EXHIBIT 10(p)
CONFIDENTIAL TREATMENT
AMENDED AND RESTATED
WITHDRAWAL AGREEMENT
BY AND BETWEEN
GREAT RIVER ENERGY
AND
MINNESOTA POWER
DATED: JANUARY 30, 2004
CONFIDENTIAL TREATMENT
TABLE OF CONTENTS
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Page
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ARTICLE 1 DEFINED TERMS................................................3
ARTICLE 2 TRANSFER OF MP FINANCIAL RIGHTS AND CERTAIN
BUSINESS ASSETS; MP WITHDRAWAL PAYMENTS;
WITHDRAWAL...................................................9
2.01 Assignment of MP Financial Rights and Certain Business Assets......9
2.02 Withdrawal........................................................11
ARTICLE 3 RECONCILIATION AND PAYMENT OF MP CAPITAL
ACCOUNT.....................................................11
3.01 Estimated Execution Date MP Capital Account.......................11
3.02 MP Capital Account Reconciliation.................................13
ARTICLE 4 EMPLOYEES...................................................15
4.01 [ * ].........................................................15
4.02 [ * ].........................................................15
4.03 [ * ].........................................................15
4.04 [ * ].........................................................15
ARTICLE 5 OPERATION OF SRE PRIOR TO CLOSING...........................15
5.01 MP Credit Support of SRE..........................................15
5.02 Risk Management...................................................15
5.03 Generation Availability Credit ("GAC") and Combustion Turbine Use
("CTU")...........................................................16
ARTICLE 6 CONCURRENT EXECUTION DATE AND CLOSING DATE
AGREEMENTS AND COOPERATION..................................16
6.01 Execution Date and Closing Date Agreements........................16
6.02 Cooperation on Certain Operational Matters........................16
6.03 Transmission Matters..............................................16
6.04 Transfer of Data..................................................17
6.05 FERC Filing and Approval Order....................................17
6.06 MP Exclusive Purchases and Sales..................................17
ARTICLE 7 INDEMNIFICATION.............................................17
7.01 Indemnification by MP of GRE......................................17
7.02 Indemnification by GRE of MP......................................18
7.03 Principles Regulating Indemnity Rights............................19
* TEXT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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7.04 Procedure for Indemnification.....................................19
7.05 Dispute Resolution................................................22
ARTICLE 8 ADDITIONAL AGREEMENTS WITH RESPECT TO
OPERATION OF SRE PRIOR TO CLOSING...........................23
8.01 Actions Refrained From Prior to Closing...........................23
8.02 Affirmative Actions Prior to Closing..............................24
ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF MP........................24
9.01 Corporate Standing and Authority; Binding Agreement...............24
9.02 Absence of Conflicting Agreements or Required Consents............25
9.03 Title.............................................................25
9.04 Relinquished Assets...............................................25
9.05 Litigation........................................................25
ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF GRE.......................25
10.01 Organization and Authority........................................25
10.02 Litigation........................................................26
10.03 Notice of Development.............................................26
ARTICLE 11 CLOSING.....................................................26
11.01 Time and Place....................................................26
11.02 Conditions to MP's Obligations to Close...........................26
11.03 Conditions to GRE's Obligation to Close...........................27
11.04 Efforts to Satisfy Conditions.....................................28
ARTICLE 12 TERMINATION.................................................29
12.01 Termination of Agreement..........................................29
12.02 Procedure Upon Termination........................................29
ARTICLE 13 OTHER MATTERS...............................................29
13.01 Announcements.....................................................29
13.02 Use of SRE Name...................................................30
13.03 Confidentiality...................................................30
13.04 Tax Matters.......................................................31
ARTICLE 14 MISCELLANEOUS...............................................33
14.01 Survival of Representations, Warranties and Covenants.............33
14.02 No Broker.........................................................33
14.03 Expenses..........................................................33
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14.04 Notices...........................................................33
14.05 Binding Effect; No Assignment Without Prior Written Consent.......34
14.06 Entire Agreement..................................................34
14.07 Choice of Law.....................................................35
14.08 Amendment; Waiver.................................................35
14.09 Pre Closing and Post Closing Cooperation..........................35
14.10 Counterparts and Facsimile/Electronic Signatures..................35
14.11 Interpretation....................................................35
14.12 Payments..........................................................35
14.13 Termination of Withdrawal Agreement...............................35
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AMENDED AND RESTATED
WITHDRAWAL AGREEMENT
THIS AMENDED AND RESTATED WITHDRAWAL AGREEMENT (this "AGREEMENT"), is
entered into January 30, 2004, to be effective from and after December 12, 2003
(the "EFFECTIVE DATE") by and between MINNESOTA POWER, a division of ALLETE,
Inc., a Minnesota corporation, an investor-owned utility ("MP") and GREAT RIVER
ENERGY, a Minnesota cooperative corporation ("GRE").
RECITALS
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A. Split Rock Energy LLC is a Minnesota limited liability company
("SRE") (i) owned equally (50%/50%) by MP and GRE (MP and GRE are each
individually a "MEMBER," and may collectively be referred to herein as the
"MEMBERS"), and (ii) engaged in the business of providing Core Operations
(defined below) and Trading Operations (defined below).
B. SRE is governed pursuant to that certain Member Control Agreement
dated April 14, 2000, entered into by MP and GRE, as amended by (i) that certain
letter agreement dated February 5, 2002, between MP and GRE (concerning
withdrawal by a Member of SRE), and (ii) this Agreement (the "MEMBER CONTROL
AGREEMENT").
C. MP gave notice to GRE of its desire to withdraw from its membership
in SRE, which notice is acknowledged by the parties hereto to have been properly
given, even if not strictly in accordance with the provisions of the Member
Control Agreement. MP and GRE agree said notice is deemed to have been given on
November 1, 2003.
D. MP and GRE entered into that certain Interim Agreement dated
November 18, 2003, as amended by Amendment No. 1 dated November 21, 2003,
Amendment No. 2 dated December 5, 2003, Amendment No. 3 dated December 23, 2003
and Amendment No. 4 dated January 30, 2004 (collectively, the "INTERIM
AGREEMENT"), pursuant to which MP and GRE became bound to certain agreements
arising under Sections 2 (operating expenses; Net Income and Losses from Power
Trading Transactions; negotiation of a withdrawal agreement), 3 (indemnity), and
4 (termination), of the Interim Agreement (the "BINDING PROVISIONS").
E. MP and GRE shall be bound to their covenants set forth in the
Binding Provisions of the Interim Agreement for the period from and after
November 1, 2003, through the Execution Date (defined below). At and after the
Closing Date of this Agreement, the Interim Agreement, this Agreement and the
Ancillary Documents (defined below) shall control all relations of MP and GRE
for the respective time periods set forth therein and herein. To the extent this
Agreement conflicts with the Interim Agreement, this Agreement shall govern.
F. MP and GRE entered into that certain Withdrawal Agreement dated
December 12, 2003, as amended by Amendment No. 1 dated December 23, 2003 (the
"WITHDRAWAL AGREEMENT") pursuant to which MP and GRE set forth the terms by
which, among other things, it was anticipated that MP would withdraw from its
membership in SRE (the "MP WITHDRAWAL").
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G. Subsequent to the execution and delivery of the Withdrawal Agreement
it was determined that additional time would be required to obtain a prior
consent order from FERC (as defined below) pursuant to applicable law, including
Section 203 of the Federal Power Act, before the MP Withdrawal could be lawfully
effected (the "FERC APPROVAL").
H. As a consequence of delay occasioned by the FERC Approval process,
MP and GRE have hereby amended and restated the Withdrawal Agreement in its
entirety to (i) set forth the amended and restated agreement of MP and GRE with
respect to the MP Withdrawal, (ii) terminate the Withdrawal Agreement in its
entirety, and (iii) establish the further understandings and covenants by which
certain actions of MP and GRE will (x) restate and revise the existing business
relations between MP and GRE as Members of SRE pending the FERC Approval, and
(y) amend the Member Control Agreement to incorporate the terms of this
Agreement.
I. The initial actions taken by MP and GRE to effect the matters set
forth in Recital H above shall occur at and upon January 31, 2004 at 11:59 p.m.
CST (the "EXECUTION DATE") to be followed by the Closing (defined below) on the
Closing Date, upon satisfaction of the conditions to Closing set forth in
Article 11 of this Agreement.
J. Within five (5) business days after receipt of the FERC Approval,
and and the satisfaction of the conditions set forth in Article 11 hereof, MP
will withdraw as a Member of SRE effective on the Closing Date at 11:59 P.M.
(CST) (the "WITHDRAWAL EFFECTIVE TIME") and, effective upon the Closing of this
Agreement and at the Withdrawal Effective Time, MP shall no longer be a Member
of SRE nor have any further obligations under the Member Control Agreement or
any other SRE governing document or ancillary agreement, instrument or document
(other than the Ancillary Documents) arising from, in connection with or
pursuant to the organization, operation or continuing operations of SRE, except
as set forth herein and/or pursuant to the Binding Provisions of the Interim
Agreement; PROVIDED, HOWEVER, that nothing herein shall affect the validity or
continued effectiveness of the Margin Agreement between the Members.
K. Subject to the Closing of this Agreement, the timing and method of
withdrawal by MP as set forth in this Agreement and the Interim Agreement
constitutes a proper amendment and/or waiver of the withdrawal provisions of the
Member Control Agreement with respect to MP.
L. From and after the Closing date, all rights and obligations of MP
arising in connection with SRE shall be determined solely by the terms of this
Agreement and the documents, instruments, agreements and schedules hereto
(collectively, the "ANCILLARY DOCUMENTS"), including any rights and obligations
to or from SRE, GRE and any and all Third Parties.
AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing Recitals, which are
incorporated herein as essential terms of this Agreement, the mutual covenants
and agreements
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hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINED TERMS
For purposes of this Agreement and the Schedules to this Agreement, the
following terms have the meanings specified:
"AAA RULES" shall have the meaning set forth in Section 7.05(b) of this
Agreement.
"ACCOUNTING ARBITRATOR" shall have the meaning set forth in Section 3.02(b)
of this Agreement.
"ADMINISTRATIVE FEES" or "ADMINISTRATIVE FEE" shall have the meaning set
forth in Section 2.01(d) of this Agreement.
"AGREEMENT" shall have the meaning set forth in the Preamble to this
Agreement.
"ANCILLARY DOCUMENTS" shall have the meaning set forth in the Recitals to
this Agreement.
"ASSETS" shall have the meaning set forth in Section 2.01(b) of this
Agreement.
"ASSOCIATED INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 7.01 of this Agreement.
"AUTHORIZED REPRESENTATIVES" shall have the meaning set forth in Section
13.03 of this Agreement.
"BINDING PROVISIONS" shall have the meaning set forth in the Recitals to
to this Agreement.
"BUSINESS" shall mean the Core Operations and Trading Operations of SRE,
wherever its operations are conducted.
"CAPITAL ACCOUNT" means, for purposes of Section 3.01 and other provisions
of this Agreement and the Ancillary Documents, the capital accounts of the
Members derived by generally accepted accounting principles consistently applied
by SRE, as maintained on a "book" basis (as opposed to any tax basis capital
account), which includes the initial investments of the Members and the
subsequent activities of SRE from and after such investments.
"CAPITAL VIG" shall have the meaning set forth in Section 3.01(b) of this
Agreement.
