Exhibit No. 10.9.7
[*] INDICATES THAT THE CONFIDENTIAL PORTION HAS BEEN OMITTED FROM THIS FILED
EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
UNDERGROUND LETTER AGREEMENT
----------------------------
This Underground Letter Agreement ("Agreement") by and between San ▇▇▇▇
Coal Company, a Delaware corporation ("SJCC"), San ▇▇▇▇ Transportation Company,
a Delaware corporation ("SJTC"), Public Service Company of New Mexico, a New
Mexico corporation ("PNM"), and Tucson Electric Power Company, an Arizona
corporation ("TEP") (PNM and TEP are referred to collectively as "Utilities"),
is executed this 31st day of August, 2000.
Recitals
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WHEREAS, SJCC and the Utilities are parties to the August 18, 1980 Coal
Sales Agreement, as amended from time to time ("CSA"), and are parties to a
Waste Disposal Agreement ("Waste Disposal Agreement"), dated July 27, 1992, as
amended;
WHEREAS, SJTC and the Utilities are parties to the April 30, 1984
Transportation Agreement, as amended from time to time ("Transportation
Agreement");
WHEREAS, SJCC has certain obligations in the CSA to provide coal for
the San ▇▇▇▇ Station;
WHEREAS, SJCC and the Utilities ("Parties") are in the process of
negotiating a definitive binding agreement ("Definitive Agreement"), which if
adopted, shall amend or replace the CSA, through which an underground coal mine
as described in the Mining Plan attached to this Agreement as Exhibit "A" (the
"San ▇▇▇▇ Underground Mine"), shall be developed as the coal source to supply
the San ▇▇▇▇ Station;
WHEREAS, SJCC and the Utilities have agreed in this Agreement upon the
terms and conditions pursuant to which coal from the San ▇▇▇▇ Underground Mine
shall be mined by SJCC and delivered to Utilities and have determined to set
forth their agreement;
WHEREAS, once the San ▇▇▇▇ Underground Mine is in Commercial Operation
(as defined herein) and is supplying coal as provided under the CSA or
Definitive Agreement, the Utilities will no longer require coal transportation
services under the Transportation Agreement [*];
WHEREAS, once the San ▇▇▇▇ Underground Mine is in Commercial Operation
(as defined herein) and is supplying coal as provided under the CSA or
Definitive Agreement, the Utilities will no longer require a coal supply from
existing surface mines [*];
WHEREAS, SJTC is a party to this Agreement solely for the purpose of
addressing matters relating to the Transportation Agreement and SJTC and the
Utilities intend to negotiate and execute, subsequent to the execution of this
Agreement, an agreement to amend or replace the Transportation Agreement (the
"Definitive Transportation Agreement") on or before July 31, 2001;
WHEREAS, development of the San ▇▇▇▇ Underground Mine may involve the
execution of a coal lease with the United States Bureau of Land Management
("BLM") for the lands described in the July 29, 1997 Deep Lease Extension
application ("DLX");
WHEREAS, the Parties are executing a Deep Lease Extension Agreement
concurrently herewith ("Deep Lease Extension Agreement") to address pricing
issues that will arise if SJCC does not secure the DLX prior to January 1, 2003;
WHEREAS, in order to facilitate interim corporate reviews and approvals
and guide preparation of a Definitive Agreement and a Definitive Transportation
Agreement, SJCC, SJTC and the Utilities desire in this Agreement: (a) to set
forth the binding terms to which the Parties have agreed; and (b) to outline
other non-binding understandings about terms to be included in the Definitive
Agreement; and
WHEREAS, SJCC and the Utilities intend to negotiate and execute,
subsequent to execution of this Agreement, the Definitive Agreement.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, SJCC, SJTC and the Utilities agree as follows:
ARTICLE I
BINDING TERMS AND CONDITIONS
1.1 Binding Effect. Upon execution of this Agreement, the provisions of
this Article I shall constitute a legally binding and enforceable
agreement of SJCC, SJTC, and the Utilities in accordance with its
terms. Subject to the Conditions Precedent described in Paragraph 1.2
of this Agreement, (a) if no Definitive Agreement is reached pursuant
to Paragraph 1.3 by July 31, 2001, the terms of Paragraph 1.6(A)
through (M) of this Agreement shall at that time automatically become
an amendment to the CSA; and (b) if no Definitive Transportation
Agreement is reached pursuant to Paragraph 1.7 by July 31, 2001, then
the terms of Paragraph 1.7(A) through (F) of this Agreement shall at
that time automatically become an amendment to the Transportation
Agreement.
1.2 Conditions Precedent. There are three Conditions Precedent to this
Agreement becoming effective:
A. Final approval of the San ▇▇▇▇ Underground Mine by the Board of
Directors of Broken Hill Proprietary Company, Limited to be
obtained no later than January 1, 2001 and written notification of
such approval to the Utilities by SJCC.
B. Final approval of this Agreement by the San ▇▇▇▇ Fuels Committee
pursuant to the requirements of the San ▇▇▇▇ Project Participation
Agreement dated as of October 27, 1999, to be obtained no later
than August 31, 2000 and written notification of such approval to
SJCC by the Utilities.
