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HomeMy WebLinkAboutCooper Valley Intertie Power Project Fund Loan Agreement 1995MEMORANDUM State of Alaska Department of Law to: f Percy Frisby pare. March 14, 1995 Director Division of Energy FILE NO. 661-95-0552 RECEIVED and Dick Emerman TeL.NO: 269-5136 MAR 15 RECD Senior Economist VISIO Division of Energy susect Power project fundVISION OF ENERGY/DoRA loan agreement crom. Mary A. Gilson CONFIDENTIAL Assistant Attorney General ATTORNEY/CLIENT PRIVILEGE Governmental Affairs - Anch g Attached is the latest draft of the proposed intertie loan agreement. The additions in which we discussed in our meeting last week have been added. The additions are underlined and in bold type. Please note the new section 9. In two places I took out language - that language is shown in brackets and in capital letters (page 2 - definition of "legal rate of interest" and on page 3 - definition of "system"). I have also enclosed a diskette with the agreement on it, so you can make further changes should you want to do so in the future. It is my understanding that you can "translate" the diskette into a compatible format. I will be on leave beginning March 15. I will be back in the office the afternoon of March 20. MAG: akb - 03-002 & printed on recycled paper by Ri. \ DRAFT 03/13/95 Page 1 DEPARTMENT OF COMMUNITY & REGIONAL AFFAIRS DIVISION OF ENERGY POWER PROJECT FUND LOAN AGREEMENT THIS AGREEMENT, dated , 19 , is entered into by the State of Alaska, Department of Community & Regional Affairs, Division of Energy ("the Division"), and the Copper Valley Electric Association, Inc., a non-profit electric cooperative (the "Borrower"). WITNESSETH: WHEREAS, the Division is authorized by AS 42.45.010 to loan funds from the Power Project Fund to eligible borrowers for constructing, equipping, modifying, improving, and expanding electric transmission facilities; and WHEREAS, the Borrower is an electric utility which is authorized to furnish electrical service to the public for compensation within an area for which it has been awarded a certificate of public convenience and necessity by the Alaska Public Utilities Commission; and WHEREAS, legislative approval of this loan under AS 42.45.060(g) is provided in Section 4, Chapter 19, SLA 1993; WHEREAS, the Department of Community and Regional Affairs has determined that the Sutton-Glennallen Intertie Feasibility Study and Plan of Finance are satisfactory; and NOW THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: Section 1. Definitions, Representations and Findings 1.1 Definitions. In this Agreement, the following terms shall have the respective meanings set forth in this Section: "Agreement" shall mean this Loan Agreement and any amendment hereto. "Borrower" shall mean Copper Valley Electric Association, Inc. DRAFT 03/13/95 Page 2 "Condemnation Award" shall mean any award or payment which may be made with respect to the Project as a result of (i) the taking of all or a portion of the Project by the exercise of the right of eminent domain by any governmental body, or by any person, firm, or corporation acting under governmental authority. "Date of Commercial Operation" shall mean the date on which engineers retained for this purpose by the Borrower have determined that the Project is fully available to be operated on a commercial basis, or the date as reasonably determined by the Division on which the Borrower begins to operate the Project on a commercial basis following a reasonable testing period. "Date of Determination of Non-Completion" shall mean the date on which the Division determines after consultation with Borrower that significant effort to construct the Project has been abandoned or indefinitely suspended, or that the Project can not or will not be completed by the Borrower in the foreseeable future. "Division" shall mean the Department of Community and Regional Affairs, Division of Energy its agents, employees, and assigns. "Event of Default" shall mean those events as described in Section 7 of this Agreement. "Legal Rate of Interest" shall mean the maximum rate of interest set out under [ALASKA STATUTE] AS 45.45.010(a). "Loan" shall mean the Loan from the Division to the Borrower described in Section 3.1 hereof. "Note" shall mean a Promissory Note in the form attached to this Agreement as Exhibit A, and incorporated herein by this reference. "Project" shall mean the electric transmission facilities described in Exhibit B attached to this Loan Agreement and incorporated herein by this reference. "Security Agreement" shall mean the Security Agreement in the form attached to this Agreement as Exhibit C and incorporated herein by this DRAFT 03/13/95 Page 3 reference, similar documents executed or to be executed by the Borrower with the Division as beneficiary, secured party or assignee to secure the obligations of the Borrower to the Division. "System" shall mean the existing electric utility system owned by [OF] the Borrower as the same will be added to, improved and extended as authorized and provided in this Agreement, and as the same may be added to, improved and extended for as long as the Loan is outstanding. 