THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT AND PROSPECTIVE PURCHASERS ARE REFERRED TO
THE RELATED FINAL PROSPECTUS SUPPLEMENT FOR DEFINITIVE INFORMATION ON ANY MATTER
CONTAINED HEREIN. NEITHER THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR THE FINAL PROSPECTUS SUPPLEMENT SHALL CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
PROSPECTUS SUPPLEMENT (SUBJECT TO COMPLETION, ISSUED OCTOBER 22, 1997)
(TO PROSPECTUS DATED OCTOBER 22, 1997)
$101,700,000
SEABROOK 1 SECURED LEASE OBLIGATION BONDS
-----------------
_____% SERIES DUE ______________
-----------------
Interest payable January 2 and July 2
-----------------
The Offered Bonds will be issued by the Lessor (the "Owner Trustee") and
will be secured, as described herein, by a lien on and security interest in the
undivided ownership interest of the Lessor in Unit No. 1 of the Seabrook Station
in Seabrook, New Hampshire, and an assignment of basic rental payments and
certain other amounts payable, under the Lease of the undivided ownership
interest, by
THE UNITED ILLUMINATING COMPANY
The United Illuminating Company ("UI" or the "Company"), as Lessee under
the Lease, will be unconditionally obligated to make rental payments in amounts
that will be calculated to be at least equal to the scheduled payments of
principal of and interest on the Offered Bonds, although the Offered Bonds will
not be direct obligations of, or guaranteed by, the Company. The Holders of the
Bonds will have no recourse against the general credit of any of the
institutions or individuals acting as Lessor, Owner Trustee or Owner
Participant. (See "Security and Source of Payment for the Bonds" in the
accompanying Prospectus.)
The Offered Bonds will mature on __________________. The principal of the
Offered Bonds will be payable from time to time in installments. The Offered
Bonds will be redeemable, in whole or in part, on not less than 30 days' notice,
either upon certain terminations of the Lease or at the option of the Lessor, at
the redemption prices set forth herein (including a Make-Whole Premium (as
defined herein) if redemption occurs at the option of the Lessor prior to
____________), together with accrued interest, if any, to the date fixed for
redemption. (See "Description of the Offered Bonds and the Indenture" in the
accompanying Prospectus.)
-----------------
SEE "RISK FACTORS AND INVESTMENT CONSIDERATIONS," ON PAGE 5
IN THE ACCOMPANYING PROSPECTUS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
PRICE OF OFFERED BONDS--100% AND ACCRUED INTEREST, IF ANY
-----------------
PRICE TO UNDERWRITING
PUBLIC (1) COMMISSIONS (1)(2)(3) PROCEEDS (1)(2)
---------- --------------------- ---------------
Per Offered Bond.......... 100% % %
Total..................... $ $ $
- ---------------
(1) Plus accrued interest, if any, from the date of original issuance. The
Company will purchase and hold $101,388,000 aggregate principal amount
of the Offered Bonds. The remaining bonds of such series are offered
hereby.
(2) Expenses, estimated to be $____________, and underwriting commissions
will be paid from the proceeds of the Offered Bonds. Expenses,
estimated to be $_____________, will be paid by the Company.
(3) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
-----------------
The Offered Bonds are offered by the Underwriters named herein subject to
prior sale, when, as and if accepted by the Underwriters, and subject to
approval of certain legal matters by Winthrop, Stimson, Putnam & Roberts,
counsel for the Underwriters, and certain other conditions. It is expected that
delivery of the Offered Bonds will be made on or about November 12, 1997 through
the book-entry facilities of The Depository Trust Company ("DTC") against
payment therefor in immediately available funds.
-----------------
MORGAN STANLEY DEAN WITTER CITICORP SECURITIES, INC.
, 1997
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus Supplement and the accompanying Prospectus, in connection with the
offer contained in this Prospectus Supplement and accompanying Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by UI, the Lessor or the Underwriters. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus Supplement and the
accompanying Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of UI since the date hereof.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED BONDS,
INCLUDING PURCHASES OF THE OFFERED BONDS TO STABILIZE THEIR MARKET PRICE AND
PURCHASES OF THE OFFERED BONDS TO COVER SOME OR ALL OF A SHORT POSITION IN THE
OFFERED BONDS MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
--------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Selected Information Relating to the Offered Bonds......................... S-3
The Company................................................................ S-8
Summary Financial Information.............................................. S-9
Use of Proceeds............................................................S-11
Ratios of Earnings to Fixed Charges........................................S-11
Certain Terms of the Offered Bonds.........................................S-11
Underwriting...............................................................S-21
Prospectus
Available Information ..................................................... 2
Incorporation of Certain Documents by Reference ........................... 3
Risk Factors and Investment Considerations ................................ 5
Flow of Funds for Debt Service Payments on the Bonds ...................... 8
Use of Proceeds ........................................................... 8
The Transaction and the Refinancing ....................................... 9
Security and Source of Payment for the Bonds ..............................10
Description of the Offered Bonds and the Indenture ........................12
Description of the Lease ..................................................34
Other Agreements ..........................................................44
Plan of Distribution ......................................................46
Experts and Legality ......................................................47
Glossary ..................................................................48
S-2
<PAGE>
SELECTED INFORMATION RELATING TO THE OFFERED BONDS
The following material, which is presented herein solely to furnish limited
introductory information regarding the Offered Bonds, is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Capitalized terms used in
this Prospectus Supplement and the accompanying Prospectus without definition
are defined in the Glossary at the end of the accompanying Prospectus.
Securities Offered; Interest; Redemption
Seabrook 1 Secured Lease Obligation Bonds, __% Series due ________, in aggregate
principal amount of $203,088,000, of which $101,700,000 in principal amount are
offered hereby (the "Offered Bonds")
Interest on the Offered Bonds will be payable on January 2 and July 2 of
each year, commencing January 2, 1998. The Offered Bonds will be redeemable, in
whole or in part, on not less than 30 days' notice, either upon certain
terminations of the Lease or, at the option of the Lessor, at the redemption
prices set forth herein (including a Make-Whole Premium if redemption occurs at
the option of the Lessor prior to ________), together with accrued interest to
the date fixed for redemption. (See "Certain Terms of the Offered Bonds --
Redemption" in this Prospectus Supplement.)
As part of the refinancing contemplated hereby, the Company will purchase
and hold $101,388,000 aggregate principal amount of the Offered Bonds
(representing approximately 49.9% of the outstanding principal amount of such
series). The remaining 50.1% of the Offered Bonds is offered hereby. Bonds held
by the Company are outstanding under the Indenture and entitled to the same
security and source of payment as the Bonds offered hereby, except that, in
determining whether or not the holders of the requisite principal amount of
Bonds outstanding under the Indenture, or outstanding bonds of any series, have
given any notice, demand, authorization, direction, consent or waiver under the
Indenture, Bonds owned by the Company will be disregarded and deemed not
outstanding. The Company will purchase such Bonds at 100% of the principal
amount thereof. Subject to obtaining any requisite regulatory approvals, the
Company may from time to time offer the Bonds held by it for sale, although the
Company has no such intent at present.
