LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT

Exhibit 10.1

 

LETTER OF CREDIT AND

REIMBURSEMENT AGREEMENT

Dated as of December 1, 2008

Between

AVISTA CORPORATION

and

BANK OF AMERICA, N.A.

relating to

$17,000,000

Pollution Control Revenue Refunding Bonds

(Avista Corporation Colstrip Project)

Series 2008

 

TABLE OF CONTENTS

 

Exhibits and Schedules

 

ii

LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT , dated as of December 1, 2008, between AVISTA CORPORATION , a Washington corporation (the “Company”), and BANK OF AMERICA, N.A. , a national banking association (the “Bank”).

PRELIMINARY STATEMENTS:

(1) The Company has requested City of Forsyth, Montana (the “Issuer”) to issue, pursuant to a Trust Indenture dated as of December 1, 2008 (said Trust Indenture and any amendments or supplements thereto being herein referred to as the “Indenture”), between The Bank of New York Mellon Trust Company, N.A, as trustee (the “Trustee”), and the Issuer, $17,000,000 aggregate principal amount of the Issuer’s Pollution Control Revenue Refunding Bonds (Avista Corporation Colstrip Project) Series 2008 (the “Bonds”).

(2) The Company and the Issuer have entered into a Loan Agreement dated as of December 1, 2008 (said Loan Agreement and any amendments or supplements thereto being herein referred to as the “Loan Agreement”), under the terms of which the Issuer will loan the proceeds of the sale of the Bonds to the Company to, together with certain other moneys of the Company, refund all of the outstanding bonds of the $17,000,000 principal amount of City of Forsyth, Montana Pollution Control Revenue Refunding Bonds (Avista Corporation Colstrip Project) Series 1999B (the “Prior Bonds”). The Prior Bonds were used to refinance various pollution control and solid waste disposal facilities, as further described in the Loan Agreement.

(3) In order to further provide security for the payment when due of the principal of, and interest on, the Bonds, the Company has requested the Bank to issue its irrevocable letter of credit naming the Trustee as beneficiary, in substantially the form of Exhibit A hereto (such letter of credit and any successor letter of credit as provided for or contemplated in such letter of credit or this Agreement being the “Letter of Credit”), in the amount of $17,195,617 (the “Commitment”), of which (a) $17,000,000 shall support the payment of principal or portion of the purchase price corresponding to principal of the Bonds and (b) $195,617 shall support the payment of up to 35 days of interest or portion of the purchase price corresponding to interest on the Bonds, at an assumed interest rate of 12% per annum (computed on the basis of a 365-day year).

(4) The Bank is willing to issue the Letter of Credit subject to the terms and conditions set forth herein.

STATEMENT OF AGREEMENT

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, including the covenants, terms and conditions hereinafter appearing and in order to induce the Bank to issue the Letter of Credit, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ A Drawing ,” “ B Drawing ,” or “ C Drawing ” shall have the meaning ascribed to such terms in the Letter of Credit.

“ Affiliate ” means a Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Company or a Subsidiary of the Company. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise.

“ Agreement ” means this Letter of Credit and Reimbursement Agreement and any amendments or supplements thereto.

“ Avista Utilities ” means the operating division of the Company which represents all the regulated utility operations of the Company that are responsible for retail electric and natural gas distribution, electric transmission services and electric generation and production.

“ Avista Utilities EBITDA ” means, for any period, (a) Avista Utilities Net Income for such period plus (b) in each case, without duplication and to the extent deducted in computing Avista Utilities Net Income for such period, the sum for such period of (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) any extraordinary or non-recurring losses and (v) other non-cash items reducing such Avista Utilities Net Income for such period, minus (c) in each case, without duplication and to the extent added in computing Avista Net Income for such period, the sum of for such period of (i) any extraordinary or non-recurring gains and (ii) other non-cash items increasing Avista Utilities Net Income, all as determined in accordance with GAAP.

“ Avista Utilities Interest Expense ” means, for any period, interest expense of Avista Utilities for such period determined in accordance with GAAP.

“ Avista Utilities Net Income ” means, for any period, the net income or loss of Avista Utilities for such period determined in accordance with GAAP.

“ Base Rate ” means, for any day, the rate per annum equal to the higher of (i) the Prime Rate plus two percent (2.0%) or (ii) the Federal Funds Rate plus three percent (3.0%). Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. The Base Rate shall be calculated on the basis of the actual number of days elapsed and a 365/366 day year, as the case may be.