"CTU" shall have the meaning set forth in Section 5.03 of this Agreement.
"CLOSING" shall have the meaning set forth in Section 11.01 of this
Agreement.
"CLOSING DATE" shall have the meaning set forth in Section 11.01 of this
Agreement.
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"COBANK CREDIT FACILITY" means that certain Credit Agreement dated August
16, 2000 as amended by First Amendment to Credit Agreement dated August 15,
2001, by Second Amendment to Credit Agreement dated August 14, 2002, by Third
Amendment to Credit Agreement dated August 13, 2003, by Fourth Amendment to
Credit Agreement dated November 12, 2003, and by Fifth Amendment to Credit
Agreement dated January 30, 2004, by and between SRE and the financial
institutions from time to time party thereto and CoBank ACB in its capacity as
agent for the Banks as Administrative Agent, (as such terms are defined in the
CoBank Credit Facility).
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor thereto. Any reference to specific Sections of the Code shall be to
the Section as it now exists and to any successor provision.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
13.03 of this Agreement.
"CONSENTS" shall have the meaning set forth in Section 9.02 of this
Agreement.
"CORE OPERATIONS" means the various core utility operations SRE conducts on
behalf of its Members, including but not limited to joint and economical
dispatch of the combined generation resources of its Members to optimally serve
the native load of each, marketing and selling to third parties the excess
generation of its Members not used to serve Members' native load customers, and
purchase and brokering of energy from third parties for least cost supply to its
Members to serve their native load customers, and related services as are
performed by SRE.
"EFFECTIVE DATE" shall have the meaning set forth in the Preamble to this
Agreement.
"ESTIMATED EXECUTION DATE MP CAPITAL ACCOUNT" has the meaning set forth in
Section 3.01(a) of this Agreement.
"EXCLUSIVE MEMBER SALES" are capacity and energy sales contracts that
Members have entered into prior to becoming SRE Members, or direct sales by a
Member to another Member or any Third Party that have been approved by the SRE
Board of Governors.
"EXCLUSIVE PURCHASE" is a purchase that flows directly to a specific SRE
Member.
"EXECUTION DATE" shall have the meaning set forth in the Recitals to this
Agreement.
"EXECUTION DATE MP CAPITAL ACCOUNT" has the meaning set forth in Section
3.01(b) of this Agreement.
"EXECUTION DATE MP CAPITAL ACCOUNT DISTRIBUTION" shall have the meaning set
forth in Section 3.01(a) of this Agreement.
"FERC" means the Federal Energy Regulatory Commission, an agency of the
United States government.
"FERC APPROVAL" shall have the meaning set forth in the Recitals to this
Agreement.
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"FERC FILING" shall have the meaning set forth in Section 6.05 of this
Agreement.
"FERC ORDER" shall have the meaning set forth in Section 6.05 of this
Agreement.
"GAC" shall have the meaning set forth in Section 5.03 of this Agreement.
"GRE" shall have the meaning set forth in the Preamble to this Agreement.
"GRE ATTORNEY FEES" shall have the meaning set forth in Section 7.01(e) of
this Agreement.
"GRE INDEMNIFIED PARTY" or "GRE INDEMNIFIED PARTIES" shall have the meaning
set forth in Section 7.04(a) of this Agreement.
"GOVERNMENTAL BODY" means any:
(i) nation, state, county, city, town, village, district or other
jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other government;
(iii) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, board, commission, department,
instrumentality, office or other entity, and any court or other tribunal);
(iv) multinational organization or body; and/or
(v) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power of any nature.
The foregoing definition of Governmental Body does not and shall not be
deemed to include MAPP or MAIN.
"IMO" means Ontario Independent Market Operator.
"INDEMNIFIED PARTY" or "INDEMNIFYING PARTY" shall have the meaning set
forth in Section 7.04(c) of this Agreement.
"INTERIM AGREEMENT" shall have the meaning set forth in the Recitals to
this Agreement.
"INTERIM PERIOD" shall mean the period commencing November 1, 2003, through
the Execution Date.
"JOINT REPORTING TRANSMISSION" means the MAPP firm transmission service
required by the MAPP reliability handbook rules to support exchanges of capacity
and energy between MP and GRE during such time as SRE is engaged in joint
reporting of load and capability for MP and GRE.
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"KENDALL COUNTY" means the Kendall County, Illinois Unit No. 3 generator,
from which RREC purchases and remarkets power on the wholesale market.
"LOSS" or "LOSSES" shall have the meaning set forth in Section 7.01 of this
Agreement.
"MAIN" means MidAmerica Interconnected Network.
"MAPP" means the Mid-Continent Area Power Pool.
"MISO" means the Midwest Independent System Operator, Inc., a FERC approved
regional transmission organization.
"MLLCA" means the Minnesota Limited Liability Company Act, Chapter 322B of
the Minnesota Statutes.
"MP" shall have the meaning set forth in the Preamble to this Agreement.
"MP-GRE BLOCK A AND B AGREEMENTS" means the Block A and Block B Transaction
and Confirmation Agreements dated August 28, 2003 between MP and GRE.
"MP INDEMNIFIED PARTY" or "MP INDEMNIFIED PARTIES" shall have the meaning
set forth in Section 7.04(b) of this Agreement.
"MP LEAST COST SUPPLY" means such MP transactions for power, energy,
transmission and financial products entered into for supply of its native
utility end use load obligations.
"MP REPRESENTATIVE" shall have the meaning set forth in Section 13.04(b) of
this Agreement.
"MP WITHDRAWAL" shall have the meaning set forth in the Recitals to this
Agreement.
"MPUC" shall mean the Minnesota Public Utilities Commission, a regulatory
political subdivision of the State of Minnesota.
"MANAGEMENT EMPLOYEES" shall have the meaning set forth in Section 4.01 of
this Agreement.
"MARGIN AGREEMENT" means that certain Margin Agreement between MP and GRE
dated February 22, 2001.
"MEMBER" or "MEMBERS" shall have the meaning set forth in the Recitals to
this Agreement.
"MEMBER CONTROL AGREEMENT" shall have the meaning set forth in the Recitals
to this Agreement.
"MEMBERSHIP INTEREST PAYMENT" shall have the meaning set forth in Section
2.02(b) of this Agreement.
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"MEMBERSHIP INTEREST TRANSFER ORDER" shall have the meaning set forth in
Section 6.05(i) of this Agreement.
"MEMBERSHIP INTEREST" or "MEMBERSHIP INTERESTS" shall mean the entire
membership interest of MP in SRE, as that term is
defined in Minn. Stat.ss. 322B.03 subd. 31 (2003).
"NET INCOME" and "NET LOSSES" means, for each taxable year or other period,
an amount equal to SRE's taxable income or loss, as the case may be, for the
year or other period, determined in accordance with Section 703(a) of the Code
(including all items of income, gain, loss or deduction required to be stated
separately under Section 702(a) of the Code), with the following adjustments:
(1) Any income of SRE that is exempt from federal income tax and
not otherwise taken into account in computing Net Income or Net Losses will
be added to taxable income or shall reduce a loss;
(2) Any expenditures of SRE described in Code Section 705(a)(2)(B)
or treated as Section 705(a)(2)(B) expenditures under Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing profits or losses, will be subtracted from taxable income or
loss;
(3) Any items which are specially allocated to a Member of SRE as
required by applicable provisions of the Code, will not affect calculations
of Net Income or Net Losses; and
(4) For this purpose, any deduction for a loss on sale or exchange
of SRE property which is disallowed to SRE under Code Section 267(a)(1) or
Section 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
"ORDER" means an action or decision of the Governmental Body as to which
(i) no request for a stay is pending, no stay is in effect, and any deadline for
filing such request that may be designated by any applicable law has passed,
(ii) no petition for rehearing or reconsideration or application for review is
pending and the time for the filing of such petition or application has passed,
(iii) the Governmental Body does not have the action or decision under
reconsideration on its own motion and the time within which it may effect such
reconsideration has passed, and (iv) no judicial appeal is pending or in effect
and any deadline for filing any such appeal that may be designated by statute or
rule has passed.
"OVERLAP PERIOD" shall have the meaning set forth in Section 13.04(b) of
this Agreement.
"POWER TRADING TRANSACTION" means power Trading Operations conducted by SRE
with or between non-Member Third Parties (i.e., not involving any Member), but
excluding Core Operations and any Exclusive Member Sales or Exclusive Purchases.
"PROCEEDING" means any claim, suit, litigation, arbitration, hearing,
audit, investigation, Order, or other action (whether civil, criminal,
administrative or investigative) noticed, commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
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"RREC" means Rainy River Energy Corporation, a Minnesota corporation that
is a subsidiary of MP.
"REQUIRED NOTICE INFORMATION" shall have the meaning set forth in Section
7.04(a) of this Agreement.
"RETAINED MP CAPITAL ACCOUNT" shall have the meaning set forth in Section
3.01(b) of this Agreement.
"SRE" shall have the meaning set forth in the Recitals to this Agreement.
"STATEMENT OF EXECUTION DATE MP CAPITAL ACCOUNT" shall have the meaning set
forth in Section 3.02(a) of this Agreement.
"TANGIBLE ASSETS" shall have the meaning set forth in Section 2.01(b)(i) of
this Agreement.
"TAX" or "TAXES" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
"TAX MATTER" shall have the meaning set forth in Section 13.04(b) of this
Agreement.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY" or "THIRD PARTIES" shall mean any person or entity that is
not a party to this Agreement, other than SRE.
"TRADING OPERATIONS" means the various wholesale power trading operations
SRE conducts pursuant to its market-based rate tariff on file at the U.S.
Federal Energy Regulatory Commission, including but not limited to Power Trading
Transactions, wholesale power trading, engaging in the physical and financial
trading of electric power and energy, gas trading, hedging, including but not
limited to foreign exchange hedges, and trading transmission service under
separately tagged and segregated portfolio operations, other than trading done
for Core Operations.
"WITHDRAWAL AGREEMENT" shall have the meaning set forth in the Recitals to
this Agreement.
"WITHDRAWAL EFFECTIVE TIME" shall have the meaning set forth in the
Recitals to this Agreement.
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"WITHDRAWAL PAYMENT" shall have the meaning set forth in Section 2.01(c) of
this Agreement.
"WITHDRAWAL SETTLEMENT" shall have the meaning set forth in Section 2.01(c)
of this Agreement.
ARTICLE 2
TRANSFER OF MP FINANCIAL RIGHTS AND CERTAIN BUSINESS ASSETS; MP
WITHDRAWAL PAYMENTS; WITHDRAWAL
2.01 ASSIGNMENT OF MP FINANCIAL RIGHTS AND CERTAIN BUSINESS ASSETS.
Effective at and upon the Execution Date:
(a) ASSIGNMENT OF FINANCIAL RIGHTS. Except as contemplated by the
terms of this Agreement, MP hereby assigns to GRE, free and clear of all
liens, claims, encumbrances, restrictions and security interests, any and
all financial rights in the profits and losses of SRE, and any
distributions thereof, to which MP would otherwise be entitled under the
Member Control Agreement or the MLLCA. This assignment by MP shall (i) be
governed by Section 322B.31 of the MLLCA, and (ii) serve to amend the
following provisions of the Member Control Agreement: Section 4.3
(Allocations of Net Income and Net Losses), Section 4.5 (Mandatory
Distributions), Section 4.6 (Distributions in Kind), Section 4.7(c)
(Qualified Income Offset), Section 4.9 (Discretionary Adjustment) and
Section 4.10 (Special Allocations to Founding Members - New Member Fee;
Distributions). Based on and in clarification of the foregoing, except as
provided in this Agreement, upon and after the Execution Date MP shall:
(A) have no further right under the Member Control
Agreement to (i) any further allocations of net income or net
losses, (ii) mandatory or permissive distributions, (iii)
distributions in kind, or (iv) special allocations described
in Section 4.10 of the Member Control Agreement.