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C. Execution no later than January 1, 2001 of a written guaranty of
this Agreement by BHP Minerals International, Inc. or other BHP
entity acceptable to the Utilities in a form acceptable to the
Utilities as attached to this Agreement.
1.3 Good Faith Agreement to Negotiate a Definitive Agreement. The Parties
agree to negotiate in good faith and use their best efforts to execute
a Definitive Agreement that incorporates the terms described in
Paragraph 1.6, and to the extent mutually agreed after the date of this
Agreement, Article II of this Agreement and other appropriate terms by
no later than July 31, 2001. The Definitive Agreement shall amend or
replace the CSA.
1.4 Term of the Agreement.
A. Subject to the provisions of Paragraph 1.2 of this Agreement, all
provisions of this Agreement except those relating to the
Transportation Agreement shall terminate on the earlier of (a) the
date the Definitive Agreement is effective, (b) on July 31, 2001,
provided that Paragraphs 1.6 (A) through (M) of this Agreement
shall constitute an amendment to the CSA that survives the
termination of this Agreement, or (c) as otherwise mutually agreed
by the Parties.
B. Subject to the provisions of Paragraph 1.2 of this Agreement, all
provisions of this Agreement except those relating to the CSA
shall terminate on the earlier of (a) the date the Definitive
Transportation Agreement is effective, (b) on July 31, 2001,
provided that Paragraphs 1.7(A) through (E) of this Agreement
shall constitute an amendment to the Transportation Agreement that
survives the termination of this Agreement, or (c) as otherwise
mutually agreed by SJTC and the Utilities.
1.5 Utilities' Obligations are Joint and Several. The Utilities' duties and
obligations under this Agreement shall be joint and several.
1.6 Terms to be Included in the Definitive Agreement. The Definitive
Agreement shall include the substance of the terms provided in
Paragraphs 1.6 (A) through (M). The language employed in the Definitive
Agreement shall reflect and elaborate upon the substance of the terms
summarized in Paragraphs 1.6 (A) through (M) and may, if the Parties
mutually agree, differ (in form) from, but may not (unless the Parties
mutually agree) be inconsistent with the language used in this
Agreement to summarize those terms. This Agreement binds the Parties to
so include these terms in the Definitive Agreement, if reached.
A. Price and Price Structure.
(1) An "Unadjusted New Mining CIE" of [*] per ton [*] shall be
adopted consistent with the CSA. The Unadjusted New Mining
CIE will be adjusted as described below to determine the "New
Mining CIE". The New Mining CIE will be payable on [*] tons
tendered for delivery pursuant to Exhibit H of the CSA [*].
In the future the New Mining CIE may be further adjusted
pursuant to the provisions of the Deep Lease Extension
Agreement, if applicable. Documentation of the Unadjusted New
Mining CIE is in Exhibit B (1).
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a) An "SJCC Concession CIE Adjustment" of [*] per ton [*]
will be subtracted from the Unadjusted New Mining CIE.
Documentation of the SJCC Concession CIE Adjustment is in
Exhibit B (2).
b) A "Budget DLX CIE Adjustment" of [*] per ton will be
subtracted from the Unadjusted New Mining CIE to reflect
the removal of the budget DLX bid payments from the
Unadjusted New Mining CIE. Documentation of the Budget DLX
CIE Adjustment is in Exhibit B (3).
c) If the DLX is acquired before January 1, 2003, a "DLX CIE
Adjustment" will be determined and added to the Unadjusted
New Mining CIE. The DLX CIE Adjustment will be determined
as detailed in Exhibit B (4).
d) A "CIE True Up Adjustment" will be [*] from the Unadjusted
New Mining CIE [*]. The CIE True Up Adjustment will be
determined as defined in Exhibit B (5). The Utilities
shall have the right to audit capital expenditures that
are included as part of the True-Up Process. Any disputes
regarding the True-Up Process shall be referred to the
Joint Committee.
e) An "Incremental Mining CIE Adjustment" of [*] per ton will
be subtracted from the Unadjusted New Mining CIE.
Documentation of the Incremental Mining CIE Adjustment is
in Exhibit B(6).
(2) Incremental Mining CIE. There will be an "Incremental Mining
CIE" of [*] per ton [*] payable on [*] tons delivered
pursuant to the CSA [*].
(3) The New Mining CIE will be payable on [*] tons tendered for
delivery pursuant to Exhibit H of the CSA [*] and billed in
accordance with Paragraph 2.3 (Monthly Invoicing) of this
Agreement.
(4) Operating Costs. Mining Operating Costs will be as defined in
the CSA, Exhibit F. Starting January 1, 2003, reimbursement
for Mining Operating Costs for all mining and reclamation
related activities on the Coal Leases will be [*].
Processing Operating Costs. There will be [*] in processing
operating cost reimbursement.
(5) Payment (of the New Mining CIE and the Incremental Mining
CIE) required pursuant to subparagraph 1.6 A(1) and A(2) will
begin on January 1, 2003 and will continue pursuant to
Exhibit H of the CSA as modified by this Agreement.
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(6) Inflation/deflation treatment of the New Mining CIE will be
adjusted [*]. The Incremental Mining CIE will [*].