 

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“ Bond Purchase Contract ” means that certain Bond Purchase Contract dated December 29, 2008 between the Issuer and Banc of America Securities LLC, and any amendments and supplements thereto.

“ Bonds ” has the meaning assigned to that term in paragraph (1) of the Preliminary Statements hereof.

“ Business Day ” has the meaning assigned to that term in the Indenture.

“ Capital Lease Obligations ” of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

“ Commitment ” has the meaning assigned to that term in paragraph (3) of the Preliminary Statements hereof.

“ Consolidated Total Capitalization ” on any date means the sum, without duplication, of the following with respect to the Company and its consolidated subsidiaries: (a) total capitalization as of such date, as determined in accordance with GAAP, (b) the current portion of liabilities which as of such date would be classified in whole or part as long-term debt in accordance with GAAP (it being understood that the noncurrent portion of such liabilities is included in the total capitalization referred to in clause (a)), (c) all obligations as lessee which, in accordance with GAAP, are capitalized as liabilities (including the current portion thereof), and (d) all other liabilities which would be classified as short-term debt in accordance with GAAP.

“ Consolidated Total Debt ” on any date means the sum, without duplication, of the following with respect to the Company and its consolidated subsidiaries: (a) all liabilities which as of such date would be classified in whole or in part as long-term debt in accordance with GAAP (including the current portion thereof), (b) all obligations as lessee which, in accordance with GAAP, are capitalized as liabilities (including the current portion thereof), (c) all other liabilities which would be classified as short-term debt in accordance with GAAP, and (d) all Guarantees of or by the Company.

“ Credit Agreements ” means, collectively, (i) that certain Credit Agreement dated as of December 17, 2004 among the Company, Bank of America, N.A., as Managing Agent, KeyBank National Association and U.S. Bank National Association, as Documentation Agents, Wells Fargo Bank, as Documentation Agent and Issuing Bank, Union Bank of California, N.A., Union Bank of California, N.A., as Syndication Agent and an Issuing Bank, and The Bank of New York, as Administrative Agent and an Issuing Bank, as amended by Amendment No. 1 dated as of April 6, 2006 and as it may be further amended by its terms from time to time and (ii) that certain Credit Agreement dated as of November 26, 2008 among the Company, JPMorgan Chase Bank, N.A., as Documentation Agent, Wells Fargo Bank, National Association, as Syndication

 

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Agent, and Union Bank of California, N.A., as Administrative Agent, as it may be further amended by its terms from time to time.

“ Credit Termination Date ” means the date on which the Letter of Credit shall terminate in accordance with its terms.

“ Date of Issuance ” has the meaning assigned to that term in Section 2.02 of this Agreement.

“ Default Rate ” means a fluctuating interest rate equal to the Base Rate in effect from time to time plus 3% per annum. The Default Rate shall be calculated on the basis of the actual number of days elapsed and a 365/366 day year, as the case may be.

“ Event of Default ” has the meaning assigned to that term in Section 6.01 of this Agreement.

“ Facility Fee ” has the meaning assigned to such term in Section 2.03(a) hereof.

“ Facility Fee Payment Date ” means the first Business Day of each January, April, July and October.

“ Facility Fee Percentage ” means 1.375% per annum.

“ Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Bank on such day on such transactions as determined by Bank. The Federal Funds Rate shall be calculated on the basis of the actual number of days elapsed and a 365/366 day year, as the case may be.

“ First Mortgage ” shall mean the Mortgage and Deed of Trust dated as of June 1, 1939, made by the Company in favor of Citibank, N.A., as successor trustee, as the same has been amended, modified or supplemented to date and as the same may be further amended, modified or supplemented from time to time hereafter.

“ First Mortgage Bond ” shall mean a first mortgage bond of the Forty-fourth Series issued to the Bank on the Closing Date under the First Mortgage Supplemental Indenture, in a principal amount equal to $17,195,617, or any first mortgage bond issued under a supplemental indenture to the First Mortgage in substitution for the First Mortgage Bond.

 

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“ First Mortgage Supplemental Indenture ” shall mean the Forty-fourth Supplemental Indenture dated as of December 1, 2008, with respect to the First Mortgage.

“ Generally Accepted Accounting Principles ” or “ GAAP ” means generally accepted accounting principles in the United States of America in effect from time to time.

“ Guarantee ” of or by any Person shall mean any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business.

