20181025Avista to Staff 43-45.pdf

Avista Corp.
141 1 East Mission P .O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
October 24,2018
*nnstr
i"i:C I IVI D
:rii5 iIT ?5 n.ii 9: S0
" ' l r.a: , , ;;_r,, i, .,, .-_, i,ri;,i,',lii;:iOi.l
Corp,
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ID 83702-0074
Attn: Brandon Karpen
Deputy Attorney General
Re: Production Request of the Commission Staff in Case No. AVU-E-I7-09/AVU-G-17-05
Dear Mr. Karpen,
Enclosed are Avista's responses to IPUC Staffs production requests in the above referenced
docket. Included in this mailing are the original and two paper copies of Avista's responses to
production requests: Staff 043(AVA) - 045(AVA). Also enclosed on three separate CD's are
copies of Avista's responses to the production requests. The electronic versions of the responses
were emailed on l0l24ll8.
Enclosed please find the following HIGHLY CONFIDENTIAL ("HC") responses from Avista:
. StaflPR_043(HCXAVA)
Please handle these materials in conformance with the Protective Agreement's "Highly
Confidential Provisions" and "Confidential Provisions" associated with the above-referenced
docket.
Note as to forward-looking statements and information:
With respect to all of Hydro One's data responses served in this proceeding, to the extent any
response or attachments contain forward-looking information or statements, within the meaning
of applicable securities laws, that are based on current expectations, estimates, forecasts and
projections about Hydro One's business and the industry in which Hydro One operates and include
beliefs and assumptions made by the management of Hydro One, such information and statements
are not guarantees of future performance or actions and involve assumptions and risks and
uncertainties that are diffrcult to predict. Words such as "expect," "anticipate," o'intend," "attempt,"
"mayr" "planr" "will," "canr" otbeliever" t'seek," "estimate," and variations of such words and
similar expressions are intended to identify such forward-looking information/statements.
Therefore, actual outcomes and results may differ materially from what is expressed, implied or
forecasted in such forward-looking information/statements. Hydro One does not intend, and Hydro
One disclaims any obligation to update any forward-looking information/statements, except as
required by law.
If there are any questions regarding the enclosed information, please contact Paul Kimball at (509)
495-4584 or via e-mail at [e-mail]
Avista Corp.
1411 East Mission P.O. Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
Sincerely,,.--
AEgETE
Corp.
*--- -2
Paul Kimball
Mgr. Compliance & Discovery
Enclosures
CC (Email):
Ccs (w/encls.)
Daniella Franco-Malone, Esq.
Schwerin Campbell Barnard Iglitzin & Lavitt LLP
l8 West Mercer Street, Suite 400
Seaettle, WA 981 19-3971
Peter J. Richardson
Gregory Adams
KandiWalters
Richardson Adams PLLC
Richardson & O'Leary PLLC
515 N. 27th Street
Boise, ID 83702 (representing Clearwater Paper Corporation)
Matthew Nykiel
Conservation Associate
Idaho Conservation League
102 Euclid Ave., #207
Sandpoint, ID 83864
Benjamin Otto
Energy Associate
Idaho Conservation League
710 N.6th Street
Boise, ID 83702
David Wren
Nathan Smith
Clearwater Paper Corporation
803 MillRoad
Lewiston,lD 83501
IPUC (Hanian)
Clearwater (Richardson, Reading, Lewallen, Haugen, Jacobs, Wren, Smith)
Idaho Conservation League (Otto, Nykiel)
Idaho Forest Group (Miller, Williams, Crowley)
CAPAI (Purdy)
WNIDCL (Franco)
Avista Corp.
1 41 1 East Mission P .O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]TollFree 800-727-9170
Jay Backus
C learwater Paper Corporation
601 W. Riverside Avenue, #l100
Spokane, WA 99201
Don Reading
Ben Johnson Associates
6070 W Hill Road
Boise, ID 83703
(representing C learwater Paper Corporation)
Afrttsrt
Corp,
ruRISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AYISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: October 24,2018
AVU-E-I7-09/AVU-G-17-05 WITNESS: Paul Dobson (H1)
Mark Thies (AVA)
IPUC RESPONDER: Adele Pantusa (Hl)
Annette Brandon (AVA)
Production Request DEPARTMENT: Law
Staff-043(AVA) TELEPHONE: [phone] I 509-495-4324EMAIL: [e-mail]
annette.branodon@avistacorp. com
REQUEST:
Please individually specifu the compensation, bonuses, and any type of additional financial benefit that
each Avista and Hydro One employee who filed testimony or supplemental testimony in this case stands
to make if the merger is completed.
RESPONSE:
Hydro One Witnesses:
Please see SIafIPR_043(HCXAVA) for this portion of the response.
Avista Witnesses:
Estimated compensation which will be paid to Avista employees is fully described on pages 53-65 of the
Proxy Statement filed on October 2,2017 with the Security and Exchange Commission. For ease of
reference, please see StaflPR_043(AVA) Attachment A for a copy of this filing.
The Avista employees who filed testimony or supplemental testimony in this case are Scott Monis,
Mark Thies, Kevin "Collins" Sprague, Pat Ehrbar, Bruce Howard and Kevin Christie. To summarize,
additional "financial benefit" or compensation paid to said employees once the merger is completed is
comprised primarily of severance and accelerated Company incentive equity awards, and accumulated
dividends. Executive officers (Company Witnesses Morris, Thies and Christie) are entitled to severance
payments pursuant to their Change in Control agreements only in the event of a qualiffing termination
of employment.l Therefore, the completion of the merger in and of itself will not automatically result in
a payment of these severance amounts. Certain executive officers may be entitled to retention bonuses if
established criteria is met. Please see the full explanation in the attached Proxy. Finally, all employees
who participate in the Company's Long Term Incentive Plan (Company Witnesses Sprague, Howard
and Ehrbar) will receive additional compensation from the automatic vesting of performance shares and
restricted stock units.
r "Quali$ing termination" is defined differently for Named Executive Officers vs. other Executive Officers. Please see
Proxy Statement pages 54-55 for additional information (StaflPR_043(AVA) Attachment A).
Table of Contents
Ifthe merger is not completed, there is no assurance as to the effect ofthese risks and opportunities on the future value ofyour shares ofCompany comnon
stock, including the risk that the market price of Company common stock may decline ifthe current market price ofthe Company common stock reflects a
market assumption that the merger will be completed. Ifthe merger is not completed, there is no assurance that any other transaction acceptable to the
Company will be offered or that the business, operations, financial condition, eamings or prospects ofthe Company will not be adversely impacted. Pursuant
to the merger agreement, under certain circumstances the Company is permitted to terminate the merger agreement in order to enter into an altemative
transaction. Please see the section of this proxy statement entitle d "The Merger Agreement-Termination of the Merger Agreement" beginning on page 92.
Under certain circumstances, if the merger agreement is terminated, the Company may be obligated to pay to Hydro One a termination fee. Under certain
other circumstances, ifthe merger agreement is terminated, Hydro One may be obligated to pay the Company a termination fee. Please see the section ofthis
proxy statement entitled "The Merger Agreement-Terminatiou Fees" beginning on page 93.
