[Watchdogs] Policy on Sale of the PEC
CarlosTX at sbcglobal.net
Wed Jul 21 17:27:28 CDT 2010
This one has the entire Policy added below.
July 21, 2010
Member/owners and employees of the PEC:
Our PEC Board just adopted a policy for considering any offers made to purchase our co-op. Someone went to a lot of time and trouble to write this lengthy policy. Who wants it or needs it? Who actually wrote the initial draft? You really should decide for yourself whether any of us need this at all, and if we do, does it really say what it should? I think some of the provisions are troublesome. You should not rely on a summation by the Board or by the PEC staff or by me. You should read it for yourself.
The new policy is available to you on the PEC WEB page, but I have included it here for your convenience. Also included for your convenience are the provisions governing the sale of the PEC that are in the Bylaws and the Articles of Incorporation. These are copied from the PEC WEB page.
I have highlighted a few sections of the new policy, and expressed my concern about what is included in the policy - as well as what is not included. Again, though, I urge you not to rely on my view of the policy, or the views of anyone else. Read it and decide for yourself whether this is a good policy. Please send me just a brief email and let me know what you think about it.
Austin, TX PECMem at sbcglobal.net
THE POLICY ESTABLISHING PROCEDURES FOR DISPOSITION OF ALL OR A SUBSTANTIAL PORTION OF THE COOPERATIVE'S PROPERTY
Here are my concerns for your consideration:
(The order in which these provisions are presented does not reflect any order of priority or importance. They are merely presented in the order in which they appear in the Policy, The Page numbers refer to the attached Policy in its entirety. They are included here so that you may readily find the cited provisions in the body of the Policy.)
The questionable provisions are underlined, followed by my opinion.
(Page 2) The Cooperative's objectives in establishing this Policy are . .. . ..to determine whether a sale of the Cooperative's assets under the terms of the proposal would be in the best interest of the Cooperative and its members.
My Opinion: I think we have an obligation to consider not only current members, but what the value of this co-op will be to future generations of PEC members, and not sell it off to their detriment for whatever gain it might bring to us who happen to be members now. This would be another case of stealing from our grandkids.
(Page 2) 1. . . . the .following Policy . . . . . .shall be followed unless, by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board, the Board determines that an exception is required by the particular circumstances;
(Page 2) 3. That this Policy shall not be amended or repealed, except by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board.
(Page 3) II. RULES AND PROCEDURES . . . . .the following rules and procedures will be applicable and adhered to except as may otherwise be put into effect by the Board because of its determination that particular circumstances so require:
My opinion : Whatever safeguards there might be in this policy can be eliminated almost any time by a 2/3 vote of the Board, and the membership would have nothing to say about it. Even worse, the Board could change this policy to make it easy for someone to buy the PEC, and make those kind of changes without the consent of the membership. And they could change the policy to match "particular circumstances" which could mean special accommodations for a particular buyer.
(Page .4) contain an agreement by the Interested Party not to issue press releases or discuss the Qualified Offer with the media without prior written notification to the Cooperative,
(Page 6) b. Communications. The Interested Party shall not communicate or discuss the proposal with any Member of the Cooperative other than the designated individual[s].
My opinion: If the Board is giving serious consideration to selling off the PEC, I think the owners ought to be among the first to know. Instead, this policy makes sure we'd be kept in the dark until the Board has pretty much decided to sell.
(Page 7) (2) Cooperative Information. If requested, the Cooperative shall provide additional information to the Interested Party regarding the Cooperative's finances and operations, subject to the Interested Party's execution of a confidentiality agreement in form acceptable to the Cooperative.
My opinion: What! Our Board would hand over just about any and all information about our co-op to an interested buyer, while it's like pulling teeth for us as the owners to get basic information. But the prospective buyer would have to promise not to reveal that information to others - such as us, the owners of the PEC.
(Page 10) (3) that all existing employees of the Cooperative are offered continued employment for at least three (3) years upon terms at least equal to those enjoyed by the Cooperative's employees at the time the Qualified Offer was submitted to the Board with the employment terms to be considered to include wages, salaries, severance benefits, insurance and pension benefits, fringe benefits, rank and job title, place of employment, and residence;
(Page 10) (4) that the total consideration to be paid by the Interested Party will be paid directly to the Cooperative or its account; provided that a Qualified Offer of merger may provide for issuance of stock to the Cooperative's members in exchange for their capital credits and membership interests;
My opinion: This should be a red flag to all of us. Frequently, in major corporate buy-outs or mergers, the buyers not only skim off huge amounts of the money or other resources of the newly acquired company, but they also restructure it so that many of the employees of that company lose jobs or lose their pensions or both. Here, the employees get a guarantee as part of the sales agreement that their jobs are safe for three years, but nothing certain beyond that. As to pensions and other benefits, such as health-care, those are things to be "considered" in the sale. No guarantee at all in this policy.
