Execution Copy

 

PURCHASE AND SALE AGREEMENT

 

 

by and between

 

 

NORTHWESTERN CORPORATION

 

 

and

 

 

BICENT (MONTANA) POWER COMPANY LLC

 

 

Dated June 9, 2008

 

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TABLE OF CONTENTS

 

 

 

 

Page

ARTICLE 1

DEFINITIONS

 

1

 

Section 1.1

Certain Defined Terms

 

1

 

Section 1.2

Interpretation

 

12

ARTICLE 2

PURCHASE AND SALE OF THE COLSTRIP 4 INTERESTS

 

13

 

Section 2.1

Purchase and Sale of Colstrip 4 Interests

 

13

 

Section 2.2

Purchase Price

 

14

 

Section 2.3

Purchase Price Adjustment

 

15

 

Section 2.4

Allocation of Purchase Price; Tax Filings

 

16

 

Section 2.5

Assumption of Liabilities

 

17

 

Section 2.6

Real Property Taxes

 

17

 

Section 2.7

Seller Releases

 

17

ARTICLE 3

CLOSING; CONDITIONS PRECEDENT

 

18

 

Section 3.1

Closing

 

18

 

Section 3.2

Closing Deliveries by Buyer

 

18

 

Section 3.3

Closing Deliveries by Seller

 

19

 

Section 3.4

Conditions Precedent to the Closing Obligations of Buyer

 

20

 

Section 3.5

Conditions Precedent to the Closing Obligations of Seller

 

21

 

Section 3.6

Failure to Close

 

22

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

 

22

 

Section 4.1

Organization and Good Standing

 

22

 

Section 4.2

Authority

 

23

 

Section 4.3

Enforceability

 

23

 

Section 4.4

Title to Colstrip 4 Interests

 

23

 

Section 4.5

No Violation or Breach

 

23

 

Section 4.6

Consents

 

23

 

Section 4.7

Actions Pending

 

24

 

Section 4.8

Compliance with Applicable Law

 

24

 

Section 4.9

Real Property

 

24

 

Section 4.10

Operations and Maintenance Expenses

 

25

 

Section 4.11

Material Changes since December 31, 2007

 

25

 

Section 4.12

Brokerage Fees and Commissions

 

25

 

Section 4.13

Bankruptcy

 

25

 

Section 4.14

Tax Matters

 

25

 

Section 4.15

Material Contracts

 

26

 

Section 4.16

Licenses

 

26

 

Section 4.17

Insurance

 

27

 

Section 4.18

Environmental Laws

 

27

 

Section 4.19

No Employees or Benefit Plans

 

28

 

 

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TABLE OF CONTENTS

(Continued)

 

 

 

 

 

 

Page

 

Section 4.20

Legal Matters

 

28

 

Section 4.21

Audit Information

 

29

 

Section 4.22

Intellectual Property

 

29

 

Section 4.23

Books and Records

 

29

 

Section 4.24

No Options

 

29

 

Section 4.25

Undisclosed Liabilities

 

29

 

Section 4.26

Facility Operations

 

29

 

Section 4.27

Affiliate Transactions

 

29

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

 

29

 

Section 5.1

Organization and Qualification

 

29

 

Section 5.2

Authority

 

30

 

Section 5.3

Enforceability

 

30

 

Section 5.4

No Violation or Breach

 

30

 

Section 5.5

Consents

 

30

 

Section 5.6

No Disputes; Litigation

 

30

 

Section 5.7

Brokerage Fees and Commissions

 

30

 

Section 5.8

Bankruptcy

 

31

 

Section 5.9

Financial Ability; Buyer LC

 

31

 

Section 5.10

OFAC Compliance

 

31

 

Section 5.11

Inspections

 

31

 

Section 5.12

Regulatory Matters

 

31

ARTICLE 6

ACCESS AND CONFIDENTIALITY

 

32

 

Section 6.1

General Access

 

32

 

Section 6.2

Confidential Information

 

32

 

Section 6.3

No Other Contact

 

33

ARTICLE 7

COVENANTS OF SELLER AND BUYER

 

33

 

Section 7.1

Conduct of Business Pending Closing

 

33

 

Section 7.2

Public Announcements

 

35

 

Section 7.3

Actions by Parties

 

35

 

Section 7.4

Further Assurances

 

35

 

Section 7.5

Records

 

35

 

Section 7.6

Regulatory and Other Authorizations and Consents Filings

 

36

 

Section 7.7

Fees and Expenses

 

37

 

Section 7.8

Casualty Loss

 

37

 

 

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TABLE OF CONTENTS

(Continued)

 

 

 

 

 

 

Page

 

Section 7.9

Financing Corporation

 

38

 

Section 7.10

Insurance Corporation

 

38

 

Section 7.11

Right of First Refusal

 

38

 

Section 7.12

MPSC Matters

 

39

ARTICLE 8

LIMITATIONS

 

39

 

Section 8.1

Disclaimer of Warranties

 

39

 

Section 8.2

Limitations of Damages

 

40

 

Section 8.3

Limitations on Individual Liability

 

40

 

Section 8.4

Environmental Waiver and Release

 

41

ARTICLE 9

INDEMNIFICATION

 

41

 

Section 9.1

Indemnification

 

 

Section 9.2

Third Party Claims

 

41

 

Section 9.3

Survival

 

43

 

Section 9.4

Limitations on Indemnification

 

43

 

Section 9.5

Special Indemnity

 

44

 

Section 9.6

Sole and Exclusive Remedy

 

45

ARTICLE 10

TERMINATION AND REMEDIES

 

45

 

Section 10.1

Methods of Termination

 

45

 

Section 10.2

Effect of Termination

 

46

 

Section 10.3

Termination Fee; Letter of Credit

 

47

 

Section 10.4

Buyer Termination Fee

 

47

 

Section 10.5

No Liability

 

48

ARTICLE 11

DISPUTE RESOLUTION

 

48

 

Section 11.1

Mutual Discussions

 

48

 

Section 11.2

Arbitration

 

49

ARTICLE 12

OTHER PROVISIONS

 

50

 

Section 12.1

Counterparts

 

50

 

Section 12.2

Governing Law

 

50

 

Section 12.3

Entire Agreement

 

50

 

Section 12.4

Notices

 

50

 

Section 12.5

Successors and Assigns

 

51

 

Section 12.6

Amendments

 

51

 

 

iii

 

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TABLE OF CONTENTS

(Continued)

 

 

 

 

 

 

Page

 

Section 12.7

Agreement for Parties' Benefit Only

 

51

 

Section 12.8

Severability

 

52

 

Section 12.9

Transfer Taxes

 

52

 

Section 12.10

Bulk Sales or Transfer Laws

 

52

 

Section 12.11

No Waiver

 

52

 

Section 12.12

Cumulative Remedies

 

52

 

Section 12.13

Further Assurances

 

52

 

Section 12.14

Facsimile Signatures

 

53

 

Section 12.15

Specific Performance

 

53

 

Section 12.16

Effectiveness

 

53

 

 

iv

 

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TABLE OF CONTENTS

(Continued)

 

EXHIBITS AND SCHEDULES

Exhibits:

 

Exhibit A

Buyer’s Officer’s Certificate

 

Exhibit B

Excluded Assets

 

Exhibit C

Buyer LC

 

Exhibit D

Seller’s Officer’s Certificate

 

Exhibit F

Assignment and Assumption Agreement

 

Exhibit G-1

Power Purchase Agreement (Puget)

 

Exhibit G-2

Master EEI Power Purchase Agreement

 

Exhibit G-3

Power Purchase Agreement (90MW)

 

Exhibit G-4

Power Purchase Agreement (21MW)

 

Exhibit H

Confidentiality Agreement

 

Exhibit I

Balance Sheet Rules

 

Exhibit J

Current Assets

 

Exhibit K

Current Liabilities

 

Exhibit L

Waivers of Right of First Refusal

 

Exhibit M-1

BOP PPA

 

Exhibit M-2

Hardin PPA

 

Exhibit N

Mellon Transaction Documents

 

Exhibit O

SGE Transaction Documents

 

Schedules:

 

Schedule 2.1(b)

Real Property

 

Schedule 2.1(c)

Common Facilities and Associated Assets

 

Schedule 2.1(d)

Material Contracts

 

Schedule 2.4

Allocation of Purchase Price

 

Schedule 4.4

Title to Colstrip 4 Interests

 

Schedule 4.5

No Violation or Breach

 

Schedule 4.6

Seller’s Consents

 

Schedule 4.7

Actions Pending

 

Schedule 4.8

Compliance with Applicable Law

 

Schedule 4.9(a)

Liens

 

Schedule 4.10

Operations and Maintenance Expenses

 

Schedule 4.11

Material Changes

 

Schedule 4.12

Brokerage Fees

 

Schedule 4.14

Tax Matters

 

Schedule 4.15

Material Contracts

 

Schedule 4.16

Licenses

 

Schedule 4.17

Insurance

 

Schedule 4.18

Environmental Laws

 

v

 

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TABLE OF CONTENTS

(Continued)

 

 

Schedule 4.21

Financial Statements

 

Schedule 4.24

Options

 

Schedule 4.25

Undisclosed Liabilities

 

Schedule 5.5

Buyer’s Consents

 

Schedule 7.1

Conduct of Business Pending Closing

 

vi

 

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of June 9, 2008,
is by and between NORTHWESTERN CORPORATION, a Delaware corporation (“Seller”),
and BICENT (MONTANA) POWER COMPANY LLC, a Delaware limited liability company
(“Buyer”). Seller and Buyer are sometimes referred to herein individually as a
“Party” and, collectively, as the “Parties.”

RECITALS

WHEREAS, Seller is the Lessee of and the Owner Participant with respect to a
thirty percent (30%) undivided interest in the 740MW Colstrip Unit 4, a
coal-fired, base-load electric generation facility located in Colstrip, Montana
(the “Facility”), and is also the fee owner of a thirty percent (30%) undivided
interest in the land upon which the Facility is built and owner of certain
related assets.

WHEREAS, Seller desires to sell and convey to Buyer, and Buyer desires to
purchase and acquire from Seller, all of Seller’s interest in the Facility and
related assets and rights described herein (collectively, the “Colstrip  4
Interests” as hereinafter defined), on the terms and subject to the conditions
hereinafter set forth.

WHEREAS, Seller and Buyer are entering into this Agreement to evidence their
respective duties, obligations, and responsibilities in respect of the purchase
and sale of the Colstrip 4 Interests as contemplated herein.

WHEREAS, in order to induce Seller to enter into this Agreement, and as
additional consideration therefor, concurrently with the execution and delivery
hereof, Buyer is providing to Seller the Buyer LC (as hereinafter defined) in
the form attached as Exhibit C hereto, to secure Buyer’s payment of the
Termination Fee (as hereinafter defined).

WHEREAS, certain capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in Article 1 hereof.

NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, and intending
to be legally bound, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1         Certain Defined Terms. As used in this Agreement, the
following terms have the respective meanings set forth below or set forth in the
Sections referred to below:

“AAA” is defined in Section 11.2(a).

 

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“Accounting Methodology” means the accounting principles, methods and practices
used in preparing Exhibits J, and K, applied on a consistent basis.

“Action” means any action, suit, investigation, proceeding, condemnation, or
audit by or before any court or other Governmental Authority or any arbitration
proceeding.

“Affiliate ” means, as to the Person specified, any Person controlling,
controlled by or under common control with such specified Person. The concept of
control, controlling or controlled by as used in the aforesaid context means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities, by contract or otherwise. No Person shall be
deemed an Affiliate of any Person solely by reason of the exercise or existence
of rights, interests, or remedies under this Agreement.

“Agreement” is defined in the preamble.

“Allocation Schedule” is defined in Section 2.4.

“Applicable Law” means any applicable statute, law (including common law),
ordinance, regulation, rule, ruling, order, writ, injunction, decree, or other
official act of or by any Governmental Authority.

“Assignment and Assumption Agreement” means an Assignment of the Material
Contracts from Seller to Buyer to be dated as of the Closing Date and
substantially in the form set forth on Exhibit F.

“Balance Sheet Rules” means, collectively, the Accounting Methodology and the
rules set forth on Exhibit I; provided, that in the event of any conflict
between the Accounting Methodology and the rules set forth on Exhibit I, the
rules set forth on Exhibit I shall apply.

“BOP PPA” means a power purchase agreement that shall be entered into between
Buyer, as seller, and Seller, as buyer, for the sale of certain power from the
Facility upon the terms and conditions set forth on Exhibit M-1, in a form and
subject to additional terms and conditions reasonably satisfactory to Buyer and
Seller.

“Business Day” means any day which is not a Saturday, Sunday, or legal holiday
in the state ofMontana.

“Buyer” is defined in the preamble.

“Buyer LC” is defined in Section 5.9.

“Buyer’s Consents” means the consents, filings and notices required to be
obtained by Buyer and delivered at the Closing as listed on Schedule 5.5.

“Closing” means the consummation of the transaction contemplated by this
Agreement as further defined in Section 3.1.

 

2

 

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“Closing Date” is defined in Section 3.1.

“Closing Documents” means the documents to be delivered by Seller and Buyer at
the Closing in accordance with Section 3.2 and Section 3.3, respectively.

“Closing Statement” is defined in Section 2.3(b).

“Code” means the Internal Revenue Code of 1986, as amended.

“Colstrip  4 Interests” is defined in the Recitals and further defined in
Section 2.1.

“Commercially Reasonable Efforts” means efforts which are reasonably necessary
to cause, or assist in, the consummation of the transactions contemplated by
this Agreement and which do not require the performing Party to expend funds,
incur expenses or assume liabilities other than those which are reasonable in
nature and amount within the context of the transactions contemplated by this
Agreement in order for the performing Party to satisfy its obligations
hereunder.

“Committee” has the meaning assigned to it under the Ownership and Operations
Agreement.

“Common Facilities Interest” is defined in Section 2.1(c).

“Confidentiality Agreement” is defined in Section 6.2.

“Current Assets” means as of any date, the assets of Seller solely related to
the Colstrip 4 Interests set forth on Exhibit J under the heading “Current
Assets” and no other assets.

“Current Liabilities” means as of any date, the liabilities of Seller solely
related to the Colstrip 4 Interests set forth on Exhibit K under the heading
“Current Liabilities” and no other liabilities.

“Debt” of any Person means at any date, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of business and
payable not more than 12 months from the date of incurrence, (iv) all
obligations of such Person as lessee under any lease of any property (whether
real, personal or mixed) by that Person as lessee that, in conformity with GAAP,
has been or would be required to be accounted for as a capital lease on the
consolidated balance sheet of that Person, (v) the undrawn face amount of any
outstanding letters of credit issued in favor of such Person, and all
obligations of such Person to reimburse or prepay any bank or other Person in
respect of amounts paid under a letter of credit, banker’s acceptance or similar
instrument, (vi) all Debt or other monetary obligations (of such Person or of
others) secured by any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind on any asset of such Person, whether or not such Debt or
other monetary obligation is assumed by such Person, (vii) all

 

3

 

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obligations of such Person to pay a specified purchase price for assets, goods,
securities or services whether or not delivered or accepted (including
take-or-pay arrangements and similar obligations), (viii) all obligations of
such Person under conditional sale or other title retention agreements (even if
the remedies of the sellers or lenders under such agreements in the event of a
default thereunder are limited to the repossession or sale of the property or
assets covered thereby), and (ix) all Debt or other monetary obligations of
others in respect of which such Person has any contingent liability, including
without limitation any guarantee.

“Default Supply Hedge PPAs” means a power purchase agreement or series of power
purchase agreements to be entered into between Buyer and Seller or between Buyer
and the counterparties to the Existing Default Supply Hedge PPAs which transfer
the economic benefit of the Existing Default Supply Hedge PPAs to Buyer, in a
form or forms reasonably satisfactory to Buyer and Seller.

“Default Interest Rate” means a rate of interest payable at the lesser of 2%
over the rate of interest publicly announced by Citibank, N.A. from time to time
in New York, New York as its “base” or “prime” rate, or the maximum rate
permitted by applicable law

“Designated Independent Accounting Firm” is defined in Section 2.3(d).

“Direct Claim” is defined in Section 9.2(c).

“Disclosure Schedule” is defined in the preamble of Article 4.

“Dispute” is defined in Section 11.1.

“Dispute Notice” is defined in Section 11.1.

“Dispute Notice Response” is defined in Section 11.1.

“Employee Benefit Plans” means any contractual personnel policy, stock option
plan, equity or equity based plan, bonus plan, change-in-control, retention,
incentive award plan, severance pay plan or policy, deferred compensation plan
or policy, executive compensation or supplemental income plan or policy,
vacation, sick leave, disability, death benefit, group insurance,
hospitalization, medical, dental, life or any other employee benefit plan or
program, including, without limitation, each “employee benefit plan” within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), “multiemployer plan” within the meaning of
Section 4001(a)(3) of ERISA and other employee benefit plan, program, policy,
practice, agreement or arrangement, whether or not subject to ERISA.

“Environmental Law” is defined in Section 4.18.

“Environmental Liabilities” means any and all liabilities, claims, demands,
costs, damages, losses, expenses, penalties, fines, interest, attorneys’ fees,
court costs and other costs of suit incurred or imposed pursuant to (i) any
order, notice of responsibility, directive, injunction, judgment or similar act
(including settlements) by any

 

4

 

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Governmental Authority to the extent arising out of a violation of Environmental
Laws or (ii)  any Action, claim or cause of action by a Governmental Authority
or other third Person for personal injury, property damage, damage to natural
resources or remediation or response costs to the extent arising out of or
attributable to any violation of, or any remedial obligation under, any
Environmental Law.