Financing of the Merger
There is no financing condition to the merger. Hydro One intends to finance the aggregate cash consideration payable at the closing ofthe merger and related
expenses with a combination of some or all of the following:
. net proceeds ofthe first installment (to the extent available) and the final installment in respect ofthe sale in August 20 I 7 by a direct, wholly
owned subsidiary ofHydro One ofC$ 1,540,000,000 aggregate principal amount of4.00% convertible unsecured subordinated debenturcs
(including exercise ofover-allotment option) represented by installment receipts that are convertible into common shares ofHydro One;
. net proceeds ofany zubsequent bond or other debt offerings;
. amounts drawn underthe existing C$250,000,000 operating credit facility available to Hydro One; and
. existing cash on hand and othersources available to Hydro One.
Hydro One intends to use the net proceeds ofthe final installment under the debenture offering described above to finance, directly or indirectly, together
with the net proceeds ofthe first installment under that offering to the extent available, part ofthe cash consideration payable for the merger and for other
expenses related to the merger.
Hydro One currently intends to fund the remainder ofthe cash consideration for the merger with a combination ofbond or other debt financings,
denominated principally in U.S. dollars in order to provide a significant natural currency hedge, drawdowns on the operating credit facility described above
and cash on hand.
Hydro One's overall financing plan in respect of the merger is structured and targeted to maintain Hydro One's and the Company's strong investment grade
status.
Interests of the Company's Directors and Executive OIIcers in the Merger
Ovemiew
In considering the proposals to be voted on at the special meeting, you should be aware that certain ofthe Company's directors and executive officers have
interests in the merger that may be differ€nt from, or in addition to, your interests as a shareholder. The members ofthe Boarrd were aware ofand considered
these interests, among other matters, in evaluating and reaching the Board's decision to adopt the plan ofmerger set forth in the merger agreement and in
resolving to recommend the Company's shareholders vote to approve the merger agreement and the plan ofmerger set forth therein. As described in more
detail below, these interests include:
. at the effective time, each performance award that is outstanding immediately prior to the effective time (including any performance award with
respect to which the applicable performance period has
53
Staff_PR_043(AVA) Attachment A
Table of Contents
ended, but which performance award has not been settled) will be cancelled and the holder thereofwill then become entitled to rcceive, in full
satisfaction ofsuch holder's rights with respect thereto, a lump-sum cash payment equal to the product of(i) the performance award amount, and
(ii) the merger consideration, subject to any withholding taxes required by law to be withheld in accordance with the merger agreement; and all
accumulated dividends, ifany, accrued but unpaid with respect to performance awards will, by virtue ofthe merger and without any action on
the part ofa holder thereof, automatically become fully vested and be paid to such holdeq
at the effective time, each RSU that is outstanding imrnediately prior to the effective time and which by its terms would vest beforr the calendar
year or in the calendar year in which the effective time occurs will be cancelled and the holder thereofwill then become entitled to receive, in
full satisfaction ofsuch holder's rights with respect thereto, a lump-sum cash payment equal to the product of(i) the number ofshares of
Company corrmon stock subject to such cancelled RSUimmediately priorto the effective time and (ii)the mergerconsideration; and all
accumulated dividends, ifany, accrued but unpaid with respect to such cancelled RSUs will, by virtue ofthe merger and without any action on
the part ofa holder thereo{, automatically become fully vested and be paid to such holder;
at the effective time, each RSU that is outstanding immediately prior to the effective time and which by its terms would vest in any calendar year
following the calendar year in which the effective time occurs vrill be adjusted as necessary to provide that, at the effective time, each such RSU
will be converted into a Converted RSU, and each such Converted RSUwill not be accelerated except as provided in the RSU Agreement. At the
effective time, Hydro One will assume all obligations ofthe Company with respect to the Company stock plans and each outstanding Converted
RSU and the RSU Agreements evidencing the grants thereof. As soon as practicable after the effective time, Hydro One will deliver to the holden
ofConverted RSUs appropriate notices setting forth such holders' rights, and the RSU Agreements evidencing the grants ofsuch Converted
RSUs will continue in effect on the same terms and conditions (subject to the adjustments required by the merger agreement after giving effect to
the merger). The Converted RSUs will be settled in shares ofcommon stock ofHydrc One, which will not be subject to any Canadian hold period
and may be resold by the holder ofthe Converted RSU on the Toronto Stock Exchange without any applicable U.S. restricted period having
elapsed, or cash, as determined by Hydro One, and Hydro One will take all corporate action necessary to effectuate the foregoing.
Notwithstanding the foregoing, and for the purpose ofclarity, it is understood by Hydro One, the Company and the surviving corporation that
the Converted RSUs will be awarded and issued under the Parent LTIP. For the avoidance ofdoubq the terms and conditions applicable to such
Converted RSUs will be the same as the terms and conditions set forth in the Company stock plans and the RSU Agrcements pursuant to which
such Converted RSUs were granted, nofidthstanding that the Converted RSUs will be issued under the Parent LTIP;
Converted RSU Awards will be subj ect to 100% accelerated vesting upon a termination of employment after the closing (other than by the
surviving corporation for "cause" or by the executive officer without "good reason");
pursuant to their Change ofControl Agreements, executive officers (i) will be eligible to receive certain severance payments and benefits upon
certain types ofterminations ofemployment that occur on or after the effective time and (ii) are entitled to continuation oftheir existing
employment and compensation terms for the three-year period following a change ofcontrol;
effective as of the effective time, the Company will amend the Change of Control Agreements for each of the Company's named executive
officers, namely, Scott L. Morris, Mark T. Thies, Dennis P. Vennillion, Marian M. Durkin and Karen S. Feltes to provide that each such individual
may voluntarily terminate his or her employment without "good reason" (as such term is defined in the applicable Change ofControl
Agreement) upon providing the Company with notice oftermination at least six (6) months prior to the individual's date oftermination, and
such voluntary termination without "good reason" shall be included as one ofthe events for the payment ofseverance payments and benefits,
54
Staff_PR_043(AVA) Attachment A
Table of Contents
along with a voluntary termination for "good reason" and an involuntary termination without "cause" (each, a "qualifring termination"), such
that, for the avoidance ofdoubt, the same severance payments and benefits will be provided upon both a voluntary termination without "good
reason" and a qualiffing termination; provided that the aggregate amount ofseverance payments and benefits to be received upon a voluntary
termination without "good reason" shall not exceed the aggregate amount ofseverance payments and benefits the individual would receive
upon a qualiffing termination occurring at the effective time;
all of the Company's executive officers (other than the named executive officers), namely, Kevin J. Christie, James M. Kensok, Ryan L. Krasselt,
David J. Meyer, Kelly O. Norwood, Heather L. Rosentrater, Edward D. Schlect, Jr. and Jason R. Thackston, will be eligible to participate in the
Executive Retention Program to be established by Hydro One as ofthe effective time, underwhich the executive officerwill have an opportunity
to eam a retention bonus equal to I 50% ofhis or her base salary (at the rate in effect as ofthe effective time), provided such executive officer is
an active, full time employee of the Company on the next calendar day (the "Retention Date") immediately following the day which is the third
year anniversary date of the effective time (the "CoC Agreement Termination Date"). If the executive officer's employment terminates prior to
the Retention Date, then absent Hydro One's good faith exercise ofdiscretion under certain circumstances, such executive officer will not receive
any payment under the Executive Retention Program. Participation in the Executive Retention Program is subject to the executive officer's
waiver/release, which will be effective as ofthe effective time, in which the executive officer acknowledges and agrees, notwithstanding any
provision of his or her Change of Control Agreement to the contrary, that his or her Change of Control Agreement will remain effective through
the CoC Agreement Termination Date and immediately thereafter terminate. If the executive officer elects (in his or her sole discretion) not to
execute such a waiver/release, such executive officer will not participate in the Executive Retention Program, and his or her Change ofControl
Agreement will remain in place without the foregoing modification; and
pursuant to their Change of Control Agreements, certain executive officen, including all of the Company's named executive officers, are entitled
to a gross-up payment ifthe total amount ofsuch executive officer's payments and benefits that would be subject to the excise tax imposed
under Section 4999 of the Intemal Revenue Code of I 986, as amended, which we refer to as the "Code" (the "Excise Tax") exceeds I I 0% ofthe
greatest amount that could be paid to the executive officer such that the receipt ofthe payments and benefits would not give rise to any Excise
Tax; and with respect to an executive officer who is not eligible for a gross-up payment under his or her Change ofControl Agreement, the
Company, subject to Hydro One's prior approval, may take actions (other than providing grcss-ups or any other action that would require
additional payments or costs to be incurred by the Company) to reduce the amount ofany potential "excess parachute payments" for such
individual ifhe or she is a "disqualified individual" (each as defined in Section 280G ofthe Code), and acceleration ofthe vesting or payment of
any amounts or benefits due to an executive officer will not be considered the incurrence ofan additional payment or cost by Company for
purposes of the foregoing.