“ Indebtedness ” “Indebtedness” of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, but limited, if such obligations are without recourse to such Person, to the lesser of the principal amount of such Indebtedness or the fair market value of such property, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such Person as an account party in respect of letters of credit and bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner.

“ Indenture ” has the meaning assigned to that term in paragraph (1) of the Preliminary Statements hereof.

“ Interest Payment Date ” means each date on which interest is payable on the Bonds pursuant to the Bonds and the Indenture.

“ Issue Date ” means December 30, 2008.

 

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“ Issuer ” has the meaning assigned to that term in paragraph (1) of the Preliminary Statements hereof.

“ Letter of Credit ” has the meaning assigned to that term in paragraph (3) of the Preliminary Statements hereof.

“ Letter of Credit Amount ” in effect at any time means the maximum amount available to be drawn at such time under the Letter of Credit, the determination of such maximum amount to assume compliance with all conditions for drawing and no reduction for (i) any amount drawn by any B Drawing or C Drawing, or (ii) any amount which has been drawn under the Letter of Credit which is subject, in whole or in part, to reinstatement, or (iii) any amount not available to be drawn because Bonds are held by or for the account of the Company or Bank.

“ Loan Agreement ” has the meaning assigned to that term in paragraph (2) of the Preliminary Statements hereof.

“ Material Adverse Effect ” means an effect on the business, assets, operations or financial condition of the Company and its Subsidiaries taken as a whole which could reasonably be expected to have a material adverse effect on the creditworthiness of the Company.

“ Official Statement ” means the Official Statement relating to the Bonds, together with any documents incorporated therein by reference.

“ Person ” means any individual, joint venture, corporation, company, voluntary association, partnership, trust, joint stock company, unincorporated organization, association, government, or any agency, instrumentality, or political subdivision thereof, or any other form of entity.

“ Pledged Bonds ” has the meaning assigned to that term in Section 2.14(a) of this Agreement.

“ Prime Rate ” means the interest rate announced by the Bank from time to time as its prime rate. Any change in the Prime Rate shall be effective as of the date such change is announced by the Bank.

“ Project ” has the meaning assigned to that term in the Indenture.

“ Related Documents ” has the meaning assigned to that term in Section 2.11 of this Agreement.

“ Remarketing Agent ” means Banc of America Securities LLC, and any successor appointed under the Indenture.

 

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“ Remarketing Agreement ” means that certain Remarketing Agreement dated December      , 2008 between the Company and the Remarketing Agent, and any amendments and supplements thereto.

“ Significant Subsidiary ” shall mean a Subsidiary meeting any one of the following conditions: (a) the investments in and advances to such Subsidiary by the Company and the other Subsidiaries, if any, as at the end of the Company’s latest fiscal quarter exceeded 10% of the total assets of the Company and its Subsidiaries at such date, computed and consolidated in accordance with GAAP; or (b) the Company’s and the other Subsidiaries’ proportionate share of the total assets (after intercompany eliminations) of such Subsidiary as at the end of the Company’s latest fiscal quarter exceeded 10% of the total assets of the Company and its Subsidiaries at such date, computed and consolidated in accordance with GAAP; or (c) the equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles of such Subsidiary for the period of four consecutive fiscal quarters ending at the end of the Company’s latest fiscal quarter exceeded 10% of such income of the Company and its Subsidiaries for such period, computed and consolidated in accordance with GAAP; or (d) such Subsidiary is the parent of one or more Subsidiaries and, together with such Subsidiaries would, if considered in the aggregate, constitute a Significant Subsidiary.

“ Stated Termination Date ” means December 30, 2009, and, if the Letter of Credit is extended, the date to which the term of the Letter of Credit is extended.

“ Subsidiary ” shall mean, for any Person (the “Parent”), any corporation, partnership or other entity of which securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) are at the time directly or indirectly owned or controlled by the Parent or one or more of its subsidiaries or by the Parent and one or more of its subsidiaries.

“ Tender Advance ” has the meaning assigned to that term in Section 2.05 of this Agreement.

“ Term Loan Rate ” means, for any day, the greater of (i) the rate per annum equal to the Base Rate plus two percent (2.0%) or (ii) the interest rate applicable under the Indenture to Bonds that are not Pledged Bonds. The Term Loan Rate shall be calculated on the basis of the actual number of days elapsed and a 365/366 day year, as the case may be.