(B) not be (1) allocated any adjustment, allocation or
distribution described in Section 4.7(c) of the Member Control
Agreement, or (2) subject to any discretionary adjustment
described in Section 4.9 of the Member Control Agreement, it
being agreed that the matters which take effect pursuant to
and on the Execution Date, including without limitation the
termination of MP's credit support for the operations of SRE,
have and reflect the substantial economic effect of the
respective economic interests of MP and GRE from and after the
Execution Date and are intended to conform with the
requirements of Code Section 704(b) and the regulations
thereunder. As a consequence of the foregoing, with respect to
any and all allocations of any economic activity of SRE upon
and after the Execution Date, MP shall be allocated zero
percent (0%) and GRE shall be allocated one hundred percent
(100%).
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(b) ASSIGNMENT OF CERTAIN BUSINESS ASSETS. MP hereby assigns,
relinquishes and transfers any and all right, title and interest in and to
the assets set forth below to GRE, or its designee, on the Execution Date
(the "ASSETS").
(i) All tangible property of MP used presently in the
Business (the "TANGIBLE ASSETS").
(ii) All rights to use and all copies of (i) the ZaiNet
software that are conferred by the Sungard (Caminus) license, and
(ii) the maintenance and other agreements attached hereto as
SCHEDULE 2.01(b)(ii), pursuant to the ZaiNet Novation Agreement
substantially in the form attached hereto as EXHIBIT A.
(iii) Any software (other than the ZaiNet software referenced
above) developed or modified by SRE and/or MP for use by SRE as set
forth on SCHEDULE 2.01(b)(iii). This software includes, without
limitation, all source code, object code other associated
documentation, and new versions, revisions, updates and upgrades
currently in the possession of MP; PROVIDED, HOWEVER, that at the
Closing GRE shall grant to MP a perpetual, royalty-free,
non-transferable license to use and/or modify such software for use
in its core least cost supply license and any Trading Operations
post-Closing.
(iv) The telephone, servers, office furniture and other
personal property, and the leased Dell personal computer equipment
and associated software described on SCHEDULE 2.01(b)(iv) hereto.
(v) Copies of all data used in the Business that is in MP's
control, including but not limited to data contained in MP's data
warehouse. MP shall have the right to retain copies of such data
without restriction, except as set forth herein.
The Assets shall be relinquished and transferred to GRE or its
designee pursuant to a bill of relinquishment and transfer substantially in
the form of EXHIBIT B hereto.
(c) PAYMENT OF WITHDRAWAL SETTLEMENT. In full settlement (the
"WITHDRAWAL SETTLEMENT") of MP's termination of financial participation in
SRE and as an advance payment for MP's withdrawal as a party to the Member
Control Agreement at the Withdrawal Effective Time, MP has, on or before
the Execution Date, remitted a payment to GRE of One Million Nine Hundred
Seventy-Nine Thousand Dollars ($1,979,000) (the "WITHDRAWAL PAYMENT").
(d) ADMINISTRATIVE FEES. On or within five (5) days after the
Execution Date, MP shall remit to GRE an administrative fee of $100,000. In
the event that the FERC Order is not received on or before April 1, 2004,
MP shall remit to GRE an additional administrative fee(s) of $200,000 for
the month of April, 2004, and each succeeding month thereafter to the
Closing or termination of this Agreement, which payments shall be made
respectively on April 30, 2004, and the last day of each such succeeding
month thereafter, unless the Closing or a termination of this Agreement
occurs within or before any of such months. If the Closing or a termination
of this Agreement occurs in any of
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the months set forth above, the administrative fee for (i) the month in
which the Closing or a termination occurs shall be prorated by the number
of days in the month through the Closing Date or the termination date (for
example, if the Closing Date is April 16, 2004, the administrative fee for
the month will be (16/30 X $150,000)), and (ii) all months after the
Closing Date or the termination date shall not become due (any amount that
accrues pursuant to the above shall be referred to herein as the
"ADMINISTRATIVE FEES" and any full or partial payment relating to a single
month is an "ADMINISTRATIVE FEE").
2.02 WITHDRAWAL.
(a) MP WITHDRAWAL. At and upon the Withdrawal Effective Time, MP
shall be deemed to have withdrawn from the Member Control Agreement. As a
consequence, MP shall no longer be a Member of SRE or have any further
rights or obligations under the Member Control Agreement or any other
governing document, or agreement arising from, in connection with, or
pursuant to the organization, operation or continuing operations of SRE,
except as set forth herein and/or pursuant to the Ancillary Documents and
the Binding Provisions of the Interim Agreement.
(b) RELINQUISHMENT AND TRANSFER OF MP MEMBERSHIP INTEREST. At and
upon the Closing, for a payment by GRE to MP of One Million Dollars ($1
million), plus the Capital Vig (the "MEMBERSHIP INTEREST PAYMENT") and
other good and valuable consideration, on the Closing Date, MP shall
relinquish and transfer to GRE the Membership Interest of MP in SRE, free
and clear of all liens, claims, encumbrances, restrictions and security
interests pursuant to a Relinquishment and Assignment of Membership
Interest substantially in the form of EXHIBIT C hereto.
ARTICLE 3
RECONCILIATION AND PAYMENT OF MP CAPITAL ACCOUNT
3.01 ESTIMATED EXECUTION DATE MP CAPITAL ACCOUNT.
(a) ESTIMATION AND PARTIAL DISTRIBUTION OF THE MP CAPITAL ACCOUNT.
GRE has caused SRE to deliver to MP a statement of the estimated MP Capital
Account, which estimate was determined on a basis consistent with the
methodology to be employed in the calculation of the Capital Account of MP
pursuant to Section 3.01(c) below (such estimate, the "ESTIMATED EXECUTION
DATE MP CAPITAL ACCOUNT"). GRE and MP agree that the Estimated Execution
Date MP Capital Account amount is $12,406,996. On the Execution Date, GRE
shall cause SRE to remit $10 million to MP as a partial distribution from
the Capital Account of MP (the "EXECUTION DATE MP CAPITAL ACCOUNT
DISTRIBUTION").
(b) EXECUTION DATE MP CAPITAL ACCOUNT AND RETAINED MP CAPITAL
ACCOUNT. Subsequent to the Execution Date, the Estimated Execution Date MP
Capital Account shall be reconciled to the actual balance of the Capital
Account of MP (the "EXECUTION DATE MP CAPITAL ACCOUNT") in accordance with
Section 3.02 below. The difference between the Execution Date MP Capital
Account and the sum of: (x) $10 million
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Execution Date MP Capital Account Distribution, and (y) the Membership
Interest Payment (less the Capital Vig thereon) (such difference, the
"RETAINED MP CAPITAL ACCOUNT") will be remitted to MP at the Closing, along
with interest at an annual rate of 1.25% thereon from the Execution Date
through the Closing Date (the "CAPITAL VIG"), pursuant to receipt of the
FERC Order (defined in Section 6.05(ii)). The parties acknowledge and agree
that, at and upon the Closing, $1 million of the Capital Account of MP,
representing the initial capital contribution of MP in SRE, shall be (1)
retained in SRE, and (2) will become part of the GRE Capital Account in
SRE.
(c) COMPUTATIONS FOR MP CAPITAL ACCOUNT. For purposes of computing
(i) the Estimated Execution Date MP Capital Account, and (ii) the Execution
Date MP Capital Account, each such capital account shall be determined in
accordance with the book value of such MP Capital Account (as opposed to
the Tax basis Capital Account of MP) determined in accordance with the
generally accepted accounting principles of SRE consistently applied,
except that MP and GRE have agreed to amend hereby such controlling
provisions of the Member Control Agreement in order to incorporate the
following deviations from prior practice. In furtherance of the foregoing,
GRE shall cause SRE to adopt and incorporate the following
accounting/allocation principles into the SRE accounting for its operations
and its Capital Accounts for the period(s) commencing November 1, 2003
through the Execution Date:
(i) All trading gross margin (gross margin or gross loss
from marketing activities) as determined in accordance with
generally accepted accounting principles consistently applied by SRE
arising from or incident to Power Trading Transactions (i) initiated
on or after November 1, 2003, and (ii) those initiated prior to and
delivered on or after November 1, 2003, in each case through the
Execution Date, shall be allocated in their entirety (100%) to GRE
and no allocation shall be made to MP; and
(ii) All core gross margin (gross margin from marketing
activities) as determined in accordance with generally accepted
accounting principles consistently applied by SRE arising from or
incident to Core Operations prior to and through the Execution Date
shall be allocated equally (50%/50%) to MP and GRE; and
(iii) The operating expenses and costs arising from or
incident to Core Operations and Power Trading Transactions for the
period (A) commencing November 1, 2003, through December 31, 2003,
shall be allocated equally (50%/50%) to MP and GRE, except that MAPP
and MAIN fees shall be allocated in accordance with historical
practices, and (B) commencing January 1, 2004, to the Execution
Date, the allocation of such operating expenses and costs shall be
wholly (100%) to GRE, and no allocation shall be made to MP, except
that (i) MAPP and MAIN fees shall be allocated in accordance with
historical practices, and (ii) Three Hundred Twenty Five Thousand
($325,000) shall be allocated to MP for payment of Core Operations
expenses for January, 2004; and
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(iv) All credit facility fees and interest expense and gains/
losses on foreign currency allocations relating to Power Trading
Transactions for the period commencing November 1, 2003, through the
Execution Date shall be allocated in their entirety (100%) to GRE
and no allocation shall be made to MP; and
(v) All interest income for the period commencing November
1, 2003, through the Execution Date shall be allocated equally
(50%/50%) to MP and GRE; and
(vi) Any adjustments, mark-to-market adjustments, and normal
accounting adjustments made in the ordinary course of business shall
be allocated (A) equally (50%/50%) to MP and GRE if such adjustment
relates to the period prior to November 1, 2003, or (B) consistent
with Sections 3.01(c) (i)-(v) of this Agreement if such adjustment
relates to the period from and after November 1, 2003 through the
Execution Date; and
(vii) In computation of any of the foregoing, or the MP
Capital Account generally, all SRE Management Employee and
non-Management Employee severance pay or other such termination
costs (including non-cash benefits) shall be allocated in their
entirety (100%) to GRE and no allocation shall be made to MP.