The directors and executive omcers ofthe Company also have the right to indemnification and insurance coverage that will survive the completion ofthe
merger. Please see the section below entitled "-Director and Officer Indemnification and Insurance" beginning on page 6 l and the section ofthis proxy
statement entitled "The Merger Agreement-Dtrector aild Afficer IndemniJication and Insurance " beginning on page 88.
Payments to Execative Ofrcers in Respect of Equity Awards
At the effective time, (i) each outstanding performance award will be cancelled in exchange for tlre right to receive a lump-sum cash payment equal to the
product of(A) the performance award amount, and @) the merger consideration, subject to any required tax withholding; and all accumulated dividends, if
any, accrued but unpaid with respect to performance awards will automatically become fully vested and be paid to such holder; (ii) each
55
Statr_PR_043(AVA) Attachment A
Table of Contents
outstanding RSU which by its terms would vest before the calendar year or in the calendar year in which the effective time occun will be cancelled in
exchange for the right to receive a lump-sum cash payment equal to the product of(A) the number ofshares ofCompany corrmon stock subject to such
cancelled RSU immediately prior to the effective time and @) the merger consideration; and all accumulated dividends, if any, accrued but unpaid with
respect to such cancelled RSUs will automatically become fully vested and be paid to such holder; and (iii) each outstanding RSU which by its terms would
vest in any calendar year following the calendar year in which the effective time occurs will be converted into a Converted RSU, and each such Converted
RSU will not be accelerated except as provided in the RSU Agreement, in each case, as described in the section enlitled,"The Merger Agreement-Treatment
of Equity Awards" beginning on page 76 of this proxy statement. All such Converted RSU Awards will fully vest in the event of a qualifying termination (as
described below) that occurs prior to the date on which the Converted RSU Award is scheduled to vest.
For purposes of the Converted RSU Awards, a qualifying termination means a temination other than by the suwiving corporation for "cause" or by the
executive officerwithout "good reason," each as defined in the Company's Long-Term lncentive Plan, as amended and restated (the'LTIP"). The LTtr
defines "cause" as: (i) the willful and continued failure ofthe holder to perform substantially the holder's duties with the Company or one ofits subsidiaries
(other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the
holder by the Board or the Chief Executive Omcer of the Company which specifically identifies the manner in which the Board or the Chief Executive
Officer believes that the holder has not substantially performed the holder's duties; or (ii) the willful engaging by the holder in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company. The LTIP defines "good reason" as: (i) the assignment to the holder ofany
duties inconsistent in any respect with the holder's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities,
or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt ofnotice thereofgiven by
the holder; (ii) any failure ofthe Company to comply with its standard compensation arrangements with the holder, including the failure to continue in effect
any material compensation or benefit plan (or the substantial equivalent thereof) in which the holder was participating at the time ofa "change ofcontrol" (as
defined in the LTIP and which would include the merger), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thercof from the holdeq (iii) any purported termination of the holder's employment or sewice for
"cause" by the Company that does not comply with the terms ofthe LTIP; or (iv) the failure ofthe Company to require that any successor corporation
(whether by purchase, merger, consolidation or otherwise) exprEssly assume and agree to be bound by the terms ofthe LTIP in the same manner and to the
same extent that the Company would be required to perform ifno such succession had taken place.
The Company's non-emFloyee directors do not hold any RSUs orperformance awards.
The table below sets forth: (i) the value ofoutstanding unvested performance awards expected to be held by ourexecutive officers as ofAugust 15,2018; and
(ii) the value of outstanding unvested RSUs expected to be held by our executive officen as of August I 5, 201 8. The merger agreement provides that
performance awards and RSUs to be granted to each executive officer on February 2, 20 I 8 may not exceed the aggregate grant date fair value ofthe
corresponding awards made to the executive ofEcer on February 2,2017 .However, because the number ofperformance awards and RSUs related to the
aggregate grdnt date fairvalue on February 2,2018 is not determinable at this time, the table (w) assumes that, on February 2,2018, each executive officer
receives (l ) a grant ofperformance awards that has an aggregate grant date fair value equal to the aggregate grant date fair value ofthe performance awards
granted to such executive officer on February 2,2017 and (2) a grant ofRSUs that has an aggregate grant date fair value equal to the aggregate grant date fair
value of the RSUs granted to such executive oflicer on February 2,2017 (wlth the grants set forth in clauses (1) and (2) representative of the maximum
aggregate grant date fair values permissible under the merger agreement); (x) assumes that a prorated portion ofthe performance awards granted on
February 2, 20 I 8 will be cashed out upon the completion ofthe
56
Staff_PR_043(AVA) Attachment A
Table of Contents
merger, and that a prorated portion of the RSUs granted on February 2, 201 8 vrill be converted into Converted RSUs upon completion of the merger (while
the merger agreement does not require such proration and would allow for the cash-out ofall performance awards granted on February 2, 20 I 8 and for the
conversion ofall unvested RSUs granted on February 2, 20 I 8 into Converted RSUs, the Company's historic practice would be to provide for proration under
such circumstances, and for purposes ofthis disclosure, it has been assumed that the Board will follow such historic practice with respect to the performance
awards and RSUs granted on February 2,2018); (y) excludes performance awards and RSUs that were previously granted to executive officers and that are
expected to vest in the ordinary course before August I 5, 20 I 8 in accordance with the existing terms ofthe applicable award agreements; and (z) assumes
that two quarterly dividends, each equal to $0.3575 per share, are issued, in the ordinary course ofbusiness consistent past practice. A:ry awards in 201 8 will
be made, subject to the merger agreement, at the discretion ofthe Board and are subject to the approval ofthe Board. The table set forth below does not
include nor attempt to forecast any grants or additional issuances ofincentive equity awards fotlowing September I ,2017 ,the latest practicable date before
filing ofthis proxy statement (other than the annual grants expected to be made on February 2,2018, as set forth above), nor do they forecast any dividends
(other than the ordinary course quarterly dividends set forth above) or forfeitures ofincentive equity awards following the date ofthis proxy statement.
Depending on when the closing date occurs, certain performance awards and RSUs shown in the table may vest prior to the closing date in accordance with
their terms.