1.2 Borrower Representations. The Borrower represents and warrants that: (a) it is a public utility duly organized and existing under the constitution and laws of the State of Alaska; (b) its governing body has duly authorized and approved the entry into this loan by the Borrower and the execution and delivery of this Agreement, the Note and the Security Agreement; (c) it has full legal right, power and authority (i) to enter into this Agreement and (ii) to carry out the obligations and consummate the transactions contemplated by this Agreement; (da) to the best of Borrower’s knowledge the execution and delivery of this Agreement and compliance with the provisions hereof does not: 1) violate any applicable law or administrative regulation of the State of Alaska or of the United States, or any applicable judgment or decree to which the Borrower is subject or; 2) conflict with or constitute a breach of or default under any loan agreement, note, ordinance, resolution, indenture, agreement, contract or other instrument to which the Borrower is a party or is otherwise subject; 3) it being expressly understood that Rural Electrification Administration ("REA") approval may be required but that Borrower may execute this Agreement in advance of such approval, and the Division agrees to consider modifications to this Agreement if necessary to obtain REA approval; (e) it is not in default with respect to any debt or under any loan agreement or note; DRAFT 03/13/95 Page 4 (f) the proceeds of the Loan shall be used only as authorized herein; (g) any and all acts required to be performed or conditions required to be met as a _ condition precedent to this Agreement have been performed or met. Section 2. Construction of the Project 2.1 Ownership of Project; Risk of Loss. The Project shall be privately owned and the Division shall have no title thereto or control thereof. 2.2 Alterations, Additions and Replacement. The Borrower may, at its own option and at its own cost and expense, at any time and from time to time, make such alterations, changes, replacements, improvements and additions to the Project or any portion thereof, as it may deem to be desirable for its uses and purposes, provided that any such alterations, changes, replacements, improvements and additions with respect to the Project shall be consistent with the description in Exhibit B of this Agreement. The Division must approve any material alteration of the Project which is proposed during Phase I or Phase II of the Project. Before commencing any alteration of the Project that will materially change the description of the Project from that set forth in Exhibit B, the Borrower shall submit to the Division a description of the proposed alteration for the Division’s approval, which shall not be unreasonably withheld. For purposes of this’ section, "material alteration" means a change in the Project which significantly deviates from the Project description in Exhibit B. 2.3 Notices and Permits. The Borrower shall give or cause to be given all notices and comply or cause compliance with all laws, ordinances, rules and regulations and requirements of public authorities applying to or affecting the conduct of the construction of the Project. Except for requirements solely of the Division, the Borrower will defend and save the Division, its officers, agents and employees, past, present, and future, harmless from all consequences of failure to comply therewith. All permits and licenses necessary for the prosecution of the construction of the Project shall be procured by the Borrower. It is expressly agreed and understood that this section shall not require Borrower to defend and save harmless the Division from those lawsuits and administrative proceedings specifically set out in Section 8 and Section 9 and subsequent appeals or proceedings in those cases. DRAFT 03/13/95 Page 5 Section 3. Financing the Project 3.1 The Loan. To satisfy part of the anticipated financing requirements for construction of the Project, the Division agrees to lend and the Borrower agrees to borrow, on the terms and conditions provided herein, a sum not’ exceeding $35,000,000, as provided for in Sec. 4, Ch 19, SLA 1993, and subject to the availability of funds and the provisions of this Agreement. The Borrower shall use its best efforts to secure all additional financing necessary to ensure completion of the Project. Concurrent with the execution of this Agreement, the Borrower shall execute and deliver ito the Division the Note and Security Agreement. 3.2 Disbursement Schedules. Project development shall be divided into two phases, Phase I and Phase II. Except as approved by the Division, disbursements for Phase II shall not be made prior to the completion of Phase I, as set out in Section 3.2 (b) (ii). The Division will not approve the disbursement of Loan proceeds for any costs listed in ‘Exhibit D attached to this Agreement and incorporated herein by this reference. Disbursements of Loan funds under this Agreement shall be subject to the following limits and ceilings: (a) Preconstruction costs (Phase I). (i) Eligible costs under Phase I _ shail consist of pre-construction costs, including feasibility studies, pre-construction engineering, design, right-of-way acquisition, permitting, environmental studies, and acquisition of supplemental financing. Personnel costs of the Borrower directly related to the Project under Phase I are allowable to the extent provided for in:a budget under Section 3.2., as approved by the Division. Costs that are not eligible under Phase I include Project construction, right- of-way clearing, and procurement of construction contracts and materials. (ii) The maximum amount of Loan funds that the Division will disburse under Phase I shall be $7,300,000. The Division shall determine whether costs incurred by the Borrower are allowable as Phase I costs. i (b) Construction costs, and other related costs (Phase II). DRAFT 03/13/95 Page 6 (i) Eligible costs under phase II shall consist of all costs relating to the design and construction of the Project that are not otherwise ineligible. Personnel