(7) Tax, depletion allowance, and inflation / deflation
adjustment formulas for the New Mining CIE will be reviewed
and corrected appropriately.
(8) The La Plata Administration Component will be [*] starting
January 1, 2003.
(9) The Fruitland Administration Component shall [*].
(10) For calendar years 2001 and 2002, existing CIE Discounts as
defined in Paragraph 2 entitled "Mining CIE Discounts" of the
Interim Invoicing Agreement between the Parties dated
December 31, 1999, shall [*].
(11) Minimum annual tons will be [*] tons per year for the period
from 2003 through 2017 [*] ("New Minimum Annual Tons"). The
Parties understand [*]. Any shortfall in Utilities' purchases
below the level of the New Minimum Annual Tons will [*]. The
carry forward provisions of the CSA regarding Fruitland
Minimum tons and La Plata Minimum Tons will expire on
December 31, 2002. No carry forward provisions will apply to
the New Minimum Annual Tons.
In the event that the DLX is not secured by SJCC, the New
Minimum Annual Tons in CSA Exhibit H will be reduced as
described in Attachment 2 to the Deep Lease Extension
Agreement. This tonnage schedule specifies the number of tons
used as the basis for the Premium (as defined in the Deep
Lease Extension Agreement) adjustment to the New Mining CIE.
(12) Coal produced by underground methods from the Deep Lease,
DLX, South Lease Extension and the Fruitland Leases, is
hereby approved as Replacement Tons.
B. Term. The term of the CSA shall be unaltered by this Agreement.
C. [*]. SJCC and the Utilities agree as follows:
(1) The La Plata CIE (CSAP. 9.3(b)) will be[*] after December 31,
2002.
(2) The Fruitland CIE (CSAP. 9.2(b)) will be [*] after December
31, 2002.
(3) The Utilities shall pay to SJCC [*] of the CSA.
(4) At the Utilities' election, the [*] can be paid [*] on
January 1, 2003 or as [*] on January 1, 2003. The [*] amount
of the [*] is [*] or if paid as [*] per year [*]. The [*]
amount will be [*] to January 1, 2003. If paid [*] in the
same way the CIEs are treated under the CSA, and the term of
the [*] shall be from 2003 through 2017 inclusive.
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(5) [*] payments incurred as a result of [*] and the payment
thereof shall be [*].
Concurrent with the negotiation and execution of the Definitive
Agreement as contemplated under Paragraph 1.3 of this Agreement,
the appropriate parties agree to negotiate in good faith and use
their best efforts to execute a separate agreement by July 31,
2001, if not completed earlier, reflecting the terms and
conditions for payment of the [*].
D. Reclamation. All reclamation activity, related to Coal Leases,
including leases that may become Coal Leases on or after the
effective date of this Agreement, during the term of the CSA or
Definitive Agreement will be reimbursed as [*]. Effective January
1, 2003, reimbursement for [*] will be [*]. Any reclamation
activity after the term of the CSA will be handled according to
terms of the CSA as amended herein.
E. Processing. The Processing CIE will be [*] per ton beginning
January 1, 2003. This [*] will not be subject to [*]. The [*] will
be applied after the Processing CIE is [*].
F. Dedicated Coal Supply. The Deep Lease and the associated surface
agreements and property rights that have been acquired by SJCC
through an Acquisition Agreement dated as of March 25, 1983 with
Paragon Resources Inc. and Valencia Energy Company ("Deep Lease")
for use in connection with the San ▇▇▇▇ Underground Mine, as well
as the proposed DLX, and any contiguous lease extensions approved
by the Joint Committee (which approval shall not be withheld
unreasonably), when acquired, are hereby dedicated to production
for the San ▇▇▇▇ Station and are designated for inclusion as
approved coal sources under the CSA, and shall be deemed included
within the definition of "Coal Leases," as that term is used in
the CSA. SJCC shall exercise diligence in acquiring the DLX. SJCC
shall consult with Utilities concerning the bid. If at that time,
SJCC determines that it is appropriate to submit a bid, SJCC shall
prepare and submit its timely bid for the DLX. Appropriate
property descriptions will be included in a Definitive Agreement
or as an amendment to the CSA, as appropriate.
Upon Commercial Operation (as defined below), the Utilities shall
release SJCC from all coal delivery obligations from the La Plata
Leases. Ongoing Operating Costs, including, but not limited to,
the Cimarron Net Profits Interest, if any, will be reimbursed
pursuant to the terms of the CSA.
Upon Commercial Operation (as defined below), the Utilities shall
release SJCC from the coal delivery obligations tied to the
surface tons from the Fruitland Leases. Release of La Plata
Reserves and San ▇▇▇▇ Reserves shall occur only after the San ▇▇▇▇
Underground Mine has achieved Commercial Operation and SJCC can
affect a reasonable cessation of mining activities on those
leases. Until that time, La Plata Reserves and San ▇▇▇▇ Reserves
shall continue to serve as coal sources for the San ▇▇▇▇ Station.
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SJCC will maintain the Fruitland Leases, or an appropriate portion
thereof, as an ash disposal area, per the Waste Disposal
Agreement. Costs related to cessation and closure of surface
mining operations, will be reimbursed as Operating Costs according
to terms of the CSA.