The table below also sets forth, for each individual and assuming the closing date occurs on August I 5, 20 I 8 for these purposes, the total value, based on the
number ofincentive equity awards determined as described in the preceding paragraph, of(i) I 00% ofthe then-outstanding perlormance awards granted prior
to September 1,2017 and the prorated portion ofthe performance awards expected to be granted on February 2,2018,all ofwhich will be cashed-out upon
completion ofthe merger, plus (ii) I 00% ofthe then-outstanding RSUs granted prior to September 1,2017 and the prorated portion ofthe RSUs expected to
be granted on February 2,2018,al| ofwhich will be converted into Converted RSUs upon completion ofthe merger. The amounts are calculated by
(x) multiplying the number ofshares subject to each award by the per share merger consideration of$53.00, and (y) determining the number ofshares subject
to the performance awards based on achievement ofthe performance criteria at (l ) target level with respect to performance awards for which the performance
period has ended as ofimmediately prior to the effective time and (2) target level with respect to performance awards for which the performance period has
not ended as of immediately prior to the effective time.
Company Incentive Equity Awards and Accumulated Dividends (As ofAugust 15,2018)
Name
Perfornance
Awards ($X2X3)RSUs ($Xl)(s) Total Value ($)
N a me d Ex ecu t ive Off c ers('l I
Scott L. Morris
Mark T. Thies
Dcnnis P. Vermillion
Marian M. Durkin
Karen S. Feltes
Ot h er Exe c ut iv e Olfi c e rs
Kevin J. Christie
James Kensok
Ryan L. Krasselt
David Meyer
Kelly Norwood
Heather L. Rosentrater
Edward D. Schlect, Jr.
Jason Thackston
57
$ 4,966,2s8$ r,578,558s 1,607,849$ r,233.307$ I,233,307
$ 51 8,2s 1$ 5l 8.25 l$ 51 8,25 I$ 5l 8.25 l$ 518,251$ 5l 8.25 r$ 5l 8,251s 1,044.229
$ 885,702s 281 ,450$ 286,78'ls 220.092$ 220,092
$ 92,s 19$ 92.5 l9$ 92,519$ 92.5r9$ 92,5t9$ 92.5r9$ 92,5 l9$ 186.278
$ s,8s 1,960$ r,860,008$ 1,894,636$ 1,453,399$ I ,4s 3,399
$ 6 10,770$ 610.770$ 610,770$ 6l 0.770$ 6l 0,770$ 6l 0.770$ 6l 0,770$ 1230,s07
Staff_PR_043(AVA) Attachment A
(3)
Table of Contents
(l)The Company's "named executive officers" are its chiefexecutive ofticer, chieffinancial officer and the three other most highly compensated
sxecutive officers, as determined for purposes ofthe Company's most recent proxy statement.
The values set forth above are based on the presumption that the Company's executive officers receive the following number ofperformance awards on
February 2,2018: (a) Monis: 28,884; (b) Thies: 9,1 81; (c) Vennillion: 9,35 l; (d) Durkin: 7 ,173; (e) Feltes: 7,173; (f) Christie: 3,014; (g) Kensok:
3,014; ft) Knsselt: 3,014; (i) Meyer: 3,014; O Norwood: 3,014; (k) Rosentrater: 3,0I4; O Schlect: 3,014; and (m) Thackston: 6,073.
The values set forth above are based on the presumption that the Board will provide for a prorated portion ofthe performance awards granted on
February 2, 20 1 8 to be cashed out. Ifthe Board instead provides for all ofthe performance awards granted on February 2, 20 I 8 to be cashed out, the
values set forth above would be replaced with the following: (a) Monis: $6,000,590; (b) Thies: $1,907,328; (c) Vermillion: $1,942,718; (d) Durkin:
$1,490,170; (e)Feltes: $1,490,170; (f)Christie: $626,188; (g)Kensok: $626,188; (h)Krasselt: $626,188; (i)Meyer. $626,188; ONorwood: $626,188;
(k)Rosentrater: $626,188; (l) Schlect: $626,188; and (m)Thackston: $1,261,713.
The values set forth above are based on the presumption that the Company's executive officers receive the following number of RSUs on Febmary 2,
2018: (a) Morris: 9,627; @) Thies: 3,059; (c) Vermillion: 3,1 I 7; (d) Durkin: 2,392; (e) Feltes: 2,392; (0 Christie: I ,006; (g) Kensok: 1,006; (h) Krasselt:
1,006;(i)Meyer:1,006;(i)Norwood:1,006; ft)Roscntrater:1,006;(l)Schlect:1,006;and(m)Thackston:.2,025.
The values set forth above are based on the presumption that the Board will provide for a prorated portion ofthe RSUs granted on February 2,2018 to
be converted into Converted RSUs. Ifthe Boarrd instead provides for all ofthe unvested RSUs granted on February 2, 20 1 8 to be converted into
Converted RSUs, the values set forth above would be replaced with the following: (a) Morris: $ I,230336; (b) Thies: $390,996; (c) Vermillion:
$398,41 l; (d)Durkin: $305,756; (e)Feltes: $305,756; (f)Christie: $128,550; (g)Kensok: $128,550; (h)Krasselt: $128,550; (i)Meyer: $128,550;
O Norwood: $ 128,550; ft) Rosentrater: $I28,550; (l) Schlect: $128,550; and (m) Thackston: $258,78 1.
(2)
Change of Contol Agreemeats
Each of the following l3 executive officers of the Company has entered into a Change of Control Agreement with the Company: Scott L. Morris, Mark T.
Thies, Dennis P. Vermillion, Marian M. Durkin, Karen S. Feltes, Kevin J. Christie, James Kensok, Ryan L. Krasselt, David Meyer, Kelly Norwood, Heather L.
Rosentrater, Edward D. Schlect, Jr., and Jason Thackston. In the event an executive officer who is party to a Change ofControl Agreement experiences a
qualifying termination (as described below) at any time prior to the third anniversary ofthe effective time, the executive will be entitled to the following
payments and benefits under his or her Change ofControl Agreement:
. a lump-sum payment equal to the sum of (i) an amount equal to three times (for Messrs. Morris and Thies and Mmes. Durkin and Feltes) or two
times (for all other executive ofticers) the sum of(A) the executive officer's annual base salary as in effect immediately prior to the qualifuing
termination, and @) the executive officer's "highest annual bonus" (which means the greater of (x) the highest annual bonus paid in the last
three full fiscal years prior to the change ofcontrol (annualized for partial years ofemployment) and (y) the bonus paid for the most recently
completed fiscal year (annualized for partial years ofemployment)); and (ii) an amount equal to the executive officer's pro-rata highest annual
bonus for the termination year (prorated based upon the number ofdays ofemployment with the Company until the termination date);
. a lump-sum payment equal to the present value ofthe continuation, for two years after the executive officer's termination date or such longer
period as may be provided by the terms ofthe appropriate plan, program or policy, ofhealth benefits to the executive officer and/or the executive
officer's family that are at least equal to those which would have been provided to them in accordance with the plans, programs, practices and
policies described in the Change ofControl Agreement and in effect on the termination date;
58
(4)
(5)
Staff_PR_043(AVA) Attachment A
Table of Contents
Company payment for reasonable outplacement service expenses actually incuned by the executive officer during a limited period oftime (until
no longer than the last day ofthe second calendar year following the calendar year in which the termination occurs); and
to the extent not theretofore paid or provided, Company payment or provision ofany other amounts or benefits required to be paid or provided
or which the executive officer is eligible to receive under any plan, program, policy or practice or contract or agrcement ofthe Company and its
affiliated companies.