S-3
<PAGE>
Principal Installment Payments
The Supplemental Indenture relating to the Offered Bonds (Supplemental
Indenture) provides for the payment of principal installments on the Offered
Bonds on each of the Installment Payment Dates set forth below, in an aggregate
amount (subject to adjustment in certain circumstances) equal to the Installment
Payment amounts set forth below, together with interest accrued to such
Installment Payment Date. The Outstanding Balance Factor set forth below for
each Installment Payment Date is for descriptive purposes only, and, unless
there has been a partial redemption or a default or other installment payment
adjustment, represents a factor that when multiplied by the original principal
amount of each Offered Bond will indicate the outstanding principal amount of
such Bond remaining unpaid after payment of the principal installment due on
such Installment Payment Date.
Installment Installment Outstanding
Payment Date Payment Percentage Balance Factor
- ------------ ------------------ --------------
(See "Certain Terms of the Offered Bonds -- Principal Installment Payments" in
this Prospectus Supplement.)
Security and Source of Payment
Each Bond will be secured by, among other things, (a) a lien on and
security interest in the Undivided Interest of the Lessor and (b) certain of the
rights of the Lessor under the Lease with the Company, including the right to
receive basic rent and certain other amounts payable by the Company thereunder.
(See "Security and Source of Payment for the Bonds" in the accompanying
Prospectus.) The Company is unconditionally obligated to make payments under the
Lease in amounts that will be calculated to be at least equal to the scheduled
S-4
<PAGE>
payments of the principal of and interest on the Bonds. However, the Bonds will
not be direct obligations of, or guaranteed by, the Company.
Upon the occurrence and continuance of any Indenture Event of Default that
results from a Lease Event of Default, the Lessor will control the exercise of
remedies against the Company under the Lease, subject to the right of the
Indenture Trustee to cause the Lessor to forbear from any proposed action that
would have a material adverse effect on the Holders of the Bonds. There could be
circumstances, therefore, in which amounts due on the Bonds are not paid and the
Indenture Trustee would not be able to direct the Lessor's pursuit of remedies
against the Company under the Lease. The Indenture Trustee would not be
precluded, however, from selling the Indenture Estate (including the Undivided
Interest) in a foreclosure or similar proceeding, subject to the provisions of
the Operating Agreement. If such sale occurs prior to or simultaneously with the
termination of the Lease, the Lessor must first be given an opportunity to
purchase the Indenture Estate at the proposed sale price. In the event of a sale
pursuant to a foreclosure or similar proceeding (other than a sale to the
Lessor), the Indenture Trustee would have the right to terminate the Lease in
connection with such sale. (See "Description of the Offered Bonds and the
Indenture -- Notice; Waiver; Acceleration and Remedies" in the accompanying
Prospectus.)
Under certain circumstances the Company (or the Company and an Affiliate
thereof jointly) may elect, or may be required, to assume the Bonds issued under
the Indenture, and all obligations of the Lessor under the Indenture. (See
"Description of the Offered Bonds and the Indenture--Assumption by the
Company.") Upon such an assumption, the Holders of such Bonds would retain the
benefit under the Indenture of the lien on and security interest in the
Undivided Interest, and the obligation to make payments on such Bonds would
become a direct obligation of the Company, or the Company and such Affiliate
thereof, as the case may be.
The Holders of the Bonds will have no recourse against the general credit
of any of the institutions or individuals acting as Lessor, Owner Trustee or
Owner Participant. Amounts payable by the Company under the Lease are general
credit obligations of the Company. Accordingly, amounts generated by the Company
from operations and from any of the Company's
S-5
<PAGE>
available credit sources would be sources for such Lease payments. (See
"Security and Source of Payment for the Bonds" in the accompanying Prospectus.)
For the description of possible limitations on amounts payable as damages
if the Company were to reject the Lease in the context of a bankruptcy
proceeding, see "Risk Factors and Investment Considerations" in the accompanying
Prospectus.
Description of Seabrook 1
Seabrook 1 is a one-unit, nuclear-fueled electric generating plant located
in Seabrook, New Hampshire, and jointly owned by eleven New England utilities,
including the Company. The Seabrook Station received a full-power operating
license from the NRC on March 15, 1990 and was placed in commercial operation on
June 30, 1990. Seabrook 1 has a net generating capability of 1,150 MW. The unit
has been refueled five times; and its lifetime capacity factor through June 30,
1997 has been 79.1%. The average of the Systematic Assessment of Licensee
Performance ratings for Seabrook 1 published by the NRC for maintenance, plant
operations, plant support and engineering were 2, 1, 1 and 1, respectively, for
the 16 to 18 months performance assessment period ended May 4, 1996.
Use of Proceeds of the Offered Bonds; The Transaction and the Refinancing
In 1990, the Company sold, for an aggregate price of $250,000,000,
approximately 66.4% of its 17.5% ownership interest in Unit 1 (as defined) of
the Seabrook Station to the Owner Trustee of a trust ("Lessor") established for
the benefit of an equity investor ("Owner Participant"). Simultaneously, the
Lessor leased to the Company the interest so purchased under a separate
long-term Lease. Approximately 84.7% of the consideration paid by the Lessor for
its interest in Unit 1 was provided to the Lessor from the issuance and sale of
two series of Seabrook 1 secured lease obligation bonds, a 9.76% Series due
January 2, 2006 and a 10.24% Series due January 2, 2020 (collectively, the
"Initial Series Bonds"). The balance of such consideration was contributed to
the Lessor by the Owner Participant.
Unit 1 excludes certain transmission, pollution control and other
facilities included in Seabrook 1. The Undivided Interest sold and leased back,
as described below, represents approximately 11.6% of Unit 1.
S-6
<PAGE>
The Company has determined, in light of prevailing economic and financial
circumstances, to cause a refinancing of the Initial Series Bonds issued in
connection with the Transaction and currently outstanding (the "Refinancing").
As part of the Refinancing, the Owner Trustee will redeem the outstanding
Initial Series Bonds with the proceeds of the Offered Bonds and certain other
funds as described herein. (See "The Transaction and the Refinancing" in the
accompanying Prospectus.)
The Company has previously purchased and currently holds $66,856,000
aggregate principal amount of Initial Series Bonds. Initial Series Bonds held by
the Company are outstanding under the Indenture and will be redeemed as part of
the Refinancing. As part of the Refinancing, the Company will purchase
approximately 49.9% ($101,388,000 in principal amount) of the series offered
hereby at a price equal to 100% of the principal amount thereof. The purchase
price to be paid by the Company for such Bonds will constitute part of the funds
used to redeem the Initial Series Bonds.
S-7
<PAGE>
THE COMPANY
UI is an operating electric public utility company, incorporated under the
laws of the State of Connecticut in 1899. It is engaged principally in the
production, purchase, transmission, distribution and sale of electricity for
residential, commercial and industrial purposes in a service area of about 335
square miles in the southwestern part of the State of Connecticut. The
population of this area is approximately 704,111 or 21% of the population of the
State. The service area, largely urban and suburban in character, includes the
principal cities of Bridgeport (population 142,000) and New Haven (population
130,000) and their surrounding areas. Situated in the service area are retail
trade and service centers, as well as large and small industries producing a
wide variety of products, including helicopters and other transportation
equipment, electrical equipment, chemicals and pharmaceuticals. Of the Company's
1996 electric revenues, approximately 41% was derived from residential sales,
40% from commercial sales, 17% from industrial sales and 2% from other sales.