costs of the Borrower directly related to the Project under Phase I are allowable to the extent provided for in a budget under Section 3.2., as approved by the Division. (ii) Except as approved by the Division, no disbursements of Loan funds will be made by the Division for Phase II costs until the Borrower demonstrates to the satisfaction of the Division, and the Division issues a written determination, that the Project can be successfully completed and the _ following conditions have been met: (A) final approval, not subject to further judicial appeal of matters submitted to the Alaska Public Utilities Commission related to the financing or use of the Project has been obtained by the Borrower; (B) all other approvals, permits and agreements necessary to proceed with Project construction have been obtained by the Borrower, including without limitation, acquisition of right-of-way, required approvals of the Rural Electrification Administration, documented commitment for all supplemental financing required to complete the Project, and receipt of all applicable permits. 3.03 Disbursement Procedures. Subject to the terms and conditions of this Agreement, disbursement of the Loan funds shall be subject to the following procedures: (a) Within 30 calendar days of the execution of this Agreement, the Borrower shall submit to the Division a budget for Phase I broken down by major task. The Division will either approve or disapprove the budget within 30 calendar days. Such approval will not be unreasonably withheld. No invoices with respect to Phase I costs will be paid until a Phase I budget is approved by the Division. DRAFT 03/13/95 Page 7 (b) Within 30 calendar days of the written determination by the Division under Section 3.2 (b) (ii), the Borrower shall submit to the Division a budget for the total Project cost broken down by major task. The Division will either approve or disapprove the budget within 30 calendar days. Such approval will not be unreasonably withheld. No invoices will be paid for Phase II costs until a total Project budget has been approved by the Division. (c) The Borrower may submit proposed amendments to approved budgets under this Section to the Division for approval. (ad) The Division will approve eligible costs that the Division determines are consistent with a budget approved under this Section. The Division shall determine whether costs submitted by the Borrower are allowable. Upon request by the Division, the Borrower will provide further documentation or explanation with respect to any invoice. The Division may withhold payment until documentation acceptable to the Division is submitted. (e) Each month the Borrower shall submit an invoice, under Phase I and Phase II, for Project costs, broken down by major task corresponding to the approved budget and supported by documentation. Upon approval, the Division shall release funds to the Borrower for payment of approved invoices. 3.4 Audit; Additional Information. The Division upon reasonable notice may audit and review the Borrower’s expenditures of Loan proceeds, together with all other financial records of the Borrower. Upon request, and within a reasonable time, the Borrower shall submit such other information and reports relating to its activities under this Agreement to the Division in such form and at such times as the Division may reasonably require. Section 4. Repayment 4.1 Repayment of Loan. The Borrower shall repay the Loan in equal annual payments over a period of 50 years, unless repayment of the loan is accelerated under the terms of this Agreement. The Loan shall bear zero interest. The first annual payment shall be due and payable one year from the Date of Commercial Operation of the Project or from the Date of Determination of Non-Completion. DRAFT 03/13/95 Page 8 4.2 No Defense or Set-Off. The obligations of the Borrower to make payments on the Loan shall be absolute and unconditional without defense or set-off by reason of any default by the Division under this Agreement or under any other agreement between the Borrower and the Division or for any other reason, including without limitation, failure to complete the Project, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, or failure of the Division to perform and observe any agreement, whether expressed or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required hereunder will be paid in full when due without delay or diminution whatever. 4.3 Assignment of Division’s Rights. The Division may assign the Loan and all the Division’s rights under this Agreement, the Note, and the Security Agreement. The Borrower consents to such assignment and agrees to make payments on the Loan directly to the Division’s assignee without any defense or set-off. Section 5. Covenants of the Borrower 5.1 Maintenance and Operation of Project. The Borrower, at its expense, will maintain and operate the Project as long as any indebtedness is owed by the Borrower under this Agreement. The Borrower covenants that during the term of this Agreement, it will pay all costs and expenses of maintaining and operating the Project and will keep the same in good condition and repair. The Borrower further covenants that it will not commit or suffer any waste of the Project. The Borrower may make changes in or modifications of the Project necessary or desirable to maintain or improve operating performance, subject to limitations set forth in Section 2.2 hereof. 