The Change of Control Agreements for Messrs. Morris, Thies, Meyer, Norwood, Kensok, Thackston and Vermillion and Mmes. Durkin and Feltes provide that
ifany payment or distribution by the Company to or for the benefit ofthe executive officer (whether paid or payable or distributed or distributable pursuant
to the terms ofthe Change ofControl Agreement or otherurise, but determined without regard to any additional gross-up payments under the Change of
Control Agreement, ifany) (a "Payment") would be subject to the excise tax imposed by Section 4999 ofthe Code or any interest or penalties are incurred by
the executive officer with respect to such excise tax (such excise tax, togetherwith any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the executive officer will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment
by the executive officer ofall taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the executive officer retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding anything to the contrary in the foregoing, ifthe executive
officer would be entitled to a Gross-Up Payment, but the Payments do not exceed I I 0% ofthe grcatest amount (the "Reduced Amount") that could be paid to
the executive officer such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment will be paid to the executive officer,
and the Payments, in the aggregate, will be reduced to the Reduced Amount.
The Change ofControl Agreements for all other executive officers provide that ifany Payment would constitute an "excess parachute payment" within the
meaning ofSection 280G ofthe Code, the aggregate present value ofthe Payments under the Change ofControl Agreement will be reduced (but not below
zero) to the Reduced Amount, provided that the Payments will be reduced only ifthe accounting firm detennines that the reduction will provide the
Executive with a Breater net after-tax benefit than would no reduction. Payments will be reduced on a nondiscretionary basis in such a way as to minimize the
reduction in the economic value deliverable to the executive officer, in a manner consistent with the requirements ofCode Section 409A. For these executive
officen, the merger agreement provides that the Company, subject to Hydro One's prior approval, may take actions (other than providing grcss-ups or any
other action that would require additional payments or costs to be incurred by the Company) to reduce the amount ofany potential "excess parachute
payments" for such individual ifhe or she is a "disqualified individual" (each as defined in Section 280G ofthe Code), and acceleration ofthe vesting or
payment ofany amounts or benefits due to an executive officer will not be considered the incurrence ofan additional payment or cost by Company for
purposes of the foregoing.
Forpurposes ofthe Change ofControl Agreements, a "qualiSing termination" means a termination by the Company without "cause" orby the executive
officer for "good reason." "Cause" means (i) the willful and continued failure of the executive officer to perform substantially the executive officer's duties
with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the executive officer by the Board or the Chief Executive Officer of the Company which specifically identifies the
manner in which the Board or ChiefExecutive Officer believes that the executive officer has not substantially performed the executive officer's duties, or
(ii) the willful engaging by the executive officer in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For
purposes ofthis provision, no act or failure to act, on the part ofthe executive officer, will be considered '\rillful" unless it is done, or omitted to be done, by
the executive ofticer in bad faith or without reasonable beliefthat the executive officer's action or omission was in the best interests ofthe Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
59
Statr_PR_043(AVA) Attachment A
Table of Contents
duly adopted by the Board or upon the instructions ofthe ChiefExecutive Officer or a senior officer ofthe Company or based upon the advice ofcounsel for
the Company shall be conclusively presumed to be done, or omitted to be done, by the executive officer in good faith and in the best interests ofthe
Company. The cessation ofemployment ofthe executive officer shall not be deemed to be for Cause unless and until there shall have been delivered to the
executive officer a copy ofa resolution duly adopted by the affirmative vote ofnot less than three{uarters ofthe entire membership ofthe Board at a meeting
ofthe Board called and held for such purpose (after reasonable notice is provided to the executive officer and the executive officer is given an opportunity,
togetherwith counsel, to be heard before the Board), finding that, in the good faith opinion ofthe Board, the executive officeris guilty ofthe conduct
described in clauses (i) or (ii) above, and specifring the particulan thereofin detail.
"Good reason" means a voluntary termination by the executive officerthat occun within t\ilo years following the initial existence of any one of the following
conditions arising without the consent ofthe executive officer (i) a material diminution by the Company ofthe executive officer's authority, duties, or
responsibilities; (ii) a material diminution in the executive officer's annual base salary; (iii) a relocation of the offices of the Company at which the executive
officer is principally employed to a location more than 50 miles from the location of such offices immediately prior to the change of control; (iv) a material
diminution in the authority, duties, or responsibilities ofthe supervisor to whom the executive officer is required to report, including a requirement that the
executive officer report to a corporate officer or employee instead of reporting directly to the Board; (v) a material diminution in the budget over which the
executive officer retains authority; or (vi) any action or inaction that constitutes a material breach by the Company ofthe Change ofControl Agreement,
including the failure ofthe Company to obtain from its successors the exprcss assumption and agreement required under the Change ofControl Agreement.
The executive officer must provide notice to the Company ofthe existence ofa condition described in clauses (i) through (vi) above within 90 days ofthe
initial existence ofthe condition, upon the notice ofwhich the Company will be provided a period of30 days during which it may remedy the condition. If
the Company does not agree with the executive officer's "good reason" determination, the parties first will attempt to resolve such dispute in good faith, and
if such efforts are unsuccessful, the pa(ies will submit to binding arbitration with such arbitration to be conducted in Spokane, Washington, by the American
Arbitration Association under its National Rules for the Resolution of Employment Disputes.
Effective as of the effective time, the Company will amend the Change of Control Agreements forMessrs. Morris, Thies and Vermillion and Mmes. Feltes and
Durkin to provide that each such individual may voluntarily terminate his or her employment without "good reason" (as defined above) upon providing the
Company with notice of termination at least six (6) months prior to the individual's date of termination, and such voluntary termination u/ithout "good
reason" shall be included as one ofthe events for the payment ofseverance payments and benefits, along with a qualiSing termination, such that, for the
avoidance ofdoubt, the same severance payments and benefits will be provided upon both a voluntary termination without "good reason" and a qualifying
termination; provided that the aggregate amount ofseverance payments and benefits to be receivcd upon a voluntary termination without "good reason"
shall not exceed the aggregate amount ofseverance payments and benefits the individual would receive upon a qualifying termination occurring at the
effective time.