UI has one wholly-owned subsidiary, which serves as the parent corporation
for UI's nonutility businesses and its interest in a merchant wholesale
generating facility being constructed in Bridgeport, Connecticut. The Board of
Directors of UI has currently authorized the investment of a maximum of $27
million in one or more subsidiary or affiliated corporations.
For further information about these and other matters affecting UI's
business, see "Risk Factors and Investment Considerations" in the accompanying
Prospectus and the documents referred to under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
S-8
<PAGE>
<TABLE>
SUMMARY FINANCIAL INFORMATION
The following material, which is presented herein solely to furnish limited
financial information regarding UI, is qualified in its entirety by reference to
the detailed information and financial statements contained in the Incorporated
Documents (as defined in the accompanying Prospectus), which are available upon
request from UI. (See "Available Information" in the accompanying Prospectus.)
Accordingly, the following should be read together with the Incorporated
Documents.
<CAPTION>
Twelve Months
Ended June 30,
1997 Twelve Months Ended December 31,
(unaudited) 1996 1995 1994
------------- ---- ---- ----
(Thousands)
<S> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues.............. $730,469 $726,020 $690,449 $656,748
Operating Income................ 99,064 109,135 127,156 127,392
Total Allowance for Funds Used
During Construction (1)........ 2,430 2,375 2,762 3,463
Total Interest Charges.......... 66,196 69,767 76,571 84,073
Net Income...................... 34,744 39,096 50,393 46,795
<CAPTION>
As of June 30, 1997
---------------------------------
Percent of
Amount Capitalization
----------- --------------
Balance Sheet Data: (Thousands)
<S> <C> <C>
Net Seabrook 1 Investment........................ $ 525,538
Net Utility Plant................................ $1,301,473
Capitalization, including short-term debt:
Short-Term Debt................................. $ 35,641 2.7%
Long-Term Debt (including current maturities)... 797,225 60.3%
Preferred Stock................................. 4,421 0.3%
Minority interest in preferred securities....... 50,000 3.8%
Common Stock Equity............................. 435,878 32.9%
---------- ------
Total Capitalization............................ $1,323,165 100.0%
========== ======
</TABLE>
S-9
<PAGE>
(1) Allowance for Funds Used During Construction ("AFUDC") is a non-cash credit
to income that represents the approximate cost of debt and equity capital
devoted to plant under construction. For balance sheet purposes, AFUDC is
capitalized to UI's plant account and depreciated and recovered over the
life of the asset.
S-10
<PAGE>
<TABLE>
USE OF PROCEEDS
The proceeds of the sale of the Offered Bonds will be used, together with
amounts made available to the Lessor by the Company as rent and as the purchaser
of Bonds to be acquired by the Company, to enable the Lessor to redeem the
outstanding Initial Series Bonds and to pay certain costs and expenses incurred
in connection with the Refinancing.
RATIOS OF EARNINGS TO FIXED CHARGES
UI's Ratio of Earnings to Fixed Charges for each of the periods indicated was as
follows:
<CAPTION>
Twelve Months Twelve Months Ended December 31,
Ended June 30, ----------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (A) ...... 1.81 2.03 2.25 1.99 1.69 1.85
</TABLE>
- ---------------
(A) "Earnings," as defined by Commission Regulation S-K, represent the
aggregate of (1) net income, (2) taxes based on income, (3) investment tax
credit adjustments-net and (4) fixed charges. "Fixed Charges," as defined
by Commission Regulation S-K, represent interest (whether expended or
capitalized), related amortization and interest applicable to rentals
charged to operating expenses.
CERTAIN TERMS OF THE OFFERED BONDS
The following description of certain terms of the Offered Bonds offered
hereby supplements, and should be read together with, the statements under
"Description of the Offered Bonds and the Indenture" in the accompanying
Prospectus. Capitalized terms used in this Prospectus Supplement have the same
meanings as in the accompanying Prospectus.
General
The Bonds will be issued in a single series, in $203,088,000 aggregate
principal amount, designated Seabrook 1 Secured Lease Obligation Bonds, _____%
Series due
S-11
<PAGE>
_______________, of which $101,700,000 in principal amount are offered hereby
(herein sometimes called the "Offered Bonds").
The Offered Bonds will mature _______________, 20___. The Offered Bonds
will bear interest on the unpaid principal amount thereof from their date of
issuance at the rate of _____% per annum, payable on January 2 and July 2 of
each year, commencing January 2, 1998, to the registered owners thereof at the
close of business on December 15 or June 15, as the case may be, next preceding
such interest payment date. (Indenture, Section 2.11; Supplemental Indenture;
and form of Offered Bond)
The Offered Bonds will be issued originally solely in book-entry form to
The Depository Trust Company ("DTC") or its nominee, Cede & Co., to be held in
DTC's book-entry only system. So long as the Offered Bonds are held in the
book-entry only system, DTC (or a successor securities depositary) or its
nominee will be registered owner or holder of the Offered Bonds for all purposes
of the Indenture and the Offered Bonds. (See "Book Entry Only System" below.)
Except as described under "Book Entry Only System" below, Beneficial Owners (as
defined below) of the Offered Bonds will not have the right to have any Offered
Bonds registered in their names and will not receive or have the right to
receive physical delivery of certificates representing their ownership interests
in the Offered Bonds. For so long as any purchaser is the Beneficial Owner of an
Offered Bond, such purchaser must maintain an account with a broker or dealer
who is, or acts through, a DTC Participant (as defined below) to receive payment
of the principal of or premium or interest of such bond. The laws of some states
may require that certain purchasers of securities take physical delivery of such
securities. Such limits and laws may impair the ability to transfer beneficial
interests in Offered Bonds.
So long as the Offered Bonds are held in the book-entry only system, the
principal of or premium and interest on the Offered Bonds will be paid through
the facilities of DTC (or a successor securities depository). If the book-entry
only system is discontinued, the principal of and premium, if any, and the
interest payable at maturity on the Offered Bonds will be payable at the
corporate trust office of any paying agent designated by the Owner Trustee from
time to time; and interest and Installment Payment Amounts (as defined below),
other than such amounts payable at maturity, will be paid by check drawn upon
the paying
S-12
<PAGE>
agent and mailed to the address of the person entitled thereto, as shown in the
bond register.
Since the principal of each Offered Bond will be subject to payment from
time to time without surrender of, or notation on, such Offered Bond, the unpaid
principal amount of each Offered Bond as reflected in the bond register
maintained by the Indenture Trustee shall be controlling and binding with
respect to the actual unpaid principal amount of an Offered Bond as of any date.
