Agreement for Long-term Rural Oregon Enterprise Zone Exemption
posted to KBC 12/10/05

This Agreement is entered into by and among the City of Klamath Falls ("City"), Klamath County ("County") and COB Energy Facility, LLC ("COB") effective on the last day of execution below.

1. The City and County (jointly "Sponsor") are joint sponsors of an enterprise zone known as the City of Klamath Falls/Klamath County Enterprise Zone ("Zone").
2. COB is a Delaware limited liability company with its principal place of business in Chicago, Illinois. COB proposes to construct and operate a gas-fired electric power plant facility inside the Zone ("Facility") that will employ at least 10 full-time employees at no less than 150 percent of the average wage in the County. The Facility will be located within the County. A legal description of the site where the Facility will be located is contained in Exhibit A. A map showing the site is in Exhibit B.
3. COB wishes to obtain property tax exemption for the Facility for a period of 15 years, plus the construction period, pursuant to ORS 285C.412(5) (2003 House Bill 2671). To that end, COB intends to apply for certification for the Facility pursuant to ORS 285C.403(1) and (2) before commencing construction of the Facility.
4. Pursuant to this Agreement, COB, at its discretion, also may seek approval from the Governor for corporation excise tax credits available under ORS 317.124.
5. The parties are aware that this Agreement is governed by the provisions of Oregon law relating to long-term tax incentives for nonurban enterprise zones, ORS 285C.400 through 285C.420, and the administrative rules of the Oregon Economic and Community Development Department, specifically OAR 123-065-3000 through –3850. The summary of procedural steps in this Recital E. is intended as a guideline for the parties. The parties understand that the authorities cited above control to the extent of any inconsistencies with this summary.

   Before the commencement of construction or installation of property or improvements, and before hiring employees in the enterprise zone, a business firm must submit the Oregon Department of Revenue’s Certification Application—Long Term Rural Oregon Tax Incentive, #150-310-073, in order to receive property tax exemption. The business firm must submit the application to the enterprise zone manager and to the county assessor, each of whom shall approve the application, certifying the business firm after all of the following have occurred:

   1. Execution of a written agreement between the business firm and the enterprise zone sponsor or sponsors.
   2. Adoption of resolutions by the governing body of the County and the City, approving the property tax exemption.
   3. Satisfactory commitment to the requirements of ORS 285C.412 and to any additional requirement contained in the written agreement.
   4. Review of the written agreement’s administrative sufficiency and confirmation of the County’s current economic status, by the Oregon Economic and Community Development Department.

   To be valid, approval of the application must occur before the date on which any facility property is placed in service, before the effective date of the enterprise zone’s termination, and before January 1, 2007.

6. The Sponsor has found that the construction and operation of the Facility will foster desirable economic development in the Zone and its local area and will be in the best interest of the City and the County.
   1. By resolution adopted by their respective governing bodies, the County and the City have requested the extension of the Zone boundaries to include the Facility. A copy of the County’s resolution to this effect is attached as Exhibit C. A copy of the City’s resolution to this effect is attached as Exhibit D.
   2. The Oregon Economic & Community Development Department ("OECDD") has approved the extension of the Zone boundaries. A copy of the OECDD’s approval is attached as Exhibit E.
7. In exchange for approving the exemption of the Facility from property taxes as requested by COB, the Sponsor desires to receive from COB, as additional requirements pursuant to ORS 285.403(3)(c), certain contributions by COB for local services or infrastructure benefiting the Facility.
8. COB is willing to make certain contributions for local services and infrastructure benefiting the Facility pursuant to ORS 285C.412(5), as additional requirements pursuant to ORS 285.403(3)(c), as requested by the Sponsor.