G. Non-SJCC Coal. Delivery of approved sources of Non-SJCC Coal will
satisfy New Minimum Annual Tons and the New Mining CIE will apply
unless limited by Non-Normal Conditions as described in Paragraph
16.1 of the CSA.
H. Mineable Coal. The term "Mineable Coal" shall be amended to
include coal produced by underground methods as described in
Exhibit A that meet the requirements of the CSA within the Deep
Lease, DLX, South Lease Extension and the Fruitland Leases.
I. Mining Plans and Methods. Paragraph 1.4 and Exhibit C of the CSA
are hereby amended to include: The Mining Plans for the San ▇▇▇▇
Underground Mine are as set forth in Exhibit A of this Agreement,
and may be revised in accordance with the CSA. The primary
underground methods are longwall mining for primary production and
room and pillar mining in development areas. Other underground
mining methods may be employed from time to time as necessary for
efficient and economic production if approved by the Joint
Committee.
J. Schedule for Commercial Operation. Commercial Operation
("Commercial Operation") of the San ▇▇▇▇ Underground Mine shall be
defined as two (2) consecutive months of production equivalent to
550,000 tons per month. SJCC will exercise good faith efforts to
achieve Commercial Operation on or before December 31, 2002.
K. Non-Normal Conditions, Material Default, Termination and
Expiration. The CSA will be amended to replace the existing
Section 16 as follows:
"16.1 Non-Normal Conditions, Right to Cure, and Offers of Non-SJCC
Coal.
The Parties intend that in the effort to avoid Material Default,
the provisions of this Paragraph 16.1 shall be utilized before
notice of Material Default Conditions is provided pursuant to
Paragraph 16.2.
(a) Non-Normal Conditions. Non-Normal Conditions exist when
any of the following three conditions are present:
(1) The Reserve of Coal (as defined in Paragraph
16.2(a)(3)) has fallen below the level of 1.2 million
tons,
(2) SJCC has determined that there is a reasonable
probability that the Reserve of Coal will in the
future fall below such inventory level, or
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(3) SJCC anticipates or is experiencing any other
condition that may give rise to SJCC not being able
to deliver coal according to the CSA.
(b) Notice. SJCC shall provide written notice to the
Utilities if any Non-Normal Conditions exist, or the
Joint Committee may determine that Non-Normal Conditions
exist, which shall constitute notice to SJCC and the
Utilities as of the date of such written determination.
(c) Prevention Due to Uncontrollable Forces. In addition to
providing written notice of Non-Normal Conditions, SJCC
may elect to declare that the performance is prevented by
reason of uncontrollable forces in accordance with the
terms of Paragraph 17.1 "Uncontrollable Forces".
(d) Coal Usage Forecast. Within fifteen (15) days of receipt
of notice of Non-Normal Conditions, the Utilities will
review dispatch at San ▇▇▇▇ Station and provide to SJCC
an updated coal usage forecast.
(e) Cure of Non-Normal Conditions. The Parties intend that
cooperation among the Parties in developing and agreeing
upon a Cure Plan (as defined below) is preferable to
pursuing termination of the CSA. The Parties will provide
reasonable cooperation to facilitate SJCC's cure of
Non-Normal Conditions to avoid Material Default while
allowing the Utilities to continue operation of the San
▇▇▇▇ Station. To initiate and effectuate cure of the
Non-Normal Condition, SJCC shall do the following:
(1) Provide within fifteen (15) days of notice of
Non-Normal Conditions, or as otherwise agreed to by
the Parties, a written cure plan to the Joint
Committee describing SJCC's proposed means of curing
the Non-Normal Conditions and its proposed deliveries
in the interim ("Cure Plan");
(2) Within thirty (30) days of notice of Non-Normal
Conditions, or as otherwise agreed to by the Parties,
SJCC may provide written offers to the Utilities to
supply Non-SJCC Coal. If the Non-Normal Conditions
are caused by "Uncontrollable Forces" pursuant to
Paragraph 17.1, then such Non-SJCC Coal will be
priced [*]. If there is a dispute whether the Non
Normal Conditions are caused by Uncontrollable
Forces, the Non-SJCC Coal will be priced [*] and will
be adjusted if necessary when the dispute is
resolved. If the Non-Normal Conditions are not caused
by Uncontrollable Forces, then, the Non-SJCC Coal
shall be priced [*]. SJCC will provide quality
information for the Non-SJCC Coal with the written
offers and will propose the delivery schedule and
quantity of Non-SJCC Coal to be supplied.
8
(3) Within fifteen (15) days of receipt of a proposed
Cure Plan, the Joint Committee shall meet to consider
and act on the Cure Plan.
(4) Within fifteen (15) days of receipt of an offer to
Supply Non-SJCC Coal, the Joint Committee will meet
to approve or reject the Non-SJCC Coal offer. Failure
to approve the offer shall constitute its rejection.
(5) For offers of Non-SJCC Coal only, SJCC will meet the
revised coal minimum quality standard of at least [*]
Btu per pound measured as provided in Paragraph 5.2.