The other red flag is the ability of a buyer to pay off member/owners in newly issued stock for their accumulated capital credits and for their ownership interest. That's another common ploy in buy-outs and mergers. The buyer relies heavily on debt to pay for the acquisition, and that debt is then owed not by the buyers, but by the new company, so payment in the stock of a company suddenly deep in debt may not be such a good bargain for us as the sellers.
(Page 10) (8) that there will be a call of a meeting of the members for the purpose of acting on the proposed transaction contemplated by the Approved Definitive Agreement, consistent with Part II.10 below; and
(Page 10) c. upon execution by the Interested Party of the Approved Definitive Agreement incorporating the foregoing elements, notify the members that a proposal has been received constituting a Qualified Offer and that has been determined by the Board after the two-phase evaluation process to warrant submittal to the members for their review and determination
(Page 11) a. The Board shall promptly fix the time, date and place of the meeting and shall prescribe the wording and method of disseminating, collecting and counting the written ballots to be employed in the voting. In fixing the date of the meeting, the Board shall have due regard for the ability of the members to become fully apprised of the Approved Definitive Agreement so as to enable them to make an informed decision through their votes submitted in connection with the meeting, which shall in any event be called and held in compliance with the Cooperative's applicable Bylaw provisions.
My opinion: But only after the sale is pretty much a done deal would we know anything about it. And along with the news, we'd probably learn that all we have to do is vote for the sale, and we'd get some stock in the new company and cash for our capital credits. The bait would likely be high enough to convince enough member/owners to eagerly await a chance to vote for the sale and collect the freebies.
(Page 12) b. If the Board determines that false or incorrect information is being disseminated by one or more persons, whether in favor of or opposed to the proposed transaction, and that such information may materially affect the outcome of the meeting and election, the Board may abort or withdraw the call of the meeting. . . . . . . . . and/or the Board may take any other action it deems appropriate in the circumstances.
My opinion: If the sale runs into some sort of hitch in their gitty-up, the Board will be able to say Whoa long enough to fix whatever needs to be fixed in order to get on with a successful election and sale.
(Page 14) 13. Results of Valuation Assessments. The results of the reports concerning the value of the Cooperative. Although the Board shall consider all such information and opinions, it shall have the final responsibility to make the Cooperative's official determination of value and whether acceptance of the Qualified Offer is in the best interests of the Cooperative and should be presented to the members for approval.
My opinion: What we could get is the Board's final valuation, along with little else, or with selected supporting data, with no opportunity to challenge the valuation.
Finally, there is nothing in the policy that would deter a member of the Board from being well rewarded for cooperating with a buyer in promoting a sale of the PEC.
I would include an explicit prohibition for any Board member or officer of the PEC to directly or indirectly accept anything as an inducement or compensation in connection with the sale.
My interest in the PEC
I'm Carlos Higgins, a PEC member since 1974, but a member with enough interest in PEC activities to pay attention and speak up when something just does not seem right at the PEC. My concerns about "what's going on" at our electric co-op took a big jump in December of 2007 when the extent of wrongdoing at the PEC began to get more publicity, and again in 2008, when I to read the court-ordered Settlement of the lawsuit initiated by PEC4U and others against the PEC under General Manager Fuelberg and his compliant Board of Directors. In my opinion, that Settlement was somewhere between awful and outrageous from the perspective of any fair-minded member/owner of the PEC, yet it was supported by the PEC leadership.
In my opinion, the PEC leadership reached another low point in 2008 when it supported legislation (House Bill 3820) that was decidedly against the interests of the member/owners of electric co-ops in Texas, including the PEC. For example, it would have allowed member/owners to attend board meeting of their own co-op only long enough to make a statement to the Board, but then leave, and not be able to monitor the Board's discussion and deliberations on any issue. I believe that anyone who professes to support openness and accountability in the operation of a co-op could not and would not support that legislation in good faith, if they actually understood the repressive provisions in the Bill.
More recently, I spoke to the PEC Board to express my concerns about the firing of the General Manager. Although I supported the Board's action, especially on the basis that this would be the first time in decades that a Board composed of members actually elected by the membership would have the opportunity to hire and work with a General Manager of its own choosing, I condemned the Board for not voting for or against the firing in public view, and not even publicly revealing how Board members voted on the issue after the action was taken. I strongly believe we member/owners have a right to know how our elected Board members stand on issues at our co-op, especially on an issue as important as the firing of the General Manager.
Now, our PEC Board has come up with their policy on considering offers made to buy our co-op. I believe most PEC members have no interest at all in selling the co-op, and I am not aware of any request by members for the Board to develop a policy that goes to great lengths to say how an offer will be handled. Nonetheless, our Board developed and adopted exactly such a policy.
I have pointed out what I consider to be serious deficiencies in the policy, but the important thing to you is this: Do you consider them to be serious deficiencies? Do you believe it should be enough to merely say the PEC is not for sale, or at the very least, say that no offer will be considered unless and until two-thirds of the membership petition the Board to consider an offer? If you believe the Board is going in the wrong direction with this new policy, you really need to speak up. Otherwise, this policy will remain in place as an open invitation to well-financed investors to look upon the PEC as a "bird nest on the ground," ripe for raiding at the expense of current and future member/owners of the PEC.