In any case where any redemption date, any Installment Payment Date or the
stated maturity of principal of or any installment of interest on any Offered
Bond, or any date on which any defaulted interest or principal is proposed to be
paid, is not a business day, then (notwithstanding any other provision of the
Indenture or such Offered Bond) payment of interest and/or principal and
premium, if any, shall be due and payable on the next succeeding business day
with the same force and effect as if made on or at such nominal redemption date,
the stated maturity, Installment Payment Date or date on which the defaulted
interest or principal is proposed to be paid, and no interest will accrue on the
amount so payable for the period from and after such redemption date, stated
maturity, Installment Payment Date or date for the payment of defaulted interest
or principal, as the case may be. (Indenture, Sections 1.13, 2.11 and 4.04;
Supplemental Indenture; and form of Offered Bond)
Principal Installment Payments
On each Installment Payment Date (set forth below), the Owner Trustee will
pay to the registered owner of each Offered Bond at the close of business on
December 15 or June 15, as the case may be, next preceding such Installment
Payment Date, an installment of principal of such Offered Bond (subject to
adjustment as described below) in an amount (an "Installment Payment Amount")
equal to the Installment Payment Percentage (set forth below) for such
Installment Payment Date multiplied by the original principal amount of such
Bond.
S-13
<PAGE>
Installment Payment Date Installment Payment Percentage
------------------------ ------------------------------
Upon the occurrence of certain changes in Federal income tax rates or laws,
the Company or the Owner Participant may cause the principal amount of Offered
Bonds to be paid in installments of principal to be adjusted in connection with
a recalculation of basic rent under the Lease, provided that such adjustments
shall not increase or decrease the average life of such Offered Bonds
(calculated in accordance with generally accepted financial practice) by more
than six months or extend the final payment of principal of the Offered Bonds.
In addition, in the event that, by June 30, 2005, or such later date as shall
have been agreed to by the Lessee and the Owner Participant, the NRC Facility
Operating License for Seabrook 1 is not extended to May 25, 2029, or later as
contemplated by the Participation Agreement, the Owner Trustee shall cause the
principal amount of Offered Bonds to be paid in installments of principal to be
adjusted in connection with a recalculation of basic rent under the Lease,
provided that such adjustments shall not cause the average life of the Offered
Bonds (calculated as aforesaid) to be decreased by more than twenty-four months
or extend the final payment of principal of the Offered Bonds, and such
adjustments shall cause the final payment or redemption of the Offered Bonds to
be scheduled to occur no later than the last day of the basic term of the Lease.
The Indenture Trustee shall send by mail to each Holder of affected Offered
Bonds, at least 30 days before the first Installment Payment Date with respect
to which an adjustment is to be made, a revised installment payment schedule
applicable to the Offered Bonds. (Supplemental Indenture)
In the event that there shall have been any partial redemption of the
Offered Bonds (other than pursuant to principal installment payments), each
Installment Payment Amount for each Offered Bond subsequent to such redemption
shall be reduced by an amount equal to the amount obtained by multiplying such
Installment Payment Amount as in effect prior to such redemption by a fraction
of which the numerator shall be the aggregate principal amount of Offered Bonds
redeemed pursuant to such partial redemption, and the denominator shall be the
S-14
<PAGE>
aggregate unpaid principal amount of Offered Bonds outstanding immediately prior
to such redemption. (Supplemental Indenture)
The funds to be utilized for installment payment of principal will be
provided by basic rent payments made by the Lessee.
Redemption
Optional Redemption
The Offered Bonds will be subject to redemption, at the option of the Owner
Trustee, in whole at any time or in part from time to time, at the redemption
price of 100% of the unpaid principal amount of the Offered Bonds to be so
redeemed, plus accrued interest, if any, to the redemption date, plus, if such
redemption is made prior to the Premium Termination Date, the Make-Whole
Premium, if any. The "Premium Termination Date" is ______________.
The Make-Whole Premium, if any, on the Offered Bonds will be determined by
an independent investment banking institution of national standing (the
"Investment Banker") selected by UI. The Investment Banker will first determine
the Treasury Rate with respect to any redemption of Offered Bonds. The Treasury
Rate means, with respect to each Offered Bond to be redeemed, a per annum rate
(expressed as a semiannual equivalent and as a decimal and, in the case of
United States Treasury bills, converted to a bond equivalent yield) determined
to be the per annum rate equal to the semiannual yield to maturity of United
States Treasury securities maturing on the Average Life Date (as defined below)
of such Offered Bond, as determined by interpolation between the most recent
weekly average yields to maturity for two series of United States Treasury
securities (A) one maturing as close as possible to, but earlier than, the
Average Life Date of such Offered Bond and (B) the other maturing as close as
possible to, but later than, the Average Life Date of such Offered Bond, in each
case as published in the most recent H.15(519) (or, if a weekly average yield to
maturity for United States Treasury securities maturing on the Average Life Date
of such Offered Bond is reported in the most recent H.15(519), as published in
H.15(519)). "H.15(519)" means "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication, published by the Board of Governors of the
Federal Reserve System. The "most recent H.15(519)" means the
S-15
<PAGE>
latest H.15(519) which is published prior to the close of business on the third
business day prior to the applicable redemption date. The Average Life Date for
any Offered Bond to be redeemed shall be the date which follows the redemption
date by a period equal to the Remaining Weighted Average Life of such Offered
Bond. The Remaining Weighted Average Life of such Offered Bond with respect to
the redemption of such Offered Bond is the number of days equal to the quotient
obtained by dividing (A) the sum of the products obtained by multiplying (1) the
amount of each remaining principal payment on such Offered Bond by (2) the
number of days from and including the redemption date, to but excluding the
scheduled payment date of such principal payment by (B) the unpaid principal
amount of such Offered Bond.
To determine the Make-Whole Premium for any Offered Bond, the Investment
Banker then will determine, as of the third business day prior to the redemption
date, the sum of the present values of all of the remaining scheduled payments
of principal and interest from the redemption date to maturity on such Offered
Bond computed on a semiannual basis by discounting such payments (assuming a
360-day year consisting of twelve 30-day months) using such Treasury Rate plus
____ basis points. If the sum of these present values of the remaining payments
as computed above exceeds the aggregate unpaid principal amount of the Offered
Bond to be redeemed plus any accrued but unpaid interest thereon, the difference
will be payable as a premium upon redemption of such Offered Bonds. If the sum
is equal to or less than such principal amount plus accrued interest, there will
be no premium payable with respect to such Offered Bond. (Indenture, Article
Five; Supplemental Indenture; and form of Bond)
Redemption upon Lease Termination
If the Company has exercised its option to terminate the Lease as described
in "Description of the Lease -- Termination for Obsolescence" in the
accompanying Prospectus, then the Owner Trustee will redeem on the date of such
termination, all Bonds then outstanding under the Indenture at a redemption
price equal to the unpaid principal amount
S-16
<PAGE>
thereof plus accrued interest, if any, to the date fixed for redemption.
(Indenture, Section 5.02)
If the Company has exercised its option to terminate the Lease as described
in "Description of the Lease -- Purchase Option for Significant Expenditures" or
"-- Periodic Purchase Option" in the accompanying Prospectus, then the Owner
Trustee will redeem, on the date of such termination, all Bonds then outstanding
under the Indenture that have not been assumed (at the election of the Company)
as described in "Description of the Offered Bonds and the Indenture --
Assumption by the Company" in the accompanying Prospectus, at a redemption price
equal to the unpaid principal amount thereof plus accrued interest, if any, to
the date fixed for redemption. (Indenture, Section 5.02)
The funds to be utilized in any such redemption would be provided from the
funds described in the above-referenced portions of "Description of the Lease"
in the accompanying Prospectus. Such funds would be in an amount sufficient to
enable the Indenture Trustee to pay the unpaid principal of and accrued interest
on the Bonds that have not been assumed by the Company.