(6) As part of its Cure Plan, SJCC will provide weekly
written notice to the Utilities of daily inventory
levels.
(f) Rejection of Non-SJCC Coal. If the Joint Committee
rejects an offer of Non-SJCC Coal that is proposed and if
the price of that Non-SJCC Coal offer is [*], then the
offer of Non-SJCC Coal will be credited as coal delivered
for the purpose of determining whether a Material Default
Condition exists, unless the Joint Committee agrees that
the Non-Normal Condition is due to Uncontrollable Forces
in which case Material Default provisions are
inapplicable.
(g) Rejection of Non-SJCC Coal after Initial Approval. If the
Utilities determine and the Joint Committee agrees that
delivery of coal from a certain Non-SJCC Coal source is
shown to materially impair operations at the San ▇▇▇▇
Station, the Utilities may reject the unburned portion of
that coal and, if so, SJCC shall terminate delivery of
that coal. The remainder of such rejected coal shall not
be credited as coal delivered for purposes of determining
whether a Material Default Condition exists.
(h) Termination of Non-Normal Conditions. The Non-Normal
Conditions will terminate when all of the following
occur:
(1) SJCC's Reserve of Coal (as defined below) of 1.2
million tons is obtained;
(2) SJCC can supply the quantities of coal required by
the CSA from the Coal Leases and/or previously
acquired Non-SJCC Coal;
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(3) SJCC can meet normal CSA coal quality specifications;
and
(4) SJCC gives written notice of the termination of
Non-Normal Conditions.
16.2 Material Default.
(a) Material Default Conditions. The existence of any of the
following material default conditions ("Material Default
Conditions") may result in a Material Default by SJCC:
(1) Failure of SJCC to deliver coal as specified in
Paragraph 3.1 such that:
(i) A ten percent (10%) per month or greater
shortfall in deliveries as set forth in Exhibit
"D" occurs in any six (6) consecutive months (as
adjusted pursuant to Paragraph 16.1(d)(2)
"Rejection of Non-SJCC Coal"); or
(ii) A cumulative shortfall of sixty percent (60%) in
deliveries as set forth in Exhibit "D" occurs
over any three (3) month period (as adjusted
pursuant to Paragraph 16.1(d)(2) "Rejection of
Non-SJCC Coal");
(2) Failure of SJCC to comply with the requirements of
Paragraph 5.2 "Coal Quality" (as amended by Paragraph
16.1(d)(5) in the event that Non-SJCC Coal is
supplied under Non-Normal Conditions);
(3) Failure of SJCC to maintain a Reserve of Coal greater
than 250,000 tons.
"Reserve of Stripped Coal" in Paragraph 8.3 is hereby
amended to (i) change the heading to "Reserve of Coal";
and (ii) include all coal in storage on SJCC's premises,
including Non-SJCC Coal approved by the Joint Committee,
and (iii) delete the 60-day requirement.
The occurrence of any of these three conditions is not
itself a Material Default. A Material Default exists when
(1) one or more of the Material Default Conditions exist;
(2) notice is provided pursuant to Paragraph 16.2(b)
"Notice of Material Default Conditions;" and (3) SJCC
fails to avoid Material Default under Paragraph 16.2(c)
"Avoidance of Material Default."
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(b) Notice of Material Default Condition(s). SJCC shall not
be in Material Default under the CSA unless and until
SJCC shall have received from Utilities written notice of
one or more Material Default Conditions specifying the
particulars. SJCC may seek to avoid or cure the Material
Default Condition(s) pursuant to the provisions of
Paragraph 16.2(c). SJCC shall not be conclusively deemed
in Material Default if SJCC disputes the existence of any
alleged Material Default unless and until there is a
final resolution pursuant to Section 14 of the CSA to
determine the existence or non-existence of Material
Default.
(c) Avoidance of Material Default. SJCC can prevent any of
the Material Default Conditions from becoming a Material
Default by any one or more of the following actions:
(1) SJCC proceeds with due diligence to cure the alleged
Material Default Condition(s) within thirty (30) days
of receipt of the notice of Material Default
Condition(s);
(2) BHP Minerals International, Inc. ("BMII") proceeds
with due diligence to cure the alleged default within
thirty (30) days of receipt of the notice of Material
Default Condition(s);
(3) SJCC declares prevention of performance by reason of
uncontrollable forces pursuant to Paragraph 17.1
"Uncontrollable Forces," and that declaration is not
subsequently invalidated by arbitration;
(4) SJCC gives notice of Non-Normal Conditions and
operates according to a Cure Plan approved by the
Joint Committee; or
(5) SJCC disputes the existence of Material Default
Condition(s), and there is a final resolution
pursuant to Section 14 "Arbitration" of the CSA that
SJCC was not in Material Default hereunder.
(d) Utilities' Remedies for SJCC's Material Default. Upon a
Material Default caused by the existence of a Material
Default Condition that is not avoided pursuant to
Paragraph 16.1(c), the Utilities shall have the following
remedies:
(1) The Utilities may terminate the CSA for Material
Default if SJCC fails to avoid Material Default
pursuant to Paragraph 16.1(c). Upon termination for
Material Default, the Utilities shall have the
options set forth in Paragraph 16.3 "Termination."