3.02 MP CAPITAL ACCOUNT RECONCILIATION.
(a) STATEMENT OF EXECUTION DATE MP CAPITAL ACCOUNT. As soon as
practicable, and in no event later than twenty (20) days after the
Execution Date, GRE shall cause SRE to prepare and provide to MP a final
calculation of the Execution Date MP Capital Account determined as of the
Execution Date (the "Statement of Execution Date MP Capital Account"),
which Statement of Execution Date MP Capital Account shall be prepared in
accordance with generally accepted accounting principles and procedures of
SRE consistently applied, except for the adjustments required by Section
3.01(c) above. The reasonable fees, costs and expenses of Third Party
professionals (but not the internal costs to SRE or GRE) associated with
the preparation of the Statement of Execution Date MP Capital Account shall
be borne one hundred percent (100%) by MP. MP shall have concurrent access
to any of the work papers and source documentation of SRE or its
professionals that are utilized in any way in the compilation of data or
preparation of the Statement of Execution Date MP Capital Account. Within
ten (10) days after its receipt of the Statement of Execution Date MP
Capital Account, MP shall provide SRE with notice of any disagreement with
the preparation of or the calculations underlying the Statement of
Execution Date MP Capital Account, specifying in reasonable detail such
disagreement. If within such ten (10) day period MP makes no objection to
the Statement of Execution Date MP Capital Account, then the Statement of
Execution Date MP Capital Account shall become final and binding upon the
parties and the amount therein shall state the Execution Date MP Capital
Account.
(b) DISPUTE RESOLUTION. If MP objects to the Statement of
Execution Date MP Capital Account in any manner, then GRE and MP shall
negotiate in good faith for a
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period of ten (10) days from and after the date of the MP objection(s) to
resolve such objection(s). If the parties fail to agree on a Statement of
Execution Date MP Capital Account within the aforementioned ten (10) day
period, then, as to any matters still in dispute, MP and GRE shall refer
the matter to arbitration conducted by a mutually acceptable accounting
firm independent of GRE and MP (such firm to serve as arbitrator (the
"ACCOUNTING ARBITRATOR") for the sole purpose of this Section 3.02(b)). The
Accounting Arbitrator so selected will consider only those items and
amounts set forth in the Statement of Execution Date MP Capital Account as
to which MP and GRE have disagreed within the time periods and on the terms
specified above and must resolve the matter in accordance with the terms
and provisions of this Agreement. In submitting a dispute to the Accounting
Arbitrator, each of MP and GRE shall concurrently furnish, at their own
respective expense, to the Accounting Arbitrator and the other party such
documents and information as the Accounting Arbitrator may request. Each
party may also furnish to the Accounting Arbitrator such other information
and documents as it deems relevant, with copies of such submission and all
such documents and information being concurrently given to the other party.
Neither party shall have or conduct any communication, either written or
oral, with the Accounting Arbitrator without the other party, respectively,
either being present or receiving a concurrent copy of any written
communication. The Accounting Arbitrator may conduct a conference
concerning the objections and disagreements between MP and GRE, at which
conference each party shall have the right to (i) present its documents,
materials and other evidence (previously provided to the Accounting
Arbitrator and the other party), and (ii) have present its or their
advisors, accountants, counsel and other representatives. The Accounting
Arbitrator shall resolve each item of disagreement based solely on the
presentations and supporting material provided by the parties and not
pursuant to any independent review (the foregoing, however, shall not
preclude the Accounting Arbitrator from independent research of facts or
determining proper application of SRE generally accepted accounting
principles consistently applied or the terms of this Agreement and the
Ancillary Documents with respect to the subject matter of the objections
and disagreement between the parties). The Accounting Arbitrator shall
issue a detailed written report that sets forth the resolution of all items
in dispute and that contains, as applicable, a final Statement of Execution
Date MP Capital Account according to the dispute(s) noticed. Such report
shall state the Execution Date MP Capital Account and be final and binding
upon MP and GRE. The Accounting Arbitrator may choose to circulate a
preliminary report(s) for the comment of the parties. The fees and expenses
of the Accounting Arbitrator incurred in connection with the determination
of the disputed items by the Accounting Arbitrator shall be borne equally
by MP and GRE. MP and GRE shall, and GRE shall cause SRE to, cooperate
fully with the Accounting Arbitrator and respond on a timely basis to all
requests for information or access to documents or personnel made by the
Accounting Arbitrator or by MP, all with the intent to fairly and in good
faith resolve all disputes relating to the Statement of Execution Date MP
Capital Account as promptly as reasonably practicable.
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CONFIDENTIAL TREATMENT
ARTICLE 4
EMPLOYEES
4.01 [ * ]
4.02 [ * ]
4.03 [ * ]
4.04 [ * ]
* TEXT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE 5
OPERATION OF SRE PRIOR TO CLOSING
For the period from November 1, 2003 through the dates indicated below, the
parties agree to operate SRE as set forth in this Article 5.
5.01 MP CREDIT SUPPORT OF SRE. MP credit support of SRE cannot be used
for (i) Trading Operations transactions initiated after October 31, 2003, where
delivery occurs after the Execution Date, nor (ii) for Core Operations
transactions initiated after the Execution Date. MP will continue to maintain
existing credit support and provide new credit support, on the same basis as MP
has provided credit support in the past, until the Execution Date unless
otherwise agreed by the parties and SRE. As set forth on SCHEDULE 5.01, MP's
credit support consists of guarantees to Third Parties and support of SRE's
existing Co-Bank Credit Facility. MP's credit exposure continues through the
cash settlement of all transactions for which it has provided credit support. MP
and GRE have taken all steps necessary to assure that the Co-Bank Credit
Facility will remain in place until June 30, 2004, although the guaranty of MP
has been released.
5.02 RISK MANAGEMENT. Until the Execution Date, SRE will conduct its
Business within the risk limits established by the SRE board resolution of
November 12, 2003, which includes a $2.5 million for stress limit, and within
the $5.0 million stop-loss limit, and any
15
additional policies as described in the SRE board minutes dated September 24,
2003, each as set forth in SCHEDULE 5.02.
5.03 GENERATION AVAILABILITY CREDIT ("GAC") AND COMBUSTION TURBINE USE
("CTU"). GAC shall be settled with no payment to either party for all periods
ending October 31, 2003. SRE shall not use or apply the GAC from the time
November 1, 2003 through Closing. The methodology developed to determine CTU
during the month of October, 2003, as shown in SCHEDULE 5.03, will also be used
to determine CTU for the Interim Period. GRE shall continue to promptly notify
MP of the CTU amount on the first day of the next month and MP shall promptly
pay the CTU amount.
ARTICLE 6
CONCURRENT EXECUTION DATE AND CLOSING DATE AGREEMENTS AND
COOPERATION
6.01 EXECUTION DATE AND CLOSING DATE AGREEMENTS. On the Execution Date MP
and GRE shall enter into the Core Consulting Services Agreement substantially in
the form of EXHIBIT D hereto, whereby GRE shall provide transitional consulting
services to MP. Promptly following the Closing, MP shall, and GRE shall cause
SRE to, enter into the Support Services Agreement substantially in the form of
EXHIBIT E hereto, whereby MP shall provide transitional services to SRE, which
shall terminate the existing administrative services agreement between MP and
SRE, the invoiced costs of which shall not exceed $25,000 per month beginning
February 1, 2004.
6.02 COOPERATION ON CERTAIN OPERATIONAL MATTERS. The parties have reached
an understanding and agreement with respect to the matters set forth in
SCHEDULES 6.02 (a)-(e), as described below, as set forth in each such schedule.
SCHEDULE 6.02(a) Operational Matters: for International Falls,
GENSYS and SMMPA, and Least Cost Supply
SCHEDULE 6.02(b) Joint Reporting
SCHEDULE 6.02(c) Mutual Generator Outage Protection
SCHEDULE 6.02(d) Kendall Brokering Agreement
SCHEDULE 6.02(e) Ancillary Agreements
SCHEDULE 6.02(f) MP-GRE Capacity Reservation and Option
Agreements
6.03 TRANSMISSION MATTERS. MP and GRE agree that the current transmission
positions and requests now held by SRE will be (i) retained by SRE, (ii)
immediately assigned to MP, (iii) immediately assigned to RREC, or (iv) remain
conditionally with SRE with some future predetermined disposition, as listed and
described in SCHEDULE 6.03. The contracts to effectuate these transmission
assignments are attached in EXHIBIT F and GRE shall cause SRE to execute these
contracts on the Execution Date and promptly file with MISO and any regulatory
agencies, as may be required. In the event that the FERC Order is not issued, MP
shall cause the transmission assignments to be reassigned to SRE.
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6.04 TRANSFER OF DATA. MP and GRE shall, promptly following the Execution
Date, effectuate the transfer to SRE of all copies of data used in the Business
that is in MP's control including, but not limited to, data contained in MP's
data warehouse or MP shall retain such data pending future transfer at SRE's
request, subject to the data retention policy set forth in SCHEDULE 6.04.
Pending such transfer of data, the parties shall mutually cooperate to provide
SRE with the same access to the data it had in the ordinary course of business
prior to Closing.
6.05 FERC FILING AND APPROVAL ORDER. Promptly following the Execution
Date, MP shall prepare and submit a statutory filing to FERC (the "FERC FILING")
which seeks authority from FERC to relinquish MP's Membership Interest to GRE in
accordance with Section 203 of the Federal Power Act, 16 U.S.C. 824(b)
(alternatively, the "MEMBERSHIP INTEREST TRANSFER ORDER" or the "FERC ORDER").
In the event that either MP or GRE become aware that the Membership Initial
Transfer Order may be, or is, the subject of an objection and therefore may
result in a petition for rehearing, the parties shall determine whether or not
to proceed with or delay the Closing pending resolution of the objection and/or
rehearing, as the case may be. GRE agrees to support such filings at FERC and
further agrees to cooperate with MP in providing any information regarding SRE
and GRE in such proceedings.
6.06 MP EXCLUSIVE PURCHASES AND SALES. From and after the Execution Date,
MP and GRE agree that (i) MP shall assume all obligations and liability for
least cost supply to serve its own native load customers, including but not
limited to, purchase of capacity and energy from Third Parties and sale of
excess MP generation resources not needed to serve the native load of MP, (ii)
SRE shall have no obligation or liability for Core Operations with respect to
MP, (iii) MP waives its rights under the Member Control Agreement for any and
all allocations of gains or losses of SRE arising from Core Operations of SRE
and MP shall have no further liability for any expenses of SRE Core Operations,
and (iv) each shall immediately cause SRE to designate all MP purchases and
sales of capacity and energy as "Exclusive Purchase and Sales" as defined in the
SRE Rate Schedule No. 4 effective September 12, 2001 on file at FERC.
Nothing in this section shall alter any pre-existing MP obligation to SRE
to fulfill any pre-existing SRE obligations to Third Parties for capacity or
energy, including but not limited to, the GENSYS and SMMPA transactions as
indicated in SCHEDULE 6.02(a).