Pursuant to his or her Change ofControl Agreement, each executive officer is entitled to (i) a position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities at least commensurate in all material respects with the most significant ofthose held, exercised and
assigned at any time during the I 20{ay period immediately preceding the change ofcontrol, with the executive officer's services to be performed at a
location within 50 miles ofhis or her existing location; (ii) an annual base salary at least equal to I 2 times the highest monthly rate in effect within I 2-month
period preceding the change ofcontrol, with the rate to be reviewed no more than I 2 months after the last salary increase awarded to the executive officer
prior to the change ofcontrol and thercafter at least annually (and provided that the rate cannot be reduced following any increase); (iii) a target annual
bonus at least equal to the highest annual bonus paid in the last three full fiscal years prior to the change ofcontrol (annualized for partial years of
employment); (iv) incentive, savings and retirement benefit opportunities and welfare benefit plans that are, in each case, no less favorable, in the
60
Staff_PR_83(AVA) Attachment A
Table of Contents
aggregate, than the most favorable of(A) those provided in the I 20day period immediately preceding the change ofcontrol or (B) or ifmore favorable, those
provided generally at any time after the change ofcontrol to other peer executives ofthe Company and its affiliated companies; (v) expense reimbursements,
fringe benefits and vacation benefits (A) in accordance with the most favorable plans, practices, programs and policies in effect during the I 20day period
immediately preceding the change of control, or @) if morc favorable, as in effect generally at any time after the change of control with rcspect to other peer
executives of the Company and its affiliated companies; and (vi) office or offices of a size and with fumishings and other appointments, and to exclusive
personal secretarial and other assistance, (A) at least equal to the most favorable ofthe foregoing provided at any time during the I 20day period immediately
preceding the change ofcontrol, or @) ifmore favorable to the executive officer, as provided generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
Executive Retention Pro gram
Each of Messn. Christie, Kensok, Krasselt, Meyer, Norwood, Schlect and Thackston and Ms. Rosentrater will be eligible to participate in the Executive
Retention Program to be established by Hydro One as ofthe effective time, under which the executive officer will have an opportunity to eam a retention
bonus equal to 150% of his or her base salary (at the rate in effect as of the effective time), provided such executive officer is an active, full time employee of
the Company on the Retention Date. If the executive officer's employment teminates prior to the Retention Date, then absent Hydro One's good faith
exercise ofdiscretion under certain circumstances, such executive officer will not receive any payment under the Executive Retention Program. Participation
in the Executive Retention Program is subject to the executive officer's waiver/release, which will be effective as ofthe effective time, in which the executive
officer acknowledges and agrees, noturithstanding any provision ofhis or her Change ofControl Agreement to the contrary, that his or her Change ofControl
Agreement will remain effective through the CoC Agreement Termination Date and immediately thereafter terminate. If the executive officer elects (in his or
her sole discretion) not to execute such a waiver/release, such executive officer will not participate in the Executive Retention Program, and his or her
Change ofControl Agreement will remain in place without the foregoing modification. The aggregate amount payable under the Executive Retention
Program is $3,246,600, assuming each executive officer's receipt ofhis or her entirc retention bonus and calculated based on each executive officer's base
salary level as in effect as ofSeptember 1,201'7,the latest practicable date before the filing ofthis proxy statement.
Director and Oficer Indemnification and Insurance
Pursuant to the terms ofthe merger agreement, the directors and officers ofthe Company will be entitled to ce(ain ongoing indemnification and coverage
under directors' and officers' liability insurance policies following the effective time of the merger. Such indemnification and insurance coverage is further
described in the section entitled"The Merger Agreement-Director and. Wcer Indemnification and Insurance " beginning on page 88.
Go Id en Para c hute C o mp e nsatio n
In accordance with Item 402(t) ofRegulation S-K the tables below present the estimated amounts ofcompensation that each named executive officer could
receive that are based on or otherwise rclate to the merger. This compensation is referred to as "golden parachute" compensation by the applicable SEC
disclosure rules, and in this section we use such term to describe the merger-related compensation payable to the Company's named executive officers. This
merger-related compensation is subject to a nonbinding advisory vote ofthe Company's stockholders.
The table below entitled"Potential Change ofControl Payments to Executive afficers," along with its footnotes, shows the compensation that may be paid
or may become payable in connection with, or following, the consummation of the merger to the Company's executive officers identified in the most recent
proxy statement with respect to the 2017 annual meeting ofCompany shareholders.
6l
Staff_PR_043(AVA) Attachment A
Table of Contents
Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant
date, including the assumptions described below, and do not reflect certain compensation actions that may occurbefore the completion ofthe mergerand, as
a result, the actual amounts, ifany, to be received by an executive officer may differ in material respects from the amounts set forth below.
The amounts indicated below do not attempt to quantiff any reduction that may be required as a result ofthe contingent Section 280G cut back provisions
included in the Change ofControl Agreements; theltfore, actual payments to the executive officen who are party to Change of Control Agreements may be
less than the amounts indicated below.
For purposes ofcalculating the amounts indicated below, we have assumed:
. the effective time is August I 5, 201 8, which is the assumed date of the closing of the merger solely for purposes of this transaction-rclated
compensation disclosure;
. the relevant price per share ofCompany cornmon stock is equal to the $53.00 merger consideration;
. each executive officer is terminated by the Company without "cause" or resigns for "good reason" (as such terms are defined in the relevant plans
and agreements), in each case, immediately following the effective time (each referred to as a "qualifying termination");
. each executive officer will receive a grant ofperformance awards on February 2, 20 I 8 that has an aggregate grant date fair value equal to the
aggregate grant date fair value ofthe performance avr'ards granted to such executive officer on February 2,2017; and a prorated portion ofthe
performance awards granted on February 2, 20 I 8 will be cashed out upon completion ofthe merger (while the merger agreernent does not require
such proration and would allow for the cash-out ofall performance awards granted on February 2, 20 I 8, the Company's historic practice would
be to provide for proration under such circumstances, and for purposes ofthis disclosure, it has been assumed that the Board will follow such
historic practice with respect to the performance awarids granted on February 2, 201 8);
. each executive officerwill receive a grant ofRSUs on February 2,2018 that has an aggregate gl.rtnt date fairvalue equal to the aggregate grant
date fair value ofthe RSUs granted to such executive officer on February 2,2017; and a prorated portion of the RSUs granted on February 2,
20 1 8 will be converted into Converted RSUs upon completion ofthe merger (while the merger agreement does not require such proration and
would allow for the conversion of all unvested RSUs granted on February 2,2018 into Converted RSUs, the Company's historic practice would
be to provide for proration under such circumstances, and for purposes ofthis disclosure, it has been assumed that the Board will follow such
historic practice with respect to the RSUs granted on February 2,2018);
' quantification ofoutstanding equity awards is calculated based on the outstanding equity awards held by each executive officer as of
September I ,2017 ,the latest practicable date before the filing ofthis proxy statement, plus the additional equity awards to be granted to such
executive officer on February 2, 20 I 8, as referenced above;
' all unvested equity awards held by each executive officeras ofSeptember 1,2017 remain unvested immediately before the effective time
(excluding performance awards and RSUs that were previously granted to executive officers and that are expected to vest in the ordinary course
before August I 5, 20 I 8 in accordance with the existing terms ofthe applicable award agreements);
' each executive officer's highest annual bonus paid in the last three full fiscal years and five-year taxable income history for purposes ofthe
Section 280G gross-up have been determined as ofSeptember 1,201'l ,the latest practicable date before the filing ofthis proxy statement; and
' for purposes ofthe agreements and plans described below, the consummation ofthe merger as contemplated by the merger agreement constitutes
a "change ofcontrol" at the effective time.
62
Staff_PR_043(AVA) Attachment A
Table of Contents
For a narrative description ofthe terms and conditions applicable to the payments quantified in the table below, see the sections enlitled"-Payments to
Executive Officers in Respect of Equity Awards" and,"-Change ofControl Agreements" above.
Potential Change of Control Payments to Executive Oficers
The tables below show (i) the compensation that may be paid or may become payable in connection with, or following, the consummation of the merger to
each of the Company's named executive officers identified in the most recent proxy statement u/ith respect to the 2017 annual meeting of Company
shareholders and (ii) the aggregate compensation that may be paid or may become payable in connection with, or following, the consummation ofthe merger
to the Company's eight other executive officers.