(2) Only in the event of an emergency situation as
provided in Paragraph 13.1, Utilities or Utilities'
agents may, in lieu of seeking termination or any
other remedy, go upon SJCC's facilities, use SJCC's
equipment to mine coal therefrom, and deliver such
coal to the delivery points. The compensation to be
paid by Utilities to SJCC for such use of SJCC's
equipment shall be agreed upon by the Joint
Committee. Such operations by Utilities shall
terminate when SJCC gives notice that SJCC is able to
assume normal deliveries.
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(3) In addition to the rights provided in Paragraph 16.3
to termination and the limited right to mine,
Utilities shall have any other remedies provided by
law, subject to the waiver of consequential damages
in Paragraph 1.6.L of the Underground Letter
Agreement between the Parties.
16.3 Termination.
(a) Options of Utilities Upon Termination. Upon termination
of the CSA for Material Default, in addition to other
remedies provided in Paragraph 16.2(d) "Remedies," the
Utilities shall have the option to:
(i) Acquire SJCC's rights, title and interest in and to
any or all of SJCC's plant and capital equipment
used by SJCC in carrying out its obligations under
this Agreement and the Coal Leases including all
SJCC's permits and reclamation bonds, paying SJCC
therefor in cash the greater of the fair market
value of SJCC's plant and capital equipment, and
Coal Leases as determined by the Joint Committee, or
SJCC's book cost net of depreciation of said plant
and capital equipment, and the net value of the
acquisition cost of the Coal Leases;
(ii) Require SJCC to dispose of any or all of SJCC's
plant and capital equipment used by SJCC in carrying
out its obligations under this Agreement, and
interest in the Coal Leases including all SJCC's
permits and reclamation bonds, for cash at
prevailing market prices and to pay SJCC all costs
of disposal plus the amount, if any, by which SJCC's
book cost net of depreciation of said plant and
capital equipment, and the net value of the
acquisition cost of the Coal Leases exceed the
amount received by SJCC on account of the disposal
thereof; or
(iii) Exercise neither of the above options.
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(b) Notice of Election. Within thirty (30) days after
termination of the CSA, the Joint Committee (the Joint
Committee will not disband until it determines the fair
market value) will determine fair market value and book
value of SJCC's plant, capital equipment and the Coal
Leases, including all of SJCC's permits and reclamation
bonds. Within thirty (30) days after receipt of the Joint
Committee determination of value, the Utilities shall
notify SJCC in writing which of the above three options
the Utilities elect. In the event the Utilities elect
option (a)(i), SJCC shall, within thirty (30) days of
written notice of said election, deliver to Utilities a
sufficient ▇▇▇▇ of sale or other appropriate instrument
of conveyance, together with an invoice showing in
reasonable detail the amount due, whereupon Utilities
shall, within sixty (60) days thereafter, remit to SJCC
the amount due. In the event Utilities shall elect option
(a)(ii), SJCC shall undertake to promptly dispose of its
plant and capital equipment, and interest in the Coal
Leases, including all of SJCC's permits and reclamation
bonds, and shall thereafter invoice Utilities for the
amount due SJCC (said invoice to show in reasonable
detail the amount, if any, received as a result of said
disposition, SJCC's book cost (net of depreciation) and
the balance due), whereupon Utilities shall, within sixty
(60) days of receipt of said invoice, remit to SJCC the
amount due SJCC.
(c) Terms of Transfer. Any transfer of all of SJCC's right,
title and interest in and to the Coal Leases, including
all of SJCC's permits and reclamation bonds shall be by
an appropriate instrument of conveyance, with special
warranty covenants, subject to necessary consents, and
such assignment and/or transfer will become effective at
the earliest possible time after the termination of the
CSA or extension thereof.
(d) Liabilities Upon Termination. Upon termination the
Utilities shall assume all financial obligations, if any,
attributable to (i) the then remaining term of the
Assignment Agreement dated October 30, 1979, originally
between Cimarron Coal Company and Western Coal Co., as
amended and assigned to SJCC ("the Cimarron Agreement")
and (ii) all other leases and subleases that are Coal
Leases as of the date immediately prior to the effective
date of the Underground Letter Agreement (including
private royalty obligations or retained interests). In
addition, after termination of the CSA, the Utilities
remain obligated to pay for all surface reclamation and
related liabilities, obligations and costs. Under the
option described under Paragraph 16.3(a)(iii), SJCC shall
retain such property interests as are necessary, and for
the time required to satisfy all reclamation and other
obligations, including, without limitation, the
obligations referred to in Paragraph 8.7 "Reclamation",
accrued prior to the date of any assignment and/or
transfer or arising in connection with the operations
prior to said date under the Coal Leases.
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16.4 Expiration.
(a) Options of Utilities Upon Expiration and Notice of
Election. Upon expiration as provided in Section 2 of the
CSA, the Utilities may elect one of the options
identified in Paragraph 16.3(a)(i), Paragraph 16.3(a)(ii)
and Paragraph 16.3(a)(iii) of the CSA, provided, however,
that the Utilities also have both the obligation to
negotiate provided in the first paragraph of Paragraph
2.4, and the notice obligations specified later in
Paragraph 2.4.