In my opinion, developing this policy to consider offers to purchase the PEC does in fact send a message that the current PEC leadership is receptive to offers. I do not suggest that our current Board members have any inclination to sell our PEC, nor do I believe any of them would have visions of arranging a sale for their own personal gain by cooperating with a buyer. But I do believe our Board has written a policy that opens the door for a crafty buyer to lay the groundwork for acquiring the PEC, by first arranging for some accomplices to be elected tothe Board. With the help of enough "bought and paid for" Board members, the stage could be set for us to lose our co-op.
I believe the only policy we need on selling the PEC should be one that unequivocally states, "The PEC is not for sale. The policy could be expanded just slightly to state that any purchase offers received by any PEC Board member or the General Manager will not be given any review or consideration by the Board unless and until a minimum of two-thirds of the membership petitions the Board to consider an offer. And that kind of policy should be one that cannot be changed by any Board. It should be one that can be changed only by vote of the owners of the PEC, and that's the entire membership.
Austin, TX PECMem at sbcglobal.net
POLICY ESTABLISHING PROCEDURES FOR DISPOSITION OF
ALL OR A SUBSTANTIAL PORTION OF THE COOPERATIVE'S PROPERTY
Pedernales Electric Cooperative, Inc.
SUBJECT: Potential Disposition of the Cooperative's Property
OBJECTIVE: To Establish Certain Standards, Rules and Procedures Applying to Proposals to Purchase the Cooperative's Property,
1. Pedernales Electric Cooperative (the "Cooperative") was created, and for more than 50 years has served, to bring electric service to homes, businesses, farms and ranches in areas where service was not otherwise available;
2. The Cooperative was organized to provide its members with adequate and reliable electric service and to assist its members in the efficient and economical use of energy;
3. The Cooperative is a viable business, which is efficiently performing the services for which it was organized;
4. The Cooperative is also a vital part of the numerous communities which it serves, and as such, has concerns that include the interests of those communities as well as of other constituencies of the Cooperative;
5. The Cooperative is operated as a nonprofit corporation, whereby all revenues not required for payment of its operating and maintenance expenses, principal and interest on its outstanding obligations, and reserves for improvements, new construction, depreciation, and contingencies are allocated to its members in proportion to the amount of business done with such members, as capital credited to the members' accounts, and those capital credits are retired to the members in accordance with state law and the Articles of Incorporation and Bylaws of the Cooperative;
6. The Board of Directors (the "Board") recognizes the possibility that the Cooperative could in the future receive an unsolicited offer to acquire all or a substantial portion of the Cooperative's assets of various types (referred to in this Policy as "Property"), whether by purchase, merger, lease, or otherwise;
7. The Board has determined that in order for the Directors to carry out their fiduciary duties to the Cooperative, minimize the costs and disruption to the Cooperative involved in undertaking repeated due diligence reviews, and abide by the terms of its Articles of Incorporation, Bylaws, and any applicable laws or regulations, it is in the best interest of the Cooperative and its members to establish certain procedures to govern the Cooperative's receipt, consideration, and final action on such an offer; and
8. The Cooperative's objectives in establishing this Policy are to (i) identify requirements for an unsolicited proposal to be considered as a Qualified Offer, as defined in this Policy; and (ii) identify the process by which a Qualified Offer will be evaluated, in a manner consistent with the Directors' fulfillment of their fiduciary responsibilities and which will allow assessment of such proposals in sufficient depth to determine whether a sale of the Cooperative's assets under the terms of the proposal would be in the best interest of the Cooperative and its members.
NOW, THEREFORE, BE IT RESOLVED:
1. That the Board of the Cooperative hereby adopts the following Policy in order to establish certain policies and procedures relating to offers, which shall be followed unless, by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board, the Board determines that an exception is required by the particular circumstances;
2. That this Policy is designed only to provide guidance for the Cooperative's Board and shall not be construed to create rights in the Cooperative's members, a party submitting an offer to the Cooperative, or any other person, corporation, or other entity; and
3. That this Policy shall not be amended or repealed, except by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board.
I. GENERAL POLICY
Article X of the Cooperative's Bylaws addresses the requirements and procedures to be met and followed with respect to sale of the Cooperative's properties.
The present unanimous position of the Board is that the Cooperative is not for sale. The sale of all or substantially all of its properties and the transfer to a purchaser of the Cooperative's consumers and service areas would cause the Cooperative to cease its legal existence (it would be dissolved) and, therefore, unless the sale is to another nonprofit cooperative entity, also to cease furnishing electric service on a cooperative, nonprofit basis. Similarly, the sale of facilities serving a substantial portion of the Cooperative's service area could significantly affect the Cooperative's provision of service to the remainder of its service area.