ARTICLE 7
INDEMNIFICATION
7.01 INDEMNIFICATION BY MP OF GRE. MP hereby covenants and agrees to
defend, indemnify and hold harmless GRE and SRE, and their respective members,
officers, directors, employees, affiliates, agents, successors and assigns
(collectively, the "ASSOCIATED INDEMNIFIED PARTIES"), from and against and in
respect of any and all losses, costs, expenses (including reasonable attorneys'
fees and disbursements of counsel), liabilities, damages, fines, penalties,
charges, assessments, judgments, settlements, claims, causes of action, and
other obligations of any nature whatsoever (excluding, however, claims for
incidental, consequential, or special damages, including punitive damages, other
than which arise from a Third Party claim against
17
the indemnified party hereunder) (individually, a "LOSS," and collectively,
"LOSSES") that GRE, SRE or their Associated Indemnified Parties may suffer,
sustain, incur or be subject to arising out of, based upon or resulting from or
on account of any of the following:
(a) the breach or falsity of any representation or warranty made
by MP in this Agreement, the Interim Agreement or the Ancillary Documents;
and
(b) the breach of any covenant or agreement made by MP in this
Agreement, the Interim Agreement and/or the Ancillary Documents (although
the pre-Closing covenants to obtain all Consents shall expire upon the
Closing); and
(c) one-half (1/2) of expenses of SRE (net of any Tax benefit by
way of deduction or deferral and insurance recoveries), which arise from
any period prior to the Execution Date, which are (i) not accounted for in
the computation of the Execution Date MP Capital Account as finally
determined, and (ii) not excluded in a category of expenses in the
reconciliation of the MP Capital Account pursuant to the provisions of
Section 3.01(c) of this Agreement; and
(d) one-half (1/2) of any Losses (excluding severance pay or other
such termination costs made to a non-Management Employee of SRE) arising
out of any claim(s) arising from, in connection with or incident to the
termination of the employment of any SRE employee to the extent
attributable to downsizing or restructuring of SRE as a consequence of the
withdrawal of MP from SRE where such termination occurs during the period
from and after the Execution Date through October 31, 2004; and
(e) the reasonable attorneys fees and expenses incurred by GRE and
SRE from and after January 23, 2004 through the Closing Date or the date
this Agreement is terminated, whichever date occurs earlier, arising from
and in connection with the requirement of the FERC Filing described in
Section 6.05 hereof (the "GRE ATTORNEY FEES"). All such GRE Attorney Fees
shall be paid by MP within fifteen (15) days of presentment by GRE.
7.02 INDEMNIFICATION BY GRE OF MP. GRE hereby covenants and agrees to
defend, indemnify and hold harmless MP, and its Associated Indemnified Parties,
from and against any Loss and all Losses that MP or its Associated Indemnified
Parties may suffer, sustain, incur, or be subject to arising out of, based upon
or resulting from or on account of any of the following:
(a) the breach or falsity of any representation or warranty made
by GRE in this Agreement, the Interim Agreement or any Ancillary Document;
and
(b) the breach of any covenant or agreement made by GRE, or by GRE
on behalf of SRE, in this Agreement, the Interim Agreement, and/or any
Ancillary Document; and
(c) any SRE Losses, as defined in the Interim Agreement, which
arise from, in connection with or incident to (i) SRE Trading Operations,
including market or credit exposure, (ii) MP credit support of the Trading
Operations, including (x) any MP
18
guaranty providing credit support to SRE's Trading Operations, or (y) any
letters of credit issued to provide credit support to SRE's Trading
Operations under the CoBank Credit Facility, and (iii) cash collateral
posted by SRE to support Trading Operations, including but not limited to
Five Million Dollars ($5,000,000) posted by SRE in deposit with American
Electric Power on or about December 23, 2003, and any such cash posted for
deposit by SRE will not impact the distribution of cash to MP or MP's
Capital Account; and
(d) any claim(s) arising from, in connection with or incident to
any lease of premises to which SRE is a party or MP's guaranty thereof; and
(e) any claim(s) arising from, in connection with or incident to
the operations or contracts of SRE or GRE (with respect to SRE) after the
Execution Date, except (i) for Power Trading Transactions that were
initiated prior to November 1, 2003, but which are not settled until after
the Execution Date, and (ii) to the extent of the indemnification
obligation of MP described in Section 7.01(d) of this Agreement.
7.03 PRINCIPLES REGULATING INDEMNITY RIGHTS.
(a) Without limiting the generality of the foregoing, with respect
to any measurement of damages or costs or expenses owing hereunder, either
party shall have the right to be put in the same financial position as it
would have been had the matter leading to the claim of indemnification
never occurred or arose. Each party shall be reimbursed by the other on a
monthly basis for all liabilities and damages incurred and all reasonable
costs and reasonable expenses incurred in enforcing this indemnity.
(b) Notwithstanding any other provision herein, either party shall
be entitled to seek equitable relief with respect to any indemnification
claim which arises from a covenant hereof. Each party shall use reasonable
efforts to provide prompt notice to the other of each indemnifiable claim
it believes it has suffered; PROVIDED, HOWEVER, no delay in providing any
such notice shall affect its right to recover damages or equitable relief
as appropriate under this Agreement. The foregoing covenant shall be for
the benefit of the parties hereto and shall not be deemed to give any Third
Party rights under this Agreement.
(c) The parties understand and agree that GRE shall prevent SRE
from asserting any claim of any kind against MP and its affiliates arising
from, in connection with or incident to any action or omission of MP or its
affiliates prior to the Closing Date, as a consequence of the occurrence of
the Closing.
7.04 PROCEDURE FOR INDEMNIFICATION.
(a) MP DIRECT INDEMNIFICATION OF GRE. In the event that GRE and/or
any of its Associated Indemnified Parties (individually, a "GRE INDEMNIFIED
PARTY" and collectively, the "GRE INDEMNIFIED PARTIES") intends to seek
indemnification under this Agreement pursuant to the provisions of Sections
7.01 of this Agreement, the GRE Indemnified Party shall promptly give
notice hereunder to MP, specifying in such notice, to the extent such
specific information is available, (i) the specific nature of the Loss or
19
Losses to be indemnified, (ii) the amount and, as applicable, a computation
of the amount, of such Loss or Losses, (iii) any and all evidence of such
Loss or Losses, including all documents, instruments, notices and financial
data, in whatever form or media, sufficient for MP to ascertain the
propriety and amount of the indemnification claim, and (iv) any relevant
dates relating to the assertion, accrual and payment of the Loss or Losses
(collectively, the "REQUIRED NOTICE INFORMATION"). MP shall have ten (10)
days to consider such claim and, within such period shall either (x) object
by written notice to the GRE Indemnified Party to the claim, in whole or in
part, or (y) remit the undisputed amount requested by the GRE Indemnified
Party. In the event that the claim is objected to by MP in whole or in
part, the parties shall attempt to resolve the dispute within ten (10)
business days of the receipt of the MP objection by the GRE Indemnified
Party. In the event the parties are unable to resolve the disputed claim
within such period, the matter shall be resolved pursuant to the
arbitration procedure set forth in Section 7.04(e) hereof.
(b) GRE DIRECT INDEMNIFICATION OF MP. In the event that MP and/or
any of its Associated Indemnified Parties (individually, an "MP INDEMNIFIED
PARTY" and collectively, the "MP INDEMNIFIED PARTIES") intends to seek
indemnification under this Agreement pursuant to the provisions of Section
7.02 of this Agreement, the MP Indemnified Party shall promptly give notice
hereunder to GRE, specifying in such notice the Required Notice
Information, to the extent such specific information is available. GRE
shall have ten (10) days to consider such claim and, within such period,
shall either (x) object by written notice to the MP Indemnified Party to
the claim, in whole or in part, or (y) remit the undisputed amount
requested by the MP Indemnified Party. In the event that the claim is
objected to by GRE in whole or in part, the parties shall attempt to
resolve the dispute within ten (10) business days of the receipt of the GRE
objection by the MP Indemnified Party. In the event the parties are unable
to resolve the disputed claim within such period, the matter shall be
resolved pursuant to the arbitration procedure set forth in Section 7.04(e)
hereof.
(c) PROCEDURE FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. In the
event any of the GRE Indemnified Parties or the MP Indemnified Parties
intend to seek indemnification pursuant to the provisions of Sections 7.01
or 7.02 hereof as a result of the claim of a Third Party (the "INDEMNIFIED
PARTY"), the Indemnified Party shall promptly give notice hereunder to the
other party (the "INDEMNIFYING PARTY") after obtaining written notice of
any service of a summons or notice of a Proceeding in any action instituted
against the Indemnified Party as to which recovery or other action may be
sought against the Indemnified Party because of the indemnification
provided for in Sections 7.01 or 7.02 hereof, and the Indemnified Party
shall permit the Indemnifying Party to assume the defense of any such
Proceeding; PROVIDED, HOWEVER, that the Indemnified Party shall not be
required to permit such an assumption of the defense of any Proceeding
which, if not first paid, discharged or otherwise complied with, would
result in a material interruption or disruption of the business of the
Indemnified Party, or any material part thereof. Notwithstanding the
foregoing, the right to indemnification hereunder shall not be affected by
any failure of the Indemnified Party to give such notice (or by delay by
the Indemnified Party in giving such notice) unless, and then only to the
20
extent that, the rights and remedies of the Indemnifying Party shall have
been prejudiced as a result of the failure to give, or delay in giving,
such notice.
If the Indemnifying Party assumes the defense of such Proceeding
referenced in the Indemnified Party's notice, the obligations of the
Indemnifying Party hereunder as to such Proceeding shall include taking all
steps necessary in the defense or settlement of such Proceeding and holding
the Indemnified Party harmless from and against any and all Losses arising
from, in connection with or incident to any settlement approved by the
Indemnifying Party or any judgment entered in connection with such
Proceeding, except where, and only to the extent that, the Indemnifying
Party has been prejudiced by the actions or omissions of the Indemnified
Party. Notwithstanding the foregoing, the assumption of the defense of any
Proceeding by the Indemnifying Party shall not constitute an admission of
responsibility to indemnify or in any manner impair or restrict the
Indemnifying Party's rights to later seek to be reimbursed its costs and
expenses if indemnification under this Agreement with respect to such
Proceeding was not required. The Indemnifying Party shall not, in the
defense of such Proceeding, consent to entry of any judgment (other than a
judgment of dismissal on the merits without costs) except with the written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld, delayed or conditioned) or enter into any settlement (except with
the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld, delayed or conditioned) unless (i) there is no
finding or admission of any violation of applicable law and no material
effect on any claims that could reasonably be expected to be made against
the Indemnified Party, (ii) the sole relief provided is monetary damages,
and (iii) the settlement shall include the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect
to such claim or litigation.
If the Indemnifying Party assumes the defense of such Proceeding
referenced in the Indemnified Party's notice, the Indemnified Party shall
be entitled to participate in the defense of the claim. The Indemnified
Party shall bear the fees and expenses of any additional counsel retained
by it to participate in its defense unless any of the following shall
apply: (i) the employment of such counsel shall have been authorized in
writing by the Indemnifying Party, or (ii) the Indemnifying Party's legal
counsel shall advise the Indemnifying Party in writing, with a copy to the
Indemnified Party, that there is a conflict of interest that would make it
inappropriate under applicable standards of professional conduct to have
common counsel. If clause (i) or (ii) in the immediately preceding sentence
is applicable, then the Indemnified Party may employ separate counsel at
the expense of the Indemnifying Party to represent the Indemnified Party,
but in no event shall the Indemnifying Party be obligated to pay the costs
and expenses of more than one such separate counsel for any one complaint,
claim, action or Proceeding in any one jurisdiction.
If the Indemnifying Party does not assume the defense of any such
Proceeding by a Third Party after receipt of notice from the Indemnified
Party, the Indemnified Party may defend against such Proceeding in such
manner as it reasonably deems appropriate. The Indemnified Party may not
settle such claim or litigation without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
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Each party shall cooperate in good faith and in all respects with
each Indemnifying Party and its representatives (including without
limitation its counsel) in the investigation, negotiation, settlement,
trial and/or defense of any Proceedings (and any appeal arising therefrom).
The parties shall cooperate with each other in any notifications to and
information requests of any insurers. No individual representative of any
party, or their respective affiliates, shall be personally liable for any
Loss or Losses under this Agreement, except as specifically agreed to by
said individual representative.