5.2 Indemnity Against Claims. The Borrower shall indemnify the Division and its officers, agents, and employees, past, present, and future, against claims arising out of this Agreement, the construction, acquisition, maintenance, or operation of the Project, other than claims arising from willful misconduct of the Division. If any such claim is asserted, the Division will give prompt notice to the Borrower and the Borrower will assume the defense thereof. It is expressly agreed and understood that this section shall not require Borrower to defend or save harmless the Division from those lawsuits specifically set out in Section 8 and subsequent appeals or proceedings in those cases. DRAFT 03/13/95 Page 9 5.3 Limitation of Liability of the Division. No obligation of the Division hereunder shall be deemed to constitute a pledge of the full faith and credit or taxing power of the State of Alaska or of any political subdivision thereof. 5.4 Insurance. The Borrower shall maintain insurance in the amount as required by REA as may be modified from time to time. However the Borrower at all times shall maintain, ata minimum, insurance coverage as described in exhibit E, attached hereto. 5.5 Damage or Condemnation. Damage to, destruction of or condemnation of all or a portion of the Project shall not terminate this Agreement or cause any abatement of or reduction in the payments to be made by the Borrower or otherwise affect the respective obligations of the Division or the Borrower, except as set forth in this Agreement. 5.6 Financial Statements. Within six (6) months after the end of its fiscal year, the Borrower will furnish to the Division a copy of its annual financial statements, audited by a certified public accountant. 5.7 Notice of Default. As soon as possible after either party knows of or has reason to know that any Event of Default specified in Section 7.1 hereof, or any event which with notice or lapse of time or both would become such an Event of Default, has occurred, the party having knowledge of the default shall furnish to the other party written notice of such occurrence, together with a statement duly executed by any officer of the party describing the action, if any, which the party proposes to take with respect thereto. 5.8 Rates and Charges; Operation of System. The Borrower hereby covenants with the Division as follows: (a) The Borrower will, if permitted by the Alaska Public Utilities Commission or its successor, establish, maintain and collect reasonable rates and charges for electric utility service for as long as any portion of the Loan remains unpaid. The Borrower will make funds available for the payment of the Loan each year after provision for payment of all necessary costs for electric utility operations. (b) The Borrower will at all times, maintain, preserve and keep the System and every part and parcel thereof in good repair, working order and condition; will from time to time make or cause to be made all necessary and proper repairs, renewals DRAFT 03/13/95 Page 10 and replacements thereto so that the business carried on in connection therewith may be properly and advantageously conducted, and will at all times operate the System in an efficient manner and at a reasonable cost. (c) The Borrower will not expend any money for any extension or betterment of the System which is not in its best judgment economically sound and which will not contribute to the operation of the System in an efficient and economical manner. (da) The Borrower will keep and maintain proper books and accounts with respect to the operation of the System in such manner as prescribed by any authorities having jurisdiction over the Borrower or over public utilities in Alaska. (e) The Borrower will not sell or otherwise dispose of the System, or any material part thereof, without the approval of the Division unless contemporaneously with such sale or disposal there shall be paid to the Division a _ sum sufficient to pay all of the outstanding principal of the Loan. 5.9 Project Accounting. The Borrower will maintain Project books and accounts in accordance with generally accepted accounting principles and practices applied on a consistent basis. 5.10 Information Provided to the Division. The Borrower will provide the Division with information related to the Project within a reasonable time after such information becomes available, and will cooperate with designated Division staff, as follows: (a) The Borrower will provide the Division a copy of all Project-related professional service agreements, including budgets and plans, and all subsequent amendments thereto. (b) The Borrower will provide the Division a copy of Project-related construction contracts, including budgets and plans, and all subsequent amendments thereto. (c) Every three months, provide the Division a written progress report describing for each task the work that has been accomplished, the work that remains to be accomplished, and any significant information on the DRAFT 03/13/95 Page 11 status of Project development. Progress reports will be due no later than January 15, April 15, July 15, and October 15 of each year. (ad) Provide the Division with a copy of all significant Project-related correspondence, notify the Division of all significant Project-related meetings, and allow the Division’s designated staff representative to attend such meetings. The purpose of this provision is to keep the Division informed of major Project issues and developments. This is not intended to include copies of correspondence or notification of meetings that are not important in serving this objective. Section 6. Security The Borrower agrees to secure this loan per the Uniform Commercial Code with a pledge of all contract rights, accounts, and accounts receivable, as defined in AS 45.09.104, instruments as defined in AS 