“ERISA Affiliate Liability” means any liabilities, obligations or
responsibilities (whether contingent or otherwise) relating to any Employee
Benefit Plan maintained by the Seller, and any trade or business (whether or not
incorporated) which are or have ever been under common control, or which are or
have ever been treated as a single employer, with the Seller under
Section 414(b), (c), (m) or (o) of the Code (an “ERISA Affiliate”) or to which
the Seller and any of their ERISA Affiliates contributed thereunder including
any multiemployer plan, maintained by, contributed to, or obligated to
contribute to, at any time, by the Seller or any of their ERISA Affiliates,
including without limitation any liability (i) to the Pension Benefit Guaranty
Corporation under Title IV of ERISA; (ii) with respect to non-compliance with
the notice and benefit continuation requirements of COBRA; (iii) with respect to
any non compliance with ERISA; or (iv) with respect to any suit, proceeding or
claim which is brought against any ERISA Affiliate.

“Estimated Purchase Price” is defined in Section 2.3(b).

“Excluded Assets” means those assets listed on Exhibit B.

“Existing Default Supply Hedge PPAs” mean the: (i) Power Confirmation, dated
March 14, 2008, between Seller D-B-A NW Energy and BP Energy Company, trade
sequence 801616; (ii) Power Confirmation, dated March 14, 2008, between Seller
D-B-A NW Energy and BP Energy Company, trade sequence 801614; (iii) Power
Confirmation, dated March 14, 2008, between Seller D-B-A NW Energy and BP Energy
Company, trade sequence 801615; (iv) Confirmation Agreement, dated February 29,
2008, between Seller and Coral Power LLC, trade number 723; (v) Confirmation
Agreement, dated February 29, 2008, between Seller and Coral Power LLC, trade
number 725; (vi) Confirmation Agreement, dated February 29, 2008, between Seller
and Coral Power LLC, trade number 774.; (vii) Confirmation Agreement, dated
February 29, 2008, between Seller and Coral Power LLC, trade number 787;
(viii) Confirmation, dated March 27, 2008, between Seller and Morgan Stanley
Capital Group Inc; (ix) Confirmation Agreement, dated March 28, 2008, between
Seller and Powerex Corporation, deal No. BRC588; and (x) Confirmation Agreement,
dated March 28, 2008, between Seller and Powerex Corporation, deal No. BRC589.

“Fundamental Representations” is defined in Section 9.3.

“Facility” is defined in the Recitals.

“FERC” means the Federal Energy Regulatory Commission, or any successor to its
functions.

“FERC 203 Approval” means the authorization from FERC to transfer certain of the
Colstrip 4 Interests to Buyer pursuant to Section 203 of the Federal Power Act.

 

5

 

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“Financial Statements” has the meaning set forth in Section 4.21.

“GAAP” means generally accepted accounting principles consistently applied as in
effect on the date of this Agreement in the United States.

“Good Operating Practices” means the practices, methods and acts generally
engaged in or approved by the independent electric power industry in the United
States for similarly situated facilities in the United States during a
particular time period, in a manner consistent with laws, reliability, safety
and environmental protection, and taking into consideration the requirements of
this Agreement, the Material Contracts and the other contracts affecting the
operation of the Facility. Good Operating Practices are not necessarily intended
to require the optimum or best practices, methods or acts to the exclusion of
all others, but rather to include a spectrum of possible practices, methods or
acts consistent with the immediately preceding sentence.

“Governmental Authority” means (i) the federal government of the United States
of America, (ii) any state, county, municipality, or other governmental
subdivision within the United States of America, and (iii) any executive,
legislative or judicial court, department, commission, board, bureau, agency, or
other instrumentality of the federal government of the United States of America
or of any state, county, municipality, or other governmental subdivision within
the United States of America.

“Guarantee” is defined in Section 5.9.

“Guarantor” is defined in Section 5.9.

“Hardin Consents” means the required third-party consents, if any, to the Hardin
PPA under the financing documents of Buyer or any of its Affiliates.

“Hardin PPA” means a power purchase agreement that shall, subject to obtaining
the Hardin Consents, be entered into between Buyer, as seller, and Seller, as
buyer, for the sale of certain power from Buyer’s Hardin facility upon the terms
and conditions set forth on Exhibit M-2, in a form and subject to additional
terms and conditions reasonably satisfactory to Buyer and Seller.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

“Indemnified Party” is defined in Section 9.1.

“Indemnifying Party” is defined in Section 9.1.

“Independent Accounting Firm” means an independent accounting firm of national
reputation.

“Initial Closing Statement” is defined in Section 2.3(b).

 

6

 

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“Intellectual Property Rights” means all common law and statutory rights
associated with patents and industrial designs, copyrights, trademarks, trade
names, service marks, service names, know-how, processes, trade secrets,
inventions, proprietary rights, formulae, research, databases and computer
programs.

“Inspection” means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or representatives with respect to the Colstrip 4 Interests
and the Facility.

“Knowledge” means, with respect to Seller, the actual knowledge of any fact,
circumstance, or condition, assuming reasonable inquiry, by Paul Evans, Michael
Barnes, Dan Rausch or Kendall Kliewer, and with respect to Buyer, the actual
knowledge of any fact, circumstance, or condition, assuming reasonable inquiry,
by Nazar Khan or Douglas Halliday.

“Labor Laws” means any and all laws relating in any manner to employment,
employees and/or individuals performing work as consultants or contractors,
including employment standards, employment of minors, employment discrimination,
health and safety, labor relations, unions, withholding, wages and hours and
overtime of any kind, workplace safety and insurance and pay equity.

“Land” is defined in Section 2.1(b).

“Licenses” is defined in Section 4.16.

“Lien” means any lien, security interest, charge, claim, mortgage, deed of
trust, option, warrant, purchase right, lease, pledge, easement, right-of-way,
encroachment, building or use restrictions, conditional sales agreement or other
encumbrance.

“Losses” means any and all claims, liabilities, losses, causes of action,
damages, judgments, obligations, deficiencies, demands, fines, penalties,
litigation, lawsuits, administrative proceedings, administrative investigations,
costs, and expenses, including reasonable attorneys’ fees, court costs,
investigator expenses, and other costs of suit.

“Make-Whole Premium” means, collectively, any pre-payment penalties, premiums,
other make-whole payments or similar transaction fees (including, but not
limited to, reasonable attorney fees for Owner Trustees, Indenture Trustee and
Noteholders as defined under the SGE Transaction Documents and the Mellon
Transaction Documents), to the extent payable by Seller, incurred in connection
with the prepayment of the notes issued under and the termination of the SGE
Transaction Documents and Mellon Transaction Documents.

“Material Adverse Effect” or “Material Adverse Change” means (a) a material and
adverse effect on (i) the ability of Seller or Buyer to consummate the
transactions contemplated by this Agreement or otherwise to comply with its
obligations hereunder or (ii) with respect to Seller, the business, assets,
financial condition, or results of operations comprising the Colstrip 4
Interests, in each case taken as a whole; provided, however, that such
determination shall exclude (A) any adverse change or effect principally

 

7

 

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attributable to the announcement, pendency, or consummation of the transactions
contemplated by this Agreement (including but not limited to any decrease in
customer demand, any reduction in revenues, any disruption in supplier, partner
or similar relationships, or any loss of employees attributable thereto but
excluding any failure to obtain any consents or Required Regulatory Approvals);
(B) any adoption, implementation, promulgation, issuance, repeal, modification,
reinterpretation, or proposal of any Applicable Law, except to the extent such
matters have an effect on the Facility that is disproportionate to the effect on
other coal generation facilities in the WECC region; (C) changes or developments
in national, regional, state, or local wholesale or retail markets for electric
power, fuel, or related products (including but not limited to changes in
commodity prices or the effects of actions by competitors), except to the extent
such matters have an effect on the Facility that is disproportionate to the
effect on other coal generation facilities in the WECC region; (D) changes or
developments in national, regional, state, or local electric transmission or
distribution systems, except to the extent such matters have an effect on the
Facility that is disproportionate to the effect on other coal generation
facilities in the WECC region; (E) changes or developments in financial or
securities markets or the economy in general; (F) any outbreak or escalation of
hostilities or the declaration by the United States of a national emergency or
war; (G) any acts of terrorism, any other international or domestic calamity or
crisis or geopolitical event, except to the extent such matters have an effect
on the Facility that is disproportionate to the effect on other coal generation
facilities in the WECC region; or (H) effects of weather or meteorological
events, except to the extent such matters have an effect on the Facility that is
disproportionate to the effect on other coal generation facilities in the WECC
region.

“Material Contracts” means the agreements listed on Schedule 2.1(d).

“Mellon Asset” means a 10.71429% undivided interest in the Facility, and a
5.357145% undivided interest in certain common facilities.

“Mellon Lease Transaction” means the interests of Seller as Lessee and Owner
Participant in, to and under: (i) that certain Participation Agreement, dated as
of December 16, 1985, originally among United States Trust Company of New York,
as Owner Trustee; Burnham Leasing Corporation, as Owner Participant; certain
Institutions listed therein, as Loan Participants; The Montana Power Company, as
Lessee; and Bankers Trust Company, as Indenture Trustee; (ii) the Trust
Agreement, dated as of December 16, 1985, originally among Burnham Leasing
Corporation, United States Trust Company of New York, and Louis P. Young; and
(iii) each of the other Mellon Transaction Documents and all insurance policies
and other agreements, documents and instruments required to be maintained or
furnished in accordance with the Mellon Transaction Documents, including without
limitation, the beneficial interest of Seller in the Trust Estate (as defined in
the Trust Agreement), and all owner participant proceeds of each thereof, all
pertaining to the Mellon Asset.

“Mellon Transaction Documents” means with respect to the Mellon Lease
Transaction all of the agreements, instruments, certificates, financing
statements and other documents of any nature executed in connection therewith,
including any

 

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amendments, modifications or supplements thereof from time to time, including
the documents listed and identified as such on Exhibit N and all “Operative
Documents” (as such term is defined in the Mellon Transaction Documents).

“Montana Generation PPAs” means the power purchase agreements between Seller and
Montana Generation, LLC relating to the sale of 90 MW and 21 MW of power from
the Facility.

“MPSC” means the Montana Public Service Commission.

“Objection Notice” is defined in Section 2.3(d).

“O&M Expenses” is defined in Section 4.10.

“Operator” means PPL Montana, LLC, the operator of the Facility.

“Ownership and Operations Agreement” means the Ownership and Operation
Agreement, dated May 6, 1981, as amended by Amendment No. 1 dated October 11,
1991 and Amendment No. 2 dated July 13, 1998, between MPC, Puget Sound Energy,
Inc., Portland General Electric Company, the Washington Water Power Company (now
Avista) and Pacific Power & Light Company (now PacifiCorp).

“Party” is defined in the preamble.

“Permits” means written permits, licenses, franchises, registrations, variances
and approvals obtained from any Governmental Authority.

“Permitted Liens” means (i) Liens for Taxes not yet due and payable, pledges or
deposits made in the ordinary course of business under workers’ compensation
legislation, unemployment insurance Laws or similar Laws, good faith deposits
made in the ordinary course of business in connection with bids, tenders or
contracts, including rent security deposits (ii) in the case of real property,
such state of facts as an accurate survey would show which do not materially and
adversely impair the current or proposed use, occupancy or value of the property
subject thereto, or easements, covenants, rights of way, encumbrances and other
restrictions and irregularities to title which do not materially and adversely
impair the current or proposed use, occupancy or value of the property subject
thereto (iii) rights reserved to or vested but not yet asserted respecting any
Colstrip 4 Interests or the Facility by any Governmental Authority by the terms
of any franchise, grant, license, Permit or provision of Applicable Law, to
purchase, condemn, appropriate or recapture, or designate a buyer of the real
property, (iv) rights reserved to or vested in any municipality or public
authority to control or regulate the use of the real property or to use the real
property in any manner, including, but not limited to zoning and land use
regulations and (v) mechanic and other similar liens for amounts not yet due or
payable.

“Person” means any Governmental Authority or any individual, firm, partnership,
corporation, limited liability company, joint venture, trust, unincorporated
organization or other entity or organization.

 

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“Post-Closing Indemnity Period” is defined in Section 9.4(d).

“Power Purchase Agreements” means (i) the Power Supply Subcontract Agreement to
be entered into between the Buyer, and the Seller, as buyer, pursuant to which
Buyer will sell to Seller the power necessary to meet Seller’s obligations under
the Puget PPA in substantially the form attached hereto as Exhibit G-1; and
(ii) a Master EEI Power Purchase and Sale Agreement and two confirmations
thereunder to be entered into between the Buyer, as seller, and the Seller, as
buyer, for 90MW and 21MW, respectively, and for a price equal to the price under
and for a term equal to the Montana Generation PPAs, in substantially the forms
attached hereto as Exhibit G-2, Exhibit G-3 and Exhibit G-4.

“Project Users” has the meaning assigned to it under the Ownership and
Operations Agreement.

“Puget PPA” means the Power Sales Agreement, dated October 1, 1989, between
Seller (as successor in interest to Montana Power Company) and Puget Sound
Energy.

“Purchase Price” is defined in Section 2.2.

“Real Property” means the Land, the Common Facilities Interest and the Facility
(to the extent it constitutes real property), collectively.

“Records” means any and all of the books, records, contracts, agreements and
files of the Seller existing on the Closing Date and pertaining to the Facility
and Colstrip 4 Interests, excluding any information reasonably deemed
confidential by Seller.

“Required Regulatory Approvals” means all applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or been terminated and
the FERC 203 Approval.

“Retained Liabilities” is defined in Section 2.1.

“Rules” is defined in Section 11.2.

“Securities Act” means the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.

“Seller” is defined in the preamble.

“Seller’s Consents” means the consents, filings and notices required to be
obtained by Seller (other than the Required Regulatory Approvals) and delivered
at the Closing as listed on Schedule 4.6.

“SGE Asset” means the 19.28571% undivided interest in the Facility, and a
9.642885% undivided interest in certain common facilities.

 

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“SGE Lease Transaction” means the interests of Seller as Lessee and Owner
Participant in, to and under: (i) that certain Participation Agreement, dated as
of December 16, 1985, originally among United States Trust Company of New York,
as Owner Trustee; SGE (New York) Associates, as Owner Participant; certain
Institutions listed therein, as Loan Participants; The Montana Power Company, as
Lessee; and Bankers Trust Company, as Indenture Trustee; (ii) the Trust
Agreement, dated as of December 16, 1985, originally among SGE (New York)
Associates, United States Trust Company of New York, and Louis P. Young; and
(iii) each of the other SGE Transaction Documents and all insurance policies and
other agreements, documents and instruments required to be maintained or
furnished in accordance with the SGE Transaction Documents, including without
limitation, the beneficial interest of Seller in the Trust Estate (as defined in
the Trust Agreement), and all owner participant proceeds of each thereof, all
pertaining to the SGE Asset.

“SGE Transaction Documents” means with respect to the SGE Lease Transaction all
of the agreements, instruments, certificates, financing statements and other
documents of any nature executed in connection therewith, including any
amendments, modifications or supplements thereof from time to time, including
the documents listed and identified as such on Exhibit O and all “Operative
Documents” (as such term is defined in the SGE Transaction Documents).

“Site” means the four unit, coal-fired, electric generation complex located on a
2,664-acre site in Colstrip, Montana.

“Tax” or “Taxes” means any and all taxes, including any interest, penalties, or
other additions to tax that may become payable in respect thereof, imposed by
any federal, state, local, or foreign government or any agency or political
subdivision of any such government, which taxes shall include, all income or
profits taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, severance taxes, license charges, taxes on stock,
sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, business license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, transfer taxes, workers’
compensation, and other obligations of the same or of a similar nature to any of
the foregoing.

“Tax Return” means any and all returns, reports, declarations, statements,
bills, schedules, claims for refund, or written information of or with respect
to any Tax which is required to be supplied to any taxing authority, including
any schedule or attachment thereto, and including any amendment thereof.

“Termination Fee” is defined in Section 10.3.

“Third Independent Accounting Firm” is defined in Section 2.3(d).

“Third Party Claim” is defined in Section 9.2(a).

“Third Party Closing Costs” shall mean the customary third party closing costs
that would have been payable by Seller in the event of a closing of the
transaction

 

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contemplated hereunder provided, that the Third Party Closing Costs shall in no
event exceed $5,000,000.

“Threshold” is defined in Section 9.4.

“Transfer Taxes” means any and all transfer Taxes (excluding Taxes measured by
net income), including sales, real property, use, excise (including excise Taxes
on petroleum, products of petroleum, petrochemicals, and other taxable
substances), stock, stamp, documentary, filing, recording, permit, license,
authorization and similar Taxes, filing fees and similar charges incurred by
either Party in connection with the transactions contemplated hereby.

“Working Capital” means, at any date, the Current Assets minus the Current
Liabilities, all as of such date as determined in accordance with GAAP, applied
in a manner consistent with the Balance Sheet Rules.

“Working Capital Adjustment” is defined in Section 2.3(a).