Procedure for and Notice of Redemption
If less than all of the Offered Bonds are called for redemption, the
particular Offered Bonds or portions thereof to be redeemed will be selected by
the Indenture Trustee, by prorating, as nearly as practicable, the principal
amount of such Offered Bonds to be redeemed among the Holders of such Offered
Bonds. Any Bonds and portions of Bonds selected for redemption that are deemed
to be paid in accordance with the provisions of the Indenture (as described
under "Defeasance" in the accompanying Prospectus) will cease to bear interest
on the specified redemption date. Notice of redemption will be given by mail not
less than 30 nor more than 60 days prior to the date fixed for redemption to the
Holders of Bonds to be redeemed (which, if the Offered Bonds are held in the
book-entry only system, will be DTC or a successor depository).
With respect to notice of redemption of Bonds, such notice will state that
such redemption will be conditional upon the receipt by the Indenture Trustee,
at or prior to the
S-17
<PAGE>
date fixed for such redemption, of money sufficient to pay the unpaid principal
of and premium, if any, and interest on such Bonds. If such money is not so
received, such notice will be of no force and effect, the Owner Trustee will not
be required to redeem such Bonds and the Indenture Trustee will give notice, in
the manner in which the notice of redemption was given, that such money was not
received and such redemption is not required to be made.
(Indenture, Section 1.06, Article Five; Supplemental Indenture)
Book-Entry Only System
DTC will act as securities depository for the Offered Bonds. The Offered
Bonds will be issued as fully-registered securities registered in the name of
Cede & Co. (DTC's partnership nominee). The Bonds purchased by the Company will
be issued as fully-registered securities registered in the name of the Company.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
S-18
<PAGE>
Purchases of Offered Bonds under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Offered Bonds on DTC's
records. The ownership interest of each actual purchaser of each Offered Bond
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Offered Bonds are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in the
Offered Bonds, except in the event that use of the book-entry system for the
Offered Bonds is discontinued.
To facilitate subsequent transfers, all Offered Bonds deposited by
Participants with DTC are registered in the name of DTC's partnership nominee
Cede & Co. The deposit of Offered Bonds with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Offered Bonds; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Offered Bonds are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Redemption notices shall be sent by the
Indenture Trustee to Cede & Co.
Neither DTC nor Cede & Co. will consent or vote with respect to Offered
Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Indenture
Trustee as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Offered Bonds are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
S-19
<PAGE>
Principal, premium, if any, and interest payments on the Offered Bonds will
be made to DTC. DTC's practice is to credit Direct Participants' accounts on the
payable date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the payable
date. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Company, the
Owner Trustee or the Indenture Trustee, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Owner
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants. If the
Depositary is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed, the Owner Trustee will issue to
Beneficial Owners individual certificated Offered Bonds representing their
ownership interests in Offered Bonds. In addition, the Company may at any time
determine not to have any particular series of Offered Bonds held in the
book-entry only system and, in such event, the Owner Trustee will issue to
Beneficial Owners individual certificated Offered Bonds representing their
ownership interests in such Offered Bonds. In any such instance, a Beneficial
Owner will be entitled to have such certificated Offered Bonds registered in its
name. Individual certificated Offered Bonds so issued will be issued as
registered Offered Bonds in denominations of $1,000 or any integral multiple
thereof.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable,
including DTC, but the Company takes no responsibility for the accuracy thereof.
NONE OF THE COMPANY, THE INDENTURE TRUSTEE, THE LESSOR, THE OWNER TRUSTEE,
THE UNDERWRITERS OR ANY AGENT FOR PAYMENT ON OR REGISTRATION OF TRANSFER OR
EXCHANGE OF THE OFFERED BONDS WILL HAVE ANY RESPONSIBILITY OR LIABILITY FOR ANY
ASPECT OF THE RECORDS RELATING TO OR PAYMENTS MADE ON ACCOUNT OF INTERESTS OF
BENEFICIAL OWNERS OF ANY OFFERED BOND OR FOR MAINTAINING, SUPERVISING OR
REVIEWING ANY RECORDS RELATING TO SUCH INTERESTS.
S-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Owner Trustee, the Company and the Underwriters, the Underwriters named below
have severally agreed to purchase from the Owner Trustee, and the Owner Trustee
has agreed to sell to the Underwriters, severally, the respective principal
amounts of the Offered Bonds set forth below.
Pincipal
Amount of
Name Offered Bonds
---- -------------
Morgan Stanley & Co. Incorporated............ $
Citicorp Securities, Inc.....................
---------------
Total................................ $
===============
The Underwriting Agreement provides that the several obligations of the
Underwriters thereunder are subject to the approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the Offered Bonds
if any are purchased; provided that the Underwriting Agreement provides that
under certain circumstances involving a default of Underwriters, less than all
of the Offered Bonds may be purchased.
The Company has been advised by the several Underwriters that the
Underwriters propose to offer the Offered Bonds directly to the public at the
public offering prices set forth on the cover page of this Prospectus Supplement
and to certain dealers at such prices less a concession of _____% of the
principal amount of the Offered Bonds. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of _____% of the principal
amount of the Offered Bonds to certain other dealers. After the initial public
offering, the offering prices and other selling terms may be changed.
S-21
<PAGE>
The Underwriting Agreement provides that, subject to certain conditions,
the Company will indemnify each Underwriter and its controlling persons against
certain liabilities, including certain liabilities under the Securities Act, and
will contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with this offering, certain Underwriters and their respective
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Offered Bonds. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M
under the Securities Exchange Act of 1934, as amended, pursuant to which such
persons may bid for or purchase Offered Bonds for the purpose of stabilizing
their market price. The Underwriters also may create a short position for their
respective accounts by selling more Offered Bonds in connection with this
offering than they are committed to purchase from the Owner Trustee, and in such
case may purchase Offered Bonds in the open market following completion of this
offering to cover all or a portion of such short position. In addition, Morgan
Stanley & Co. Incorporated, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements between the Underwriters whereby it may
reclaim from an Underwriter (or dealer participating in this offering) for the
account of the Underwriters, the selling concession with respect to Offered
Bonds that are distributed in this offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Offered Bonds at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
From time to time, the Underwriters and/or certain of their affiliates
engage in transactions with or perform services for the Company in the ordinary
course of business. In addition, an affiliate of Citicorp Securities, Inc. is
the Owner Participant.
The Company does not intend to apply for listing of the Offered Bonds on a
national securities exchange but has been advised by the Underwriters that the
Underwriters presently intend to make a market in the Offered Bonds, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the Offered Bonds, and such market
making may be discontinued at any time at the sole discretion of each
S-22
<PAGE>
Underwriter. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Bonds.