This position of the Board does not mean that a proposal to purchase necessarily would not be recommended by the Board or approved by vote of the Cooperative's members. Rather, the position is simply that the Board presently views the Cooperative as an excellent, viable cooperative enterprise, performing well and beneficially the services for which it was organized on the basis of the principles and purposes embodied in its organization. Therefore, the Board perceives no need or useful purpose in inviting, much less encouraging, a proposal to purchase. The Board believes special considerations are in order in connection with a proposal made by any prospective purchaser.
II. RULES AND PROCEDURES
In receiving, evaluating and acting upon an unsolicited proposal by a prospective purchaser ("Interested Party") to purchase all or part of the Cooperative's Property , the following rules and procedures will be applicable and adhered to except as may otherwise be put into effect by the Board because of its determination that particular circumstances so require:
1. Application of Policy. These rules and procedures shall apply when the proposal is to purchase all or a substantial portion of the Cooperative's Property representing, in the Board's determination, all or a substantial portion of the Cooperative's service area, or when the proposal is for the Cooperative to lease and/or sell such Property.
2. Re-submittal Opportunity/Management Preliminary Determination. Upon its receipt of a proposal, the Cooperative's Management shall promptly notify the Board in writing and attach a copy of the proposal, provide the Interested Party with a copy of this Policy, and notify the Interested Party in writing that the proposal will be evaluated based on the provisions of this Policy. The Interested Party shall be given not more than ten (10) calendar days after receipt of the Policy to (i) notify the Cooperative of a date certain by which the Interested Party will re-submit its proposal in compliance with the terms of this Policy, or alternatively (ii) notify the Cooperative that it wishes its initial submittal to be considered under the terms of this Policy. If the proposal is timely re-submitted or reconfirmed by the Interested Party, Management shall make a preliminary determination as to whether the proposal constitutes a Qualified Offer, based on the criteria set out below.
3. Qualified Offer Criteria. In order for the proposal to be considered a "Qualified Offer" and, as such, to be officially evaluated and acted upon by the Board, it must
a. be tendered in good faith;
b. be in typewritten/word-processed or printed form;
c. reasonably address all substantive aspects of an offer, including specification of an acquisition price and all other material terms, which are binding upon the Interested Party until a specified date or until rejected, and which, if accepted, will, subject to the required legal approval of the Cooperative's members and any others, ripen into an enforceable contract;
d. not contain provisions that are in conflict with this Policy as determined by the Board, or with the Cooperative's Articles of Incorporation, Bylaws, or any applicable law or other policies;
e. specify a date, not earlier than 180 days next following the proposal's (or as, applicable, re-submitted proposal's) delivery to the Cooperative, on and after which, if not accepted by the Board, the proposal will expire;
f. be accompanied by the name(s), address(es) and telephone number(s) of the person(s) representing the Interested Party with whom Management may communicate and from whom it may secure authoritative answers and decisions relating to the proposal;
g. disclose the identity of the Interested Party and be executed by authorized representatives of the Interested Party;
h. provide substantiation, in reasonable detail satisfactory to the Board, of the financial ability of the Interested Party to finance the transaction described in the proposal;
i. contain an agreement by the Interested Party not to issue press releases or discuss the Qualified Offer with the media without prior written notification to the Cooperative, and to refrain from issuing misleading statements or advertising;
j. indicate facts in the proposal which can be reasonably assessed on an initial basis as providing significant value to the Cooperative in the following areas:
(1) Level of retail rates that would be charged to the Cooperative's members;
(2) Quality of customer service provided to the Cooperative's members;
(3) Benefits associated with local presence and support of communities in which the Cooperative's members reside and in which it provides service; and
(4) Ability of members to participate and have influence in the operation of the Cooperative through their representation on the Board;
k. demonstrate adequate financial capability and creditworthiness to implement the proposal, including an indication in writing of the Interested Party's willingness to deposit with a financial institution mutually agreed to by the parties in an interest-bearing account an administrative cost reserve in the amount of $ 500,000 or such greater amount the Board may determine to be appropriate, promptly upon the Interested Party's being informed in writing by the Cooperative that the proposal is otherwise qualified for consideration under this Policy. The agreement providing for the administrative cost reserve deposit shall be in a form acceptable to the Cooperative. The administrative cost reserve deposit shall be subject to conditions approved by the Cooperative, including a provision that the principal amount of the deposit may be drawn on by the Cooperative, without reimbursement to the Interested Party, to:
i. pay all costs (including but not limited to accounting, engineering and legal) of studies, reviews, analyses, and appraisals by and for the Cooperative in its evaluation and consideration of the Qualified Offer (including the Cooperative's internal staff costs associated with such evaluation and consideration), whether or not ultimately accepted; and
ii. pay costs incurred by the Cooperative in seeking regulatory approvals.
If the proposal is withdrawn or rejected, any remaining balance in the administrative cost reserve shall be paid to the Interested Party without interest when the Board certifies that all costs set forth in clauses II.3(k)(i) and II.3(k)(ii) of this section have been paid in full.