“Working Capital Amount” has the meaning set forth in Section 2.3(a)

Section 1.2        Interpretation. This Agreement shall not be construed against
either Party, and no consideration shall be given or presumption made, on the
basis of who drafted this Agreement or any particular provision hereof or who
supplied the form of this Agreement. In construing this Agreement:

(a)          all references in this Agreement to an “Article,” “Section”,
“subsection”, “Exhibit”, or “Schedule” shall be to an Article, Section,
subsection, Exhibit, or Schedule of this Agreement, unless the context requires
otherwise;

(b)         unless the context otherwise requires, the words “this Agreement,”
“hereof,” “hereunder,” “herein,” “hereby” or words of similar import shall refer
to this Agreement as a whole and not to a particular Article, Section,
subsection, clause or other subdivision hereof;

(c)          whenever the context requires, the words used herein shall include
the masculine, feminine and neuter gender, and the singular and the plural;

(d)          examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;

(e)          the word “includes” and its derivatives means “includes, but is not
limited to” and corresponding derivative expressions;

(f)          a defined term has its defined meaning throughout this Agreement
and in each Exhibit and Schedule hereto, regardless of whether it appears before
or after the place where it is defined;

 

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(g)          each Exhibit and Schedule to this Agreement is a part of this
Agreement, and should be construed in pari materia;

(h)         the headings and titles herein are for convenience only and shall
have no significance in the interpretation hereof; and

(i)           references to a law, rule, regulation, contract, agreement, or
other document mean that law, rule, regulation, contract, agreement, or document
as amended, modified, or supplemented, if applicable.

ARTICLE 2

PURCHASE AND SALE OF THE COLSTRIP 4 INTERESTS

Section 2.1         Purchase and Sale of Colstrip 4 Interests. On the terms and
subject to the conditions hereof, Seller covenants and agrees to sell, assign
and transfer to Buyer all of Seller’s right, title and interest in, and Buyer
covenants and agrees to purchase from Seller, effective as of the Closing, all
of Seller’s right, title and interest in, all of the assets, properties and
rights of Seller owned and/or used in or relating to the Facility, free and
clear of any and all Liens, other than Permitted Liens and the Excluded Assets
(as hereinafter defined). The assets, properties and rights to be purchased or
otherwise transferred to Buyer under this Agreement, all of which solely relate
to the Facility and, except for Excluded Assets, constitute, or will constitute
as of Closing, all of Seller’s interests in or to the Facility (collectively,
the “Colstrip  4 Interests”), are as follows:

(a)          [intentionally omitted];

(b)          all of Seller’s ownership rights to the real property where the
Facility is located and certain additional real property upon which some of the
common facilities and assets described in subsection (c) below are located, as
described on Schedule 2.1(b) (the “Land”);

(c)          all of Seller’s interest in the common facilities and associated
assets as described on Schedule 2.1(c) (the “Common Facilities Interest”);

(d)          all of Seller’s rights under the contracts, leases and agreements
related to the Facility and the Site that are set forth on Schedule 2.1(d), and
have not been amended except for such amendments as are set forth therein (the
“Material Contracts”);

(e)          all of Seller’s Current Assets (solely related to the Colstrip 4
Interests) as of the Closing Date;

(f)          notwithstanding the provisions of Section 2.1(b)-(e) above, the
Colstrip 4 Interests shall not include (and the Seller shall retain and the
Buyer shall not assume):

(i)      any obligation or liability related to or arising out of any of the
Excluded Assets;

 

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(ii)     any obligation or liability related to or arising out of (x) any real
property lease or sublease not included in the Real Property and (y) any
contract not included in the Material Contracts;

(iii)    any obligation or liability related to or arising out of any Real
Property or Material Contract to the extent such obligation or liability relates
to or arises out of the time period prior to the Closing;

(iv)    any obligation or liability related to or arising out of Actions pending
as of the Closing Date against the Seller or any of its Affiliates;

(v)     any obligation or liability (including any future Actions) related to or
arising out of the Seller’s conduct of the business or ownership of the
Colstrip 4 Interests prior to the Closing;

(vi)    any ERISA Affiliate Liability or any obligation or liability related to
or arising out of any collective bargaining agreement of the Seller, whether
prior to, on or after the Closing;

(vii)  any ERISA Affiliate Liability or any obligation, liability or expense
relating to or arising out of (i) the employment or termination of employment or
consultancy of any employee or consultant, or former employee or consultant of
the Operator, on or prior to the Closing (ii) any collective bargaining
agreement of the Operator on or prior to the Closing (iii) compliance with or
violations of any Labor Laws by the Operator on or prior to the Closing;

(viii)   any obligation or liability of any kind or nature relating to Taxes of
the Seller and, with respect to the Colstrip 4 Interests, for any period ending
on or before the Closing Date (including any obligation or liability pursuant to
any tax sharing agreement, tax indemnification or similar arrangement) and any
Taxes payable by Seller in connection with the transactions contemplated hereby;
and

(ix)    any obligation or liability of Seller for any Debt.

All obligations and liabilities of the Seller other than with respect to the
Colstrip 4 Interests (collectively, the “Retained Liabilities”) shall remain and
be the obligations and liabilities solely of the Seller.

Section 2.2         Purchase Price. The aggregate purchase price and additional
consideration for the sale and conveyance of the Colstrip 4 Interests shall be:
(i) Four Hundred and Four Million Dollars ($404,000,000), subject to the
adjustment as provided in Section 2.3(a) (the “Purchase Price”), (ii) the
economic benefit received by Seller pursuant to (A) the BOP PPA and (B) Hardin
PPA (but only if the Hardin PPA is entered into), and (iii) the Make-Whole
Premium. The Estimated Purchase Price (as defined below) shall be paid in cash
at the Closing, payable by wire transfer or delivery of other immediately
payable funds to an account designated by Seller.

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Section 2.3         Purchase Price Adjustment.

(a)          The Purchase Price is premised upon Seller having as of the Closing
Date and delivering to Buyer an aggregate Working Capital of Zero Dollars ($0)
(the “Working Capital Amount”). Accordingly, the Purchase Price shall be
(i) increased by the amount, if any, by which the Working Capital of Seller as
of the Closing Date is greater than the Working Capital Amount or (ii) decreased
by the amount, if any, by which the Working Capital of Seller as of the Closing
Date is less than the Working Capital Amount. Any such adjustment to the
Purchase Price shall be effected in accordance with this Section 2.3 (the
“Working Capital Adjustment”).

(b)          Seller agrees to prepare and deliver to Buyer at least five (5)
Business Days prior to the Closing Date (i) a good faith estimate of the Working
Capital of Seller as of the Closing Date, and the resulting Working Capital
Adjustment, pursuant to clauses (i) and (ii) of Section 2.3(a) above (the
“Initial Closing Statement”) and (ii) the resulting estimated Purchase Price
(the “Estimated Purchase Price”). Within ninety (90) days after the Closing
Date, Buyer shall prepare and deliver to Seller the actual Working Capital of
Seller as of the Closing Date, and the Working Capital Adjustment, if any,
pursuant to clauses (i) and (ii) of Section 2.3(a) above (the “Closing
Statement”). Each of the Initial Closing Statement and the Closing Statement
shall be prepared in accordance with the Balance Sheet Rules.

(c)          If the Initial Closing Statement sets forth a Working Capital of
Seller greater than the Working Capital Amount and a corresponding upward
adjustment to the Purchase Price, then the Estimated Purchase Price payable on
the Closing Date shall be increased by an amount equal to such Working Capital
Adjustment. If the Initial Closing Statement sets forth a Working Capital of
Seller less than the Working Capital Amount and a corresponding downward
adjustment to the Estimated Purchase Price, then the Estimated Purchase Price
payable on the Closing Date shall be decreased by an amount equal to such
Working Capital Adjustment. If the Working Capital of Seller as set forth on the
Closing Statement is different than that included on the Initial Closing
Statement, then (i) to the extent that the Working Capital on the Closing
Statement is greater than the Working Capital on the Initial Closing Statement,
Buyer shall pay to Seller an amount equal to such difference plus interest at
the Default Interest Rate from the Closing Date to the date of payment of the
difference and (ii) to the extent that the Working Capital on the Closing
Statement is less than the Working Capital on the Initial Closing Statement,
Seller shall pay to Buyer an amount equal to such difference plus interest at
the Default Interest Rate from the Closing Date to the date of payment of the
difference, subject to Section 2.3(d) below. In each case, such payment shall be
made in cash in immediately available funds within five (5) Business Days after
the date the Closing Statement becomes final under Section 2.3(d). The Purchase
Price shall be deemed to be increased or decreased (as the case may be) by the
amounts calculated under this Section 2.3(c).

(d)         Each Party shall make available to the other Party its work papers
used to prepare its respective closing statement, and shall cooperate with the
other Party in connection with the preparation thereof. Seller shall notify
Buyer in writing within twenty (20) days after receipt by Seller of the Closing
Statement of any objection to the items set forth therein, which notice shall
include a reasonably detailed explanation of the reasons for each objection by
Seller (an “Objection Notice”). Any item not so objected to

 

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by Seller shall be conclusively deemed to have been approved by Seller and shall
be conclusive and binding upon the Parties. If the Parties are unable to resolve
all such disputes within thirty (30) days after the date of receipt by Buyer of
the Objection Notice, then Buyer and Seller shall agree upon and designate one
Independent Accounting Firm (the “Designated Independent Accounting Firm”) and
the Designated Independent Accounting Firm shall, within thirty (30) days of its
appointment, make a final and binding determination solely of the matters that
remain in dispute and were properly included in the Objection Notice, and, based
on such resolution, a final and binding determination of the Adjustment amount,
if any. If Buyer and Seller are unable to agree upon a Designated Independent
Accounting Firm, then each of the Buyer and Seller shall designate one
Independent Accounting Firm and the two Independent Accounting Firms so selected
shall, within ten (10) days after the date on which the later of the two
Independent Accounting Firms are appointed, appoint a third Independent
Accounting Firm (the “Third Independent Accounting Firm”) and the Third
Independent Accounting firm shall, within thirty (30) days of its appointment,
make a final and binding determination solely of the matters that remain in
dispute and were properly included in the Objection Notice, and, based on such
resolution, a final and binding determination of the Adjustment amount, if any.
The Designated Independent Accounting Firm or the Third Independent Accounting
Firm, as the case may be, shall act on the following basis: such Independent
Accounting Firm shall act as an expert and not as an arbitrator; its terms of
reference shall be to determine the appropriate Adjustment within thirty (30)
days of its appointment, having strict regard to the application of the terms of
this Agreement to the same (and, for the avoidance of doubt, disregarding other
means of calculating the same, to the extent that such means are inconsistent
with or not provided for in this Agreement); Buyer and Seller shall each provide
such Independent Accounting Firm with all such information as it reasonably
requires and the Independent Accounting Firm shall base its decision solely on
such written submissions by Buyer and Seller and their respective
representatives; such Independent Accounting Firm shall not hold any hearings,
hear any oral testimony or otherwise seek or require any other evidence and it
may not assign a value greater than the greatest value for such item claimed by
either Party or smaller than the smallest value for such item claimed by either
Party. The final written determination of such Independent Accounting Firm shall
(in the absence of fraud or manifest error) be conclusive and binding on the
Parties. The Independent Accounting Firms shall not have the power to amend or
modify any terms of this Agreement. The costs of the Independent Accounting
Firms shall be shared in proportion to its respective findings between Seller’s
and Buyer’s positions.

Section 2.4           Allocation of Purchase Price; Tax Filings. The Purchase
Price shall be allocated in compliance with section 1060 of the Code and the
regulations promulgated thereunder. Buyer shall prepare and deliver to Seller an
allocation schedule setting forth Buyer’s determination of the allocation (the
“Allocation Schedule”) within thirty (30) days after the date hereof, which
Allocation Schedule shall be subject to the approval of Seller, which shall not
be unreasonably withheld or delayed. Seller shall have a reasonable opportunity
to review and comment on the Allocation Schedule before granting such approval.
The Allocation Schedule shall identify the transferor and transferee thereof,
and shall be prepared in accordance with Treasury Regulation Section 1.1060-1
(or any comparable provision of state or local Tax law) or any

 

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successor provision. Each of Buyer and Seller shall (i) timely file all forms
(including Internal Revenue Service Form 8594) and Tax Returns required to be
filed in connection with such allocation, (ii) be bound by such allocation for
purposes of determining Taxes, (iii) prepare and file, and, if applicable, cause
its Affiliates to prepare and file, its Tax Returns on a basis consistent with
such allocation, and (iv) take no position, and cause its Affiliates to take no
position, inconsistent with such allocation on any applicable Tax Return, in any
audit or proceeding before any taxing authority, in any report made for Tax,
financial accounting or any other purposes, or otherwise unless required by a
“determination,” within the meaning of Section 1313(a)(1) of the Code. In the
event that the allocation of the Purchase Price is disputed by any taxing
authority, the Party receiving notice of such dispute shall promptly notify the
other Party concerning the existence and resolution of such dispute.

Section 2.5           Assumption of Liabilities. Buyer shall assume and agree to
pay, perform and discharge the Current Liabilities and the liabilities and
obligations of Seller related to the Colstrip 4 Interests, including without
limitation those liabilities and obligations contained in the Material
Contracts, but solely with respect to liabilities or obligations arising solely
during periods following the Closing Date.

Section 2.6           Real Property Taxes. To the extent not accounted for in
the Working Capital Adjustment, real estate taxes due and payable in the year
2008 for the Real Property will be prorated between the Seller and the Buyer at
the Closing Date based upon the respective periods of ownership during 2008;
provided, however, that Seller shall be entitled to any property tax reductions
or refunds for periods prior to the Closing Date (so long as such taxes or
refunds are not included within Current Assets on the Initial Closing Statement
or the Closing Statement); and provided further that the settlement with the
Montana Department of Revenue in and of itself does not increase taxes for any
period after the Closing Date. Prior to the Closing Date, Seller shall consult
with Buyer respecting such reductions and shall not agree to any settlement that
affects any period beyond the Closing Date without Buyer’s consent. Following
the Closing Date, the Buyer shall consult with Seller respecting any reductions
or increases that affect periods prior to the Closing Date and shall not agree
to any settlements that increase taxes owed by, or decrease refunds or
reductions owed to, Seller respecting periods prior to the Closing Date without
Seller’s consent but shall control and conduct all negotiations, proceedings and
communication with the Montana Department of Revenue and the Seller will
reasonably cooperate with all such negotiations, proceedings and communication.
The portion of such Taxes for which Seller shall be liable for a Tax period
beginning before the Closing Date and ending after the Closing Date shall be
determined by multiplying the amount of Taxes for the entire Tax period by a
fraction, the numerator of which is the number of days in such Tax period prior
to and including the Closing Date and the denominator of which is the total
number of days in such Tax period.

Section 2.7           Seller Releases. Seller and Buyer shall use their
Commercially Reasonable Efforts to cause the release and discharge of Seller
from its obligations that arise after the Closing under the Material Contracts
(the “Section 2.7 Liabilities”) as of the Closing Date, in written forms
acceptable to the Seller.

 

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ARTICLE 3

CLOSING; CONDITIONS PRECEDENT

Section 3.1           Closing. The closing of the transactions contemplated by
this Agreement (the “Closing”) shall occur at the offices of Leonard, Street and
Deinard, 150 South Fifth Street, Suite 2300, Minneapolis, Minnesota, commencing
at 9:00 A.M. on either (i) the fifth (5th) Business Day after the satisfaction
of all the conditions precedent to the Closing in accordance with Sections 3.4
and 3.5 hereof, or (ii) at such other time or place as may be mutually agreed
upon by the Parties in writing; but in no event shall the Closing Date be sooner
than the later of (A) September 30, 2008 or (B) 30 days after the date on which
Seller has delivered to the Buyer both the MPSC Resolution Notice and the ROFR
Resolution Notice (but not earlier than January 30, 2009 if such date of
delivery is after November 15, 2008), without Buyer’s prior written approval.
The date on which the Closing occurs is referred to herein as the “Closing
Date”.

Section 3.2           Closing Deliveries by Buyer. At the Closing, Buyer shall
deliver, or cause to be delivered, to Seller the following:

(1)         The Purchase Price in cash in accordance with Section 2.2 hereof;

(2)         A certificate of an authorized officer of Buyer, dated as of the
Closing Date, in the form set forth in Exhibit A, certifying that (i) the
representations and warranties of Buyer set forth in Article 5 are true, correct
and complete as of the Closing Date, (ii) the conditions set forth in
Section 3.4 have been fulfilled or waived and (iii) the covenants of Buyer set
forth in Article 7 have been fulfilled or waived in writing by Seller.

(3)         A duly executed copy of the Assignment and Assumption Agreement;

(4)         A duly executed copy of each of the Power Purchase Agreements, the
Default Supply Hedge PPAs and the BOP PPA;

(5)         If the Hardin Consents shall have been obtained, a duly executed
copy of the Hardin PPA; and

(6)    Such other documents and certificates as Seller may reasonably request
and which are customarily and ordinarily delivered in transactions similar to
the transactions to be consummated at the Closing.