45.09.105(a), cash, cash equivalents, investments, notes receivable, and other forms of obligation, together with the proceeds thereof whether presently existing or hereafter arising, as provided in this Agreement and the Security Agreement. Concurrent with the execution of this Agreement, the Borrower shall execute and deliver the Note and Security Agreement to the Division. The Division’s security interest in the Collateral described in Exhibit C is subordinate to other security interests in the same Collateral which have been perfected as of the date of execution of this Agreement and the Security Agreement. The Division will agree to subordinate its security interest granted herein with respect to additional financing of the Project. The Borrower shall provide the Division with a current list of outstanding secured and unsecured debts. Section 7. Events of Default and Remedies 7.1 Events of Default. Each of the following events shall constitute an Event of Default: (a) a default in the payment of any amounts due under this Agreement, the Note or the Security Agreement, or in the payment of any other debt or liability hereunder when the payment is due, whether at a date for the payment of a fixed installment or contingent on other payment or as a result of acceleration or otherwise; or (b) a failure by the Borrower to observe and perform any covenant, condition or agreement on its part to be observed or performed under this DRAFT 03/13/95 Page 12 Agreement, the Note or the Security Agreement, other than a default in payment described in Subsection (a) of this Section, for a period of 60 days after receipt of written notice from the Division, specifying such failure and requesting that it be remedied; provided that if the Division reasonably determines that the failure can be corrected, but not within such period, the same shall not constitute an Event of Default so long as the Borrower institutes prompt corrective action and is diligently pursuing the same; or (c) any representation or warranty made by or on behalf of the Borrower under this Agreement, the Note or Security Agreement which is false or incorrect in any material respect on the date on or as of which made, and (if such representation or warranty can be made true and correct by action taken by the Borrower) such representation or warranty is not made true and correct within 30 days after receipt of written notice thereof by the Division to the Borrower demanding that such representation or warranty be made true and correct; or (da) the entry against the Borrower of a final judgment, decree or order for relief by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law, federal or state, now or hereafter in effect; or (e) the Borrower suffers the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of the assets of the Borrower or for any part of the Project in a proceeding brought against or initiated by it, and such appointment is neither made ineffective nor discharged within thirty (30) days after the making thereof or such appointment is consented to, requested by, or acquiesced to by it: or (f) the occurrence and continuance of an Event of Default under the Note or Security Agreement. Upon the occurrence of an Event of Default and during the continuance thereof, the Division, by notice in writing to the Borrower, may declare all sums which the Borrower is obligated to pay hereunder to be due and payable immediately, and DRAFT 03/13/95 Page 13 upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement, the Note, or the Security Agreement to the contrary notwithstanding. If the Division shall have proceeded to enforce any right under this Agreement or the _ Security Documents and such proceedings shall have been determined adversely to the Division, the Borrower and the Division shall be restored to their respective positions and rights hereunder, and all rights, remedies and powers of the Borrower and the Division shall continue as though no_- such proceeding had been taken, unless such adverse determination provides otherwise in which case the terms of the adverse determination shall govern. 7.2 Payment on Default; Suit Therefor. In case of default in the payment of any amount due under this Agreement, the Note, or the Security Agreement upon demand of the Division, the Borrower will pay to the Division the whole amount of the Loan that then shall have become due and payable, including any amounts due as a result of the acceleration of the Borrower’s obligations as provided in Section 7.1 of this Agreement; and, in addition thereto, an amount equal to the reasonable costs and expenses of collection, and any expenses or liabilities incurred by the Division. If the Borrower fails to pay such amounts upon demand, the Division may institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Borrower and collect in the manner provided by law the monies adjudged or decreed to be payable. 