NOW, THEREFORE, in consideration of the premises set out above, the parties hereby agree as follows:

1. Conditions

   All obligations of COB under this Agreement arise solely on account of, and are conditioned upon, both of the following:

   1. the construction and placement in service of the Facility at the location described in Exhibits A and B; and
   2. complete exemption of the Facility from property taxes pursuant to ORS 285C.409 and ORS 285C.412 as follows: (i) commencing with the first (1^st) tax year following the calendar year in which COB is certified pursuant to ORS 285C.403 or after which construction of the Facility commences, whichever is later, (ii) continuing for each subsequent tax year in which the Facility is not yet in service as of the assessment date and (iii) further continuing for a period of fifteen (15) consecutive years commencing as of the first (1^st) tax year in which the Facility is in service as of the assessment date (the tax exemption set out in this Clause no. 2 shall hereinafter be referred to as the "Tax Exemption").

      If the conditions in Section I.A.1 above are not fully satisfied, then COB shall be excused from performing any of its obligations under this Agreement. Similarly, if any of the conditions in Section I.A.2 above are not fully satisfied, or cease to be fully satisfied, then COB shall be excused from performing any of its obligations under this Agreement, provided that if COB has already performed obligations under this Agreement at the time a condition set out in item Section I.A.2 above ceases to be satisfied then COB shall be excused from performing any of its remaining obligations under this Agreement.

      B. Statutory Qualification

   1. COB shall complete and sign the application for certification pursuant to ORS 285C.403(1) and OAR 123-065-3400, attaching an executed copy of this Agreement, and shall submit the original application to the Zone Manager for the Zone and a copy of the application to the County Assessor of the County, respectively, before the commencement of construction of the Facility or installation of property or improvements for the Facility and before hiring employees at the Facility.
   2. COB commits to satisfy the requirements of ORS 285C.412(5) (2003) as follows:
      1. By the end of the first calendar year in which the Facility is placed in service, the total cost of the Facility will have exceeded Two Hundred Million Dollars ($200,000,000).
      2. By the end of the third calendar year following the year in which the Facility is placed in service, COB shall employ ten (10) or more full-time, year-round employees at the Facility.
      3. By the end of the fifth calendar year following the year in which the Facility is placed in service, the annual average compensation (including wages, salary, non-mandatory insurance and other financial benefits) for COB’s employees at the Facility will equal or exceed 150 percent of the average wage in the County. This requirement may be initially met in any year during the first five years after the year in which operation of the Facility begins, and thereafter is met if the annual average compensation at the Facility for the year exceeds the average wage in the County for the year in which the requirement is initially met.

      C. Additional Requirements

      COB hereby commits to satisfy the "additional requirements" (within the meaning of ORS 285C.403(3)(c)) listed below:

   1. Commencing with the first tax year following the calendar year in which COB is certified under ORS 285C.403 or after which construction of the Facility commences, whichever event is later, and continuing for each subsequent tax year in which the Facility is not yet in service as of the assessment date, COB will pay annually to the County Treasurer on or before November 1 an amount equal to 50 percent of the total property tax amount (not to be reduced by the three-percent discount for payment in a single installment) that would be due and payable for that property tax year with respect to the Facility as if the Facility were not exempt and the assessed value were properly and accurately determined. COB reserves all right to contest the real market value or assessed value shown on the assessment and tax roll, including the right to appeal in any permissible forum. The payment COB shall make pursuant to this Section I.C.1 shall hereinafter be referred to as the "50% Payment." Notwithstanding the foregoing, solely for the first tax year following the calendar year in which COB is certified under ORS 285C.403 or after which construction of the Facility commences, whichever event is later, COB will pay only the amount of the 50% Payment less $50,000.
   2. Subject to Sections I.C.3 and I.C.4 below, if the Facility comprises two General Electric Model 7FA combustion turbine generators or substantially similar generators ("CTGs") and one steam turbine generator ("Phase One") when the Facility is placed in service, then commencing with the first tax year in which the Facility is in service as of the assessment date, and continuing for a period of 15 consecutive years, COB will pay to the County Treasurer annually on or before November 1 the amount of $1,401,700.
   3. Notwithstanding anything to the contrary in Section I.C.2 above, if  the Facility comprises Phase One when placed in service, but an additional block comprising two CTGs and one steam turbine generator ("Phase Two") is placed in service within two years after the date the Facility is placed in service, then (a) commencing with the first tax year in which the Facility is in service as of the assessment date as Phase One and continuing until the first tax year described in Subclause (b), COB will pay to the County Treasurer annually on or before November 1 the amount of $1,401,700; and (b) commencing with the first tax year in which both Phases One and Two are in service as of the assessment date, and continuing for the remainder of the 15-year period, COB will pay to the County annually on or before November 1 the total amount of $2,336,200. Commencing with the first tax year following the first calendar year in which construction of Phase Two commences, and continuing for each subsequent tax year in which Phase Two is not yet in service as of the assessment date, COB will make annual 50% Payments to the County Treasurer, on or before November 1, with respect to Phase Two, reserving the right to contest values as described in Section I.C.1.
   4. Notwithstanding anything to the contrary in Sections I.C.2 or I.C.3 above, if  the Facility comprises both Phases One and Two when placed in service, then commencing with the first tax year in which the Facility is in service as of the assessment date, and continuing for a period of 15 consecutive years, COB will pay to the County Treasurer annually on or before November 1 the amount of $2,336,200.
   5. If Phase Two is added to the Facility more than two years after Phase One is placed in service, COB and the Sponsor will treat Phase Two as a separate facility for purposes of any application for property tax exemption pursuant to ORS 285C.412(5).
   6. As a contribution to the cost of the County’s restoration of the portions of Harpold Road and East Langell Valley Road between the town of Bonanza and the Facility pursuant to Section II.F. below, COB will, within thirty (30) days after the County issues the building permit for Phase One of the Facility, pay to the County Public Works Department the amount of Five Hundred Thousand Dollars ($500,000). If, within two years after the County issues a building permit for Phase One, COB determines with reasonable certainty that Phase Two will be added to the Facility within two years after Phase One is placed in service, then COB shall notify the Klamath County Public Works Department of the anticipated date by which construction of Phase Two will be completed. COB will have no other obligations with respect to the repair, reconstruction or improvement of such roads or the payment of the costs thereof, provided, however, that COB will have the same liability as any other user of such roads with respect to any unforeseen events or occurrences that cause damage to such roads. For purposes of this Section I.C.6, "unforeseen events or occurrences" do not include wear and tear caused in the normal course of using such roads during construction of the Facility.
   7. COB shall include the responsibility and assignment of Zone Liaison in the job description of a position employed at the Facility.
   8. Before hiring any employees at the Facility (including construction employees), COB shall enter into a first-source hiring agreement with a local publicly funded job training provider (The Work Connection or such other provider as may be designated by the Sponsor), and shall maintain such first-source hiring agreement for the remainder of the term of this agreement. The first-source hiring agreement shall contain terms substantially similar to the terms of the standard first-source hiring agreement published by the OECDD for use in regular enterprise zones.
   9. COB agrees to make reasonable, good faith efforts to encourage the hiring of local residents. COB’s reasonable good faith efforts shall not apply to COB’s general contractor or other third parties. These efforts shall not limit COB from employing qualified and experienced members of organized labor. At all times, COB retains all rights to employ and utilize the best, most qualified individuals, vendors, subcontractors and other third parties to properly and safely construct and operate the Facility in conformance with the EFSC Site Certificate and other applicable industry and regulatory standards.
   10. COB shall make every reasonable effort to assist the Klamath County Assessor, the Sponsor and state agencies in administering the provisions of this agreement or the associated tax incentives.
   11. COB shall make good faith efforts to purchase supplies and building materials from businesses headquartered in or with branch or other sales facilities located in the City or County. COB’s obligation under this Section I.C.12 shall not apply to purchasing by the general contractor or other third parties. At all times, COB retains all rights to purchase and utilize supplies and materials from sources that will enable it to properly and safely construct and operate the Facility in conformance with the EFSC Site Certificate and other applicable industry and regulatory standards.
   12. COB shall make reasonable, good-faith efforts to cooperate with and advocate for City or County approved efforts to seek Climate Trust funds for proposed carbon dioxide emissions offset projects in the County.
   13. Except as expressly stated or referenced in this Section I, COB shall have no other obligations arising out of or related to this Agreement, the Facility or the Tax Exemption, notwithstanding any other oral or written prior or contemporaneous communications, promises, understandings or agreements between or among the parties or their representatives or agents.