4. Board Decision as to Qualified Offer. Based on its application of the foregoing factors to the proposal, management of the Cooperative ("Management") shall submit its recommendation to the Directors, and the Directors shall make a final determination as to whether the proposal is a Qualified Offer. The Board may accept or reject Management's recommendation in making its determination.
5. Board Determination Proposal is Not Qualified. If the Board determines that the proposal is not thus qualified, it shall be summarily rejected by the Board. The Interested Party shall have no opportunity to correct or re-submit a proposal that has been rejected by the Board as unqualified. Any subsequent proposal submitted by an Interested Party within two (2) years following the Board's rejection of the Interested Party's initial proposal pursuant to this process shall not be considered by the Cooperative, and shall be summarily rejected.
6. Initiation of Phase I and Phase II Evaluations. If the proposal is thus determined to be a Qualified Offer, and the administrative cost reserve provided for in Part II.3(k) is properly deposited under a form of agreement approved by the Board, the Board shall promptly institute the following procedures as Phase I and Phase II of an evaluation process:
a. Commencement of Evaluation. Management shall undertake an evaluation of the Qualified Offer. The evaluation shall take into account the provisions of this Policy, including the Standards for Evaluation set out in Part III. Management may retain such consultants, advisors, and outside counsel as it deems appropriate in connection with its evaluation.
b. Communications Liaison. Management shall designate one or more individuals from the Cooperative to receive all communications, including telephone calls and written communications, from the Interested Party, the members, and the media. The designated individual[s] shall understand and follow this Policy, but not have authority to bind the Board or the Cooperative on any matter regarding the Qualified Offer. The Interested Party shall not communicate or discuss the proposal with any Member of the Cooperative other than the designated individual[s].
c. Qualified Offer Copies to Counsel/Loan Effect Inquiries. Management shall send a copy of the Qualified Offer to the Cooperative's attorney and such other attorneys and advisors as appropriate; and it shall determine through appropriate inquiries the effects of the Qualified Offer upon the Cooperative's mortgage, loan, or bond documents, or other instruments relating to the Cooperative's outstanding debt.
d. Rate and Service Quality Comparisons. Management shall obtain a comparison of the Cooperative's and the Interested Party's present (if the Interested Party is presently engaged in the provision of electric services) and reasonably foreseeable future rates, fees and charges, assuming the future operation of the Cooperative by the Interested Party, including service extension requirements, other service rules and regulations, adequacy and reliability of service and any other considerations relevant to the provision of electric service.
e. Information From Interested Party. Management shall request detailed information from the Interested Party, such as annual reports, tax returns, and form 10-K filings dating back at least five (5) years; full copies of all relevant audits, internal planning documents, employee policy manuals; a current stockholder or proposed investor list; a list of all pending court and administrative proceedings relevant to the proposed transaction; and any relevant operations manuals, engineering studies, construction plans, and environmental impact statements.
f. Tax Impact Opinion. Management shall request the Interested Party to submit an expert opinion, from such experts acceptable to the Cooperative, setting forth the potential tax liabilities of the transaction to the Cooperative and the members.
g. Phase I Evaluation/Recommendation. If, after Management's preliminary investigation, which shall be reported to the Board with Management's recommendation, the Board determines that, based on the findings to date, the Qualified Offer warrants proceeding with the expense of further investigation in greater depth, the Board shall authorize Management to implement a second phase of the investigation.
h. Phase II Evaluation. If the Board has determined that the Qualified Offer justifies further investigation in greater depth, Phase II of the investigation shall be conducted by Management with the following features, and with the assistance of such consultants, advisors, and outside counsel as Management deems appropriate in connection with its evaluation:
(1) Investment Cost Reserve Addition. As a condition of this second phase, the Interested Party shall be required to deposit an additional sum of not less than $750,000 into the administrative cost reserve. The additional deposit amount may be increased if the Directors determine that the Cooperative's evaluation efforts so require, and the Interested Party shall deposit the additional sum so required.
(2) Cooperative Information. If requested, the Cooperative shall provide additional information to the Interested Party regarding the Cooperative's finances and operations, subject to the Interested Party's execution of a confidentiality agreement in form acceptable to the Cooperative.
(3) Revised and Final Proposal. The Interested Party may thereafter submit a revised and final proposal to the Cooperative, reflecting the complete and definitive terms and conditions associated with the proposed transaction that is contemplated by the Qualified Offer.