(b) Terms of Transfer and Liabilities Upon Expiration. Any
transfer of all SJCC's right, title and interest in and
to the Coal Leases, including all of SJCC's permits and
reclamation bonds, shall be by an appropriate instrument
of conveyance, with special warranty covenants, subject
to necessary consents, and such assignment and/or
transfer will become effective at the earliest possible
time after the expiration of the CSA or extension
thereof. After expiration of the CSA, the Utilities
remain obligated to pay for all reclamation and related
obligations and costs. Under the option described under
Paragraph 16.3(a)(iii), SJCC shall retain such property
interests as are necessary, and for the time required to
satisfy all reclamation and other obligations, including,
without limitation, the obligations referred to in
Paragraph 8.7 "Reclamation", accrued prior to the date of
any assignment and/or transfer or arising in connection
with the operations prior to said date under the Coal
Leases."
L. Waiver of Consequential Damages. The Parties waive any recovery of
consequential damages related to the breach of this Agreement.
.
M. Annual Interim Invoicing Agreement. An "Annual Interim Invoicing
Agreement" will be put in place each year by mutual agreement of
the Parties to govern the monthly invoicing of coal.
1.7 Terms to be Included in the Definitive Transportation Agreement. SJTC
and the Utilities agree to negotiate in good faith and use their best
efforts to execute a Definitive Transportation Agreement that
incorporates the terms described in this Paragraph 1.7 and other
appropriate terms by no later than July 31, 2001. The Definitive
Transportation Agreement shall include the substance of the terms
provided in Paragraphs 1.7 (A) through (F). The language employed in
the Definitive Transportation Agreement shall reflect and elaborate
upon the substance of the terms summarized in Paragraphs 1.7 (A)
through (F) and may, if SJTC and the Utilities mutually agree, differ
(in form) from, but may not (unless the SJTC and the Utilities mutually
agree) be inconsistent with the language used in this Agreement to
summarize those terms. This Agreement binds the SJTC and the Utilities
to so include these terms in the Definitive Transportation Agreement,
if reached.
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A. [*]. SJTC and the Utilities agree as follows:
(1) The CIE and Incremental CIE as defined in the Transportation
Agreement will be [*] after December 31, 2002.
(2) The Utilities shall pay to SJTC [*].
(3) The [*] can be paid, at the Utilities' election, [*] on
January 1, 2003 or [*] on January 1, 2003. The [*] amount of
the [*] is [*] or [*] per year [*]. The [*] amount will be [*]
January 1, 2003. If paid [*] in the same way the CIE is
treated under the Transportation Agreement, and the term of
the [*] shall be from 2003 through 2017 inclusive.
(4) [*] payments incurred as a result of [*] and the payment
thereof shall be [*].
The Utilities and SJTC agree to negotiate in good faith and
use their best efforts to execute, by July 31, 2001, if not
completed earlier, a Transportation [*] Agreement to reflect
the terms and conditions for payment of the [*].
B. The Administration Component in the Transportation Agreement will
be [*] starting January 1, 2003.
C. SJTC Operating Costs. SJTC and the Utilities agree that SJTC's
Operating Costs will be as defined in the Transportation Agreement,
Exhibit A. Reimbursement for SJTC Operating Cost will be [*].
D. SJTC Reclamation. All reclamation activity, related to the
Transportation Agreement, during the term of the Transportation
Agreement will be reimbursed as [*]. Any reclamation activity after
the term of the Transportation Agreement will be handled according
to terms of the Transportation Agreement.
E. Waiver of Consequential Damages. SJTC and the Utilities waive any
recovery of consequential damages related to the breach of this
Agreement.
F. Annual Interim Invoicing Agreement. An annual interim invoicing
agreement will be put in place each year by mutual agreement of
SJTC and the Utilities to govern the monthly invoicing under the
Transportation Agreement.
1.8 Construction. Once a Definitive Agreement is reached, neither this
Agreement, nor the Parties' negotiation of it, shall be used for any
purpose in ascertaining the rights, obligations, or intent of the
Parties under the Definitive Agreement, the CSA, or the agreement
concerning the [*]. If a Definitive Agreement is not reached, subject
to Paragraph 1.9 of this Agreement, neither this Agreement nor the
Parties' negotiation of it shall be used to construe parts of the CSA
not amended or changed by this Agreement.
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Once the Definitive Transportation Agreement is reached, neither this
Agreement, nor STJC and the Utilities' negotiation of it, shall be used
for any purpose in ascertaining the rights, obligations, or intent of
the parties under the Definitive Transportation Agreement, the
Transportation Agreement, or the agreement concerning the [*]. If the
Definitive Transportation Agreement is not executed, neither this
Agreement nor SJTC and the Utilities' negotiation of it shall be used
to construe parts of the Transportation Agreement not amended or
changed by this Agreement.
1.9 Ratification of the CSA and Transportation Agreement. The CSA and the
Transportation Agreement are affirmed and ratified except as expressly
amended by this Agreement; provided, however, that in the event of an
inconsistency between the terms of this Agreement and the CSA or
Transportation Agreement, the terms of this Agreement control.