“ Trustee ” has the meaning assigned to that term in paragraph (1) of the Preliminary Statements hereof.

Section 1.02 Computation of Time Periods . In this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

 

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Section 1.03 Accounting Terms . Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP as in effect at that time. Except as otherwise expressly provided herein, all financial statements and certificates and reports as to financial matters required to be delivered to the Bank hereunder shall be prepared in accordance with GAAP applied as in effect at that time on a consistent basis. All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made in conformity with GAAP as in effect at the time of such preparation. If the Company notifies the Bank that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision, regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, such provision shall be interpreted on the basis of GAAP as in effect at that time until such provision is amended in accordance herewith.

ARTICLE II

AMOUNT AND TERMS OF THE LETTER OF CREDIT; PLEDGE OF BONDS

Section 2.01 The Letter of Credit . The Bank agrees, on the terms and conditions hereinafter set forth, to issue and deliver the Letter of Credit in favor of the Trustee in the amount of the Commitment and expiring on or before the Stated Termination Date, unless extended pursuant to Section 2.13 hereof.

Section 2.02 Issuing the Letter of Credit . Upon fulfillment of the applicable conditions set forth in Article III hereof, the Bank will issue and deliver the Letter of Credit to the Trustee (the “Date of Issuance”). The Letter of Credit shall be issued in substantially the form of Exhibit A hereto.

Section 2.03 Fees and Expenses .

(a) The Company agrees to pay to the Bank an annual letter of credit fee in an amount (the “Facility Fee”) equal to the product of (i) the Letter of Credit Amount in effect during such period and (ii) the Facility Fee Percentage and (iii) the actual number of days in the quarterly period divided by 360. The fee shall be payable quarterly in arrears on each Facility Fee Payment Date, commencing April 1, 2009.

(b) If the Corporation terminates the Letter of Credit prior to the initial Stated Termination Date, the Corporation shall pay the Bank a termination fee with respect to the Letter of Credit equal to (i) all amounts due to the Bank on the termination date, (ii) an amount equal to the Facility Fee that would have been payable through the initial Stated Expiration Date and (iii) all other fees and expenses due under this Agreement (collectively, the “Termination Fee”).

 

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(c) The Company agrees to pay to the Bank on demand (i) for each drawing under the Letter of Credit a drawing fee of $250; (ii) for each amendment of the Letter of Credit an amendment fee of $2,500; and (iii) for each transfer of the Letter of Credit, a transfer fee of $2,500, together with all costs and expenses, including attorney’s fees, of the Bank related thereto.

(d) Any amount of fees or expenses payable by the Company to the Bank which is not paid when due shall bear interest, from the date such amount of fees was due until the date of payment in full, at the Default Rate, payable on the first to occur of the date of payment in full of such amount or demand by the Bank.

Section 2.04 Reimbursement . The Company agrees to pay the Bank (i) any amount drawn under the Letter of Credit pursuant to any A Drawing or B Drawing and, if the conditions contained in Section 3.03 hereof are not fulfilled by the Company, that portion of the purchase price corresponding to principal and that portion of the purchase price corresponding to interest drawn under the Letter of Credit pursuant to a C Drawing, immediately after payment by the Bank of such drawing (and before 3:30 p.m. (New York, New York time) on the same Business Day of the Bank’s payment of such drawing), plus (ii) interest at the Default Rate payable on demand, and on the date of payment in full, on any amount remaining unpaid by the Company to the Bank under clause (i) above, from the date such amount becomes due and payable until payment in full.

Section 2.05 Tender Advances . If the Bank shall make any payment of that portion of the purchase price corresponding to principal and interest of the Bonds from amounts drawn under the Letter of Credit pursuant to a C Drawing and the conditions set forth in Section 3.03 shall have been fulfilled, such payment corresponding to the principal portion of the purchase price shall constitute a tender advance made by the Bank to the Company on the date and in the amount of such payment, each such tender advance being a “Tender Advance”. Interest on such Tender Advance is payable in the manner and at the rate set forth in Section 2.06 hereof.