S-23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
$203,088,000
SEABROOK 1 SECURED LEASE OBLIGATION BONDS
The Offered Bonds will be issued from time to time, in one or more series,
at prices and on terms to be determined by market conditions at the time of
sale. This Prospectus will be supplemented by a prospectus supplement (the
"Prospectus Supplement") which will set forth, as applicable, the designation,
the aggregate principal amount, rate and time of payment of interest, maturity,
purchase price, initial public offering price, if any, any redemption or
installment payment provisions and other specific terms of each series of the
Offered Bonds in respect of which this Prospectus is being delivered. The
Offered Bonds will be issued by the Owner Trustee as Lessor and will be
nonrecourse to the general credit of the Owner Trustee, the Lessor or the Owner
Participant but secured, as described herein, by a lien on and security interest
in the undivided ownership interest of the Lessor in Unit No. 1 of the Seabrook
Station in Seabrook, New Hampshire, and an assignment of basic rental payments
and certain other amounts payable, under the Lease of the undivided ownership
interest, by
THE UNITED ILLUMINATING COMPANY
------------------
The Offered Bonds will be issued for the purpose of the refinancing
described herein. The United Illuminating Company ("UI" or the "Company"), as
Lessee under the Lease, will be unconditionally obligated to make rental
payments in amounts that will be calculated to be at least equal to the
scheduled payments of principal of and interest on the Offered Bonds, although
the Offered Bonds will not be direct obligations of, or guaranteed by, the
Company. The Holders of the Bonds will have no recourse against the general
credit of any of the institutions or individuals acting as Lessor, Owner Trustee
or Owner Participant. (See "Security and Source of Payment for the Bonds,"
"Description of the Offered Bonds and the Indenture" and "Description of the
Lease.")
------------------
SEE "RISK FACTORS AND INVESTMENT CONSIDERATIONS," ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Offered Bonds will be sold through an underwriting syndicate including
Morgan Stanley & Co. Incorporated and Citicorp Securities, Inc., as set forth in
the Prospectus Supplement. The net proceeds from the sale of the Offered Bonds,
and any applicable commissions or discounts, are set forth in the Prospectus
Supplement.
This Prospectus may not be used to consummate sales of the Offered
Securities unless accompanied by the Prospectus Supplement.
------------------
MORGAN STANLEY DEAN WITTER CITICORP SECURITIES, INC.
October 22, 1997
-1-
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any underwriter,
dealer or agent. Neither the delivery of this Prospectus and any related
Prospectus Supplement nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof or thereof. This Prospectus and any related
Prospectus Supplement do not constitute an offer to sell or a solicitation of an
offer to buy securities by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Information, as of particular dates, concerning directors and
officers, their remuneration, and any material interest of such persons in
transactions with the Company is disclosed in proxy statements distributed to
shareholders of the Company and filed with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet Web site that contains reports,
proxy and information statements and other information regarding reporting
companies under the Exchange Act. The address of such Internet Web site is
http://www.sec.gov. Such material can also be inspected at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
-2-
<PAGE>
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 that the Company has filed with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
of which this Prospectus forms a part. Statements contained or incorporated by
reference herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to such Registration Statement, including the documents filed as
exhibits thereto (the "Registration Statement").
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated in this Prospectus by reference the following
documents and information heretofore filed with the Commission, to which
reference is hereby made:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed pursuant to Section 13 of the Exchange Act.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, filed pursuant to Section 13 of the
Exchange Act.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
such documents. The documents incorporated or deemed to be incorporated herein
by reference are sometimes referred to herein as the "Incorporated Documents."
Any statement contained herein or in an Incorporated Document shall be deemed to
be modified or superseded for all purposes to the extent that a statement
contained herein, in any Prospectus Supplement or in any subsequently filed
Incorporated Document modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
-3-
<PAGE>
The information relating to the Company contained in this Prospectus and
any accompanying Prospectus Supplement does not purport to be comprehensive and
is based upon 2information contained in the Incorporated Documents; accordingly,
such information contained herein should be read together with the information
contained in the Incorporated Documents.
Any person receiving a copy of this Prospectus may obtain without charge,
upon request to the Company as provided below, a copy of any of the Incorporated
Documents (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such Incorporated Documents).
Requests for such copies should be directed to Mr. Charles J. Pepe, Assistant
Treasurer and Assistant Secretary, The United Illuminating Company, P.O. Box
1564, 157 Church Street, New Haven, Connecticut 06506-0901, telephone number
(203) 499-2311.
-4-
<PAGE>
RISK FACTORS AND INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully the considerations set
forth below as well as the other information included in this Prospectus and the
Prospectus Supplement before deciding to invest in the securities offered
hereby.
Risks of Ownership of Nuclear Generating Facilities
Seabrook 1 is a one-unit, nuclear-fueled electric generating plant located
in Seabrook, New Hampshire. It has a net generating capacity of 1,150 MW. The
owners and their respective ownership shares are as follows:
North Atlantic Energy Corporation..................... 36.0%
The United Illuminating Company....................... 17.5%*
Great Bay Power Corporation........................... 12.1%
Massachusetts Municipal Wholesale Electric Company.... 11.6%
New England Power Company............................. 9.9%
The Connecticut Light and Power Company............... 4.1%
Canal Electric Company................................ 3.5%
Montaup Electric Company.............................. 2.9%
New Hampshire Electric Cooperative, Inc............... 2.2%
Taunton Municipal Lighting Plan....................... .1%
Hudson Light and Power Department..................... .1%
- ----------------
* Approximately 66.4% of UI's 17.5% ownership interest has been sold to the
Owner Trustee and is leased back to UI pursuant to the Lease.
UI also holds a 3.685% ownership interest in Millstone Unit 3, a 1,136.73 MW
nuclear electric generating unit in Waterford, Connecticut (Millstone 3). UI
also owns 9.5% of the common stock of Connecticut Yankee Atomic Power Company,
which owns a 560.10 MW nuclear generating unit in Haddam, Connecticut
(Connecticut Yankee) that was retired from operation in December 1996 and is
being decommissioned.
-5-
<PAGE>
UI is subject to the risks attendant upon the ownership of its share of
Seabrook Unit 1, Millstone 3 and Connecticut Yankee. Millstone 3 was taken out
of service on March 30, 1996, and will remian shut down pending a comprehensive
NRC inquiry into the conformity of the unit and its operation with all
applicable NRC regulations and standards. The Company believes it is unlikely
that Millstone 3 will return to service before the Spring of 1998. In addition
to operational risks, these risks include the storage, handling and disposal of
high-level and low-level radioactive materials, limitations on the amounts and
types of insurance commercially available in respect of losses that might arise
in connection with nuclear operations, and uncertainties with respect to the
technological and financial aspects of decommissioning nuclear plants at the end
of their licensed lives. The NRC has broad authority under Federal law to impose
licensing and safety-related requirements upon owners of nuclear generating
facilities and, in the event of non-compliance, has the authority to impose
fines or shut down a unit or both, depending upon its assessment of the severity
of the situation, until compliance is achieved. Safety requirements promulgated
by the NRC have, in the past, necessitated substantial capital expenditures at
nuclear plants and additional such expenditure could be required in the future.
In addition, although the Company has no reason to anticipate a serious nuclear
accident at Seabrook 1, Millstone 3, or Connecticut Yankee, if such an incident
did occur, it could have a material but presently undeterminable adverse effect
on the financial position of the Company.