1.10 Defined Terms. Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings given to them in the CSA
and the Transportation Agreement.
1.11 Counterparts. This Agreement may be executed in counterparts, and each
executed counterpart shall have the same force and effect as an
original instrument as if all signatories to the Agreement had signed
the same instrument.
1.12 Arbitration. All provisions of this Agreement shall be subject to
arbitration pursuant to Section 14 of the CSA.
1.13 Nondisclosure. The terms and conditions, including those dealing with
compensation, set forth in this Agreement are considered by Utilities,
SJCC and SJTC to be confidential and proprietary information and none
of the parties shall disclose any such information to any third party
other than the attorneys, auditors and agents of Utilities, SJCC and
SJTC without the advance written consent of the other parties; provided
however, disclosure may be made without advance consent where, in the
opinion of counsel, such disclosure may be required by order of court
or regulatory agency, law or regulation or in connection with judicial
or administrative proceedings involving a party hereto, in which event
the party to make such disclosure shall advise the other parties in
advance as soon as possible and cooperate to the maximum extent
practicable to minimize the disclosure of any such information
(including, where practicable, deletion of portions of this Agreement,
and specifically, Paragraphs 1.6(A), 1.6(C), 1.6(D), 1.6(E) and
Paragraphs 1.7(A), 1.7(B), 1.7 (C) and Exhibit B).
ARTICLE II
NON-BINDING TERMS AND CONDITIONS
2.1 Non-Binding Effect. The provisions in this Article II express the
Parties' understanding with respect to the matters described therein,
but these Article II provisions are expressly understood not to
constitute a complete statement of, or a legally binding or enforceable
16
agreement or commitment on the part of any of the Parties with respect
to the matters described therein. These provisions are included in this
Article II rather than among the provisions for negotiation included in
Paragraph 1.6, "Terms to be Included in the Definitive Agreement,"
because the Parties have yet to devote the time and attention to
drafting them as has been devoted to the provisions in Paragraph 1.6,
and although the Parties intend to do so between now and the execution
of the Definitive Agreement, current time constraints prevent including
greater detail in this Agreement. The Parties may decide not to include
some of the additional terms described in Paragraph 2.4 of this
Agreement, and the Parties reserve the right to bring in additional
terms, not inconsistent with the terms of this Agreement, for
negotiations.
2.2 [*] Proposal. The Parties agree to negotiate in good faith as to the
possibility of [*].
2.3 Monthly Invoicing. The Parties agree that monthly invoicing with a
known price is required to send an appropriate pricing signal for
maximum dispatch of electricity. It is proposed that the Utilities give
SJCC an annual budget for minimum monthly tons to be taken on a
take-or-pay basis in conjunction with an incremental price in order to
encourage maximum burn.
2.4 Summary of Additional Terms. The following additional terms in this
Paragraph 2.4 are a non-exclusive listing of provisions that the
Parties agree to discuss in connection with the negotiations for a
Definitive Agreement.
A. Arbitration or Dispute Resolution Clause. An arbitration or dispute
resolution clause should clearly apply to the binding resolution of
all disputes arising under or relating to the CSA and its
performance by the Parties. The clause also should be modernized to
include provisions that are now common (e.g. disinterest of
arbitrators, location of arbitration, schedule for arbitration,
etc.). The related Coordinating Committee and Joint Committee
Provisions should be updated and harmonized with the Arbitration or
Dispute Resolution Clause.
B. Indemnification Clause. Reciprocal indemnification of the Parties
should be provided, consistent with the laws of the State of New
Mexico, including, but not limited to indemnification for the
Utilities' actions on SJCC property.
C. Compliance with Applicable Laws. A general requirement to comply
with laws should be included.
D. Emergency Expenditures. The Parties will discuss reimbursement for
expenditures in addressing emergencies, which may not fall within a
strict definition of "Operating Costs."
E. Updating Exhibits. The Parties will update CSA exhibits as needed.
F. Insurance and Deductibles. The Parties will update insurance
coverage and deductibles as required.
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G. Delineation of Expenses. The Parties will discuss characterization
of expenses as capital or operations and maintenance.
H. Formalization of Water Agreements. The Parties will discuss
formalization of Water Assignment and Guaranty.
I. Itemized Invoicing. The Parties will discuss itemized invoicing for
Surface Reclamation Activities. The Parties recognize that
invoicing may be modified to reflect itemized reclamation
activities.
J. Overland Conveyor Project. The Parties agree to initiate
discussions regarding development of an overland conveyor project.
K. Replacement of DLX Resources. If appropriate, the Parties will
discuss replacement of the DLX resources.
L. Mechanics of True-Up Process. The Parties will discuss an
implementation of the True-Up Process.
M. Utility Holding Company Participation. The Parties will discuss
whether it is appropriate to require financial assurances from the
Utilities' respective holding companies, if applicable.
IN WITNESS WHEREOF, SJCC, SJTC and the Utilities, by their duly
authorized representatives, have entered into this Agreement as of the date
first written above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
TUCSON ELECTRIC POWER COMPANY
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
SAN ▇▇▇▇ COAL COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
SAN ▇▇▇▇ TRANSPORTATION COMPANY
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, President
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