Notwithstanding any other provision hereof, the Company shall repay the unpaid amount of each Tender Advance, together with all unpaid interest thereon, on the earlier to occur of: (i) such date as provided in Section 2.07(b) hereof or (ii) the date 60 days following the initial Tender Advance hereunder (the “Initial Purchase Date”); provided that if any Tender Advances are outstanding 60 days following such Tender Advance and the conditions of Section 3.03 shall have been fulfilled and no Event of Default shall exist, then the amount of each Tender Advance which is outstanding at such date shall be repaid by the Company on the following terms:

 

(i)

interest shall be payable (y) monthly in arrears as set forth in Section 2.06 hereof, commencing on the first Business Day of the next calendar month to occur and (z) on the date such amount is paid in full; and

 

(ii)

principal shall be payable in equal monthly payments on the first Business Day of each month commencing on the first Business Day of the next calendar month to occur in an amount sufficient to fully amortize on a level debt service basis the principal balance of the Tender Advances on the earliest to occur of (x) 364 days

 

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following the Initial Purchase Date, (y) the date an Alternate Credit Facility is delivered pursuant to the Indenture, and (z) the date the Letter of Credit is otherwise terminated prior to the Stated Expiration Date.

The Company may prepay any Tender Advance on an earlier date as provided in Section 2.07(a) or 2.07(b) hereof.

Section 2.06 Interest on Tender Advances . The interest on Tender Advances will accrue at a fluctuating interest rate per annum in effect from time to time (i) for the first 30 days following the Initial Purchase Date, at the Base Rate, (ii) from 31 days following the Initial Purchase Date until 60 days following such Initial Purchase Date, at the Base Rate plus 1.00% and (iii) thereafter at the Term Loan Rate; provided that the unpaid amount of any Tender Advance which is not paid when due pursuant to Section 2.05 hereof shall bear interest at the Default Rate.

Section 2.07 Prepayments; Reinstatement of Letter of Credit Amounts .

(a) The Company may prepay the outstanding amount of any Tender Advance in whole or in part, together with accrued interest to the date of such prepayment on the amount prepaid. The Company shall notify the Bank on the date of such prepayment of the amount to be prepaid, which notice shall be given prior to such payment. In addition, the Company shall, forthwith, prepay or cause to be prepaid pursuant to this subsection (a) any amount owing to the Bank as a result of any Tender Advance for the purpose of paying the purchase price of any Bond delivered to the Trustee, if the Remarketing Agent failed, for any reason, to pay or tender payment of the purchase price of such Bond when due to or for the account of the Person entitled thereto and such failure is continuing or any other Person shall assert that such Person has a lien on or security interest in such Bond. Upon payment to the Bank of the amount of such Tender Advance to be prepaid pursuant to this subsection, together with accrued interest on such Tender Advance to the date of such prepayment on the amount to be prepaid, the principal amount outstanding of Tender Advances shall be reduced by the amount of such prepayment, interest shall cease to accrue on the amount prepaid and the Bank shall release or cause to be released to the Trustee, in accordance with the terms of the Indenture, a principal amount of Bonds, if any, then held under pledge equal to the principal amount of such prepayment.

(b) Prior to or simultaneously with the resale of Bonds acquired by the Trustee with the proceeds of one or more draws under the Letter of Credit, the Company shall prepay the then outstanding Tender Advances (in the order in which they were made) by paying to the Bank an amount equal to the sum of (i) the portion of the purchase price corresponding to the aggregate principal amount of the Bonds being resold or to be resold, plus (ii) the portion of the purchase price corresponding to the aggregate amount of accrued and unpaid interest on such Bonds, plus (iii) the aggregate amount of accrued and unpaid interest on such Tender Advances, less the amount paid pursuant to the immediately preceding clause (ii). Such payment shall be applied by the Bank in reimbursement of such drawings (and as prepayment of Tender Advances resulting from such drawings in the manner described above), and, the Company irrevocably authorizes

 

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the Bank to reinstate the Letter of Credit in accordance therewith. In connection with a prepayment of Tender Advances from proceeds of the resale of Bonds, the Company or its designee shall deliver notice to the Bank, prior to 11:30 A.M. (New York, New York time) on the date of such proposed prepayment, directing the Bank to deliver Bonds held by the Bank or its designee to the Remarketing Agent for sale pursuant to the Indenture, and specifying the principal amount of Bonds to be sold, which notice may be given by telephone (promptly confirmed in writing).