(d) REMEDIES. The respective indemnification obligations of the
parties set forth in Article 7 of this Agreement are the exclusive remedies
of the parties and their successors, assigns or others seeking to claim by,
through, or on behalf of a party, under this Agreement, and no other remedy
or remedies, whether arising under any applicable law, common law or
otherwise, may be used, asserted or prosecuted in connection with this
Agreement and any transaction, occurrence, or omission arising from, in
connection with or otherwise based upon this Agreement; provided, however,
that all equitable remedies shall remain available other than rescission,
which shall not be an available remedy of either party hereto, or their
respective successors and assigns, under or pursuant to this Agreement.
This Section 7.04(d) shall not be applicable in the specific instances in
which a party hereto has committed fraud.
7.05 DISPUTE RESOLUTION. In the event a dispute arises under this
Agreement, except with respect to Article 3 or equitable remedies pursued under
this Agreement, such disputes shall be resolved in the manner set forth in this
Section 7.05.
(a) If a dispute arises under this Agreement, including any
question regarding the existence, validity, interpretation or termination
hereof, which is not described as an exception in this Section 7.05, GRE
and MP may invoke the dispute resolution procedure set forth in this
Section 7.05 by giving written notice to the other party. If either party
gives such a notice, the parties shall enter into discussions concerning
this dispute. If the dispute is not resolved as a result of such discussion
in ten (10) days, an attempt will be made to resolve the matter by a formal
nonbinding mediation with an independent neutral mediator agreed to by the
parties. If the parties cannot agree on a mediator within a period of ten
(10) days after expiration of the ten (10) day period for resolution by
discussion, then either party may apply to any court of competent
jurisdiction for appointment of a mediator, which appointment shall be
binding and nonappealable. Upon commencement of the mediation process, the
parties shall promptly communicate with respect to a procedure and schedule
for the conduct of the Proceeding and for the exchange of documents and
other information related to the dispute. The mediation process shall be
deemed ended if the dispute has not been resolved within thirty (30) days
after appointment of the mediator.
(b) All claims, disputes or other matters in question between the
parties to this Agreement arising out of or relating to this Agreement
which are not resolved by mediation in accordance with Section 7.05(a)
within thirty (30) days after appointment of mediator shall be submitted
for, subject to and decided by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
currently in effect as of the date of this Agreement ("AAA RULES"), except
to the extent those rules
22
are inconsistent with this Section 7.05. Any arbitration must be held in
Minnesota by a single arbitrator mutually selected by the parties hereto
or, if the parties hereto cannot agree on the appointment of such
arbitrator within ten (10) days following the date notice of the dispute is
given by a party to the adverse party, an arbitrator selected according to
the AAA Rules. The arbitrator's award shall be final, conclusive and
binding upon all parties to this Agreement, and judgment may be entered
upon it in accordance with the Federal Arbitration Act in any court
described in Section 7.05(c). The arbitrator shall be required to provide
in writing to the parties the basis for the award or Order of such
arbitrator, and a court reporter shall record all hearings (unless
otherwise agreed to by the parties), with such record constituting the
official transcript of such Proceedings. MP and GRE specifically desire
this Arbitration clause to be governed by the United States Federal
Arbitration Act, and not by the arbitration laws of any state.
(c) MP and GRE agree and consent that any legal action, suit or
Proceeding seeking to enforce this Section 7.05 or to confirm or contest
any arbitration award shall be instituted and adjudicated solely and
exclusively in any court of general jurisdiction in Minnesota, or in the
United States District Court having jurisdiction in Minnesota and MP and
GRE agree that venue will be proper in such courts and waive any objection
which they may have now or hereafter to the venue of any such suit, action
or Proceeding in such courts, and irrevocably consent and agree to the
jurisdiction of said courts in any such suit, action or Proceeding. MP and
GRE further agree to accept and acknowledge service of any and all process
which may be served in any such suit, action or Proceeding in said courts,
and also agree that service of process or notice upon them shall be deemed
in every respect effective service of process or notice upon them, in any
suit, action or Proceeding, if given or made: (i) by a Person over the age
of eighteen who personally serves such notice or service of process on MP
or GRE, as the case may be, or (ii) by certified mail, return receipt
requested, mailed to MP or GRE, as the case may be, at their respective
addresses set forth in this Agreement.
(d) In the event of arbitration filed or instituted between the
parties pursuant to this Section 7.05, the prevailing party will be
entitled to receive from the adverse party all costs, damages and expenses,
including reasonable attorney's fees, incurred by the prevailing party in
connection with that action or Proceeding, whether or not the controversy
is reduced to judgment or award. The prevailing party will be that party
who is determined by the arbitrator to have prevailed on the major disputed
issues.
ARTICLE 8
ADDITIONAL AGREEMENTS WITH RESPECT TO OPERATION OF SRE PRIOR TO
CLOSING
8.01 ACTIONS REFRAINED FROM PRIOR TO CLOSING. Between the Effective Date
and the Closing Date, GRE and MP shall cause SRE not do any of the following
without prior written authorization from MP and GRE:
(a) merge or consolidate with or into any other entity or enter
into any agreements relating thereto; or
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(b) authorize or make any distribution of capital or property to
any Member of SRE other than as contemplated by this Agreement and, with
respect to the Retained MP Capital Account, pursuant to the FERC Order.
8.02 AFFIRMATIVE ACTIONS PRIOR TO CLOSING. Between the Effective Date and
the Closing Date, except as otherwise consented to in writing by MP and GRE, GRE
and MP shall cause SRE to:
(a) continue to make available to MP and GRE and its counsel,
accountants and other representatives for examination all business and
financial books and records of SRE, as well as all other information
reasonably considered relevant to the Business and affairs of SRE;
(b) operate the Business in accordance with the MPUC Order dated
June 1, 2000, and consistent with that operation SRE shall use all
commercially reasonable efforts to preserve intact SRE's present business
organization and goodwill of customers, suppliers and others having
business relations with SRE, and maintain SRE's membership and joint
reporting in MAPP.
(c) maintain SRE's books of account, records and files
substantially in the same manner as they are maintained as of the date of,
but giving effect to the provisions of, this Agreement and make no change
in accounting principles utilized presently;
(d) maintain and enforce existing policies of insurance or
substitute policies providing reasonably comparable insurance coverage in
amounts not less than those in effect on the date of this Agreement and in
any event in amounts of coverage which are at least typical for companies
of SRE's size and in SRE's industry; and
(e) take all required corporate action to effectuate and perform
the transactions contemplated by this Agreement and use commercially
reasonable efforts to satisfy the conditions to the obligations to close
the transactions contemplated herein, to the extent such conditions are
within the reasonable control of SRE.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF MP
MP represents and warrants to GRE that:
9.01 CORPORATE STANDING AND AUTHORITY; BINDING AGREEMENT. MP is a
division of ALLETE, Inc., a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has full corporate
power to own all of its properties and assets and to conduct its business as it
is now being conducted. The execution of this Agreement and consummation of the
transactions contemplated herein shall not violate any provision of MP's
Articles of Incorporation or Bylaws, and MP has obtained all necessary corporate
authorization for the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement is a
legal, valid and binding agreement of MP, enforceable against MP in accordance
with its terms, subject to the laws of bankruptcy,
24
insolvency and moratorium and other laws or equitable principles generally
affecting creditors' rights.
9.02 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. Except (x)
for submitting the FERC Filing described in Section 6.05 and obtaining the FERC
Order, and (y) as set forth in SCHEDULE 9.02, the execution, delivery and
performance of this Agreement by MP, including, without limitation, the
assignment of its Membership Interests to GRE, does not and will not: (i)
conflict with or violate any law, rule, regulation, Order, judgment or decree
applicable to MP or by which any of MP's assets are bound or affected, (ii)
result in any breach of or constitute a default under any contract or other
agreement or note, bond, mortgage, indenture, lease, license, franchise or other
instrument or obligation to which MP is a party or by which any of the MP assets
are bound or affected, or (iii) require any consent, approval, authorization or
permit of any governmental or regulatory authority, domestic or foreign, or any
person or entity not a party to this Agreement ("CONSENTS").
9.03 TITLE. As of the Execution Date (i) MP shall have good and
marketable title to the Assets that are Tangible Assets, such title to be free
and clear of all liens, claims, security interests, mortgages, easements,
restrictions, charges and encumbrances (other than those in favor of GRE under
the Member Control Agreement), and (ii) with respect to the Assets that are
leased or licensed, MP shall have a valid license or leasehold interest. As of
the Closing, MP shall have good and marketable title to its Membership Interest.
9.04 RELINQUISHED ASSETS. MP has title to or a valid leasehold or license
interest to the Assets. The Assets relinquished and transferred by MP are in
operating condition and are as is, where is, as used at and by SRE in the normal
course of business. The Assets are all of the Assets used exclusively in the
Business, but shall not include assets used in the Business which are also used
in the operation of the business of MP (by way of example, the Oracle accounting
system software).
9.05 LITIGATION. There is no litigation pending or, to the best knowledge
of MP after due inquiry of its officers, threatened against MP which seeks to
prevent, or if successful would prevent, MP from consummating the purchase
contemplated by this Agreement.
9.06 NOTICE OF DEVELOPMENT. MP shall notify GRE of any event or
occurrence that has as its basis an event or occurrence that arose after the
date hereof which would cause a breach at the Closing of any of the
representations and warranties set forth in Sections 9.01, 9.02 and 9.05.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF GRE
GRE represents and warrants to MP that:
10.01 Organization and Authority. GRE is a cooperative duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has full power and authority to carry on its current business operations and
consummate the transactions
25
contemplated by this Agreement. The execution of this Agreement and consummation
of the transactions contemplated herein shall not violate any provision of GRE's
governing documents or any law, regulation or ordinance or any provision of any
contract, instrument, Order, award, judgment or decree to which GRE is a party
or by which GRE is bound. This Agreement is a legal, valid and binding agreement
of GRE enforceable against GRE in accordance with its terms, subject to the laws
of bankruptcy, insolvency and moratorium and other laws or equitable principles
generally affecting creditors' rights. GRE has obtained all necessary
cooperative authorization and approval for the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby. No consent, authorization, Order or approval of any person,
governmental authority or any court is required in connection with the execution
and delivery by GRE of this Agreement or the consummation by GRE of the
transactions contemplated hereby.
10.02 LITIGATION. There is no litigation pending or, to the best knowledge
of GRE after due inquiry of its officers, threatened against GRE which seeks to
prevent, or if successful would prevent, GRE from consummating the purchase
contemplated by this Agreement.
10.03 NOTICE OF DEVELOPMENT. GRE shall notify MP of any event or
occurrence that has as its basis an event or occurrence that arose after the
date hereof which would cause a breach at the Closing of any of the
representations and warranties set forth in Sections 10.01 and 10.02.
ARTICLE 11
CLOSING
11.01 TIME AND PLACE. Upon receipt of the Membership Interest Transfer
Order which is not subject to an objection that may result in a rehearing by
FERC (such that the parties have agreed to delay the Closing pursuant to Section
6.05 hereof), MP and GRE shall schedule the Closing, which shall take place not
later than five (5) business days after receipt of the FERC Order (the "CLOSING
DATE"). The closing hereunder (the "CLOSING") shall take place at the offices of
Leonard, Street and Deinard, Professional Association, 150 South Fifth Street,
Suite 2300, Minneapolis, Minnesota, 55402, or at such other time and place as
may be agreed to by the parties. The Closing shall be deemed to be effective at
11:59 P.M. (CST) on the Closing Date, which shall also be the Withdrawal
Effective Time.