7.3 Interest on Default. In the case of an Event of Default, all sums due and owing shall bear the Legal Rate of Interest, from the date of default as determined by the Division, until paid in full. 7.4 Cumulative Rights. No remedy of the Division under this Agreement is exclusive of any other remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, the Note, or the Security Agreement, or now or hereafter existing at law or in equity or by statute. No waiver by the Division or the Borrower of any breach of any of their obligations, agreements or covenants hereunder or _ under this DRAFT 03/13/95 Page 14 Agreement, the Note, or Security Documents shall be a waiver of any subsequent breach, and no delay or omission to exercise any right or power shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. Section 8. Limitation of Liability of the Division due to Pending Litigation In entering into this Agreement, the Borrower acknowledges the following pending litigation, which may affect the authority or ability of the Division to enter into this Agreement, or otherwise disburse funds in accordance with this Agreement: Alaska Citizens for Responsible Energy, et al v. State of Alaska, et al, Case No. 3AN-94-7038 CI, and Alaska Cogeneration System, Inc. v. Blatchford, et al, Case No. 3AN-94-6453 CI[.] Alaska Cogeneration System, Inc. v. Blatchford, et. al. A94-498. In the event that the Division, as a result of judicial decree, is unable to accomplish any provision of this Agreement or the Note, the borrower shall pay for loan funds already disbursed on an annual basis as provided in Section 4 of this Agreement without regard to whether the project has commenced commercial operation. The Borrower assumes all risk that the Division may not, asa result of judicial decree perform any or all provisions of this Agreement or the Note. The obligations of the Borrower under this Section shall be absolute and unconditional, without defense or set-off by reason of any contracts, agreements, commitments or other obligations of the Borrower to any other party, or for any other reason. Section 9. Pending Administrative Proceedings The Borrower and the Division acknowledge that there are two proceedings before the Alaska Public Utilities Commission entitled Alaska Cogeneration Systems, Inc. v. Copper Valley Electric Association, Inc., U-94-21 and Alaska Cogeneration Systems Inc. v. Copper Valley Electric Association, Inc., U-95-3. These proceedings shall have no effect on the Borrower’s obligations under this loan agreement particularly, but not exclusively, the Borrower’s repayment obligation as set out in Section 4 of this Agreement. Section 10. Severability Any provision of this Agreement decreed invalid by a court of competent jurisdiction shall not invalidate the remaining provisions of the Agreement. DRAFT 03/13/95 Page 15 Section 11. Integration This instrument and all appendices and amendments hereto embody the entire Agreement of the parties. There are no promises, terms, conditions or obligations other than those contained herein; and this Agreement shall supersede all previous communications, representations or agreements, either oral or written, between the parties hereto. Section 12. Amendment This Agreement shall be amended, modified or changed only by a writing, executed by authorized representatives of the parties, with the same formality as this Agreement was executed and such writing shall be attached to this contract as an appendix. Section 13. Notices Notice hereunder shall be given in writing, either by certified mail, to be deemed effective on receipt, by telegram, or by telephone, confirmed in writing, addressed as follows: The Division - Department of Community and Regional Affairs, Division of Energy 333 West 4th, Suite 220 Anchorage, Alaska 99501-2341 Attention: Director The Borrower - Copper Valley Electric Association P.O. Box 45 Glennallen, Alaska 99588-0045 Attention: General Manager Each party shall notify the other in writing of any change of address. Section 14. Closing of the Loan Concurrent with the execution of this Agreement, the Borrower will provide an opinion of counsel, acceptable to the Division and its Legal Counsel, that: a) The loan is properly authorized by the Borrower. b) The APUC certificate of public convenience and necessity is in good standing. c) No litigation other than that set out in Section 8, or administrative proceedings other than DRAFT 03/13/95 Page 16 that set out in Section 9 of this Agreement, or other proceeding is pending or threatened to enjoin the execution of this loan. da) The person or persons executing the promissory note are fully authorized to do so. e) Confirms the representations of the Borrower under Section 1.2 herein. Section 15. Applicable Law This agreement is to be construed according to the laws of Alaska. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the duly authorized officers as of the day and year first hereinabove set forth. (Borrower) By: Title: STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) THIS IS TO CERTIFY that on this day of 19 , before me, the undersigned, a Notary Public in and for the State of Alaska, duly commissioned and sworn as such, personally appears z known to me, and acknowledged to me that he/she had in his/her official capacity executed the foregoing instrument. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. Notary Public in and for Alaska My Commission Expires: DRAFT 03/13/95 Page 17 DIVISION OF ENERGY By Director STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) THIS IS TO CERTIFY that on this day of 19 , before me, the undersigned, a Notary Public in and for the State of Alaska, duly commissioned and sworn as such, personally appears i known to me, and acknowledged to me that he/she had in his/her official capacity executed the foregoing instrument. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. Notary Public in and for Alaska My Commission Expires: APPROVED: Bruce Botelho Attorney General By: Assistant Attorney General DRAFT 03/13/95 Page 18 Exhibit A Not to Exceed $35,000,000 PROMISSORY NOTE Anchorage, Alaska The Copper Valley Electric Association (the "Utility"), organized pursuant to the laws of Alaska, HEREBY PROMISES to pay to the Department of Community & Regional Affairs/Division of Energy ("the Division"), the principal sum of $35,000,000 as provided in the Loan Agreement attached hereto and of even date herewith. This note is to evidence the indebtedness of the Utility pursuant to the Loan Agreement, attached hereto and of even date herewith between the Utility and the Division, the terms of which are incorporated by reference herein. This note is payable as stated in said Loan Agreement. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed and delivered. DATED: By: Its: STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) THIS IS TO CERTIFY that on this day of 19 , before me, the undersigned, a Notary Public in and for the State of Alaska, duly commissioned and sworn as such, personally appears ¥ known to me to be the of and he had in his official capacity aforesaid executed the foregoing instrument on behalf of the Utility for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the day and year first above written. Notary Public in and for Alaska My Commission Expires: DRAFT 03/13/95 Page 19 Exhibit B PROJECT DESCRIPTION The project consists of a 138 kilovolt electric transmission line that will interconnect the Railbelt electric transmission system in or near the community of Sutton, Alaska, with the electric transmission system of Copper Valley Electric Association in or near the community of Glennallen, Alaska, associated substations, substation modifications, and other electrical system additions and modifications required for transmitting electrical power between the two systems. DRAFT 03/13/95 Page 20 Exhibit C SECURITY AGREEMENT THIS AGREEMENT made as of this day of , 1994, by and between Copper Valley Electric Association, Inc., an Alaskan corporation whose address is P.O. Box 45, Glennallen, Alaska 99588 (the "Debtor"), and Alaska Department of Community and Regional Affairs/Division of Energy, whose address is 333 West 4th Avenue, Suite 220, Anchorage, Alaska 99501-2341 (the "Secured Party"). WITNESSETH: To secure the payment of the indebtedness evidenced by the Promissory Note and Loan Agreement of even date herewith in the principal sum of Thirty Five Million Dollars ($35,000,000) payable to the Secured Party and also to secure any other indebtedness or liability to the Secured Party as may be hereafter paid out or advanced by Secured Party, or otherwise due Secured Party under any provision of this Security Agreement, Debtor hereby grants and conveys to the Secured Party a security interest in, and a continuing lien on, the following described proceeds and collateral; together with all increases therein, together with all proceeds of such collateral: All contract rights, accounts, accounts receivable, instruments, cash, cash equivalents, investments, notes receivable, and other forms of obligation, together with the proceeds thereof whether presently existing or hereafter arising. Such security interest shall give the holder hereof a continuing lien in, on and to all of the foregoing and the proceeds thereof, and any replacements, additions, accessions or substitutions thereof, after acquired property in the accounts receivable or other proceeds arising from the sale or disposition of any inventory of the Borrower including any returns thereof and including, where applicable, the proceeds of insurance covering said Collateral. All of such collateral (the "Collateral") is located in the Chitina Recording District, Third Judicial District, State of Alaska. Debtor HEREBY REPRESENTS, COVENANTS AND AGREES WITH SECURED PARTY AS FOLLOWS: 1. Payment and Performance. Debtor agrees to pay and perform all obligations secured hereby according to the terms of the Promissory Note and Loan Agreement between the Debtor and Secured Party of even date herewith. DRAFT 03/13/95 Page 21 Exhibit C 2. Use of Collateral. Debtor agrees to comply with any governmental regulations affecting the use of the Collateral. 3. Ownership and Liens. Except as delineated in Exhibit E, attached hereto and incorporated herein by reference, Debtor covenants that it owns the Collateral and the same is free and clear of all security interests and encumbrances of every nature, and Debtor covenants and agrees to defend the title to the Collateral against any and all claims whatsoever. 4. Taxes. Debtor will pay in full at least thirty (30) days before delinquency all taxes or other governmental charges levied against the Collateral and will pay any tax which may be levied on any obligations secured hereby. 5. Financing Statements and Other Filings. On demand of the Secured Party, Debtor agrees to execute any written agreement or do any other acts necessary to effectuate the purposes and provisions of this agreement and to execute any instrument or statement to perfect, continue or terminate the security interest of the Secured Party in the Collateral and pay all costs of filing in connection therewith. The Secured Party is hereby authorized to file financing statements covering the Collateral. 6. Expenses Incurred by Secured Party. Secured Party is not required to, but may at its option, pay any tax, assessment, insurance premium, expense, repair or other charge payable by Debtor, and any filing or recording fees, and any amount so paid, with interest thereon at the then current Legal Rate of Interest from date of payment until repaid shall be secured hereby and shall be repayable by Debtor on demand. The rights granted by this paragraph are not a waiver of any other rights of Secured Party arising from breach by Debtor of any of the covenants hereof or of the Loan Agreement. aks Waivers. This Security Agreement shall not be qualified or supplemented by course of dealing. No waiver or modification by Secured Party of any of the terms or conditions hereof shall be effective unless in writing signed by Secured Party. No waiver by Secured Party as to any required performance by Debtor shall constitute a waiver as to any subsequent required performance of other obligation of Debtor hereunder or under the Loan Agreement. 