(4) Valuation Study. In evaluating the Interested Party's proposal or final proposal (if a revised final proposal is submitted) Management shall obtain reports by two or more independent persons or firms ("valuers") expert in such matters, utilizing commonly accepted valuation methods, who shall be appointed by the Board and who shall render their respective opinions and findings as to valuation matters specified by Management, which matters may include the following:
(i) the value of the Cooperative's physical properties and assets,
(ii) the value of its Property interests (including intangible interests such as, for instance, its service area rights),
(iii) the competitive going concern business value of the Cooperative, taking into account the present and reasonably foreseeable future market for its electric services,
(iv) the value of new and expanded residential, industrial, commercial and other-type growth that may be reasonably anticipated within the Cooperative's service areas in the immediate and reasonably foreseeable future,
(v) a comparison of the Cooperative's and the Interested Party's present (if the Interested Party is presently engaged in providing electric service) and reasonably foreseeable future adequacy and reliability of service, rates, fees and charges, service rules, regulations and other terms and conditions of service, and
(vi) all other considerations meaningfully bearing upon the ability, willingness, intent, and expected effects of the respective parties in providing electric service. Such reports shall be limited to that portion of the Cooperative's Property which is the subject of the Qualified Offer, if such offer applies to less than all or substantially all the Cooperative's Property . Such valuers may also be assigned the responsibility of rendering their opinions as to the value of the loss to the Cooperative's consumers of a cooperative, mutual benefit organization for providing their electric services on a nonprofit, area-coverage basis at the lowest cost consistent with sound business principles, as opposed to receiving such service from a for-profit investor-owned utility, and as to the effect on the value and continued operations of the Cooperative's remaining systems, if any. However, Management shall also study the foregoing value factors and report its conclusions to the Board and the Board shall make its own final determination thereof, with the assistance of recommendations made by Management. The Board will give good-faith regard to the reports and opinions of such valuers on all matters covered by their reports and opinions, reserving the right, however, to reject or accept such aspects thereof as the Board, after due consideration, may in its own sole discretion and judgment so determine.
i. Other Phase II Measures. Taking into consideration the provisions of this Policy and the Standards for Evaluation set out in Part III, the Board shall also undertake such other consultations, studies, deliberations and other measures and engage such advisors as it deems appropriate and sufficient to enable it to inform itself of all matters that are relevant and material to its decision as to whether to approve and recommend or to reject the Qualified Offer.
7. Notice on Rejection. If the Board rejects the Qualified Offer, it shall promptly so notify the Interested Party.
8. Option for Solicitation Process. If at any point in its evaluation process the Board determines that an expanded process for soliciting proposals from other potentially qualified entities is desirable and in the best interests of the Cooperative and its members, upon a vote of two-thirds of the Directors, such a process may be implemented in lieu of continuing with the procedures set out in this Policy. In such event, the Interested Party will be so informed in writing and any remaining balance in the administrative cost reserve fund shall be paid, without interest, to the Interested Party.
9. Board Approval of Qualified Offer. If, after evaluation and mutual agreement by the Board and the Interested Party to any changes in the Interested Party's proposed definitive agreement, two-thirds (2/3) of the Directors comprising the Board determine by affirmative vote that the sale, lease, merger, or other acquisition proposed by the Qualified Offer is in the best interest of the Cooperative and its members under the terms of such definitive agreement, the Board shall:
a. formalize such determination by adopting a resolution consistent with the provisions of the Bylaws, and notify the Interested Party of the Cooperative's intent to further pursue the proposed transaction contemplated by the definitive agreement ("Approved Definitive Agreement"), subject to the necessary approval thereof by the Cooperative's members and any other required approvals; and subject to agreement by the Interested Party to the following terms and conditions, to be included in the Approved Definitive Agreement:
(1) that the Cooperative is released from or otherwise satisfies its wholesale power contracts;
(2) that any adverse tax impacts upon the Cooperative as an entity and its present and former members will be minimized to the extent practicable;
(3) that all existing employees of the Cooperative are offered continued employment for at least three (3) years upon terms at least equal to those enjoyed by the Cooperative's employees at the time the Qualified Offer was submitted to the Board with the employment terms to be considered to include wages, salaries, severance benefits, insurance and pension benefits, fringe benefits, rank and job title, place of employment, and residence;
(4) that the total consideration to be paid by the Interested Party will be paid directly to the Cooperative or its account; provided that a Qualified Offer of merger may provide for issuance of stock to the Cooperative's members in exchange for their capital credits and membership interests;
(5) that the transaction will become void if all regulatory and contractual approvals are not obtained within a reasonable time after member approval;
(6) that earnest money in an amount reasonably determined by majority vote of the Board be deposited by the Interested Party with the financial institution referenced in Part II.3(k) of this Policy to ensure the continued good faith commitment of the Interested Party to proceed to consummation of the proposed transaction, under terms determined by the Board; to satisfy this requirement, the Board may designate any remaining portion of the administrative reserve fund not needed for defrayal of evaluation costs to be utilized for such escrow, together with any additional amounts deemed appropriate.