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Section 3.3          Closing Deliveries by Seller. At the Closing, Seller shall
execute and deliver, or cause to be executed and delivered, to Buyer the
following:

(1)         A duly executed copy of the Assignment and Assumption Agreement;

(2)         A certificate of an authorized officer of Seller, dated as of the
Closing Date, in the form set forth in Exhibit D, certifying that (i) the
representations and warranties of Seller set forth in Article 4 are true,
correct and complete as of the Closing Date, (ii) the conditions set forth in
Section 3.5 have been fulfilled or waived and (iii) the covenants of Seller set
forth in Article 7 have been fulfilled or waived in writing by Buyer;

(3)         A duly executed copy of each of the Power Purchase Agreements, the
Default Supply Hedge PPAs and the BOP PPA;

(4)         If the Hardin Consents shall have been obtained, a duly executed
copy of the Hardin PPA;

(5)         A certificate that Seller is not a “foreign” person within the
meaning of Section 1445 of the Code, which certificate shall set forth all
information required by, and otherwise be executed in accordance with, Treasury
Regulations Section 1.445-2(b)(2);

(6)         A special or limited warranty deed conveying Seller’s interest in
the Real Property subject to Permitted Liens (i.e., a deed (a) in which Seller
warrants that the Real Property is free from all encumbrances made by the Seller
other than Permitted Liens and that Seller will defend the same to the Buyer
against the lawful claims and demands of all persons claiming by, through or
under Seller, but against no other persons; and (b) that conveys any
after-acquired title to the Real Property that Seller may subsequently obtain,
but reserving for Seller, for so long as the Colstrip Project Transmission
Agreement, dated May 6, 1981, as amended, is in effect, such easements as may be
reasonably necessary for the purpose of owning, operating, maintaining,
repairing, replacing, or removing any transmission facility and associated
equipment in their current locations on the Real Property), all in a form
reasonably acceptable to Buyer (which shall include language providing that such
easements shall not, other than to a de minimis extent, adversely effect
operations on the Real Property as currently conducted); and

(7)         Such other documents and certificates as Buyer may reasonably
request and which are customarily and ordinarily delivered in transactions
similar to the transactions to be consummated at the Closing.

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Section 3.4          Conditions Precedent to the Closing Obligations of Buyer.
The obligation of Buyer to proceed with the Closing contemplated hereby is
subject to the fulfillment (in form and substance reasonably satisfactory to the
Buyer) or waiver (by the Buyer, in its absolute discretion, by written notice to
the Seller) on or prior to the Closing Date, or on or prior to such earlier date
if specified below, of all of the following conditions:

(1)         Seller shall have delivered to Buyer each of the documents described
in Section 3.3.

(2)         The representations and warranties of Seller in Article 4 of this
Agreement shall be true and correct without regard to any qualification
respecting materiality or Material Adverse Effect on and as of the Closing Date
except in such circumstances as shall not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect, and the
covenants and agreements of Seller to be performed on or before the Closing Date
shall have been performed in all material respects in accordance with this
Agreement.

(3)         Seller shall have obtained and provided copies to Buyer of all the
Seller’s Consents required for the Closing listed in Schedule 4.6.

(4)         Seller shall have obtained and provided a copy to Buyer of the
Required Regulatory Approvals and such approvals shall be in form and substance
reasonably satisfactory (including no materially adverse conditions) to Buyer.

(5)         No order or decree by any federal or state court or Governmental
Authority which prevents the consummation of the sale of the Colstrip 4
Interests contemplated herein shall have been issued and remain in effect (each
Party agreeing to use its Commercially Reasonable Efforts to have any such order
or decree lifted) and no statute, rule or regulation shall have been enacted by
any state or federal government or Governmental Authority which prohibits the
consummation of the sale of the Colstrip 4 Interests.

(6)         No event causing or constituting a Material Adverse Effect shall
have occurred or be occurring.

(7)         All liabilities and obligations resulting from or arising under the
Mellon Transaction Documents and the SGE Transaction Documents shall have been
prepaid, and the Mellon Transaction Documents and the SGE Transaction Documents
shall have been terminated.

(8)         Buyer and PPL Montana, LLC shall have entered into an agreement or
agreements reasonably satisfactory to Buyer to either extend the term of and/or
amend the: (i) Project Committee Vote Sharing Agreement, dated December 17,
1999, between The Montana Power Company and PPL Montana, LLC, and (ii)
Generating Project Reciprocal Sharing Agreement, dated December 17, 1999,
between The Montana Power Company and PPL Montana, LLC, in a manner that causes
the material provisions of such agreements to remain in place after the
termination of the SGE Transaction Documents and the Mellon Transaction
Documents.

 

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Section 3.5           Conditions Precedent to the Closing Obligations of Seller.
The obligation of Seller to proceed with the Closing contemplated hereby is
subject to the fulfillment (in form and substance reasonably satisfactory to the
Seller) or waiver (by the Seller, in its absolute discretion, by written notice
to the Buyer) on or prior to the Closing Date of all of the following
conditions:

(1)         Buyer shall have delivered to Seller each of the documents described
in Section 3.2.

(2)         The representations and warranties of Buyer contained in Article 5
of this Agreement shall be true and correct without regard to any qualification
respecting materiality or Material Adverse Effect on and as of the Closing Date
except in such circumstances as shall not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect, and the
covenants and agreements of Buyer to be performed on or before the Closing Date
shall have been performed in all material respects in accordance with this
Agreement.

(3)         Buyer shall have obtained and provided copies to Seller of all of
Buyer’s Consents required for the Closing listed on Schedule 5.5.

(4)         Seller shall have obtained the Required Regulatory Approvals and
such approvals shall be in form and substance reasonably satisfactory (including
no materially adverse conditions) to Seller.

(5)         Buyer shall have delivered the Purchase Price as provided in
Article 2 hereof.

(6)         Either Seller shall have been released from its obligations pursuant
to the Mellon Transaction Documents and the SGE Transaction Documents or
(ii) all liabilities and obligations resulting from or arising under the Mellon
Transaction Documents and the SGE Transaction Documents shall have been prepaid
and terminated (and Buyer shall have paid the Make-Whole Premium in an amount
not to exceed $8,500,000).

(7)         All Owners and Project Users (as such terms are defined in the
Ownership and Operations Agreement) shall have either declined to exercise or
executed a waiver substantially in the form attached hereto as Exhibit L with
respect to their rights of first refusal contained in Section 24 of the
Ownership and Operations Agreement.

(8)         No order or decree by any federal or state court or Governmental
Authority which prevents the consummation of the sale of the Colstrip 4
Interests contemplated herein shall have been issued and remain in effect (each
Party agreeing to use its Commercially Reasonable Efforts to have any such order
or decree lifted) and no statute, rule or regulation shall have been enacted by
any state or federal government or Governmental

 

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Authority which prohibits the consummation of the sale of the Colstrip 4
Interests.

(9)         The MPSC has failed to issue an order on or before November 30,
2008, including the Colstrip 4 Interests in the rate base of Seller at a value
at least equal to the Purchase Price plus the sum of (x) the Buyer Termination
Fee and (y) the Make-Whole Premium less (z) the Third Party Closing Cost.

Section 3.6           Failure to Close. In the event of any failure to satisfy
or waive the conditions precedent set forth in Sections 3.4 or 3.5, the
termination and other provisions of Article 10 shall govern to the extent
applicable.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

As of the date of this Agreement and as of the Closing Date, Seller hereby
represents and warrants to Buyer that the statements contained in this Article 4
(as modified and supplemented by the disclosure schedule delivered to Buyer by
Seller contemporaneously herewith setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
informational requirement contained in or requested by a provision of this
Article 4, or as an exception to one or more representations or warranties
contained in this Article 4 (the “Disclosure Schedule” or “Schedule”)) are true
and correct provided that the mere inclusion of an item in a Disclosure
Schedule as an exception to a representation or warranty or covenant shall not
be deemed an admission by a party that such item (or any undisclosed item or
information of comparable or greater significance) represents a material
exception or fact, event or circumstance with respect to the Seller. The
Disclosure Schedule shall be arranged in sections and paragraphs corresponding
to the numbered and lettered sections and paragraphs contained in this
Article 4; provided, however, the disclosures in any section or paragraph of the
Disclosure Schedule shall qualify as disclosures pursuant to any other sections
or paragraphs under the Agreement where such disclosure is reasonably apparent
on the face of such disclosures, whether or not repeated under any section
number where such disclosure might be deemed appropriate.

Section 4.1           Organization and Good Standing. Seller is a corporation
duly organized, validly existing, and in good standing under the laws of the
State ofDelaware and each other jurisdiction where such qualification is
required, except where the failure to be so qualified has not had, and is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.

 

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Section 4.2           Authority. Seller has all requisite power and authority to
own, and to carry on its businesses related to, the Colstrip 4 Interests as now
being conducted. Seller has all requisite power and authority and has obtained
all other applicable governmental, statutory, regulatory or other consents,
licenses, waivers or exemptions necessary to execute and deliver this Agreement
and, upon fulfillment of the conditions precedent set forth in Section 3.5, the
Closing Documents, and to perform its obligations hereunder and thereunder. The
execution, delivery, and performance of this Agreement and the Closing Documents
and the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite action on the part of Seller.

Section 4.3           Enforceability. This Agreement has been, and the Closing
Documents, when executed and delivered in accordance herewith, will be, duly and
validly executed and delivered by Seller and, assuming due and valid
authorization, execution and delivery hereof by Buyer, is a valid and binding
agreement of Seller, enforceable against it in accordance with their respective
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws of general application
from time to time in effect that affect creditors’ rights generally,
(ii) general principles of equity, and (iii) the power of a court to deny
enforcement of remedies generally based upon public policy.

Section 4.4           Title to Colstrip 4 Interests. Seller owns the Colstrip 4
Interests free and clear of all Liens, other than Permitted Liens, those liens
set forth on Schedule 4.9(a) and the liens set forth on Schedule 4.4 (which will
be terminated or released as of the Closing).

Section 4.5           No Violation or Breach. Except as set forth in
Schedule 4.5, and assuming that all of the Required Regulatory Approvals and
Seller’s Consents have been obtained, neither the execution and delivery of this
Agreement nor the Closing Documents, nor the consummation of the transactions
contemplated hereby or thereby and performance of the terms and conditions
hereof or thereof by Seller will result in a violation or breach of, or default
under, any provision of the Certificate of Incorporation of Seller, or any
agreement, indenture or other instrument (including any Material Contract) under
which Seller or the assets comprising the Facility is bound.

Section 4.6           Consents. No consent, approval, authorization or permit
of, or filing with or notification to, any Person is required for or in
connection with the execution and delivery of this Agreement or the Closing
Documents by Seller or for, or in connection with, the consummation of the
transactions and performance of the terms and conditions contemplated hereby and
thereby by Seller, including the termination of the Mellon Transaction Documents
and the SGE Transaction Documents contemplated by Section 3.4(7) except for
(i) the Required Regulatory Approvals; (ii) the third-party consents, filings,
and notices set forth on Schedule 4.6, and (iii) immaterial consents, approvals,
authorizations, permits, filings or notices. Neither the execution and delivery
of this Agreement or the Closing Documents nor the consummation of the
transactions and performance of the terms and conditions hereof or thereof by
Seller requires the consent, approval, authorization or permit of the MPSC or
the Montana Consumer Counsel.

 

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Section 4.7         Actions Pending. Except as set forth on Schedule 4.7, there
is no Action pending, or to Seller’s Knowledge, threatened in writing against
Seller related to the Facility, except for Actions that would not if adversely
determined result in a payment of in excess of $1,000,000 in the aggregate, or
would result in a Material Adverse Effect on the Colstrip 4 Interests or
operation of the Facility or have a Material Adverse Effect on Seller’s ability
to perform its obligations under the Closing Documents.

Section 4.8          Compliance With Applicable Law. Except as set forth on
Schedule 4.8, Seller has complied in a timely manner and in all material
respects with all Applicable Laws that specifically apply to the Colstrip 4
Interests. Seller is not in default of any order, decree or judgment of any
Governmental Authority or arbitrator related to the Colstrip 4 Interests and
there are no unsatisfied judgments against the Seller related to the Colstrip 4
Interests.

Section 4.9          Real Property:

(a)          Except as set forth on Schedule 4.9(a), Seller has good and valid
title to, or a valid leasehold interest in or a valid and enforceable right to
use, all of the Real Property, free and clear of any Liens, except for Permitted
Liens. The Real Property includes all of the rights and interests in real
property that the Seller has with regard to or relating to the Facility and the
Site.

(b)         There are no actions pending or, to the Knowledge of the Seller,
threatened, that would alter the current zoning classification of the Real
Property or alter any Applicable Laws, covenants, conditions or restrictions
that would adversely affect the continued use of the Facility by the Seller. The
Seller has not received written notice from any insurance company or
Governmental Authority of any defects or inadequacies in the Real Property or
the improvements thereon that would adversely affect the insurability or
usability of the Real Property or such improvements or prevent the issuance of
new insurance policies thereon. To the Knowledge of the Seller, no fact or
condition exists that would result in the discontinuation of any existing
necessary utilities to the Real Property or the termination of current access to
and from the Real Property. To the Knowledge of the Seller, no portion of the
Real Property has been condemned, requisitioned, or otherwise taken by any
public authority and there is no pending or, to the Knowledge of the Seller,
threatened or contemplated condemnation actions or special assessments with
respect to the Real Property. To the Knowledge of the Seller, no Governmental
Authority has given notice of or intends to make an assertion of rights to the
Colstrip 4 Interests or the Real Property, such as those described in subsection
(iii) of the definition of Permitted Liens.

(c)           The Seller is not a “foreign person” as that term is defined in
§ 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), and
applicable regulations.

(d)           All water, sewer, telephone and other similar utility systems
serving the Facility are installed and operating and are sufficient to enable
the Facility to continue to be used and operated in the manner currently being
used and operated.

 

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Section 4.10       Operations and Maintenance Expenses. Attached as
Schedule 4.10 is Seller’s pro-rata share of the operating and maintenance
expenses incurred in connection with operating Colstrip 3 and 4 during the
calendar years 2006 and 2007 (collectively, the “O&M Expenses”). The O&M
Expenses present fairly Seller’s expenses to operate and maintain the Facility
for the periods reflected therein.

Section 4.11          Material Changes since December 31, 2007. Since
December 31, 2007, there has been no Material Adverse Change in the financial or
trading position or in the prospects of the Seller as they relate to the
Facility, or in the prospects of the Facility and, to Seller’s Knowledge, no
event, fact or matter has occurred which is likely to give rise to any such
change. Since December 31, 2007, and except for the transactions contemplated by
this Agreement and as set forth in Schedule 4.11, the ownership and operation of
the Colstrip 4 Interests and the Facility has been carried on in the ordinary
and usual course.

Section 4.12          Brokerage Fees and Commissions. Seller has not incurred
any obligation or entered into any agreement for any investment banking,
brokerage, or finder’s fee or commission in respect of the transactions
contemplated by this Agreement or the Closing Documents, except as set forth on
Schedule 4.12, which shall be the sole responsibility of Seller.

Section 4.13          Bankruptcy. There are no bankruptcy, reorganization, or
arrangement proceedings pending against, being contemplated by, or to Seller’s
Knowledge, threatened against, Seller or to Seller’s Knowledge, the assets
comprising the Facility.

Section 4.14          Tax Matters. With respect to the Colstrip 4 Interests,
except as set forth in Schedule 4.14.

(a)           all Tax Returns required to be filed by the Seller related to the
Colstrip 4 Interests on or before the Closing Date have been or will be timely
filed with the appropriate taxing authorities in all jurisdictions in which such
Tax Returns are required to be filed;

(b)           such Tax Returns related to the Colstrip 4 Interests are or will
be true and correct in all material respects, and all Taxes reported on such Tax
Returns have been or will be timely paid;

(c)           Seller has not extended or waived the application of any statute
of limitations of any jurisdiction regarding the assessment or collection of any
Tax related to the Colstrip 4 Interests;

(d)           there are no audits, claims, assessments, levies, administrative
proceedings, or lawsuits pending, or to the Knowledge of Seller, threatened
against Seller and relating to the Colstrip 4 Interests by any Governmental
Authority in respect of Taxes, no Governmental Authority has given notice of any
intention to assert any deficiency or claim for additional Taxes against Seller
in respect of the Colstrip 4 Interests, and all deficiencies for Taxes asserted
or assessed against Seller in respect of the Colstrip 4 Interests have been
fully or timely paid or settled;

 

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(e)           there are no Liens for Taxes (other than for current Taxes not yet
due or payable, or for Taxes being contested in good faith through appropriate
proceedings) upon the Colstrip 4 Interests;

(f)            there are no Tax rulings, requests for rulings, or closing
agreements relating to Seller which affect its liability for Taxes relating to
the Colstrip 4 Interests for any period (or portion of a period) after the date
hereof;

(g)           Seller has provided to Buyer copies of all Tax audit reports
affecting the Colstrip 4 Interests that have been issued with respect to the
previous five (5) taxable years of Seller; and

(h)           none of the Colstrip 4 Interests are interests (other than
“indebtedness,” within the meaning of Section 163 of the Code) in an entity
taxable as a corporation, partnership, trust, or real estate mortgage investment
conduit for federal income tax purposes.