8. Default. Time is of the essence of this Security Agreement, and in any of the following events, hereinafter called "Events of Default": (a) Default by Debtor in the payment of any obligation secured by this Security Agreement or in the performance or observance of any agreement contained herein; or DRAFT 03/13/95 Page 22 Exhibit Cc (b) Any event of default under the Promissory Note or Loan Agreement of even date herewith. Then and in any such events of default, all obligations secured hereby shall then or at any time thereafter, at the option of Secured Party, become immediately due and payable without notice or demand, and Secured Party shall have an immediate right to pursue the remedies set forth in this Security Agreement. 9. Remedies. In the event of a default hereunder, Secured Party shall have all remedies provided by law; and without limiting the generality of the foregoing, shall be entitled as follows: (a) Debtor agrees to put Secured Party in possession of the Collateral on demand; and (b) Secured Party is authorized to enter any premises where the Collateral is located without notice or demand and without legal proceedings; and (c) At the request of Secured Party, Debtor will assemble the Collateral and make it available to Secured Party at the place designated by Secured Party which is reasonably convenient to both parties; and (ad) Debtor agrees that a period of ten (10) days from the time notice is sent, by first class mail or otherwise, shall be a reasonable period of notification of a sale or other disposition of the Collateral; and (e) Debtor agrees to pay on demand the amount of all expenses reasonably incurred by Secured Party in protecting or realizing on the Collateral. In the event that this Security Agreement or any obligation secured by it is referred to an attorney for protecting or defending the priority of Secured Party’s interest or for collection or realization procedures, Debtor agrees to pay a reasonable attorney’s fee, including fees incurred in both trial and appellate courts, or fees incurred without suit, and expenses of title search and all court costs and costs of public officials. The sums agreed to be paid in this subparagraph shall be secured hereby. 10. General. This agreement and all rights hereunder may be assigned by the Secured Party and thereupon the assignee shall have all the rights and remedies of the Secured Party hereunder. This Agreement shall be governed by and construed according to the laws of the State of Alaska and shall be binding according to the DRAFT 03/13/95 Page 23 Exhibit C laws of the State of Alaska and shall be binding upon and inure to the benefit of the respective parties hereto, and their respective legal representatives, successors and assigns. IN WITNESS WHEREOF, the parties have caused this Security Agreement to be executed by a duly authorized partner or officer the day and year first above-written. Debtor: COPPER VALLEY ELECTRIC ASSOCIATION, INC. Date General Manager SUBSCRIBED AND SWORN TO before me this day of. A 1995. NOTARY PUBLIC in and for Alaska My commission expires: SECURED PARTY: ALASKA DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS/DIVISION OF ENERGY Date Director SUBSCRIBED AND SWORN TO before me this day of ’ 1995. NOTARY PUBLIC in and for Alaska My commission expires: DRAFT 03/13/95 Page 24 Exhibit D UNALLOW: OST. The following costs are unallowable under this Loan Agreement. The allocability of other costs not identified in this section are determined by Section 3.3 of the Loan Agreement attached hereto. 1. Bad debts of the Borrower, including the Borrower’s expenses of collection. 2. Bonuses, commissions and similar compensation under any other name, which provides compensation to an employee in excess of reasonable compensation for the services rendered, or are in connection with obtaining or negotiating for a State of Alaska loan or grant, or a modification thereto. 3. Central and branch office expenses of the Borrower in excess of those expenses allowed under a budget approved by the Division in accordance with Section 3.3. 4. Contingency reserves and provisions. 5. Entertainment expenses. All entertainment expenses are disallowed without regard to the purpose. State employees are not to be entertained by the Borrower for any business or social purpose. 6. Fines and penalties, including assessed interest, resulting from violation of, or failure of, the Borrower to comply with Federal, State, or local laws or regulations. 7. Insurance premiums (including any provision of a self- insurance reserve) on the life of any person. 8. Legal, accounting, and consulting services and related costs incurred in connection with prosecution of claims of the Borrower against the Division or the State of Alaska or contesting actions or proposed actions of the Division or State of Alaska against the Borrower. 9. Lobbying expenses of the Borrower and agents of the Borrower. 10. Maintenance, depreciation, and other costs incidental to the Borrower’s idle or excess facilities (including machinery and equipment) other than reasonable standby facilities. 21. Membership in trade, business, and professional organizations. DRAFT 03/13/95 Page 25 Exhibit D 12. Operating Costs of the Borrower not related to design and construction of the Project. 13. Patronage capital credits or other capital distributions of the Borrower.