11.02 CONDITIONS TO MP'S OBLIGATIONS TO CLOSE. The obligation of MP to
Close shall be subject to satisfaction of the following deliverables and
conditions precedent on or prior to the Closing Date:
(a) PAYMENTS AND DELIVERY OF DOCUMENTS:
----------------------------------
(i) RECEIPT OF MEMBERSHIP INTEREST PAYMENT. MP shall receive
the Membership Interest Payment from GRE at the Closing.
(ii) RECEIPT OF THE RETAINED MP CAPITAL ACCOUNT. MP shall
receive payment from SRE at the Closing of the Retained MP Capital
Account and the Capital Vig.
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(iii) GRE OFFICER'S CERTIFICATE. MP shall receive a
certificate from an officer of GRE, in form and content reasonably
satisfactory to MP, certifying (i) to the incumbency of GRE's
authorized officers executing this Agreement and related documents,
(ii) to the good standing of GRE in the state of its organization
and attaching a good standing certificate for GRE issued by the
Secretary of State of such state, (iii) that all necessary corporate
authorizations and approvals have been obtained by GRE for the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereunder, and (iv)
that the execution of this Agreement by GRE and the consummation of
the transactions contemplated hereunder will not violate the
provisions of the Articles of Incorporation of GRE or any other
agreement to which GRE is a party or by which it is bound. A
certificate in substantially the same form containing the above
information has been delivered to MP on the Execution Date
(iv) CONSENT. The (A) FERC Order, and (B) the Consents set
forth in SCHEDULE 9.02, shall all have been obtained.
(b) CONDITIONS PRECEDENT TO CLOSING:
--------------------------------
(i) REPRESENTATIONS, WARRANTIES AND COVENANTS. All covenants
and agreements of GRE set forth herein required to be performed
prior to the Closing shall have been fully performed and the
representations and warranties of GRE set forth herein shall be true
and correct as of the Closing Date as though those representations
and warranties have been made at and as of that time. At the
Closing, MP shall have received a certificate signed by a duly
authorized officer of GRE to the foregoing effect in form and
content reasonably satisfactory to MP.
(ii) NO LITIGATION. There shall not have been instituted or
threatened on or before the Closing Date any action or Proceeding to
restrict or prohibit the transactions contemplated by this
Agreement.
11.03 CONDITIONS TO GRE'S OBLIGATION TO CLOSE. The obligation of GRE to
close shall be subject to satisfaction of the following deliverables and
conditions precedent on or prior to the Closing Date or at and upon the Closing:
(a) PAYMENTS AND DELIVERY OF DOCUMENTS:
----------------------------------
(i) PAYMENT OF UNPAID ADMINISTRATIVE FEE(S) AND GRE ATTORNEY
FEES, SEVERANCE REIMBURSEMENT. GRE shall receive payment from MP of
any unpaid Administrative Fee(s), unpaid severance reimbursement
pursuant to Section 4.03, unpaid CTU payments and unpaid GRE
Attorney Fees.
(ii) MEMBERSHIP INTEREST RELINQUISHMENT AND ASSIGNMENT. MP
shall have duly executed and delivered to GRE, all in form and
substance reasonably satisfactory to GRE, a Relinquishment and
Assignment of Membership Interest in substantially the form attached
hereto as EXHIBIT C.
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(iii) CONSENTS. The FERC Order shall have been obtained and
any and all notices or Consents listed or required to be listed
under SCHEDULE 11.03(a)(iii) shall have been duly made by MP or
executed and delivered by the person or entity required to consent,
in form and content reasonably satisfactory to GRE, and shall have
been delivered to GRE by MP.
(iv) MP OFFICER'S CERTIFICATE. GRE shall have received a
certificate from an officer of MP, in form and content reasonably
satisfactory to GRE, certifying (i) to the incumbency of MP's
authorized officers executing this Agreement and related documents,
(ii) to the good standing of MP in the state of its incorporation
and attaching a good standing certificate for MP issued by the
Secretary of State of such state, (iii) that all necessary
authorizations and approvals have been obtained by MP for the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereunder, and (iv)
that the execution, delivery and performance of this Agreement by MP
and the consummation of the transactions contemplated hereunder will
not violate the provisions of MP's Articles of Incorporation or
Bylaws or any other agreement to which MP is a party or by which it
is bound. A certificate in substantially the same form containing
the above information has been delivered to GRE on the Execution
Date.
(v) RESIGNATIONS. GRE shall have received the written
resignations of any MP designated members of the SRE Board of
Governors. MP personnel who were also SRE officers resigned as
officers of SRE on the Execution Date.
(b) CONDITIONS PRECEDENT TO CLOSING:
-------------------------------
(i) REPRESENTATIONS, WARRANTIES AND COVENANTS. All covenants
and agreements of MP set forth herein required to be performed prior
to the Closing shall have been fully performed and the
representations and warranties of MP set forth herein shall be true
and correct as of the Closing Date as though those representations
and warranties had been made at and as of that time. At the Closing,
GRE shall have received a certificate signed by a duly authorized
officer of MP to the foregoing effect in form and content reasonably
satisfactory to GRE.
(ii) NO LITIGATION. There shall not have been instituted or
threatened any action or Proceeding to restrict or prohibit the
transactions contemplated by this Agreement.
11.04 EFFORTS TO SATISFY CONDITIONS. Each party shall use reasonable
commercial efforts to secure promptly the satisfaction of the conditions to
Closing, to the extent the same is within their reasonable control.
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ARTICLE 12
TERMINATION
12.01 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:
(i) by mutual written agreement of GRE and MP; or
(ii) by either MP or GRE if, through no breach of this
Agreement by the terminating party, the Closing has not occurred on
or before May 31, 2004.
No termination of this Agreement shall (i) affect the transactions which become
effective on or entered into as a consequence of, the Execution Date, which
transactions shall be legal, binding and enforceable with respect to the parties
thereto, or (ii) relieve any party from liability it may have under this
Agreement or the Interim Agreement from breaches of its respective
representations, warranties or covenants occurring prior to termination.
12.02 PROCEDURE UPON TERMINATION. In the event of termination by GRE or by
MP pursuant to Section 12.01(ii) hereof, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
to be effected at the Closing shall be terminated without further action by the
parties hereto. If such a termination takes place:
(a) The Interim Agreement and the transactions that took effect on
the Execution Date shall be unaffected;
(b) MP shall continue to be bound by the Member Control Agreement,
subject to the amendments set forth herein;
(c) No party hereto and none of their respective directors,
officers, shareholders or controlling persons shall have any liability or
further obligation to any other party pursuant to this Agreement or the
Interim Agreement, except as to any breach of the continuing covenants
hereof; and
(d) The provisions of Articles 1, 2, 3, 4, 5, 7, 12 and 14 and
Sections 6.02, 6.03, 6.04, 6.06, 9.01, 9.03, 9.04, 10.01, 13.01, 13.02 and
13.03 shall survive any termination of this Agreement; PROVIDED, HOWEVER,
Sections 12.02(a) and (c) above shall control and constitute the exclusive
remedy of the parties with respect to any Losses that may be claimed by a
party under this Agreement.
ARTICLE 13
OTHER MATTERS
13.01 ANNOUNCEMENTS. No press releases, announcements, or other disclosure
related to the specific details of this Agreement or the transactions
contemplated herein shall be issued or made to the press, employees, customers,
suppliers or any other person, except to the extent necessary for MP or GRE to
(i) comply with applicable securities or other regulatory laws, rules,
29
or regulations, or other applicable authority, or (ii) obtain MP's release from
its credit support obligations, or (iii) as otherwise necessary to comply with
the terms of this Agreement. GRE and MP agree to cooperate on any external
communications regarding MP's withdrawal from SRE. The parties will cause SRE to
observe this provision.
13.02 USE OF SRE NAME. As of the Closing Date and thereafter, MP shall
cease all use of the name "Split Rock Energy" and any other similar names,
except to the extent the name is used in connection with MP delivery of services
on behalf of SRE or GRE as directed by SRE or GRE.
13.03 CONFIDENTIALITY. The parties may, for their mutual benefit in the
course of negotiating and implementing the transactions contemplated by this
Agreement, exchange information which is of a non-public proprietary or
confidential nature to the disclosing party which, by way of example but not
limitation, may include information related to Core Operations, Power Trading
Transactions, business practices, strategies or approaches, Capital Accounts,
Net Income and Net Losses (the "CONFIDENTIAL INFORMATION"). The Confidential
Information may be in any form whatsoever, including writings, computer
programs, logic diagrams, drawings or other media. All information disclosed by
either party to the other, whether orally, in writing by inspection or
otherwise, shall be Confidential Information when it is so labeled or identified
by the party delivering the information.
The Confidential Information (i) may be used by the receiving party solely
in connection with the transactions described in this Agreement, and (ii) will
be kept confidential and not disclosed by the receiving party to any other
person, except that Confidential Information may be disclosed to (i) the United
States Securities and Exchange Commission and any counterpart agency of any
state, whether or not such Confidential Information shall be made publicly
available as a consequence of such filing, and (ii) any of the receiving party's
affiliates, directors, officers, employees, attorneys, accountants, consultants,
advisors and agents (collectively, its "AUTHORIZED REPRESENTATIVES") who require
access to such information and as required to comply with Section 13.04 below.
Each of the Parties agrees that any of its Authorized Representatives to whom
Confidential Information is disclosed will be informed of the confidential or
proprietary nature thereof and of the receiving party's obligations under this
Agreement, and that each party shall be responsible for any use or disclosure of
Confidential Information by any of its Authorized Representatives.
Notwithstanding anything to the contrary set forth herein, Confidential
Information shall not include any information that (i) is, on the Effective Date
of this Agreement, available to the public (including in any publicly filed
document), or (ii) becomes generally known to the public after the Effective
Date of this Agreement other than as a result of any improper act or omission of
MP or GRE or their Authorized Representatives, or (iii) was demonstrably known
to MP or GRE prior to the Effective Date of this Agreement, or (iv) MP or GRE
lawfully receive such Confidential Information from a Third Party, who is not
subject to an obligation of confidentiality or non-use at the time of such
transmittal.
If MP or GRE is requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any of the other party's Confidential Information,
MP or GRE will provide the other party with
30
prompt notice of such request, and the documents and/or information requested
thereby, so that the other party may seek an appropriate protective Order and/or
waive compliance with the provisions of this Agreement. If, in the absence of a
protective Order or the receipt of a waiver hereunder, MP or GRE are
nonetheless, in the opinion of MP or GRE's legal counsel, compelled to disclose
Confidential Information to any tribunal or otherwise stand liable for contempt
or suffer other censure or penalty, MP or GRE may disclose to such tribunal,
without liability hereunder, that portion of the Confidential Information which
MP or GRE's legal counsel advises that MP or GRE are compelled to disclose;
PROVIDED, HOWEVER, that MP or GRE shall give the other party written notice of
the information to be disclosed as far in advance of its disclosure as
reasonably practicable.
13.04 TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between MP and the GRE for certain Tax Matters following
the Closing Date:
(a) TAX RETURNS.