(7) that the members will be notified of the Approved Definitive Agreement and of its substantive features;
(8) that there will be a call of a meeting of the members for the purpose of acting on the proposed transaction contemplated by the Approved Definitive Agreement, consistent with Part II.10 below; and
(9) any other terms and conditions reasonably determined by the Board to be necessary or appropriate in implementing the transaction contemplated by the Qualified Offer for inclusion in the Approved Definitive Agreement.
b. notify the National Rural Utilities Cooperative Finance Corporation ("CFC") and/or any other applicable lenders of the Cooperative, to the extent such lenders have not already been notified, of the terms of the Approved Definitive Agreement and of the results of the Board's evaluation process;
c. upon execution by the Interested Party of the Approved Definitive Agreement incorporating the foregoing elements, notify the members that a proposal has been received constituting a Qualified Offer and that has been determined by the Board after the two-phase evaluation process to warrant submittal to the members for their review and determination. The notification shall contain an accurate summary description of the Qualified Offer and of the Approved Definitive Agreement, shall state that the Board has provisionally approved the Approved Definitive Agreement for submittal to the members based on the evaluation process required by this Policy, shall briefly describe the procedures that the Board has followed in evaluating the Qualified Offer and the results of such evaluation, shall provide the name of the person members may contact with questions regarding the Qualified Offer and the evaluation process, and shall apprise the members that a copy of the formal Qualified Offer, relevant materials relating to the evaluation, and the Approved Definitive Agreement may be reviewed or copied by them at the Cooperative's principal office and area offices at any reasonable hour during normal business days.
10. Procedure for Member Meeting. The conduct of the member meeting and related mail balloting on the Approved Definitive Agreement shall be so undertaken as to minimize the financial cost and operational disruption of the conduct of the Cooperative's business, consistent with the following:
a. The Board shall promptly fix the time, date and place of the meeting and shall prescribe the wording and method of disseminating, collecting and counting the written ballots to be employed in the voting. In fixing the date of the meeting, the Board shall have due regard for the ability of the members to become fully apprised of the Approved Definitive Agreement so as to enable them to make an informed decision through their votes submitted in connection with the meeting, which shall in any event be called and held in compliance with the Cooperative's applicable Bylaw provisions.
b. If the Board determines that false or incorrect information is being disseminated by one or more persons, whether in favor of or opposed to the proposed transaction, and that such information may materially affect the outcome of the meeting and election, the Board may abort or withdraw the call of the meeting. Thereafter, the Board may either rescind its determination to approve the Approved Definitive Agreement, if it determines that the Interested Party was responsible, in whole or in substantial part, for the dissemination of such false or incorrect information; or it may reschedule the meeting and voting, conditioned upon the correction of such false or incorrect information by the person(s) responsible and upon their agreement to pay the cost of publishing such corrections in a manner prescribed by the Board, and/or upon their agreement to refrain from disseminating false or incorrect information relative to such newly fixed meeting and voting; and/or the Board may take any other action it deems appropriate in the circumstances.
c. The Board shall otherwise conduct the meeting and the voting, and count and announce the result of the votes cast, in accordance with such plans and procedures as it shall establish in a manner consistent with any applicable provisions of law or of the Cooperative's Articles of Incorporation or Bylaws.
11. Conditions Applicable on Rejection of Qualified Offer or Approved Definitive Agreement. If the Qualified Offer is rejected, either initially by the Board or by the members in connection with their consideration of the Approved Definitive Agreement, any further proposal from the Interested Party submitting such Qualified Offer within (3) three years thereafter shall be summarily rejected by the Board unless it materially differs from the rejected Qualified Offer and Approved Definitive Agreement.
12. Approval of Approved Definitive Agreement. If the members vote to approve the Approved Definitive Agreement, the Cooperative shall take all actions reasonably necessary to effect the transaction contemplated thereby and, if necessary, dissolve and wind up the business of the Cooperative; provided, however, that it shall be the responsibility of the Interested Party to obtain all necessary regulatory and contractual approvals. Unless such approvals are obtained within such reasonable time as determined by the Board, the proposed transaction shall be deemed terminated and null and void.
III. STANDARDS FOR EVALUATION BY BOARD
After having received and approved the status of a Qualified Offer under Part II.4, in evaluating and acting on a Qualified Offer under Phases I and II of the evaluation process set out in this Policy, the following criteria, as well as any other criteria which the Board may determine to be appropriate under the circumstances, will be taken into account by the Board:
1. Members' Best Interest. Whether the Qualified Offer is in the best interest of the Cooperative's members. In determining whether the Qualified Offer is in the members' best interest, the Board will consider both economic and non-economic matters, both at the present time and for the reasonably foreseeable future.
2. Electric Service Quality. If the Interested Party is engaged in the provision of electric service, the reliability and character of the electric service provided by the Interested Party, at the time of the Qualified Offer and as projected into the reasonably foreseeable future, including timeliness and priority of service restoration after outages, and regard for good engineering and operating standards, as compared with the Cooperative.
3. Consumer Service Quality. If the Interested Party is engaged in the provision of electric service, the character and quality of consumer services provided by the Interested Party as compared with the Cooperative's, including convenience for consumers of billing and bill-paying procedures, consideration and provision for consumers with special electrical needs or in hardship cases, procedures and personnel available for dealing with consumer complaints, extension/connection/ and reconnection policy with respect to new and existing consumers, concern for property owners and occupants in obtaining rights of way and constructing and maintaining facilities, and courtesy and personal regard in all official relationships with consumers and service applicants.
4. Personnel Effects. Effects on the Cooperative's existing personnel, with respect to job security and advancement potential in a new organization, level of wages, salaries and fringe benefits, relocation policies, and other applicable policies.