Section 4.15          Material Contracts. The Material Contracts set forth on
Schedule 2.1(d), the Mellon Transaction Documents and the SGE Transaction
Documents are all of the material agreements, contracts, real and personal
property leases arrangements relating to the Colstrip 4 Interests, to which
Seller or any of its Affiliates is a party, all of which are valid and in full
force and effect, except as disclosed on Schedule 4.15. The Material Contracts,
Mellon Transaction Documents, SGE Transaction Documents and those agreements
identified as Excluded Assets include all of the agreements relating to all of
the rights and interests that the Seller has with regard to the Facility and the
Site. True and correct copies of the Material Contracts have been provided to
Buyer. Except as otherwise set forth in Schedule 4.15, no consent is required
with respect to any of the Material Contracts in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby. The Material Contracts are legal, valid and
binding obligations of the parties thereto, and Seller has performed all
obligations required to be performed under the Material Contracts and is not in
material default under or in material breach of any Material Contract and to
Seller’s Knowledge such other party has performed all obligations required to be
performed by such other party and no other party is in material default under or
in breach of any Material Contract. To Seller’s Knowledge, no event has occurred
that, with the passage of time or the giving of notice or both, would result in
material default or material breach thereunder. Except as set forth in
Schedule 4.15, to Seller’s Knowledge, no Material Contract has been breached or
cancelled by any other party thereto. The Seller has provided to the Buyer true
and correct copies of all of the Mellon Transaction Documents and all of the SGE
Transaction Documents.

Section 4.16          Licenses. Schedule 4.16 lists all the Permits, material
licenses, permissions, authorizations and consents that are required for the
ownership and operation of the Facility in the manner in which it has been owned
or operated, or which are held by the Seller related to the Colstrip 4 Interests
or Seller’s ownership of the Facility (the “Licenses”), true and correct copies
of which have been provided, or will be provided prior to Closing, to Buyer.
Except as set forth in Schedule 4.16, the Licenses

 

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are in full force and effect, are not limited in duration or subject to any
unusual or onerous conditions and have been complied with in all material
respects. Other than as set forth in Section 4.6, Seller makes no representation
regarding the transferability or assignment of the Licenses to Buyer. As of the
date of this Agreement, Seller has not received, since January 1, 2006, any
written notification from any Governmental Authority alleging that it is in
material violation of any of such License and Seller has no Knowledge of any
such violation.

Section 4.17          Insurance. Schedule 4.17 lists all insurance policies
maintained by Seller or Operator covering the Colstrip 4 Interests and/or the
Facility. Seller’s insurance policies, and to the Knowledge of Seller,
Operator’s insurance policies, are in full force and effect and fully paid
covering all periods up to and including the date hereof and the Closing Date
and to the knowledge of Seller, it has not received written notice of
cancellation of any such insurance policies other than those policies the
absence or cancellation of which would not reasonably be expected to have a
Material Adverse Effect; provided, however, none of Seller’s insurance policies
will be in effect after Closing. Except as set forth on Schedule 4.17, no claim
is outstanding against the Seller under any such policy of insurance and, to the
Knowledge of the Seller, there are no circumstances likely to give rise to such
a claim.

Section 4.18     Environmental Laws. The Facility has been operated and
maintained in compliance with all Environmental Laws (as defined below) and in a
manner that will not give rise to any liability under any Environmental Laws,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect and except as disclosed on Schedule 4.18.
“Environmental Laws” shall mean all federal, state or local laws, statutes,
ordinances, regulations, by-laws, rules, judgments, orders, notice requirements,
court decisions, agency guidelines, criteria, standards or directives, or
principles of law, restrictions, licenses or approvals which (i) exist and are
in effect as of the Closing Date, and (ii) regulate or relate to the protection
or clean-up of the environment, the manufacture, sale, use, treatment, storage,
transportation, handling or disposal of hazardous, toxic or otherwise dangerous
substances, Hazardous Substances, wastes or materials (whether gas, liquid or
solid), the preservation or protection of waterways, surface water, groundwater,
drinking water, air, wildlife, plants or other natural resources, or the health
and safety of persons or property including, without limitation, protection of
the health and safety of employees, or impose liability in relation to the
matters set out above under any principle of common and civil law and equity
including, but not limited to, causes of action in nuisance, trespass,
negligence, and strict liability.

Without limiting the generality of the foregoing, except as set forth in
Schedule 4.18:

(a)           Notice of Violation. Seller has not received any written notice at
any time that the Facility is in violation of the provisions of any
Environmental Law the violation of which would have a Material Adverse Effect,
and there is no pending or threatened lawsuit, administrative, governmental or
other legal action to that effect.

 

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(b)           Hazardous Substances. To Seller’s Knowledge, Operator has not
used, generated, treated, stored, transported, disposed of, handled or permitted
any Hazardous Substance (as defined below) on, under, about or from the Facility
that would, individually or in the aggregate, likely cause a Material Adverse
Effect, and except for quantities of any such Hazardous Substances stored or
otherwise held on, under or about the Facility in material compliance with all
Environmental Laws and which are necessary for the operation of the Facility.
“Hazardous Substance” shall mean any quantity of asbestos in any form, urea
formaldehyde, PCBs, radon gas, crude oil or any fraction thereof, all forms of
natural gas, petroleum products or by-products, any radioactive substance, any
toxic, infectious, reactive, corrosive, ignitable or flammable chemical,
chemical compound or mixture thereof, any special waste, deleterious substances
and any other hazardous substance, material or waste (as defined in or for
purposes of any Environmental Law), whether solid, liquid or gas.

(c)           Environmental Conditions. To Seller’s Knowledge, there are no
present or past Environmental Conditions (as defined below) in any way relating
to the Real Property or the Facility. “Environmental Conditions” means the
introduction into the soil, groundwater or environment of the Facility (through
leak, spill, release, discharge, escape, emission, dumping, disposal or
otherwise) of any pollution prior to the Closing Date including, without
limitation, any contaminant, irritant or pollutant or Hazardous Substance
(whether upon the Real Property and whether such pollution constituted at the
time thereof a violation of any Environmental Law) as a result of which the
Seller or, after the Closing, the Buyer has or may become liable to any Person.

Section 4.19     No Employees or Benefits Plans. Seller does not have any
employees that are stationed or provide services at, or with respect to, the
Facility and Seller does not maintain, sponsor, contribute to, is not required
or obligated to contribute to, and is not a party to any Employee Benefit Plan
related to the Colstrip 4 Interests that are being transferred to the Buyer. The
employees of the Operator are not employees of the Seller and will not as a
result of this Agreement become employees of the Buyer and Buyer shall have no
obligation to provide any such employee of the Operator with any compensation or
benefits.

Section 4.20       Labor Matters.

(a)           Seller is not a party to any collective bargaining or other labor
union contract relating to the personnel servicing the Facility exists.

(b)           To Seller’s Knowledge, there is no pending or threatened, labor
dispute, strike, work stoppage, lockout or other labor controversy relating to
the employees of Operator.

(c)           To Seller’s Knowledge, the Operator is in compliance with all
Labor Laws.

(d)           The Operator is an independent contractor of Seller.

 

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Section 4.21      Audit Information.  Attached hereto as Schedule 4.21 are the
two (2) plant audits for the periods of January 1 through December 31, 2004 and
for the period between January 1, 2005 through December 31, 2006 (the “Audit
Information”). To Seller’s Knowledge, the Audit Information fairly presents the
operational and billing condition of the Facility as of the dates set forth
therein.

Section 4.22       Intellectual Property. To Seller’s Knowledge, (i) the conduct
of the Facility’s business, as currently conducted, does not infringe upon or
otherwise violate the Intellectual Property Rights of any Person, and (ii) no
Person is infringing upon or otherwise violating the Intellectual Property
Rights of the Seller or the Facility.

Section 4.23      Books and Records. The records of the Seller relating to the
Facility have been made available to Buyer prior to the execution of this
Agreement.

Section 4.24        No Options. Except as set forth on Schedule 4.24 and the
rights of first refusal granted pursuant to the Ownership and Operation
Agreement, there are no outstanding options or other rights or agreements for
the purchase from the Seller of any of the Colstrip 4 Interests.

Section 4.25        Undisclosed Liabilities. Except as set forth on
Schedule 4.25, the Colstrip 4 Interests are not subject to any liability or
obligation (whether absolute, contingent or otherwise), except (a) liabilities
arising in the ordinary course of business under any contract or commitment,
(b) those liabilities or obligations incurred in the ordinary course of business
since December 31, 2007, and (c) liabilities that have not had, and are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.

Section 4.26       Facility Operations.. To the Knowledge of Seller, the
Facility is currently in operating order consistent with past practices.

Section 4.27       Affiliate Transactions. Other than as disclosed by this
Agreement, no Affiliate of Seller is a party to any material agreement related
to the Facility .

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

As of the date of this Agreement and as of the Closing Date, Buyer represents
and warrants to Seller as follows and, except as expressly set forth to the
contrary herein,acknowledges that the Seller has entered into this Agreement in
reliance upon such representations and warranties:

Section 5.1        Organization and Qualification. Buyer is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of Delaware, and has all requisite power and authority and all
necessary permits to carry on its business as now being conducted.

 

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Section 5.2         Authority. Buyer has all requisite power and authority to
execute and deliver this Agreement and the Closing Documents and to perform its
obligations hereunder and thereunder. The execution, delivery, and performance
of this Agreement and the Closing Documents and the transactions contemplated
hereby and thereby have been duly and validly authorized by all requisite action
on the part of Buyer.

Section 5.3         Enforceability. This Agreement has been and, when executed
and delivered in accordance herewith, the Closing Documents will be, duly and
validly executed and delivered by Buyer and constitute valid and binding
obligations of Buyer enforceable against it in accordance with their respective
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other similar laws of general application
from time to time in effect that affect creditors’ rights generally,
(ii) general principles of equity, and (iii) the power of a court to deny
enforcement of remedies generally based upon public policy.

Section 5.4         No Violation or Breach. Neither the execution and delivery
of this Agreement or the Closing Documents nor the consummation of the
transactions and performance of the terms and conditions hereof or thereof by
Buyer will (i) result in a violation or breach of any provision of the
certificate of incorporation, bylaws or other similar governing documents of
Buyer or any material agreement, indenture or other instrument under which Buyer
is bound or (ii) violate any Applicable Law other than such violations as would
not, individually or in the aggregate, have a Material Adverse Effect.

Section 5.5        Consents. No consent, approval, authorization or permit of,
or filing with or notification to, any Person is required for or in connection
with the execution and delivery of this Agreement or the Closing Documents by
Buyer or for, or in connection with, the consummation of the transactions and
performance of the terms and conditions contemplated hereby and thereby by
Buyer, except for (i) the Required Regulatory Approvals; (ii) the third-party
consents, filings, and notices set forth on Schedule 5.5, and (iii) consents,
approvals, authorizations, permits, filings, or notices that, if not obtained or
made, would not, individually or in the aggregate, have a Material Adverse
Effect.

Section 5.6         No Disputes; Litigation. There is no Action pending, or to
Buyer’s Knowledge, threatened in writing against Buyer, except for Actions that
would not have a Material Adverse Effect on Buyer’s ability to perform its
obligations under the Closing Documents.

Section 5.7         Brokerage Fees and Commissions. Neither Buyer nor any
Affiliate of Buyer has incurred any obligation or entered into any agreement for
any investment banking, brokerage, or finder’s fee or commission in respect of
the transactions contemplated by this Agreement or the Closing Documents for
which Seller or any of the Seller’s Affiliates shall incur any liability.

 

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Section 5.8      Bankruptcy. There are no bankruptcy, reorganization, or
arrangement proceedings pending against, being contemplated by, or to the
Knowledge of Buyer threatened against, Buyer.

Section 5.9        Financial Ability; Buyer LC. As of the date of this
Agreement, the Buyer has, or as of the Closing Date the Buyer will have, readily
available pursuant to binding commitments, or funds in an amount sufficient to
enable the Buyer to pay the Purchase Price. Simultaneous with the execution and
delivery of this Agreement, Buyer has provided to Seller an irrevocable standby
letter of credit in the stated amount of the Termination Fee (the “Buyer LC”)
which shall permit, subject to the terms and conditions of this Agreement,
Seller to draw upon the Buyer LC in payment of the Termination Fee.

Section 5.10       OFAC Compliance. Buyer, and all beneficial owners of Buyer,
are in compliance with, the requirements of Executive Order No. 13224, 66 Fed.
Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar requirements
contained in the rules and regulations of the Office of Foreign Asset Control,
Department of the Treasury (“OFAC”) and in any enabling legislation or other
Executive Orders in respect thereof (the Order and such other rules,
regulations, legislation and orders are collectively referred to as the
“Orders”); and neither Buyer, nor any beneficial owner of Buyer: (i) is listed
on the Specially Designated Nationals and Blocked Persons List maintained by
OFAC pursuant to the Order and/or on any other list of terrorists or terrorist
organizations maintained pursuant to any of the rules and regulations of OFAC or
pursuant to any other applicable Orders (such lists are collectively referred to
as the “Lists”); (ii) is a person or entity who has been determined by competent
authority to be subject to the prohibitions contained in the Orders; or (iii) is
owned or controlled by, or acts for or on behalf of, any person or entity on the
Lists or any other person or entity who has been determined by competent
authority to be subject to the prohibitions contained in the Orders.

Section 5.11         Inspections. Buyer acknowledges and agrees that it has,
prior to its execution of this Agreement, had full opportunity to conduct and
has completed to its satisfaction Inspections of the Colstrip 4 Interests and
the Facility. As of the date hereof and without limiting its rights pursuant to
Section 6.1, Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Colstrip 4
Interests or the Facility are necessary for the purposes of acquiring the
Colstrip 4 Interests.

Section 5.12       Regulatory Matters.

(a)          Buyer represents that its acquisition of the Colstrip 4 Interests
would not reasonably be expected to result in (i) a denial of any Required
Regulatory Approvals primarily based upon Buyer’s ability to exercise horizontal
or vertical market power or (b) a denial of any Required Regulatory Approvals
primarily based upon any increase in Buyer’s horizontal or vertical market power
in the NorthWestern balancing authority area using the standards adopted by FERC
in Order No. 697.

(b)         Buyer represents that it or its Affiliates has currently effective
authorization to make sales of wholesale power and ancillary services at
market-based

 

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rates and that it has made all material compliance filings regarding such
market-based rate authorization.

(c)          Buyer represents that it does not need approval from any
Governmental Authority, other than the Required Regulatory Approvals, to acquire
the Colstrip 4 Interests.

ARTICLE 6

ACCESS AND CONFIDENTIALITY

Section 6.1         General Access. Seller shall, until the Closing Date (or the
earlier termination of this Agreement), (i) give Buyer and its authorized
representatives reasonable access to all Records, personnel, offices and other
facilities and properties related to the Colstrip 4 Interests, (ii) permit Buyer
to make such copies and inspections thereof as Buyer may reasonably request, and
(iii) furnish Buyer with such financial and operating data and other information
with respect to the Facility and the Colstrip 4 Interests as Buyer may from time
to time reasonably request; provided, that any such access shall be conducted at
Buyer’s expense, at a reasonable time and on reasonable notice, under the
reasonable supervision of Seller’s personnel and in such a manner as to maintain
the confidentiality of such information, this Agreement, and the transactions
contemplated hereby and not to interfere with the normal operation of the
business of Seller or the Facility; and provided, further, that Buyer and its
representatives shall comply with all applicable safety rules, regulations and
procedures implemented by Seller or Operator, as the case may be. Buyer agrees
to indemnify and hold harmless, release, and defend Seller and its Affiliates
and their respective officers, directors, agents, employees, representatives,
consultants, and advisors from and against any and all Losses arising, in whole
or in part, from the acts or omissions of the Buyer, its Affiliates, and their
respective officers, directors, agents, employees, representatives, consultants,
and advisors arising under this Section 6.1 in connection with Buyer’s
inspection of the Facility and other assets and records of Seller relating to
the Colstrip 4 Interests prior to the Closing, respecting claims for personal
injuries, property damage, and reasonable attorneys’ fees and expenses relating
thereto. Nothing in this Article 6 shall be construed to permit Buyer or its
representatives to have access prior to the Closing to any files, records,
contracts, or documents of Seller not relating to the Facility or Colstrip 4
Interests or to any bids or offers received by Seller for the sale of any of the
Colstrip 4 Interests, it being agreed that all such bids or offers shall be the
sole property of Seller.

Section 6.2           Confidential Information. Buyer agrees to maintain in
confidence all information made available to it under this Agreement and to
cause its officers, directors, agents, employees, representatives, consultants,
and advisors to maintain in confidence all information made available to them
under this Agreement, all as provided in that certain confidentiality agreement
dated February 26, 2008 (the “Confidentiality Agreement”), by and between Seller
and Buyer, a copy of which is attached hereto as Exhibit H, and the terms of
which are incorporated herein by reference and made a part of this Agreement;
provided that the Confidentiality Agreement shall terminate upon Closing or two
years following the date hereof. In the event that terms of the Confidentiality
Agreement and this Agreement conflict, the terms of this agreement shall

 

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control. The Seller shall keep confidential, and shall cause its Affiliates and
advisors, consultants, employees and agents to keep confidential, all
information relating to the Colstrip 4 Interests and the Facility following the
Closing.

Section 6.3         No Other Contact. Prior to the Closing (or the earlier
termination of this Agreement), Buyer shall not contact or correspond with any
prospective alternative purchaser of the Colstrip 4 Interests or any regulatory
body or other Governmental Authority or other Person associated with the
Colstrip 4 Interests or the Facility, their business and operations or the
transactions contemplated by this Agreement, except (i) with the prior written
consent of Seller not to be unreasonably withheld, (ii) with respect to matters
that are entirely unrelated to the Colstrip 4 Interests or the Facility, their
business and operations or the transactions contemplated by this Agreement,
(iii) as are in the public domain, and (iv) as may be required by any Applicable
Law or any Governmental Authority.