-----------
(i) MP shall prepare, execute on behalf of SRE and timely
file, or cause to be prepared and timely filed, all income/reporting
Tax Returns of SRE that are due with respect to any taxable year or
other taxable period ending prior to or ending on and including the
Closing Date. Such authority shall include, but not be limited to,
the determination of the manner in which any items of income, gain,
deduction, loss or credit arising out of the income, properties and
operations of SRE shall be reported or disclosed in such Tax
Returns; PROVIDED, HOWEVER, that such Tax Returns shall be prepared
by treating items on such Tax Returns in a manner consistent with
the past practices with respect to such items, except for the
allocation provisions of this Agreement which shall be an exception
to such prior treatment.
(ii) Except as provided in Section 13.04(a)(i), GRE shall
have the exclusive authority and obligation to prepare and timely
file, or cause to be prepared and timely filed, all income/reporting
Tax Returns of SRE with respect to any taxable year or other taxable
period ending after the Closing Date; PROVIDED, HOWEVER, with
respect to Tax Returns to be filed by GRE pursuant to this Section
13.04(a) for taxable periods beginning before the Closing Date and
ending after the Closing Date, items set forth on such Tax Returns
shall be treated in a manner consistent with the past practices with
respect to such items, except for the allocation provisions of this
Agreement which shall be an exception to such prior treatment. Such
authority shall include, but not be limited to, the determination of
the manner in which any items of income, gain, deduction, loss or
credit arising out of the income, properties and operations of SRE
shall be reported or disclosed on such Tax Returns.
(b) CONTROVERSIES. GRE shall promptly notify MP in writing upon
receipt by GRE or SRE or any affiliate of GRE or SRE after the Closing
Date) of written notice of any inquiries, claims, assessments, audits or
similar events with respect to Taxes relating to a taxable period ending
prior to or ending on and including the Closing Date for which SRE may be
liable under this Agreement (any such inquiry, claim, assessment, audit or
31
similar event, a "TAX MATTER"). MP, or its duly appointed representative
(the "MP REPRESENTATIVE"), at its sole expense, shall have the authority to
represent the interests of SRE with respect to any Tax Matter before the
Internal Revenue Service, any other taxing authority, any other
governmental agency or authority or any court and shall have the sole right
to control the defense, compromise or other resolution of any Tax Matter,
including responding to inquiries, filing Tax Returns and contesting,
defending against and resolving any assessment for additional Taxes or
notice of Tax deficiency or other adjustment of Taxes of, or relating to, a
Tax Matter; PROVIDED, HOWEVER, that neither MP nor any of its affiliates
shall enter into any settlement of or otherwise compromise any Tax Matter
that affects or may affect the Tax liability of GRE or SRE for any period
ending after the Closing Date, including the portion of a period beginning
before the Closing Date and ending after the Closing Date (the "OVERLAP
PERIOD") that is after the Closing Date, without the prior written consent
of GRE. The MP Representative shall keep GRE fully and timely informed with
respect to the commencement, status and nature of any Tax Matter. The MP
Representative shall, in good faith, allow GRE, at its sole expense, to
make comments to the MP Representative, regarding the conduct of or
positions taken in any such Proceeding.
Except as otherwise provided in this Section 13.04(b), GRE shall
have the sole right to control any audit or examination by any taxing
authority, initiate any claim for refund or amend any Tax Return, and
contest, resolve and defend against any assessment for additional Taxes,
notice of Tax deficiency or other adjustment of Taxes of, or relating to,
the income, assets or operations of SRE for all taxable periods; PROVIDED,
HOWEVER, that GRE shall not, and shall cause its affiliates (including SRE)
not to, enter into any settlement of any contest or otherwise compromise
any issue with respect to the portion of the Overlap Period ending on or
prior to the Closing Date without the prior written consent of MP, which
consent shall not be unreasonably withheld.
(c) AMENDED TAX RETURNS. Neither MP nor SRE shall file or cause to
be filed any amended Tax Return or claims for refund without the prior
written consent of GRE, which consent shall not be unreasonably withheld,
delayed or conditioned, except for such amended Tax Returns or claims for
refund filed in connection with the resolution of any Tax Matter in
accordance with Section 13.04(b).
(d) POST-CLOSING ACCESS AND COOPERATION. From and after the
Closing Date, GRE agrees, and agrees to cause SRE, to permit MP and the MP
Representative to have reasonable access, during normal business hours, to
the books and records of SRE, to the extent that such books and records
relate to a period prior to or ending on the Closing Date, and personnel,
for the purpose of enabling MP to: (i) prepare the Tax Returns specified in
Section 13.04(a)(i), and (ii) investigate or contest any Tax Matter which
MP has the authority to conduct under Section 13.04(b).
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ARTICLE 14
MISCELLANEOUS
14.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
otherwise provided in this Agreement: (a) all covenants and agreements of the
parties contained in this Agreement shall survive the Closing in accordance with
their terms, and (b) the representations and warranties of each of the parties
contained in this Agreement or contained in any document or certificate given
under this Agreement as well as the right of the other party to rely thereon
shall survive the Closing for a period of twelve (12) months from the Closing
Date; PROVIDED, that with respect to any claim made in writing within such
twelve (12) month period, such representations and warranties shall survive
until a final and binding resolution of such claim has been determined. Further,
notwithstanding the foregoing, (i) the representations and warranties contained
in Sections 9.05 and 10.02 shall survive until the expiration of any and all
applicable statutes of limitations periods on the subject matter of the
representation or warranty (or in the event of a claim or an assessment or
reassessment, until a final and binding resolution of all matters in relation
thereto is made), and (ii) the representations and warranties contained in
Sections 9.01, 9.03 and 10.01 shall continue indefinitely.
14.02 NO BROKER. GRE represents to MP, and MP represents to GRE, that
neither has engaged, or incurred any unpaid liability to, any broker, finder or
consultant in connection with this transaction. MP shall indemnify the GRE and
its directors, officers, shareholders and employees and will hold them harmless
from and against any claims by any broker, finder or consultant deemed to be
engaged by MP for a brokerage fee, finder's fee or the like. GRE shall indemnify
MP and will hold it harmless from and against any claims by any broker, finder
or consultant deemed to be engaged by GRE for a brokerage fee, finder's fee or
the like.
14.03 EXPENSES. Except as otherwise provided herein, the parties shall
each pay all of their respective legal, accounting and other expenses incurred
in connection with the transactions contemplated by this Agreement.
14.04 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and delivered personally or by a recognized
international overnight courier service, addressed as follows or to such other
address as a party shall specify for this purpose in a notice given in the same
manner:
(a) TO MP:
-----
Minnesota Power
30 West Superior Street
Duluth, MN 55802
Attn: Mr. Donald J. Shippar, President
Facsimile: (218) 723-3960
33
with copies to:
Mr. Steven W. Tyacke
30 West Superior Street
Duluth, MN 55802
Facsimile: (218) 723-3955
Briggs and Morgan, P.A.
2200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attn: Michael J. Grimes
Facsimile: (612) 977-8650
(b) TO GRE:
------
Great River Energy
17845 East Highway 10
Elk River, MN 55330
Attn: David J. Saggau, Vice President and General Counsel
Facsimile: (763) 241-3732
with copies to:
Moss & Barnett, P.A.
4800 Wells Fargo Center
Minneapolis, MN 55402
Attn: Eric J. Olsen
Facsimile: (612) 339-6686
Any notice given pursuant to this Section shall be deemed given when delivered.
14.05 BINDING EFFECT; NO ASSIGNMENT WITHOUT PRIOR WRITTEN CONSENT. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns, but may not be assigned or
otherwise transferred by any party without the written consent of the other
party.
14.06 ENTIRE AGREEMENT. This Agreement, the Ancillary Documents and the
Binding Provisions of the Interim Agreement, and the Exhibits and schedules
hereto or expressly contemplated hereby contain the entire understanding of the
parties relating to the withdrawal transaction and supersede all prior written
or oral and all contemporaneous oral agreements and understandings relating to
the subject matter hereof, including the non-binding provisions of the Interim
Agreement. All statements of fact of the parties contained in any schedule or
Ancillary Document under this Agreement to be delivered in connection with the
transactions contemplated hereby will constitute representations and warranties
of the parties under this Agreement. The Exhibits, schedules and the Recitals to
this Agreement are hereby incorporated by reference into and made a part of this
Agreement for all purposes.
34
14.07 CHOICE OF LAW. This Agreement shall be interpreted under the internal
laws of the State of Minnesota without regard to any conflicts of law rule or
principle that might result in the application of the law of another
jurisdiction.
14.08 AMENDMENT; WAIVER. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement is sought. No waiver of any of the provisions of this Agreement
shall be deemed to or shall constitute a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver unless so
specified in writing.
14.09 PRE CLOSING AND POST CLOSING COOPERATION. Before and after Closing,
each of the parties agree that, at the reasonable request of the other party, it
shall take such actions and furnish such additional documents and instruments as
may be necessary or reasonably desirable to supplement the schedules to this
Agreement and/or otherwise effectuate the transactions contemplated by this
Agreement and the smooth transition of the Business to the sole ownership of
GRE. In the event that the MPUC or other regulatory agency has questions or
inquiries about this Agreement or asserts jurisdiction, GRE, on its own behalf
and on behalf of SRE, will cooperate with MP to reasonably respond to the MPUC.
14.10 COUNTERPARTS AND FACSIMILE/ELECTRONIC SIGNATURES. This Agreement and
any Ancillary Document may be executed in counterparts and will be effective
when at least one counterpart has been executed by each party hereto. This
Agreement may be executed in duplicate originals, each of which shall be deemed
to be an original instrument. All such counterparts and duplicate originals
together shall constitute but one Agreement. The counterparts of this Agreement
and any Ancillary Document may be executed and delivered by telecopy or other
electronic transmission, and the receiving party may rely on receipt of such
executed document as if the original had been received.
14.11 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and will not in any way affect the meaning or interpretation of
this Agreement. Whenever the singular form of a word is used in this Agreement,
that word will include the plural form of that word. The term "or" will not be
interpreted as excluding any of the items described. The term "include" or any
derivative of such term does not mean that the items following such term are the
only types of such items. Neither this Agreement nor any provision contained in
this Agreement will be interpreted in favor of or against any party hereto
because such party or its legal counsel drafted this Agreement or such
provision. Whenever the plural form of a word is used in this Agreement, that
word will include the singular form of that word.
14.12 PAYMENTS. Any payments to be made by one party to the other
hereunder, or by SRE to MP, shall be made in U.S. funds either by (i) certified
or bank official check, or (ii) wire transfer of immediately available funds, at
the remitting party's option.
14.13 TERMINATION OF WITHDRAWAL AGREEMENT. The Withdrawal Agreement is
hereby terminated and replaced in its entirety by this Agreement. This
termination shall not be
35
interpreted, and is not, a termination contemplated by Article 12 of the
Withdrawal Agreement, and no terms of the Withdrawal Agreement shall survive
this termination.
[SIGNATURE PAGE FOLLOWS]
36
IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.
MINNESOTA POWER
By: /s/ Donald Shippar
------------------------------
Donald Shippar
President
GREAT RIVER ENERGY
By: /s/ James Van Epps
------------------------------
James Van Epps
Chief Executive Officer
[SIGNATURE PAGE TO AMENDED AND RESTATED WITHDRAWAL
AGREEMENT]