(c) The Company agrees that, pursuant to the provisions of the Indenture, Bonds purchased with proceeds of a drawing under the Letter of Credit shall be (i) registered by the Trustee in the name of the Bank and held by the Bank or its designee (including the Trustee), as agent and bailee of the Bank, expressly subject to the pledge in favor of the Bank, and deemed held by the Trustee, as agent and bailee for the account of the Bank and (ii) in the event Bonds shall be certificated, held by the Trustee as agent and bailee for the account of the Bank or, at the Bank’s election, delivered by the Trustee to the Bank or its designee. All such Bonds are to be held by the Bank or its agent, bailee or designee in pledge as collateral securing the Company’s payment obligations to the Bank hereunder as provided for in Section 2.14 hereof. Upon payment to the Bank of the amount of such drawings, together with accrued interest, if required due to failure to pay such amounts on the date when due, on such amount, calculated at the Default Rate, to the date of payment, and upon written notice to the Trustee that the Bank has reinstated the Letter of Credit, in an amount sufficient to cover all principal and accrued interest on the Bonds so released for up to 35 days at 12% per annum, with respect to Bonds purchased with proceeds of such drawings, the Bank shall release, in accordance with the terms of the Indenture, a principal amount of Bonds, if any, then held under the pledge equal to the amount of such payment corresponding to the principal portion of such Bonds.

Section 2.08 Increased Costs . If any law, regulation or change in any law or regulation or in the interpretation thereof, or any ruling, decree, judgment, guideline, directive or recommendation (whether or not having the force of law) by any regulatory body, court, central bank or any administrative or governmental authority charged or claiming to be charged with the administration thereof (including, without limitation, a request or requirement which affects the manner in which the Bank allocates capital resources to its commitments including its obligations hereunder) shall either (i) impose upon, modify, require, make or deem applicable to the Bank or any of its affiliates, Subsidiaries or participants any reserve requirement, special deposit requirement, insurance assessment or similar requirement against or affecting the Letter of Credit issued hereunder, or (ii) subject the Bank or any of its affiliates, Subsidiaries or participants to any tax, charge, fee, deduction or withholding of any kind whatsoever not in effect on the Date of Issuance in connection with the Letter of Credit or change the basis of taxation of the Bank or any of its affiliates, Subsidiaries or participants (other than a change in the rate of tax based on the overall net income of the Bank or such participant), or (iii) impose any condition upon or cause in any manner the addition of any supplement to or increase of any kind to the Bank’s or an affiliate’s, Subsidiary’s or participant’s capital or cost base for issuing or owning a participation in the Letter of Credit which results in an increase in the capital requirement supporting the Letter of Credit from that in effect on the Date of Issuance, or (iv)

 

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impose upon, modify, require, make or deem applicable to the Bank or any of its affiliates, Subsidiaries or participants any capital requirement, increased capital requirement or similar requirement, such as the deeming of the Letter of Credit to be an asset held by the Bank or any of its affiliates, Subsidiaries or participants for capital adequacy calculation or other purposes (including, without limitation, a request or requirement which affects the manner in which the Bank or any participant allocates capital resources to its commitments including its obligations hereunder or under the Letter of Credit), and the result of any events referred to in (i), (ii), (iii) or (iv) above shall be to increase the costs in any way to the Bank or any affiliate, Subsidiary or participant of issuing, maintaining or participating in the Letter of Credit or reduce the amounts payable by the Company hereunder or reduce the rate of return on capital, as a consequence of the issuing, maintaining or participating in the Letter of Credit, to a level below that which the Bank, its affiliates, Subsidiaries or participants could have achieved but for such events; then and in such event the Company shall, promptly upon receipt of written notice to the Company by the Bank of such increased costs and/or decreased benefits, pay within 30 days of demand therefor to the Bank all such additional amounts which, in the Bank’s or participant’s sole good faith calculation as allocated to the Letter of Credit, shall be sufficient to compensate it for all such increased costs and/or decreased benefits, all as certified by the Bank or such participants in said written notice to the Company. Such certification shall be accompanied by information concerning the calculation of such increased costs and/or decreased benefits and shall be conclusive and binding on the parties hereto, absent manifest error. In determining such amount, the Bank or any participant may use any reasonable averaging or attribution methods.

Section 2.09 Payments and Computations . The Company shall make each payment hereunder (a) representing reimbursement pursuant to Section 2.04 hereof to the Bank immediately after payment by the Bank of drawings made under the Letter of Credit (and before 3:30 p.m. (New York, New York time) on the same Business Day of the Bank’s payment of such drawing), and (b) not later than 2:00 p.m. (New York, New York time) for all other payments, on the day when due in lawful money of the United States of America to the Bank at its address referred to in Section 7.02 hereof in same day funds. The Company hereby authorizes the Bank, if and to the extent payment is not made when due hereunder, to charge from time to time against any of the Company’s respective accounts with the Bank, any amount so due. Computations of any fees or commissions hereunder shall be made by the Bank on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of payment of interest, fee or commission, as the case may be.