Certain Risks Attendant upon Bankruptcy Proceedings of UI
If the Company were to enter into bankruptcy or reorganization proceedings,
the Company or its bankruptcy trustee could reject the Lease. In such event,
there could be no assurance that the amount of any claim for damages under the
Lease would be allowed in amounts sufficient to provide for the repayment of the
Bonds. Under Section 502(b)(6) of the United States Bankruptcy Code, as amended,
a claim by a lessor for damages resulting from the rejection of a lease of real
property in connection with bankruptcy proceedings affecting the lessee may be
limited to an amount equal to the rent reserved under the lease, without
acceleration, for the greater of 1 year or 15 percent (but not more than 3
years) of the remaining term of the lease, plus rent already due but unpaid. It
is highly likely that a bankruptcy court may find the property covered by the
Lease to be real property, in whole or in part. If such property were held to
constitute personal property, the above limitation
-6-
<PAGE>
would not apply. In any case, rejection of the Lease by the Company or its
bankruptcy trustee would not deprive the Indenture Trustee of its lien on and
security interest in the Undivided Interest. Rejection of the Lease would
deprive the Company of the benefit of the Undivided Interest and any revenues
that could be derived from the sale of the output thereof.
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FLOW OF FUNDS FOR DEBT SERVICE PAYMENTS ON THE BONDS
- ----------------------------------------------------------------
THE UNITED ILLUMINATING COMPANY
(LESSEE)
- ----------------------------------------------------------------
Rental Payments
Due Under the Lease
- ---------------------------------------------------------
INDENTURE
TRUSTEE
Rental Payments
in Excess of
Debt Service
- --------------------------------------------------------- -----------------------------------------------------------------
Debt Service for OWNER
the Bonds TRUSTEE
(LESSOR)
- --------------------------------------------------------- -----------------------------------------------------------------
BONDHOLDERS Rental Payments
in Excess of
Debt Service
- ---------------------------------------------------------
-----------------------------------------------------------------
OWNER
PARTICIPANT
-----------------------------------------------------------------
</TABLE>
USE OF PROCEEDS
Unless the accompanying Prospectus Supplement provides otherwise, the
proceeds of the sale of the Offered Bonds will be used, together with amounts
made available to the Lessor by the Company as basic and supplemental rent or by
the Owner Participant as an additional investment, to enable the Lessor to
redeem the outstanding Initial Series Bonds and to pay certain costs and
expenses incurred in connection with such refinancing.
-8-
<PAGE>
THE TRANSACTION AND THE REFINANCING
On August 9, 1990, the Company sold and leased back, on a long-term net
lease basis, an undivided portion representing approximately 66.4% of its 17.5%
ownership interest in Unit 1 (the "Undivided Interest"). The Undivided Interest,
which represents approximately an 11.6% interest in Unit 1, was sold to Meridian
Trust Company, as original Owner Trustee under a trust agreement with an
institutional investor as Owner Participant, and as original Lessor under a
lease (the "Lease") with the Company. First Union Trust Company, National
Association, is the successor Owner Trustee and Lessor. Unit 1 excludes certain
transmission, pollution control and other facilities included in Seabrook 1. At
the end of the term of the Lease and assuming the Company does not exercise any
of its purchase options under the Lease, the Lessor, as owner of the Undivided
Interest in Unit 1, will be entitled to approximately 11.6% of the capacity and
energy produced by Seabrook 1; prior to such time such capacity and energy
remain available to the Company. After the term of the Lease, any person
(including the Lessor) other than the Company that has possession of the
Undivided Interest would be required to compensate the Company for the use of
certain of such excluded facilities.
The purchase price of the Undivided Interest was $250,000,000. Of such
purchase price, $38,172,000 was provided by the Owner Participant and
$211,828,000 was provided from the proceeds of the sale of the Initial Series
Bonds. In addition, the Lessor paid, with funds provided by the Owner
Participant, certain fees and expenses incurred in connection with the
Transaction.
Under Statement of Financial Accounting Standards ("SFAS") No. 98, the
Transaction has been accounted for by the Company as a financing and not as a
sale. The Lease obligation was recorded as long-term debt and there were no
changes to utility plant. Certain transaction expenses were included as
financing costs in the Lease payments, while direct expenses of the Company in
connection with the Transaction were booked as unamortized debt expenses, and
will be amortized over the term of the Lease. On an ongoing basis, the monthly
accrual for the semi-annual Lease payments have been divided between interest
and principal components of the Lease obligation.
-9-
<PAGE>
If the Company exercises its repurchase options either during or at the end
of the lease term, the price paid in excess of the remaining rental payments
owed under the Lease attributable to principal, but no greater than 25% of the
original principal ($62.5 million), will be included as a cost of financing.
This cost would be amortized over the remaining life of the Seabrook plant. Any
repurchase price in excess of the sum total of the remaining rental payments
owed under the lease attributable to principal plus $62.5 million would be
written-off for accounting purposes.
The Company has determined, in light of prevailing economic and financial
circumstances, to cause a refinancing of the Initial Series Bonds. As part of
the refinancing, the outstanding Seabrook 1 Secured Lease Obligation Bonds,
9.76% Series due January 2, 2006 (the "2006 Initial Series Bonds") and the
Seabrook 1 Secured Lease Obligation Bonds, 10.24% Series due January 2, 2020
(the "2020 Initial Series Bonds") are to be redeemed at the principal amount
thereof, together with the applicable premium and interest accrued thereon to
the redemption date. As of October 1, 1997, there were $64,363,000 aggregate
principal amount of 2006 Initial Series Bonds outstanding and $129,055,000
aggregate principal amount of 2020 Initial Series Bonds outstanding. The Company
has previously purchased and, as of October 1, 1997 held, $66,856,000 aggregate
principal amount of Initial Series Bonds. Initial Series Bonds held by the
Company are outstanding under the Indenture and are to be redeemed as part of
the refinancing.
The Lessor will obtain the funds required to redeem the Initial Series
Bonds, including the Initial Series Bonds held by the Company, and to pay
related expenses from the proceeds of the Offered Bonds and from rent payments
made by the Company under the Lease or from the Owner Participant as an
additional investment.
SECURITY AND SOURCE OF PAYMENT FOR THE BONDS
The Bonds, which will be without recourse to the general credit of the
Lessor, the Owner Trustee or the Owner Participant and will not be direct
obligations of, or guaranteed by, the Company, will be payable from and secured
by, among other things, a lien on and security interest in the Undivided
Interest, and, subject to certain exceptions, the rights
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of the Owner Trustee as Lessor under the Lease, including the right to receive
all basic rentals and certain other payments to be made by the Company (subject
in each case to certain permitted liens). "Owner Trustee" means First Union
Trust Company, National Association, as successor trustee to Meridian Trust
Company, acting not in its individual capacity but solely as owner trustee under
the trust agreement with the Owner Participant in connection with the
Transaction. "Owner Participant" means the corporation that, in connection with
the Transaction, has acquired a beneficial interest in the owner trust that is
the owner and Lessor of the Undivided Interest. (See "Glossary" for other
capitalized terms that are not otherwise defined.) Excluded from the Indenture
Estate are any and all Excepted Payments and certain other rights. The Lease
provides that basic rent payments to be made by the Company will be calculated
in such amounts as will be sufficient to provide for the payment, when due, of
scheduled payments of principal of and interest on all of the Bonds. (See
"Description of the Lease -- Term and Rentals.") Amounts payable by the Company
under the Lease are general credit obligations of the Company. The Lease is a
net lease, and the Company is unconditionally obligated to make all payments
thereunder. (See "Description of the Lease -- Net Lease.") If a Lease Event of
Default shall have occurred and be continuing under the Lease, remedies under
the Lease may be exercised by the Lessor as described in "Description of the
Lease -- Remedies."