Value of
Accelerated
Named Executive Officer
Scott L. Morris,
Chairnan, President & CEO
Mark T. Thies,
Senior Vice President, CFO & Treasurer
Dennis P. Vermillion,
Senior Vice President & ECO
Marian M. Durkin,
Senior Vice President, General Counsel, CCO &
Corporate Secretary
Karen S. Feltes,
Senior Yice President & C'HRO
Other Ex€cutive Oflicers
SeY€ranc€ (l )
s 6.392.751
$ 2,478,889
$ 1.502,909
s 2,143,597
s 2.02A,932
Equity (2)
$ 5.851.960
$ 1,860,008
$ 1.894.636
s l ,45 3,3 99
s l.453,399
Health
Benefits (3)
$ 32.949
s 43,760
$ 43,760
$ 32,520
$ 32,520
Outplacem€nt
(4)
$ 2s.000
$ 25,000
$ 25.000
25,000
25,000
Outplacement
(4)$ 200,000
Section 280G
GrosUp (5)
s 4.692.976
s l,ss8,s49
s0
$ 1,280,965
$ 1,239,266
Section 280G
GrosvUp (5)
s 905,204
Total (6)
s 16.995.636
$ 5,966,206
$ 3.466.305
$ 4,93 5,48 l
s 4.771.t17
s
s
Severance (l)
$ 7,445,35 l
Vclue of
Accclerated
Equity (2)
$ 5.505,892
Health
Ben€fits (3)
$ 324.554Aggregate for Eight Other Executive Officers
Totrl$ r4J8tO0t
(i) Severance, The estimated amounts listed in this column represent the aggregate value ofcash severance each executive officerwould be entitled to
receive under his or her Change ofControl Agreement in connection with a qualifying termination at any time prior to the third anniversary ofthe
effective time. Specifically, the executive officer would be entitled to a lump-sum payment equal to the sum of (i) an amount (the "Base and Bonus
Severance") equal to three times (for Messn. Morris and Thies and Mmes. Durkin and Feltes) or two times (for Mr. Vemillion) the sum of the executive
ofticer's (A) annual base salary as in effect immediately prior to the qualiSing termination, and @) "highest annual bonus" (which means the greater of
(x) the highest annual bonus paid in the last three full fiscal years prior to the effective time (annualized for partial years ofemployment) and (y) the
bonus paid for the most recently completed fiscal year (annualized for partial years ofemployment)); and (ii) an amount (the "Pro-Rata Bonus") equal
to the executive officer's pro-rata highest annual bonus for the termination year @rorated based upon the number ofdays ofemployment with the
Company until the termination date). Severance payments are "double-trigger" in that they would be paid to the executive officer only ifsuch
executive officer experiences a quali$ing termination at any time prior to the third anniversary of the effective time. As noted above in "-Change of
Control Agreements," the Company will amend the Change of Control Agreements forMessrs. Morris, Thies and Vermillion and Mmes. Durkin and
Feltes to provide that each such individual
63
Staff_PR_043(AVA) Atlachment A
Table of Contents
may voluntarily terminate his or her employment without "good reason" (as defined above) upon providing the Company with notice oftermination at
least six (6) months prior to the individual's date oftermination, and upon such a termination ofemployment without "good reason," the individual
will receive the same sevemnce payments and benefits as are payable upon a qualifying termination (but not to exceed the aggregate amount of
severance payments and benefits the individual would receive upon a qualifying termination occurring at the effective time). The estimated amounts
shown in this column are based on the compensation levels in effect on September I , 20 I 7, the latest practicable date to determine such amounts
before the filing ofthis proxy statement; therefore, ifcompensation levels are changed after such date, actual payments to an executive officer may be
different than those listed in this column. For additional information see "-Interests of the Company's Directors and Executive Officers in the Merger
-Change oJ Contt'oI Agreements."
(2) Value ofAccelerated Equilv. The estimated amounts listed in this column represent the aggregate values in respect ofeach executive offrcer's unvested
performance awards and RSUs and accumulated dividends as ofSeptember I ,2017 ,the latest practicable date before the filing ofthis proxy statement,
plus the estimated equity awands to be granted on February 2, 201 8, as set forth in more detail in the table below. Payments in respect of all
performance awards and in respect ofRSUs granted before 20 1 8 which by their terms would vest before the calendar year or in the calendar year in
which the effective time occurs are "single-trigger" in that they are payable immediately upon the closing date, whether or not employment is
terminated. Payments in respect ofRSUs which by their terms would vest in any calendar year following the calendar year in which the effective time
occurs and are converted into Converted RSU Awards that vest in the ordinary course ofbusiness following the effective time, subject to fully
accelerated vesting upon certain qualiffing terminations, are "double-trigge/' in that such payments are payable prior to the normal vesting date only
in connection with the executive officer's quatifuing termination. We have assumed that a prorated portion of the performance awards granted to each
executive officer on February 2, 20 1 8 will be cashed out, and that a prorated portion ofthe RSUs granted to each executive officer on February 2, 20 I 8
will be converted into Converted RSUs upon completion of the merger. While the merger agreement does not require such proration and would allow
for the cash-out ofall performance awards granted on February 2, 20 I 8 and for the conversion ofall unvested RSUs granted on February 2, 20 I 8 into
Converted RSUs, the Company's historic practice would be to provide for proration under such circumstances, and for purposes ofthis disclosure, it
has been assumed that the Board will follow such historic practice with respect to the performance awards and RSUs granted on February 2,20'l 8. For
additional information, please see the section entitled "The Merger Agreement-Treatment of Equity Awards."
Named Executive Officer
Scott L. Morris
Mark T. Thies
Dennis P. Vermillion
Marian M. Durkin
Karen S. Feltes
Named Executive Officer
Scott L. Morris
Mark T. Thies
Dcnnis P. Vermillion
Marian M. Durkin
Karen S. Feltes
Ba* and Bonus
SeveranceTWs 2,270,46r$ r,302,t l4$ 1,963,687$ l,857,389
Pro-Rata Bonus
$ 6?2.n25s 208,428$ 200.795s 179.910$ r 63.543
Aggregate
Value of RSUs$ 88s,702$ 281350s 286,787$ 220,092$ 220,092
Total56ffir
$2378,889
$ l ,502,909
$2,143,597
s2.020.912
Total
$5,85 r,960
s l ,860,008
s I.894,636
$ 1,453,399
s r ,45 3,3 99
Aggregate
Value of
Performance
Awards (a)
s4,966,258
$ l,578,s58
$ I,607,849
$1,233,307
s l,233,307
64
Staff_PR_043(AVA) Attachment A
Table of Contents
Other Executive Officers
Aggregate for Eight Other Executive OfEcem
Aggrcgate
Value of
Performance
Awards (a)
$4,671,985
Aggregate
Value ofRSUs Total
$ 833,907 $5,505,892
(a) Assumes all applicable performance criteria are satisfied at (x) target level with respect to perfbrmance awards forwhich the performance period
has ended as of immediately prior to the effective time and (y) at target level with respect to perfbrmance awards for which the performance
period has not ended as of immediately prior to the effective time.
(3 ) Health BeneJits. The estimated amounts listed in this column represent the present value of the continuation, for two years after the executive officer's
termination date, ofthe health insurance benefits that each executive officerwould be entitled to receive underhis orherChange ofControl
Agreement in connection with a qualifoing termination at any time prior to the third anniversary of the effective time. Continued health insurance
benefitsare"double-triggef inthattheywouldbepaidtoanexecutiveofficeronlyifsuchexecutiveofficerexperiencesaqualifyingterminationat
any time prior to the third anniversary ofthe effective time. The estimated amounts shown in this column are based on the health insurance benefit
levels in effect on September l, 20 I 7, the latest practicable date to determine such amounts before the filing ofthis proxy statement; therefore, ifhealth
insurance benefit levels are changed after such date, actual payments to an executive offrcer may be different than those listed in this column. For
additional information see"-lnterests of the Company's Directors and Execulive Wcers in the Merger-Change oJ Control Agreenrcnts."