1. OBLIGATIONS OF SPONSOR
   1. The governing bodies of the City and the County shall each adopt a resolution to authorize approval of this agreement; however, if either the City or the County, or both, have not adopted such a resolution on or before ________, 200_, this Agreement will be null and void and of no further force or effect, and neither COB nor the Sponsor shall be liable in any way or to any extent to the other party.
   2. The Sponsor hereby sets the period of the property tax exemption for purposes of ORS 285C.409(1)(c) to be 15 consecutive years, notwithstanding any shorter or longer period that may be allowed by law.
   3. The Sponsor shall fully indemnify and hold COB harmless from any liability arising from the funds paid pursuant to the additional requirements described above or their use.
   4. The Sponsor shall not impose or request any additional requirement of COB, except as expressed in this Agreement.
   5. The Sponsor shall support COB in any effort to have the Facility approved by the Governor for the tax credits under ORS 317.124, but the Sponsor makes no warranty with respect to its ability to affect any outcome in any such effort.

   F. The County will repair, reconstruct and otherwise improve the portions of Harpold Road and East Langell Valley Road between the town of Bonanza and the Facility such that those portions of such roads are restored to the conditions they were in prior to commencement of construction of the Facility. The County will complete such repair, reconstruction and improvements within a reasonable time after construction of Phase One is complete; provided, however, that if COB provides notice of the anticipated date of completion of Phase Two pursuant to Section I.C.6, the County shall complete such repair, reconstruction and improvement within a reasonable time after construction of Phase Two is complete. The County will be responsible for paying all costs necessary to perform its obligations under this Section II. F., irrespective whether the amount of such costs is less than, equal to or greater than the amount to be paid to the County by COB pursuant to Section I.C.6.

2. GENERAL TERMS OF THE AGREEMENT
   1. This Agreement shall apply to the successors in interest of the parties, including but not limited to the heirs, assigns, future owners or operators of the Facility and other successors in interest of COB, and any transfer of interest by COB to third parties shall include a delegation to the third parties of COB’s duties under this Agreement.
   2. This Agreement may be assigned to a third party or parties by COB at any time upon written notice by COB to the Sponsor, provided that upon such assignment either the assignee(s) or COB shall remain fully responsible for the performance of COB’s obligations under this Agreement.
   3. This Agreement shall not be modified or amended except by a written document that is signed by the authorized signatories of COB and of the City and the County, provided that such modification or amendment must also be authorized or ratified by a resolution formally adopted by the governing bodies of the City and the County, and provided further that copies of such authorizations or ratifications shall be attached to the modification or amendment as an exhibit thereto.
   4. The term of this Agreement will commence on the last date of execution by the parties below and will terminate on the earlier of (1) the date of an early nullification of this Agreement pursuant to its terms or (2) June 30 of the last tax year of the Tax Exemption.

CITY OF KLAMATH FALLS AS CO-SPONSOR OF THE CITY OF KLAMATH FALLS/KLAMATH COUNTY ENTERPRISE ZONE:

_____________________________________________________________________

(signature(s), printed name(s), title(s), date(s))

KLAMATH COUNTY AS CO-SPONSOR OF THE CITY OF KLAMATH FALLS/KLAMATH COUNTY ENTERPRISE ZONE:

_____________________________________________________________________

(signature(s), printed name(s), title(s), date(s))

COB ENERGY FACILITY, LLC:

______________________________________________________________________

(signature, printed name, title, date)