ARTICLE 7

COVENANTS OF SELLER AND BUYER

Section 7.1          Conduct of Business Pending Closing. Seller covenants and
agrees that:

(a)          Exclusivity. Upon execution of this Agreement and except as noted
below, Seller grants Buyer the exclusive right to acquire the Colstrip 4
Interests until the earlier of the Closing or termination of this Agreement.
During such exclusivity period, Seller agrees to: (a) deal with Buyer, or its
representatives, exclusively with regard to all aspects of the acquisition of
the Colstrip 4 Interests, and (b) refrain, directly or indirectly, from
soliciting, initiating, encouraging, or engaging in any discussions or
negotiations with any Person or entering into any agreement, commitment,
understanding or transaction with any Person concerning any proposal regarding
the acquisition of the Colstrip 4 Interests, or providing any business,
financial or other information relating to any such transaction to any person or
entity. Notwithstanding the foregoing, Buyer and Seller acknowledge and agree
that nothing in this Section 7.1, Section 7.2 or elsewhere in this Agreement
shall restrict or impair Seller’s right or obligation to: (i) provide a right of
first refusal to the Project Users under the Ownership and Operation Agreement,
and (ii)  engage in discussions with the MPSC and/or to make a filing with the
MPSC requesting that the MPSC issue an order providing that the Colstrip 4
Interests be included in the rate base of the Seller at a value at least equal
to the Purchase Price plus the sum of (i) the Buyer Termination Fee and (ii) the
Make-Whole Premium less (iii) the Third Party Closing Costs and Seller may take
all actions necessary to pursue such discussions and/or order including, without
limitation, providing a copy of this Agreement to the MPSC; provided that Seller
shall keep Buyer reasonably informed in respect of the status and substance of
such discussions or filing. Notwithstanding anything to the contrary in this
Agreement, in no event shall Buyer be required to provide information to, appear
before or participate in hearings by or other discussions with the MPSC or the
Montana Consumer Counsel. Notwithstanding, Seller shall notify the Buyer in
writing immediately upon any Project User exercising a right of first refusal
and nothing in this Section 7.1 shall be construed as limiting the termination
rights of the Buyer or Seller

 

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under Article 10 or Buyer’s or Seller’s rights if any party shall exercise such
right of first refusal.

(b)          Conduct of Business. Pending the Closing, and except as provided
for in Section 7.1(a) or as reasonably necessary under emergency circumstances
(or if required or prohibited pursuant to Applicable Law), and always subject to
and consistent with the extent of Seller’s rights and limitations under the
Ownership and Operations Agreement, Seller shall comply with the following:

(1)         Seller shall conduct its business related to the Facility, and
utilize its Commercially Reasonable Efforts to cause the Facility to conduct its
business, in the ordinary course in accordance with past practice, and not make
any material change with respect thereto;

(2)         Seller shall use Commercially Reasonable Efforts to preserve intact
the Colstrip 4 Interests in accordance with Good Operating Practices;

(3)         Seller shall take all reasonable steps to preserve and protect the
Colstrip 4 Interests;

(4)         Seller shall use Commercially Reasonable Efforts to cause the
Facility to be in compliance with all Applicable Laws and Licenses;

(5)         except as set forth on Schedule 7.1, Seller shall not assign,
terminate, amend, give any consent with respect to or waive any rights under, in
any material respect, any Material Contract;

(6)           Seller shall not take any action or enter into any commitment with
respect to or in contemplation of any liquidation, dissolution,
recapitalization, reorganization, or other winding up of its business or
operations related to the Colstrip 4 Interests;

(7)         Seller shall not grant any express further Lien on any of the
Colstrip 4 Interests, except for Permitted Liens, those Liens that will be
terminated, without cost to Purchaser, at Closing;

(8)         Seller shall provide prompt written disclosure to the Buyer of all
relevant information which comes to the attention of the Seller in relation to
any fact or matter (whether existing on or before the date of this Agreement or
arising afterwards) which may constitute a breach of any of the Seller’s
warranties; and

(9)         Seller shall give Buyer at least five Business Days’ prior notice of
(i) any meeting of or vote by the Committee (as that term is defined in the
Ownership and Operations Agreement) or (ii) any meeting or other correspondence
with PP&L Montana, LLC (or its representative) to

 

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determine the use of the Shared Vote (as that term is defined in the Project
Committee Vote Sharing Agreement). Seller shall vote against any action that is
prohibited pursuant to Section 7.1(b).

Section 7.2         Public Announcements. Without the prior written approval of
the other Party, no Party shall issue, or permit any agent or Affiliate of such
Party to issue, any press releases or otherwise make, or cause any agent or
Affiliate of such Party to make, any public statements with respect to this
Agreement or the Closing Documents or the transactions contemplated hereby or
thereby, except when and to the extent that such release or statement is deemed
in good faith by the releasing Party to be required by Applicable Law or under
the applicable rules and regulations of a stock exchange or market on which the
securities of the releasing Party or any of its Affiliates are listed. In each
case to which such exception applies, the releasing Party will use its
reasonable efforts to provide a copy of such release or statement to the other
Party and incorporate any reasonable changes which are suggested by the
non-releasing Party prior to releasing or making the statement.

Section 7.3        Actions by Parties. Each Party agrees to use Commercially
Reasonable Efforts to satisfy the conditions to the Closing set forth in
Sections 3.4 and 3.5; provided, however, that Seller shall not be deemed to have
breached its obligations under this Section 7.3 by pursuing the discussions
and/or filing with the MPSC described in clause (ii) of Section 7.1(a).

Section 7.4         Further Assurances. Seller and Buyer each agree that from
time to time after the Closing, it will execute and deliver or cause its
respective Affiliates to execute and deliver such further agreements,
certificates, documents or opinions and take (or cause its respective Affiliates
to take) such other action, as may be reasonably necessary to carry out the
purposes and intents of this Agreement. If at any time any Party shall
reasonably request any further action by any other Party to carry out the
purposes of this Agreement and the Closing Documents or to further effectuate
the transactions contemplated hereby, such other Party, shall promptly take such
action (including the prompt execution and delivery of further instruments and
documents).

Section 7.5         Records.

(a)           Maintenance. Buyer agrees to maintain the Records until the
seventh (7th) anniversary of the Closing Date, or if any of the Records pertain
to any claim or dispute pending on the seventh (7th) anniversary of the Closing
Date (or such later date), Buyer shall maintain any of the Records designated by
Seller until such claim or dispute is finally resolved and the time for all
appeals has been exhausted. Buyer shall give Seller reasonable notice and an
opportunity to retain any Records relating to Taxes in the event that Buyer
determines to destroy or dispose of them during such period. After the Closing
Date, except as might result in a waiver of any attorney/client, work product or
like privilege or violate Applicable Laws, Buyer shall provide Seller and its
representatives during normal business hours, and upon reasonable notice,
reasonable access to, and the right to copy, the Records existing as of the
Closing Date, at Seller’s cost and expense, for the purposes of:

 

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(1)         complying with any Applicable Law affecting Seller’s ownership of
the Colstrip 4 Interests prior to the Closing Date;

(2)         preparing any audit of the books and records of any third party
relating to the Colstrip 4 Interests or the Facility prior to the Closing Date,
or responding to any audit prepared by such third parties;

(3)         preparing Tax Returns;

(4)         responding to or disputing any Tax audit; or

(5)         asserting, defending, or otherwise dealing with any inquiry,
investigation, claim or dispute under this Agreement or with respect to the
Colstrip 4 Interests or the Facility.

(b)           Privilege. Buyer shall not after the Closing Date intentionally
waive the attorney/client, work product, or like privilege of Seller or its
Affiliates with respect to any of the Records existing as of the Closing Date,
without Seller’s prior written consent.

Section 7.6         Regulatory and Other Authorizations and Consents Filings.

(a)          General. Each Party shall use Commercially Reasonable Efforts to
obtain all authorizations, consents, orders, and approvals of, and to give all
notices to and make all filings with, all Governmental Authorities and third
parties that may be or become necessary for its execution and delivery of, and
the performance of its obligations under, this Agreement and will cooperate
fully with the other Party in promptly seeking to obtain all such
authorizations, consents, orders, and approvals, giving such notices, and making
such filings.

(b)           Required Regulatory Approvals. Without limiting the generality of
the undertakings pursuant to Section 7.6(a) above, each Party shall (i) use its
Commercially Reasonable Efforts to: gather and obtain all necessary information
to complete the filings, which shall be prepared and filed by Seller, seeking
the Required Regulatory Approvals (including all reports, studies, and exhibits
related thereto); consult with the other Party regarding any such filings,
consider and incorporate all reasonable comments (if any) submitted by the other
Party or its representatives; and the Seller shall make such filings as soon as
practicable following the execution and delivery of this Agreement, if not
already completed; (ii) prior to and during the pendency of any notice and
approval period with respect to such filings, (1) consult with the other Party
prior to providing any supplemental information to the applicable regulatory
authority and provide prompt written notice to the other Party of all
discussions and correspondence with the applicable regulatory authorities that
reasonably relates to or bears upon such filings, and (2) use all Commercially
Reasonable Efforts and act in good faith to expedite and obtain the Required
Regulatory Approvals. In furtherance and not in limitation of the foregoing,
each of the Parties agrees to use its Commercially Reasonable Efforts to file
Notification and Report Forms under the HSR Act and similar applications with
any other applicable Governmental Authority whose approval is required in
connection with the consummation of the purchase by Buyer of the Colstrip 4
Interests as promptly as

 

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practicable following the date of this Agreement, the date of which shall be
mutually agreed upon by Buyer and Seller.

(c)           Transfer. If the transfer of any instrument, contract, license,
lease, permit, or Material Contract to Buyer hereunder shall require the consent
of any party thereto other than Seller, then such item shall not be assigned to
or assumed by Buyer, if an actual or attempted assignment thereof would
constitute a breach thereof or default thereunder. In such case, Seller and
Buyer shall cooperate and each shall use Commercially Reasonable Efforts to
obtain such consents to the extent required by such other parties and, if and
when any such consents are obtained, to transfer the applicable instrument,
contract, license, lease, permit, or Material Contract. If any such consent
cannot be obtained, Seller shall cooperate in any commercially reasonable
arrangement designed to obtain for Buyer all benefits, obligations and
privileges of the applicable instrument, contract, license, lease, permit, or
document.

(d)           Third Party Consents. Seller shall use its Commercially Reasonable
Efforts, and Buyer shall use its Commercially Reasonable Efforts to assist
Seller, in obtaining any and all consents of third parties and Governmental
Authorities necessary or advisable in connection with the transactions
contemplated by this Agreement and the Closing Documents, including the
provision by Buyer to such third parties and Governmental Authorities of such
publicly available financial statements and other publicly available financial
information with respect to Buyer and its parent company or companies as such
third parties or Governmental Authorities may reasonably request.

Section 7.7         Fees and Expenses. Except as otherwise expressly provided in
this Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors, and accountants, incurred in connection with this Agreement
and the Closing Documents and the transactions contemplated hereby, shall be
paid by the Party incurring such fee or expense, whether or not the Closing
shall have occurred; provided, that all filing fees and other expenses required
in connection with any filings under the HSR Act shall be borne 50% by Buyer and
50% by Seller.

Section 7.8         Caualty Loss.

(a)           If, from the date of this Agreement to the date of Closing, the
Facility is damaged or destroyed by any casualty event or is taken, in part or
in whole, by any Governmental Authority, then Seller shall deliver to Buyer, no
later than 45 days following such event, a good faith and reasonable estimate of
(1) in the case of such a casualty event, the sum of (a) the cost of restoring
the Facility to a condition substantially similar to its condition immediately
prior to such casualty event plus (b) the amount of any lost profits with
respect to the Colstrip 4 Interests reasonably expected to accrue after Closing
as a result of such casualty event, or (2) in the case of such a taking, the
reduction in the value of the Colstrip 4 Interests as a result of such taking.
Such good faith and reasonable estimate in the case of clauses (1) and (2) shall
be net of and after giving effect to (without double-counting) (i) any
insurance, condemnation award or other third party proceeds received by the
Seller, (ii) any tax benefits related thereto, (iii) any amounts expended by the
Seller prior to Closing to restore damage caused by

 

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such casualty event (provided that any such restoration efforts and expenditures
by Seller must in all events be reasonably satisfactory to Buyer) and
(iv) adjustments relating to such casualty event or condemnation that are to be
included in Working Capital (as applicable, such estimate being a “Casualty
Estimate”). Any Casualty Estimate shall be prepared based on the best reasonably
available information as of the date of such Casualty Estimate and if the
Closing is expected to occur prior to the expiration of the 45 day period
referenced above then the determination of such Casualty Estimate shall not
delay, impair or otherwise affect the Closing Date except that the Closing Date
shall be extended, if necessary, to the fifth Business Day after such Casualty
Estimate is made.

(b)           Notwithstanding the provisions of Section 7.8(a), if Buyer objects
to Seller’s estimate pursuant to Section 7.8(a) within five (5) Business Days of
receipt thereof, then (a) such estimate shall be deemed to not be the Casualty
Estimate and (b) Seller shall cause an independent firm reasonably acceptable to
Buyer and Seller to prepare the appropriate estimate, which estimate shall be
the Casualty Estimate.

(c)           Buyer may elect to reduce the Purchase Price by an amount equal to
such Casualty Estimate in which case Seller shall have no further liability
hereunder due to such casualty or condemnation event and such casualty or
condemnation event shall not otherwise affect the Closing, provided that at the
Closing, Seller shall turn over all insurance or taking proceeds paid to Seller
and not yet spent on restoration. If a Casualty Estimate with respect to a
casualty or condemnation event is greater than $20,000,000, then Buyer may, by
written notice to Sellers, elect to terminate this Agreement in accordance with
Section 10.1.

Section 7.9         Financing Cooperation. At Buyer’s request, Seller shall, and
shall use its Commercially Reasonable Efforts to: (i) cause the other Project
Users to provide reasonable cooperation with Buyer and Buyer’s lenders in
connection with Buyer obtaining financing for the consummation of the
transactions contemplated hereby, including making representatives of Seller
available at reasonable times in connection with the syndication of any debt
financing and, (ii) assist Buyer in obtaining all customary waivers, estoppels,
approvals, opinions, transfer documents and consents from counterparties to the
Material Contracts.

Section 7.10       Insurance Cooperation. Seller shall use Commercially
Reasonable Efforts to assist Buyer in making arrangements to obtain customary
insurance with respect to the Colstrip 4 Interests.

Section 7.11      Right of First Refusal. Without limiting the generality of the
undertakings pursuant to Section 7.3 above, Seller shall use its Commercially
Reasonable Efforts to: (i) within five (5) Business Days of the date hereof,
notify the Owners and Project Users (as such terms are defined in the Ownership
and Operations Agreement) concerning their execution of a waiver substantially
in the form attached hereto as Exhibit L with respect to their rights of first
refusal contained in Section 24 of the Ownership and Operations Agreement,
(ii) use its Commercially Reasonable Efforts to satisfy the condition to the
Closing set forth in Section 3.5(7), and (iii) keep Buyer reasonably informed in
respect of the status and substance of such discussions, including

 

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by providing copies of all relevant correspondence to Buyer. Seller shall
immediately notify Buyer if at any time any Project User or Owner (as such terms
are defined in the Ownership and Operations Agreement) shall exercise or
indicate their intent to exercise any such right of first refusal. Seller shall
(a) as soon as practicable, but in any event no later than October 15, 2008,
notify Buyer in writing that the condition set forth in Section 3.5(7) has been
satisfied (the “ROFR Resolution Notice”), or (b) no later than October 15, 2008,
notify Buyer in writing that the condition set forth in Section 3.5(7) has not
yet been satisfied (the “ROFR Continuation Notice”)

Section 7.12       MPSC Matters. Without limiting the generality of the
undertakings pursuant to Section 7.3 above, Seller shall use its Commercially
Reasonable Efforts to: (i) prior to June 30, 2008, commence discussions with the
MPSC and/or make a filing with the MPSC described in clause (ii) of
Section 7.1(a) (such filing to include a request that the MPSC act within 120
days of the date of such filing), and (ii) keep Buyer reasonably informed in
respect of the status and substance of such discussions or filing. Seller shall
(a) as soon as practicable, but in any event no later than November 30, 2008,
notify Buyer in writing that (1)  the MPSC has failed to issue an order
including the Colstrip 4 Interests in the rate base of Seller at a value at
least equal to the Purchase Price plus the sum of (x) the Buyer Termination Fee
and (y) the Make-Whole Premium less (z) the Third Party Closing Costs, and
(2) that Seller has irrevocably waived its right to terminate this Agreement
pursuant to Section 10.1(c)(3) (the “MPSC Resolution Notice”), or (b) no later
than November 30, 2008, notify Buyer in writing that the MPSC has issued an
order including the Colstrip 4 Interests in the rate base of Seller at a value
at least equal to the Purchase Price plus the sum of (x) the Buyer Termination
Fee and (y) the Make-Whole Premium less (z) the Third Party Closing Costs (the
“MPSC Inclusion Notice”).