Section 2.10 Evidence of Debt . The Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company resulting from each drawing under the Letter of Credit and each Tender Advance made from time to time hereunder and the amounts of principal, interest and fees payable and paid from time to time hereunder. In any legal action or proceeding in respect of this Agreement, the entries made in such account or accounts shall be conclusive evidence of the existence and amounts of the obligations of the Company therein recorded, absent manifest error.

 

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Section 2.11 Obligations Absolute . The payment obligations of the Company under this Agreement shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances:

(a) any lack of validity or enforceability of the Bonds, the Indenture, the Loan Agreement, the First Mortgage Bond, the First Mortgage Supplemental Indenture or any other agreement or instrument relating thereto (collectively, together with the Letter of Credit, the “Related Documents”);

(b) any amendment or waiver of or any consent to departure from all or any of the Related Documents;

(c) the existence of any claim, set-off, defense or other right which the Company may have at any time against the Trustee or any other beneficiary, or any transferee, of the Letter of Credit (or any Persons or entities for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person or entity, whether in connection with this Agreement, the transactions contemplated herein or in the Related Documents, or any unrelated transaction; and

(d) any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect.

Section 2.12 Payment with Bank’s Funds . The Bank agrees that any and all payments made under the Letter of Credit will be made with the Bank’s own funds.

Section 2.13 Extension of the Stated Termination Date . Not fewer than 90 days before the Stated Termination Date, the Company may request the Bank in writing to extend the Stated Termination Date for purposes of this Agreement and the Letter of Credit. If the Company shall make such a request, the Bank shall, within 30 days of receiving such written request, notify the Company in writing whether or not the Bank will extend the Stated Termination Date and, if the Bank does so elect, the conditions of such extension (including conditions relating to legal documentation and pricing, such as fees for renewal and drawings). If the Bank shall not so notify the Company, the Bank shall be deemed to have not consented to such request. All requests and notices made pursuant to this Section 2.13 shall also be delivered to the Trustee.

Section 2.14 Pledged Bonds . The Company hereby pledges, assigns, hypothecates, transfers and delivers to the Bank all its right, title and interest to, and hereby grants to the Bank a first lien on, and security interest in, all right, title and interest of the Company in and to the following (the “Collateral”):

(a) all Bonds which may from time to time have been purchased with proceeds of C Drawings under the Letter of Credit (the “Pledged Bonds”);

 

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(b) all income, earnings, profits, interest, premium or other payments in whatever form in respect of the Pledged Bonds; and

(c) all proceeds (cash and non-cash) arising out of the sale, exchange, collection, enforcement or other disposition of all or any portion of the Pledged Bonds;

as collateral security for the prompt and complete payment when due of all amounts due in respect of the reimbursement obligations of the Company set forth herein with respect to such Pledged Bonds (the “Obligations”).

Pledged Bonds shall be held by the Trustee pursuant to the provisions of the Indenture or as otherwise directed by the Bank.

In the event that the Company shall fail to pay any amount when due hereunder with respect to the Pledged Bonds, the Bank, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale or except as may be required by applicable law) to or upon the Company or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker’s board or at any of the Bank’s offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right of the Bank upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Company, which right or equity of redemption is hereby expressly waived or released. The Bank will notify any purchasers of Pledged Bonds that the Letter of Credit will not be available with respect to the Pledged Bonds and, therefore, the ratings assigned by any rating agency, including Moody’s Investors Service, Inc., will not apply. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorneys’ fees and legal expenses, to the payment in whole or in part of the Obligations in such order as the Bank may elect, the Company remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Bank of any other amount required by any provision of law, need the Bank account for the surplus, if any, to the Company. The Company agrees that the Bank need not give more than ten days’ notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Company if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Bank shall have all the rights and remedies of a secured party under the

 

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Uniform Commercial Code of the State of Washington, except to the extent the remedial provisions of some other state laws are applicable.

The Company covenants that the pledge, assignment and delivery of the Collateral hereunder will create a valid, perfected, first priority security interest in all right, title or interest of the Company in or to such Collateral, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to