5. Electric Rate Effects. Effects of the proposed transaction contemplated by the Qualified Offer on electric rates and other fees and charges of the Interested Party, compared with the Cooperative's, looking both at the inception and at the indefinite future (but for a minimum of five years), and also taking into account the value of the Cooperative's capital credit structure. In addition, the Board may consider how the members' rates may be impacted in the future by the proposed transaction and the effect of the proposed transaction on the Cooperative's regulatory status.
6. Community Relationship Effects. Effects of the proposed transaction contemplated by the Qualified Offer on existing relationships of the Cooperative with the communities which it serves or which are adjacent to its service area, and their various civic, educational, business, and other community organizations.
7. Asset Value Comparison. Whether the expected value and profitability of the Cooperative's Property to the Interested Party, after taking into account, among other relevant factors, the Cooperative's financial forecasts, are of greater future value to the Cooperative's members through continued or improved Cooperative operations.
8. Business Organization Comparison. How the Qualified Offer and its expected consequences, if with an investor-owned utility, a municipal utility, or a financial investor, compare with a possible merger or consolidation with one or more other cooperatives.
9. Contract Relations Effects. Effects of the proposed transaction contemplated by the Qualified Offer on present contractual relations of the Cooperative with its wholesale power suppliers, industry associations, CFC and other lenders, and other entities with which the Cooperative has existing executory contracts.
10. Assessment of Total Consideration. Whether the proposal clearly states the total consideration to be paid by the Interested Party and its manner of payment, and makes provision for the discharge of the Cooperative's liabilities and the retirement and distribution of any surplus consistent with outstanding capital credit accounts, all in accordance with applicable law and the Cooperative's Articles of Incorporation and Bylaws.
11. Capital Credit Retirement Evaluation. The extent to which the proposed transaction would result in a maximization of value of members' equity interests in the Cooperative, including the value of and any premium to the value of members' patronage capital accounts upon retirement, taking into account all relevant considerations relating to the future service of the Cooperative's end users.
12. Effects of Partial Purchase. Effects on any of the foregoing criteria of a Qualified Offer to purchase Property used by the Cooperative to serve only a portion of its service area and distribution facilities, with respect to the resulting effects on the remaining portions of the Cooperative's system.
13. Results of Valuation Assessments. The results of the reports concerning the value of the Cooperative. Although the Board shall consider all such information and opinions, it shall have the final responsibility to make the Cooperative's official determination of value and whether acceptance of the Qualified Offer is in the best interests of the Cooperative and should be presented to the members for approval.
14. Compliance with Laws. Whether the Qualified Offer complies with all applicable laws, regulations, and requirements of the Cooperative's Articles of Incorporation, Bylaws, and policies, and with all requirements of any of the Cooperative's mortgage, loan, or bond documents.
15. Financial Capability. Whether the Interested Party is financially able to consummate the Qualified Offer. The Board may also consider the source and feasibility of the proposed financing.
16. Solicitation of Other Proposals. Whether the Cooperative should seek other potential bidders for the Cooperative in order to maximize the value of the Cooperative for its members.
17. Environmental Factors. Whether operation of the Cooperative's facilities and service to its end-users is likely to be conducted by the Interested Party with continuation or enhancement of the Cooperative's present progressive policies relating to environmental protection, increased use of renewable energy sources and technologies, and energy efficiency, as evidenced by past practice of the Interested Party or credible current commitments.
18. Other Standards. Other standards determined by the Board to be relevant to reasonable assessment of any such Qualified Offer in light of its anticipated effects on the Cooperative's system and the Cooperative and its members.
The Board, acting in good faith after informing itself of all relevant information and data and after implementation of relevant provisions of this Policy, will decide whether to reject a Qualified Offer or approve and recommend a Qualified Offer in the form of an Approved Definitive Agreement to the members for approval, based upon its determination of what is in the best interests of the Cooperative and its members.
It shall be the responsibility of the Board to implement the provisions of this Policy.
APPROVED , 2010
EFFECTIVE , 2010
CERTIFICATION OF SECRETARY
I , , do hereby certify that the above Policy was adopted by the Board of Directors on , 2010.
ARTICLE X Disposition of Property Section
1. Board Approval. The Cooperative may, by a two-thirds (2/3) vote of the members of the Board of Directors sell, mortgage, lease or otherwise dispose of or encumber any of its property.
2. Membership Approval. The Corporation may not sell or transfer all or substantially all of its assets without the approval of two-thirds (2/3) of all members of the Cooperative either in person or by proxy.
PEC ARTICLES OF INCORPORATION
Section 5. Notwithstanding the provisions of Section 2 of this Article VIII regarding the constitution of a quorum for the transaction of business at meetings of the members of the Corporation, the Corporation may not sell or transfer all or substantially all of its assets without the approval of 66 2/3 percent of all members of the Corporation. Any amendment of this Section shall require a majority vote of all members of the Corporation. A member may vote by proxy under this Section.
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