ARTICLE 8

LIMITATIONS

Section 8.1         Disclaimer of Warranties.

(a)          Information. Except as provided in Article 4, Seller makes no
representation or warranty, express, implied, at common law, statutory or
otherwise, with respect to the accuracy or completeness of the information,
records, and data now, heretofore, or hereafter made available to Buyer in
connection with this Agreement (including any description of the Colstrip 4
Interests or the Facility; revenue, price and expense assumptions; electricity
demand forecasts; or environmental information or any other information
furnished to Buyer by Seller or any Affiliate of Seller or any director,
officer, employee, counsel, agent, or advisor thereof).

(b)          "AS IS" SALE. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
ANY OTHER PROVISION OF THIS AGREEMENT, IT IS THE EXPLICIT UNDERSTANDING OF EACH
PARTY THAT NOTHING IN THIS AGREEMENT SHALL IMPLY OR BE CONSTRUED TO MEAN THAT
SELLER OR ANY OF ITS AFFILIATES ARE MAKING ANY REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS, IMPLIED, AT COMMON LAW,

 

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STATUTORY OR OTHERWISE, EXCEPT FOR THE REPRESENTATIONS OR WARRANTIES EXPRESSLY
SET FORTH IN ARTICLE 4 OF THIS AGREEMENT, AND IT IS FURTHER UNDERSTOOD BY THE
PARTIES THAT BUYER, WITH SUCH EXCEPTIONS, TAKES THE COLSTRIP 4 INTERESTS "AS IS"
AND "WHERE IS." WITHOUT LIMITING THE GENERALITY OF THE IMMEDIATELY PRECEDING
SENTENCE, EXCEPT AS PROVIDED IN ARTICLE 4 OF THIS AGREEMENT, SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AT COMMON LAW, STATUTORY, OR OTHERWISE, RELATING TO (I) THE CONDITION
OF THE FACILITY OR ANY OF THE COLSTRIP 4 INTERESTS (INCLUDING ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), OR (II) THE STATUS OF OR
PERFORMANCE BY THE SELLER OR ANY CONTRACTING PARTY WITH RESPECT TO ANY MATERIAL
CONTRACT. BUYER HAS AGREED NOT TO RELY ON ANY REPRESENTATION MADE BY SELLER WITH
RESPECT TO THE CONDITION, QUALITY, OR STATE OF THE COLSTRIP 4 INTERESTS AND THE
FACILITY, EXCEPT FOR THOSE IN THIS AGREEMENT. THE PROVISIONS CONTAINED IN THIS
AGREEMENT ARE THE RESULT OF EXTENSIVE NEGOTIATIONS BETWEEN BUYER AND SELLER, AND
NO OTHER ASSURANCES, REPRESENTATIONS OR WARRANTIES WERE MADE BY SELLER IN THE
INDUCEMENT THEREOF, EXCEPT AS PROVIDED HEREIN.

Section 8.2         Limitations of Damages. Notwithstanding anything to the
contrary contained in this Agreement, Seller and Buyer agree that the recovery
by either Party of any damages suffered or incurred by such Party as a result of
any breach of any representation or warranty by the other Party of any of its
obligations under this Agreement shall be limited to the actual damages suffered
or incurred by the non-breaching Party as a result of the breach by the
breaching Party of its representations and warranties herein and in no event
shall the breaching Party be liable to the non-breaching Party for any
incidental, special, consequential, exemplary or punitive damages suffered or
incurred by the non-breaching Party as a result of the breach by the breaching
Party of any of its representations and warranties herein. Nothing in this
Section 8.2 shall limit the right of any party to recover with respect to any
claim of damages asserted by any Third Party.

Section 8.3        Limitations on Individual Liability. Buyer agrees, to the
fullest extent permitted by law, that none of Seller, and its directors,
officers, employees, shareholders, members, Affiliates, controlling persons,
agents, advisors or representatives shall have any liability or responsibility
whatsoever to Buyer or its directors, officers, employees, Affiliates,
controlling persons, agents or representatives on any basis (including in
contract or tort, under federal or state securities laws or otherwise) based
upon any information provided or made available, or statements made (including
in materials furnished in the data room, in presentations by Seller’s management
or otherwise), to Buyer or its directors, officers, employees, Affiliates,
controlling persons, advisors, agents or representatives (or any omissions
therefrom), including in respect of the specific representations and warranties
of Seller set forth in this Agreement, except

 

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that the foregoing limitations shall not apply to Seller insofar as Seller makes
the representations and warranties set forth in Article 4 of this Agreement, but
always subject to the limitations and restrictions contained in this Article 8.

Section 8.4         Environmental Waiver and Release. From and after the
Closing, all rights or remedies, other than pursuant to this Agreement, that
Buyer may have against Seller at or under Applicable Law with respect to any
Environmental Liabilities or any other environmental matters are waived.

ARTICLE 9

INDEMNIFICATION

Section 9.1         Indemnification. From and after the Closing, subject to the
other terms and limitations set forth in this Agreement, including Section 8.2,
Section 9.3 and Section 9.4, each Party (the “Indemnifying Party”) shall
indemnify, defend, reimburse, and hold harmless the other Party, (each such
Person, an “Indemnified Party” and, collectively, the “Indemnified Parties”)
from and against any and all Losses asserted against or incurred by any
Indemnified Party relating to, resulting from or arising out of (i) any breach
of the representations and warranties made in this Agreement by the Indemnifying
Party, (ii) any breach of the covenants or obligations of the Indemnifying Party
or any of its Affiliates under this Agreement, (iii) with respect to the Seller
as an Indemnifying Party and the Buyer as the Indemnified Party, any Retained
Liabilities and (iv) with respect to the Buyer as an Indemnifying Party and the
Seller as the Indemnified Party, any Section 2.7 Liabilities.

Section 9.2         Third Party Claims.

(a)          If any Indemnified Party receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding made or brought
by any Person who is not a party to this Agreement or any Affiliate of a Party
to this Agreement (a “Third Party Claim”) with respect to which indemnification
is to be sought from an Indemnifying Party, the Indemnified Party shall give
such Indemnifying Party reasonably prompt written notice thereof, but in any
event such notice shall not be given later than ten (10) calendar days after the
Indemnified Party’s receipt of written notice of such Third Party Claim. Such
notice shall describe the nature of the Third Party Claim in reasonable detail
and shall indicate the estimated amount, if practicable, of the Loss that has
been or may be sustained by the Indemnified Party. The Indemnifying Party will
have the right to participate in or, by giving written notice to the Indemnified
Party, to elect to assume the defense of any Third Party Claim at such
Indemnifying Party’s expense and by such Indemnifying Party’s own counsel,
provided that the counsel for the Indemnifying Party who shall conduct the
defense of such Third Party Claim shall be reasonably satisfactory to the
Indemnified Party; provided, that nothing in this Section 9.2 shall be construed
as allowing the Indemnifying Party to assume the defense of any Third Party
Claim if (i) it is reasonably foreseeable that the damages sought in such Third
Party Claim (together with the reasonably foreseeable damages relating to any
unresolved claims for indemnification and any indemnifications theretofor made
pursuant to this Agreement) are likely to exceed the Threshold (as defined
below) or (ii) the matter

 

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involves potential criminal sanctions against Buyer. The Indemnified Party shall
cooperate in good faith in such defense at the Indemnifying Party’s expense. If
an Indemnifying Party elects not to assume, or fails to assume, the defense of
any Third Party Claim, the Indemnified Party may compromise or settle such Third
Party Claim over the objection of the Indemnifying Party, which settlement or
compromise shall conclusively establish the Indemnifying Party’s liability
pursuant to this Agreement.

(b)         Except respecting Third Party Claims that the Indemnifying party is
not entitled to defend, if, within ten (10) calendar days after an Indemnified
Party provides written notice to the Indemnifying Party of any Third Party
Claims, the Indemnified Party receives written notice from the Indemnifying
Party that such Indemnifying Party has elected to assume the defense of such
Third Party Claim, the Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof for so long as the Indemnifying Party shall continue the
diligent defense of such Third Party Claim. Without the prior written consent of
the Indemnified Party, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to liability or create any
financial or other obligation or restriction on the part of the Indemnified
Party. If a firm offer is made to settle a Third Party Claim that would not lead
to liability or the creation of a financial or other obligation or restriction
on the part of the Indemnified Party and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party shall give written notice
to the Indemnified Party to that effect. If the Indemnified Party fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnifying Party shall be relieved of its obligations to
defend such Third Party Claim and the Indemnified Party may contest or defend
such Third Party Claim. In such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will be the amount of such settlement offer
plus reasonable costs and expenses paid or incurred by Indemnified Party up to
the date of said notice.

(c)          Any claim by an Indemnified Party on account of a Loss which does
not result from a Third Party Claim (a “Direct Claim”) shall be asserted by
giving the Indemnifying Party reasonably prompt written notice thereof, stating
the nature of such claim in reasonable detail and indicating the estimated
amount, if practicable. The Indemnifying Party shall have a period of thirty
(30) calendar days within which to respond to such Direct Claim. If the
Indemnifying Party does not respond within such thirty (30) calendar day period,
the Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party fails to accept such claim, the Indemnified Party will be
free to seek enforcement of its right to indemnification under this Agreement.

(d)         If the amount of any Loss, at any time subsequent to the making of
an indemnity payment in respect thereof, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by, from or against any other entity, the amount
of such reduction, less any costs, expenses or premiums incurred in connection
therewith (together with interest thereon from the date of payment thereof at
the publicly announced prime rate then in effect) shall promptly be repaid by
the Indemnified Party to the Indemnifying Party.

 

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(e)          A failure to give timely notice as provided in this Section 9.2
shall not affect the rights or obligations of any Party hereunder except if, and
only to the extent that, as a result of such failure, the Party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.

Section 9.3       Survival. Each covenant and agreement contained in this
Agreement or in any Closing Document delivered pursuant hereto shall survive the
Closing and be enforceable until such covenant or agreement has been fully
performed. All representations and warranties contained in this Agreement (other
than Fundamental Representations and the representations and warranties
contained in Sections  4.14 (Tax Matters) and 4.18 (Environmental Laws)) shall
survive for a period of twelve (12) months after the Closing and shall
thereafter expire. All representations and warranties set forth in Sections 4.1
(Organization and Good Standing), 4.2 (Authority), 4.3 (Enforceability), 4.4
(Title to Colstrip 4 Interests), 4.12 (Brokerage Fees and Commissions) and
Sections 5.1 (Organization and Good Standing), 5.2 (Authority), and 5.3
(Enforceability) and 5.7 (Brokerage Fees and Commissions) (the “Fundamental
Representations”) and any claim related to fraud or intentional
misrepresentation shall survive indefinitely. All representations and warranties
set forth in Section 4.14 (Tax Matters) shall survive until the date that is 30
days after the termination of the applicable statute of limitations (including
all periods of extension, whether automatic or permissive). All representations
and warranties set forth in Section 4.18 (Environmental Laws) shall survive
until the date that is two (2) years after the Closing and shall thereafter
expire. Any representation or warranty with respect to which a claim has been
delivered for a breach thereon prior to the expiration of the applicable
survival period shall survive until such claim is resolved.

Section 9.4       Limitations on Indemnification.

(a)           Dollar Limitations. Anything to the contrary notwithstanding,
(a) no Indemnifying Party shall be obligated to make any payment for
indemnification respecting any breach of representation or warranty in this
Agreement under this Article 9 in excess of five percent (5%) of the Purchase
Price, and (b) no Indemnifying Party shall be obligated to make any payment for
indemnification for any breach of representation or warranty under this
Article 9 until such party’s aggregate indemnification obligations exceed
$500,000 (the “Threshold”), whereupon such party shall be obligated to pay all
such indemnification obligations in excess of the Threshold; provided, however,
the limitations in this Section 9.4(a) shall not apply to breaches of the
Fundamental Representations or the representations and warranties contained in
Sections  4.14 (Tax Matters) or 4.19 (No Employees or Benefits).

(b)           Mitigation. Any indemnifiable Loss shall be net of (A) the dollar
amount of any insurance or other proceeds, net of any reasonable costs, expenses
or premiums, actually received by the Indemnified Party with respect to such
Loss and (B) Tax benefits to the Indemnified Party, to the extent actually
realized by the Indemnified Party. Any Party seeking indemnity hereunder shall
use Commercially Reasonable Efforts to assert claims (including both costs of
defense and indemnity) under applicable insurance policies with respect to any
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Reasonable Efforts shall be an indemnifiable claim under this Agreement. The
Indemnified Party shall use Commercially Reasonable Efforts to mitigate all
losses, damages and the like relating to a claim under these indemnification
provisions, including availing itself of any defenses, limitations, rights of
contribution, claims against third Persons and other rights at law or equity,
which shall include the reasonable expenditure of money to mitigate or otherwise
reduce or eliminate any loss or expenses for which indemnification would
otherwise be due, provided that the Indemnifying Party shall pay the Indemnified
Party for the reasonable expenditures in undertaking the mitigation in advance.

(c)           Materiality. Determinations of indemnity, including any
determination or calculation regarding Losses, shall be made without regard to
any qualification respecting materiality or Material Adverse Effect.

(d)             Retained Liabilities. Notwithstanding the foregoing, without
limiting the Buyer’s right to indemnification under Section 9.1(a) generally,
Seller’s liability and obligation for Losses arising out of
Section 9.1(a)(iii) in respect of Retained Liabilities shall not be subject to
the Threshold or any limitation pursuant to Sections 8.2, 9.3, 9.4(a), or
9.4(b); provided, however, that for eighteen (18) months following the Closing
Date (the “Post-Closing Indemnity Period”), the threshold and limitations
contained in Section 8.2, Section 9.3 and Section 9.4 shall not apply in the
event Buyer incurs Losses arising from the liabilities described in Section
2.1(f)(iii) or Section 2.1(f)(v); provided further, that, following the
Post-Closing Indemnity Period, the threshold and the limitations contained in
Section 8.2, Section 9.3 and Section 9.4 shall apply in the event Buyer incurs
Losses arising from the liabilities described in Section 2.1(f)(iii) or Section
2.1(f)(v) but only so long as such Losses were a result of a breach by Seller of
a representation contained in this Agreement that was subject to such
limitations (but without regard to survival period).

Section 9.5        Special Indemnity. Notwithstanding any other provision to the
contrary in this Agreement, from and after the Closing, the Seller as the
Indemnifying Party shall indemnify, defend, reimburse, and hold harmless the
Buyer as the Indemnified Party from and against any and all Losses asserted
against or incurred by the Buyer relating to, resulting from or arising out the
Buyer being required to participate in or respond to any Action before any
federal or state court or Governmental Authority challenging the legality of the
transactions contemplated by this Agreement or otherwise involving the
performance of this Agreement including, without limitation, the proceedings
described in the second sentence of Section 7.1(a). Seller’s liability and
obligation for Losses arising out of this Section 9.5 shall not be subject to
the Threshold or any limitation pursuant to Sections 8.2, 9.3, 9.4(a), or
9.4(b).

 

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Section 9.6        Sole and Exclusive Remedy. Except for the right to specific
performance granted under Section 12.15 following the Closing, the rights set
forth in this Article 9 shall be Buyer’s sole and exclusive remedy against the
Seller for misrepresentations or breaches of covenants contained in this
Agreement and the Closing Documents or in connection with the transactions
contemplated herein; provided, however, that nothing herein shall prevent Buyer
from bringing an action based upon allegations of fraud.

ARTICLE 10

TERMINATION AND REMEDIES

Section 10.1      Methods of Termination. This Agreement and the transactions
contemplated hereby may be terminated prior to the Closing Date as follows:

(a)         at any time by mutual written agreement of Seller and Buyer; or

(b)          by either Seller or Buyer upon the material breach of this
Agreement by the other, to be effective, if curable, upon the breaching Party’s
failure to cure within five (5) Business Days of notice given, and if incurable,
upon notice given, provided that the Party seeking to terminate has complied
with and fulfilled its obligations and undertakings under this Agreement in all
material respects; or

(c)           by Seller, in the following events:

(1)         at any time after any final, non-appealable decision is made by the
applicable Governmental Authority denying any Required Regulatory Approval; or

(2)         at any time after January 30, 2009 if the Closing has not yet
occurred; or

(3)         at any time effective upon written notification to Buyer in the
event that the MPSC has issued an order including the Colstrip 4 Interests in
the rate base of Seller at a value at least equal to the Purchase Price plus the
sum of (i) the Buyer Termination Fee and (ii) the Make-Whole Premium less (iii)
the Third Party Closing Costs;

provided further, that the event triggering Seller’s termination right did not
result from the failure by Seller to fulfill any undertaking or commitment
provided for herein on the part of Seller that is required to be fulfilled on or
prior to the Closing Date or any such applicable date.

