Dollars)
12 months ended Years Ended December 31 June 30, ----------------------------------------------- 2002 2001 2000 1999 1998 ---------- -------- -------- -------- -------- Fixed charges, as defined: Interest expense $104,774 $100,841 $ 64,846 $ 61,703 $ 66,158 Amortization of debt expense and premium - net 8,305 5,639 3,409 3,044 2,859 Interest portion of rentals 5,402 5,140 4,324 4,645 4,301 -------- -------- -------- -------- -------- Total fixed charges $118,481 $111,620 $ 72,579 $ 69,392 $ 73,318 ======== ======== ======== ======== ======== Earnings, as defined: Income from continuing operations $ 26,355 $ 59,605 $101,055 $ 28,662 $ 78,316 Add (deduct): Income tax expense 16,300 34,386 76,998 16,897 43,430 Total fixed charges above 118,481 111,620 72,579 69,392 73,318 -------- -------- -------- -------- -------- Total earnings $161,136 $205,611 $250,632 $114,951 $195,064 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 1.36 1.84 3.45 1.66 2.66 Fixed charges and preferred dividend requirements: Fixed charges above $118,481 $111,620 $ 72,579 $ 69,392 $ 73,318 Preferred dividend requirements (1) 3,936 3,835 41,820 34,003 13,057 -------- -------- -------- -------- -------- Total $122,417 $115,455 $114,399 $103,395 $ 86,375 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges and preferred dividend requirements 1.32 1.78 2.19 1.11 2.26 |
(1) Preferred dividend requirements have been grossed up to their pre-tax level.
Exhibit 99(a)
AVISTA CORPORATION
STATEMENTS OF CORPORATE OFFICERS
(Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
Each of the undersigned, Gary G. Ely, Chairman of the Board, President and Chief Executive Officer of Avista Corporation (the "Company"), and Jon E. Eliassen, Senior Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 12, 2002
/s/ Gary G. Ely ------------------------------------ Gary G. Ely Chairman of the Board, President and Chief Executive Officer /s/ Jon E. Eliassen ------------------------------------ Jon E. Eliassen Senior Vice President and Chief Financial officer |