(4) Outplacement. The estimated amounts listed in this colurnn represent the amount ofthe executive officer's reasonable outplacement service expenses
paid by the Company, assuming the executive officer actually utilizes outplacement services and incurs a total cost equal to $25,000. The actual
payments to an executive officer may be different than those listed in this column, depending upon the actual amount ofthe outplacement service
expenses. Outplacement sewice benefits are "double-trigger" in that they would be paid to an executive officer only ifsuch executive officer
experiences a qualif,ing termination at any time prior to the third anniversary of the effective time. For additional information see "-lnterests of the
Company's Directors and Executive Officers i,t the Merger-Change of Control Agreemenls."
(5) Section 280G Gross-Up. The amounts listed in this column represent the Gross-Up Payment paid to the executive officer (ifany) purcuant to his or her
Change ofControl Agreement. The Gross-Up Payment is "single-trigget'' ifpaid absent a termination ofemployment and "double+rigger" ifpaid as
the result of a termination of employment. Foradditional information see"*Interesls of the Company's Directors and Executive Wcers in the Merger
-Change of Control Agreements."
The amounts listed in this column would be replaced with the following amounts, if, instead of the proration discussed above, the Board provides for
all ofthe performance awards and RSUs granted on February 2,2018 to be cashed out or converted into Converted RSUs, respectively: (a) Morris:
$5,283,738;(b)Thies:$1,746,321;(c)Vermillion:$1,400,218;(d)Duftin:$1,427,681;(e)Feltes:$1,385,982;and(flAggregateforEightOther
Executive Offi cers: Sl,029 A22.
(6) Total.The amounts listed in this column would be replaced with the following amounts, if, instead of the proration discussed above, the Board
provides for all ofthe performance awards and RSUs granted on February 2,2018 lo be cashed out or converted into Converted RSUs, respectively:
(a) Morris: $ I 8,965,464; (b) Thies: $6,592,295; (c) Vermillion: $5,475,489*; (d) Durkin: $5,424,125; (e) Feltes: $5,260,360; and (f) Aggregate for
Eight Other Executive Officers: $ I 5,802,980.* If all of Mr. Vermillion's performance awards and RSUs granted on February 2,2018 are cashed out or converted into Converted RSUs,
respectively, his severance payments would no longer be subject to a cutback of$ I 62,473, and instead, he would be entitled to receive the full
amount ofhis severance payments plus an additional Cnoss-Up Payment.
New Management Afiangements
As ofthe date ofthis proxy statement, none ofthe Company, Hydro One, US Parent or Merger Sub has entered into any employment agreements with the
Company's executive officers in connection with the merger. Prior to or following the closing of the merger, however, certain of the Company's executive
officers have had and may
65
Staff_PR_043(AVA) Attachment A
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: October 18, 2018
AVU-E-I7-09 / AVU-G-17-05 WITNESS: Chris LopezIPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-044(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Please specify the financial benefits that will accrue to shareholders of Avista and Hydro One if the
merger is completed.
RESPONSE:
Avista Shareholders:
At the effective time of the merger, each share of Avista's common stock, no par value per share
("Company common stock"), issued and outstanding immediately prior to the effective time will be
converted into the right to receive $53,00 in cash, without interest and less any applicable tax
withholding, other than (i) shares owned by Hydro One, Olympus Corp., Olympus Holding Corp. or any
of their respective subsidiaries and (ii) shares held by a shareholder who did not vote in favor of the
merger (or consent thereto in writing) and who is entitled to demand and properly demands payment of
fair value of such shares pursuant to, and complies in all respects with, the applicable provisions of the
Washington Business Corporation Act. This represents a 24o/o premium over the last sale price of
Company common stock on July I 8,2017, the last trading day prior to the public announcement of the
merger. Avista shareholders will together receive cash consideration totaling approximately $3.4
billion.
Hydro One Shareholders :
There are no financial benefits to the Hydro One shareholders that are quantifiable at this time
Page I of I
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
AYISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
IDAHO DATE PREPARED: October 18,2018
AVU-E-I7-09 / AVU-G-I7-05 WITNESS: James ScarlettIPUC RESPONDER: Adele Pantusa (Hl)
Production Request DEPARTMENT: LawStaff-045(AVA) TELEPHONE: [phone]EMAIL: [e-mail]
REQUEST:
Before July 1 1, 2018, Staff was not aware that the Providence of Ontario had the ability to fire the Board
of Directors and pressure the CEO to resign. This raises concerns about other authority that the Province
of Ontario may already have or may have the ability to create through legislation over Hydro One. The
Oregon Citizens Utility Board expressed a similar concern and now believes there are "no limits" on the
Providence of Ontario's legislative authority over Hydro One. Please explain what other authority the
Province of Ontario has over Hydro One and/or the exact limits of that authority. In particular, please
explain how the Province of Ontario is prohibited from passing legislation to impact the operation or
finances of Hydro One.
RESPONSE:
The Governance Agreement between Hydro One and Her Majesty the Queen in Right of Ontario (the
"Province") dated November 5,2015 (the "Govemance Agreement") addresses the role of the Province
in the governance of Hydro One. It includes, among other things, Section 4.7 that sets out a process for
the Province to call for the removal of Hydro One's entire Board, with the exception of the CEO, and at
the Province's sole discretion, the Chair. This process has been available to the Province since the
Governance Agreement was executed on November 5, 2015. Please see Staff PR_017(AVA)
Attachment A for the Govemance Agreement.
Pursuant to Section 16 of the July 2018 Letter Agreement between Hydro One and the Province, except
for the provisions of the Hydro One Accountability Act, which are principally limited to compensation
matters pertaining to Hydro One and its subsidiaries incorporated within Canada, and the specific
matters dealt with in the July 2018 Letter Agreement, the Province ratified and reaffirmed its
commitment to the Governance Agreement, which remains in full force and effect:
16. Reffirmation: By entering into this Agreement, the Province ratifies and reffirms its
obligations under the Governance Agreement and agrees that, except as specifically set out in
this Agreement with respect to the subject matter hereof, (i) the execution, delivery and
ffictiveness of this Agreement or any other documents delivered in connection herewith shall
not amend, modify or operate as awaiver orforbearance of any right, power, obligation, remedy
or provtsion under the Governance Agreement, and (ii) such agreement shall continue in full
force and effect.
Please see Staff PR_017(AVA) Attachment B for the July 2018 Letter Agreement
The Govemance Agreement requires that the Province act as an investor and not a manager of Hydro
One (see section 2.1.3) and the Province's decision-making authority in respect of Hydro One is
restricted to that of any other investor with respect to voting its shares in any decisions that are brought
forward for shareholder approval. The Province also has the right to nominate 40 percent of the Board
Page I of2
of Directors (other than the CEO), but all directors remain subject to an annual vote by all shareholders
of Hydro One.
As noted above, although the Province's rights as a shareholder are limited by the Governance
Agreement, the Province retains legislative authority to pass legislation with respect to subjects within
its jurisdiction (as assigned by Canada's Constitution Act, 1867). The Province can pass laws that affect
Hydro One, just as Idaho, Washington, Oregon, Montana, and Alaska can pass laws that affect the
operations or finances of Avista. The proposed robust ring fencing provisions protect Avista from any
such effects on Hydro One. The Province does not have jurisdiction to pass laws that affect Avista
directly outside of Ontario nor can it pass laws that nullifu the commitments that Hydro One has made
during the merger approval proceedings in Idaho, Washington, Oregon, Montana, and Alaska.
Page2 of2