(d)           by Buyer, in the following events:

(1)         at any time prior to the Closing if a Material Casualty Loss has
occurred that is not completely covered by insurance or, at Seller’s option, by
a combination of insurance and a reduction in the Purchase Price in an amount
equal to the reasonable commercial value of such loss that is not covered by
insurance, as determined by Seller with Buyer’s consent, not to be unreasonably
withheld;

 

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(2)         at any time after any final, non-appealable decision is made by the
applicable Governmental Authority denying any Required Regulatory Approval;

(3)         at any time after January 30, 2009 if the Closing has not yet
occurred;

(4)         at any time effective upon written notification to Seller in the
event that the MPSC has issued an order including the Colstrip 4 Interests in
the rate base of Seller at a value at least equal to the Purchase Price plus the
sum of (i) the Buyer Termination Fee and (ii) the Make-Whole Premium less (iii)
the Third Party Closing Costs;

(5)         at any time after November 30, 2008, if any order or decree by any
federal or state court or Governmental Authority exists which would delay or
otherwise impair the consummation of the sale of the Colstrip 4 Interests;

(6)         at any time if any Project User exercises a right of first refusal
offered to it by the Seller (pursuant to the terms of the Ownership and
Operations Agreement);

(7)         at any time in accordance with Section 7.8;

(8)        if (i) Seller has failed to deliver to the Buyer the ROFR Resolution
Notice by October 15, 2008 or (ii) Seller has failed to deliver to the Buyer the
MPSC Resolution Notice by November 30, 2008; or

(9)         at any time if the Make-Whole Premium exceeds $8,500,000 (assuming
Buyer has used Commercially Reasonable Efforts to negotiate in good faith such
amount); provided, that Buyer shall not have the right to terminate under this
clause (9) if Seller, in its sole and absolute discretion, elects to reduce the
Purchase Price by the amount of the Make-Whole Premium that is in excess of
$8,500,000

provided, that the event triggering Buyer’s termination right did not result
from the failure by Buyer to fulfill any undertaking or commitment provided for
herein on the part of Buyer that is required to be fulfilled on or prior to the
Closing Date or any such applicable date.

Section 10.2       Effect of Termination. In the event either Party desires to
terminate this Agreement pursuant to Section 10.1, written notice thereof shall
promptly be given by the terminating Party to the other Party, and this
Agreement shall terminate effective as of the later of the date such notice is
received (or such later effective date as may be set forth therein) or the
expiration of any cure period. If this Agreement is terminated as provided in
Section 10.1, all filings, applications and other submissions made to any
Governmental Authority with respect to the transactions contemplated by this
Agreement and the Closing Documents (other than any filings, applications and
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submissions made by Seller that do not involve Buyer) shall, to the extent
practicable, be withdrawn from the Governmental Authority to which they were
made; and except for those obligations set forth in Article 6, pursuant to which
the Parties shall continue to be bound, no Party shall have any further
obligation hereunder; provided, that such termination shall not be construed to
limit or waive any right with respect to any breach of this Agreement occurring
prior to such termination.

Section 10.3         Termination Fee; Letter of Credit. Seller may immediately
draw upon the Buyer LC in an amount equal to Twenty Million Dollars
($20,000,000) (the “Termination Fee”) if this Agreement is terminated by Seller
pursuant to Sections 10.1(b) or 10.1(c)(2), provided that Seller shall not be in
breach of this Agreement in such a manner that would entitle Buyer to terminate
this Agreement in accordance with Section 10.1(b), and provided further, that in
the case of termination pursuant to Section 10.1(c)(2), the failure of the
Closing Date to occur was due to the breach by Buyer of its obligations to
complete the transactions contemplated hereby when required to do so in
accordance with this Agreement. The Parties acknowledge and agree that if Seller
shall terminate this Agreement as provided immediately above, Seller’s damages
would be difficult or impossible to quantify with reasonable certainty, and
accordingly the payment provided for in this Section 10.3 is a payment of
liquidated damages (and not penalties) which is a based on the Parties’ estimate
of the damages Seller will suffer or incur as a result of the event giving rise
to such payment and the resultant termination of this Agreement. Buyer
irrevocably waives any right it may have to raise as a defense that any such
liquidated damages are excessive or punitive. For greater certainty, the Parties
agree that the right to receive payment of the amount determined pursuant to
this Section 10.3 in the manner provided herein is the sole and exclusive remedy
of Seller in the event of a termination pursuant to this Section 10.3 and Seller
irrevocably waives any right it may have to seek equitable remedies including
but not limited to specific performance, or to seek additional expenses or
damages from Buyer with respect to such termination.

Section 10.4       Buyer Termination Fee.  In the event:

(a)        that Buyer terminates this Agreement pursuant to Section 10.1(d)(4),
Section 10.1(d)(5), Section 10.1(d)(6) or Section 10.1(d)(8); or

(b)        that Seller terminates this Agreement pursuant to Section 10.1(c)(3);

(provided that in each case, Buyer was not in material breach of this Agreement
in such a manner that would entitle Seller to terminate this Agreement in
accordance with Section 10.1(b)), Seller shall pay to Buyer an amount equal to
Six Million Two Hundred Fifty Thousand Dollars ($6,250,000) (the “Buyer
Termination Fee”). The Buyer Termination Fee shall be paid to Buyer or its
designee by the Seller by wire transfer of same-day funds on the first (1st)
Business Day following the date of termination of this Agreement, which shall
not be subject to any set-off or counterclaim. The Parties acknowledge and agree
that if Buyer or Seller shall terminate this Agreement as provided immediately
above, Buyer’s damages would be difficult or impossible to quantify with
reasonable certainty, and accordingly the payment provided for in this
Section 10.4 is a payment of liquidated damages (and not penalties) which is a
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estimate of the damages Buyer will suffer or incur as a result of the event
giving rise to such payment and the resultant termination of this Agreement.
Seller irrevocably waives any right it may have to raise as a defense that any
such liquidated damages are excessive or punitive. For greater certainty, Buyer
agrees that the right to receive payment of the amount determined pursuant to
this Section 10.4 in the manner provided herein is the sole and exclusive remedy
of Buyer in the event of a termination covered by clauses (a), (b) or (c) of
this Section 10.4 and Buyer irrevocably waives any right it may have to seek
equitable remedies including but not limited to specific performance, or to seek
additional expenses or damages from Seller with respect to such termination but
no limitation is intended on Buyer’s remedies in the event of a termination
under Section 10.1(b) or 10.1(c)(2) by reason of the breach by Seller to
complete the transaction contemplated hereby when required to do so in
accordance with this Agreement.

Section 10.5      No Liability. There shall be no liability of any shareholder,
partner, member, director, officer, employee, advisor or representative of Buyer
or Seller or any Affiliate thereof, whether to Buyer or Seller, as the case may
be, or any other Person (including any shareholder, partner, member, director,
officer, employee, advisor or representative thereof) in connection with any
liability or other obligation of Buyer or Seller or any Affiliate thereof,
whether hereunder or otherwise in connection with the transactions contemplated
hereby.

ARTICLE 11

DISPUTE RESOLUTION

Section 11.1      Mutual Discussions. If any dispute or difference of any kind
whatsoever shall arise between the Parties in connection with, or arising out
of, this Agreement or the Closing Documents, or the interpretation, performance,
breach, termination or validity hereof or thereof, including without limitation
any claim based on contract, text or statute (the “Dispute”), the Parties shall
attempt to settle such Dispute in the first instance by mutual discussions in
accordance with this Section 11.1. Within seven (7) Business Days of the receipt
by either Party of a notice from the other Party of the existence of a Dispute
referring to this Article 11 (the “Dispute Notice”), the receiving Party shall
reply with a written response (a “Dispute Notice Response”). Both the Dispute
Notice and the Dispute Notice Response shall include (i) a statement of the
relevant Party’s position with regard to the Dispute and a summary of arguments
supporting such position; and (ii) the name and title of the executive who will
represent that Party in attempting to resolve the Dispute pursuant to this
Section 11.1. Within seven (7) Business Days of delivery of the Dispute Notice
Response, the designated executives shall meet and attempt to resolve the
Dispute. All negotiations pursuant to this clause shall be confidential and
shall be treated as compromise and settlement negotiations, and no oral or
documentary representations or offers made by the Parties during such
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Section 11.2       Arbitration. If any Dispute is not resolved within thirty
(30) Days of receipt of a Dispute Notice pursuant to Section 11.1, then, upon
either Party’s request, the Dispute shall be finally and exclusively resolved by
arbitration as follows:

(a)          The arbitration shall be held accordance with the Commercial
Arbitration Rules (the “Rules”) of the American Arbitration Association (the
“AAA”), then in effect, except as modified herein. The arbitration shall be
held, and the award shall be issued in Chicago, Illinois.

(b)         The Parties shall appoint an arbitrator satisfactory to both
parties. If the arbitrator is not appointed within the time limit provided
herein, such arbitrator shall be appointed by the AAA by using a listing,
striking and ranking procedure in accordance with the Rules. Any arbitrator
appointed by the AAA shall be a retired judge, preferably from a Federal
District Court or Federal Court of Appeals, or a practicing attorney with no
less than twenty (20) years of experience and an experienced arbitrator and if
possible shall have experience with disputes relating to electric power
infrastructure.

(c)          The hearing shall be held, if possible, within four (4) months
after the appointment of the arbitrator, or as soon thereafter as is reasonably
practicable.

(d)         By agreeing to arbitration, the entities signing this Agreement do
not intend to deprive any court of its jurisdiction to issue a pre-arbitral
injunction, pre-arbitral attachment, or other order in aid of arbitration
proceedings and the enforcement of any award. Without prejudice to such
provisional remedies as may be available under the jurisdiction of a court, the
arbitrator shall have full authority to grant provisional remedies and to direct
the entities signing this Agreement to request that any court modify or vacate
any temporary or preliminary relief issued by such court, and to award damages
for the failure of any entity signing this Agreement to respect the arbitrator’s
orders to that effect.

(e)          Any arbitration proceedings, decision or award rendered hereunder
and the validity, effect and interpretation of this arbitration agreement shall
be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. In arriving at
their decision, the arbitrator shall be bound by the terms and conditions of
this Agreement and the Closing Documents and shall apply the governing law of
this Agreement as designated in Section 12.2 hereof.

(f)          Any controversy concerning whether a Dispute is an arbitrable
Dispute or as to the interpretation or enforceability of this paragraph shall be
determined by the arbitrator.

(g)         The arbitrator is not empowered to award damages in excess of
compensatory damages, and each Party hereby irrevocably waives any right to
recover punitive, exemplary or similar damages with respect to any Dispute. The
award, which shall be in writing and shall state the findings of fact and
conclusions of law upon which it is based, shall be final and binding on the
Parties and shall be the sole and exclusive remedy among the Parties regarding
any claims, counterclaims, issues or accounting presented to the arbitrator.
Judgment upon any award may be entered in any court of competent jurisdiction.
In appropriate circumstances, the arbitrator shall have the authority to order a
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(h)         The arbitrator’s award shall allocate, in their discretion, among
the Parties to the arbitration all costs of the arbitration, including the fees
and expenses of the arbitrator and reasonable attorneys’ fees, costs and expert
witness expenses of the Parties. The award shall be final and binding on the
Parties and may be enforced in any court having jurisdiction.

ARTICLE 12

OTHER PROVISIONS

Section 12.1      Counterparts. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the Parties and delivered to the other Party.

Section 12.2       Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE
GOVERNED BY, ENFORCED, AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

Section 12.3     Entire Agreement. This Agreement and the Confidentiality
Agreement and the Schedules and Exhibits hereto and thereto contain the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes any prior agreements, understandings, representations, or warranties
between the Parties.

Section 12.4      Notices. All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed, by
United States mail, or telecopy to the appropriate address or number as set
forth below.

Notices to Seller shall be addressed as follows:

NorthWestern Corporation

3010 West 69th Street

Sioux Falls, SD 57108

Attention: General Counsel

Telecopy No.:

with copies to:

Leonard, Street and Deinard, P.A.

150 South Fifth Street, Suite 2300

Minneapolis, MN 55042

Attention: Tammie Ptacek

Telecopy No.: (612) 335-1657

or at such other address and to the attention of such other Person as Seller may
designate by written notice to Buyer.

 

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Notices to Buyer shall be addressed to:

Bicent (Montana) Power Company LLC

103 North Washington Street

Easton, MD 21601

Attention: President

Facsimile: (410) 770-9705

with copies to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attention: Carl L. Reisner, Esq.

Facsimile: (212) 757-3990

or at such other address and to the attention of such other Person as Buyer may
designate by written notice to Seller.

Notice given by overnight delivery or mail shall be effective upon actual
receipt. Notice given by telecopier shall be effective upon actual receipt if
received during the recipient’s normal business hours, or at the beginning of
the recipient’s next Business Day after receipt if not received during the
recipient’s normal business hours. All notices by telecopier shall be confirmed
by the recipient Party to the Party giving such notice promptly after
transmission in writing by certified mail or overnight delivery.

Section 12.5       Successors and Assigns. The rights and obligations of the
Parties shall not be assigned or delegated by either Party, other than with the
written consent of the other Party, which may be withheld in such Party’s sole
discretion; provided, however, that notwithstanding the foregoing, Buyer may
freely transfer its obligations hereunder to any subsidiary or financing source
of Buyer, without Seller’s prior consent, provided that Buyer shall remain
liable for all obligations of Buyer hereunder that may be assumed by such
subsidiary or financing source. Subject to the preceding sentence, this
Agreement shall be binding upon and inure to the benefit of the Parties and
their successors and assigns.

Section 12.6      Amendments. This Agreement may not be modified or amended
except by an instrument or instruments in writing signed by both Parties.

Section 12.7      Agreement for the Parties’ Benefit Only. This Agreement is not
intended to confer upon any Person not a Party hereto any rights or remedies
hereunder, and no Person, other than the Parties and the Indemnified Parties is
entitled to rely on any representation, warranty, covenant, or agreement
contained herein.

 

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Section 12.8       Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any Applicable
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal, or incapable of being enforced,
the Parties shall negotiate in good faith to modify this Agreement so as to give
effect to the original intent of the Parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.

Section 12.9      Transfer Taxes. Payment of all Transfer Taxes, if any,
resulting from the transactions contemplated by this Agreement shall be shared
equally by Buyer and Seller. Buyer shall prepare and timely file all Tax Returns
or other documentation relating to such Taxes; provided, however, that to the
extent required by Applicable Law, Seller shall join in the execution of any
such Tax Returns or other documentation relating to such Taxes. Buyer shall
provide to Seller copies of each Tax Return described in the proviso of the
immediately preceding sentence at least fifteen (15) days prior to the date on
which such Tax Return is required to be filed.

Section 12.10    Bulk Sales or Transfer Laws. Buyer hereby waives compliance by
Seller with the provisions of the bulk sales or transfer laws of all applicable
jurisdictions. Seller agrees to pay all claims of creditors which could be
asserted against Buyer because of such noncompliance. Seller indemnifies Buyer
against any liability or expense, including attorneys’ fees, incurred by Buyer
by reason of the failure of Seller to pay such claims.

Section 12.11    No Waiver. No failure or delay by a party to this Agreement in
exercising any right or remedy provided by law or under or pursuant to this
Agreement shall impair such right or remedy or operate or be construed as a
waiver or variation of it or preclude its exercise at any subsequent time and no
single or partial exercise of any such right or remedy shall preclude any other
or further exercise of it or the exercise of any other right or remedy.

Section 12.12    Cumulative Remedies. The rights and remedies of the parties
under or pursuant to this Agreement are cumulative, may be exercised as often as
such party considers appropriate and are in addition to its rights and remedies
under general law.

Section 12.13   Further Assurances. The parties agree to use commercially
reasonable efforts to perform (or procure the performance of) all further acts
and things, and execute and deliver (or procure the execution and delivery of)
such further documents, and may be required by Applicable Law or as either of
the parties may reasonably require, whether on or after the Closing, to
implement and/or give effect to this Agreement and the Closing Documents and the
transactions contemplated herein and therein and for the purpose of vesting in
the Buyer the full benefit of the Colstrip 4 Interests, rights and benefits to
be transferred to the Buyer under this Agreement and the Closing Documents.

 

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Section 12.14     Facsimile Signatures. Signatures delivered by facsimile or pdf
on this Agreement or any document executed in connection herewith shall be
binding to the same extent as an original.

Section 12.15     Specific Performance. Except as provided for in Section 10.4,
Seller hereby acknowledges and agrees that money damages would not be a
sufficient remedy for any breach of this Agreement by Seller, that Buyer would
suffer irreparable harm as a result of any such breach, and that, in addition to
all other remedies available under this Agreement or at law or in equity, Buyer
shall be entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach or threatened breach, without posting any
bond, security or other undertaking. In the event of any action by Buyer to
enforce this Agreement, and except as provided for in Section 10.4, Seller
hereby waives the defense that there is an adequate remedy at law.

Section 12.16     Effectiveness. Notwithstanding Section 5.9 or anything else to
the contrary in this Agreement (i) the Parties acknowledge that the Buyer LC has
not been delivered to the Seller simultaneous with the execution and delivery of
this Agreement, (ii) this Agreement shall not be effective unless and until the
Buyer LC is delivered to the Seller, and (iii) if the Buyer LC is not delivered
by the Buyer to the Seller before Tuesday June 10, 2008 at 3:00 PM New York City
time, this Agreement shall automatically terminate and be null and void and of
no further force or effect, without liability of either Party to the other
Party, and no Party shall have any further obligation hereunder.

 

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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of
the Parties as of the day first above written.

Seller:

NORTHWESTERN CORPORATION

 

By:

/s/ Michael J. Hanson

 

 

Name: Michael J. Hanson

Title: President and Chief Executive Officer

Buyer:

BICENT (MONTANA) POWER COMPANY LLC

 

By:

/s/ Paul B. Prager

 

 

Name: Paul B. Prager

Title: President

 

 

 

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