If an Indenture Event of Default shall have occurred and be continuing,
remedies under the Indenture may be exercised as described under "Description of
the Offered Bonds and the Indenture -- Notice; Waiver; Acceleration and
Remedies." If an Indenture Event of Default shall have occurred and be
continuing at a time when there shall not have occurred and be continuing a
Lease Event of Default, the exercise of such remedies may not disturb the
Company's use and possession of the Undivided Interest or require prepayment of
rent under the Lease.
In certain instances, the Company (or the Company and an Affiliate thereof
jointly) may elect or may be required to assume the obligations of the Owner
Trustee under the Indenture and on the Bonds. (See "Description of the Offered
Bonds and the Indenture -- Assumption by the Company.") Upon such an assumption,
the Owner Trustee would be released from its obligations under the Indenture and
on the Bonds. In such case the Holders of such Bonds would retain the benefit
under the Indenture of the lien on and security interest in the
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Undivided Interest, and the obligation to make payments on such Bonds would
become a direct obligation of the Company, or the Company and an Affiliate
thereof, as the case may be.
Subject to certain conditions, additional Bonds may be issued under the
Indenture (a) for the purpose of redeeming all or any part of any series of
Bonds previously issued under the Indenture, including the Offered Bonds, and of
providing funds for the payment of certain expenses incurred in connection with
the issuance of such additional Bonds and (b) to provide funds for all or a
portion of certain alterations, modifications, additions or capital improvements
to Unit 1, subject to certain limitations. All additional Bonds issued under the
Indenture will be secured equally and ratably with the Offered Bonds.
If the Owner Participant, the Owner Trustee or the Lessor becomes subject
to bankruptcy or reorganization proceedings and, by reason of such proceedings,
the Owner Participant, the Owner Trustee or the Lessor is held to have recourse
liability to the Holder of any Bond or the Indenture Trustee, and such Holder or
the Indenture Trustee actually received payment on account of such recourse
liability, such Holder or the Indenture Trustee, as the case may be, will be
required to refund promptly to the Owner Participant, the Owner Trustee or the
Lessor, as appropriate, any amount of such payment that exceeds the amount that
would have been received on or prior to the date of such payment by such Holder
or the Indenture Trustee if the Owner Participant or the Lessor had not become
subject to such recourse liability.
For further information with respect to the source of payment for the Bonds
and with respect to the Indenture, see "Description of the Offered Bonds and the
Indenture."
DESCRIPTION OF THE OFFERED BONDS AND THE INDENTURE
The statements made under this caption are intended to summarize the
Offered Bonds; they do not purport to be complete and are qualified in their
entirety by reference to the Indenture, a copy of the form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. A Prospectus Supplement will describe the following terms of, or
applicable to, the series of Offered Bonds to be issued: (1) the designation of
each series of the Offered Bonds; (2) the aggregate principal amount of each
series; (3) the date on which each series will mature; (4) the rate at which
each series will
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bear interest and the date from which such interest accrues; (5) the dates on
which interest will be payable; and (6) the prices, terms and conditions upon
which each series may be redeemed by the Owner Trustee prior to maturity or upon
which installment payments of principal will become due and payable.
General
The Offered Bonds will be issued under an Indenture of Mortgage and Deed of
Trust, dated as of August 1, 1990 (the "Indenture"), among the Owner Trustee,
the Company and the Indenture Trustee, as supplemented by a Supplemental
Indenture. The Bank of New York will serve as Indenture Trustee under the
Indenture and will also initially act as registrar and paying agent for the
Offered Bonds.
The Offered Bonds may be surrendered for registration of transfer or
exchange for Offered Bonds of the same series and maturity at the corporate
trust office of the registrar. The registrar will not be required to register
the transfer or exchange of any Offered Bonds called for redemption or during a
period of 15 days preceding a mailing of notice of redemption. No service charge
will be required of any Holder participating in any transfer or exchange of
Offered Bonds with respect to such transfer or exchange, but, with certain
exceptions, payment may be required of any tax or other governmental charges
that may be imposed in connection therewith. (Indenture, Section 2.09)
Absence of Protection From Highly Leveraged Transactions
The Indenture does not contain any covenants intended to protect Holders in
the event of a highly leveraged transaction involving the Company. If certain
ratings on the Company's senior debt securities are not maintained above
specified levels, and certain other tests are not met, a Deemed Loss Event may
result. See "Description of the Offered Bonds and Indenture -- Assumption by the
Company." Also, a merger or consolidation involving the Company may be
prohibited if, as a result, certain ratings on the Company's senior debt
securities are not maintained. See "Other Agreements - Participation Agreement"
and the discussion of Deemed Loss Events in "Description of the Offered Bonds
and the Indenture -- Assumption by the Company." Although such provisions are
intended for the benefit of the Owner Participant,
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they may have the indirect effect of affording protection to the Holders so long
as they are in full force and effect.
Indenture Events of Default
The following will be Indenture Events of Default:
(a) any Lease Event of Default described in the following clauses of the
first paragraph in "Description of the Lease -- Lease Events of Default": (i)
clause (a)(x), except a failure of the Company to pay any amount that
constitutes an Excepted Payment or except in the case of a default in the
payment of Casualty Value, Special Casualty Value, or the payment of the equity
portion of Casualty Value or Special Casualty Value, where the Owner Trustee has
not rescinded or terminated the Lease or (ii) clause (e);
(b) the rescission or termination of, or the taking of action by the Owner
Trustee or the Owner Participant the effect of which would be to rescind or
terminate the Lease;
(c) the exercise by the Owner Trustee or the Owner Participant of certain
remedies under the Lease, as a result of which the Company would be obligated to
pay liquidated damages, prior to the occurrence of any of the events set forth
in clause (b) above;
(d) any assignment, sublease or transfer by the Company of the Lease and
the other transaction documents in violation of the terms of the Lease;
(e) breach by the Company of the provisions of the Participation Agreement
relating to the maintenance of its corporate existence and relating to a merger
by the Company into or consolidation of the Company with another entity or the
sale or transfer of all or substantially all of the Company's assets by the
Company (see "Other Agreements -- Participation Agreement");
(f) failure by the Owner Trustee to make any payment in respect of the
principal of or premium, if any, or interest on the Bonds within five business
days after the same shall
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have become due (other than by virtue of any failure by the Company to make any
payment of rent therefor);
(g)(x) failure by the Owner Trustee to perform or observe any covenant or
agreement in the Indenture to be performed or observed by it (other than any
failure by the Owner Trustee to pay or cause to be paid any payment of the
principal of or premium, if any, or interest on the Bonds when due), or (y)
failure by the Owner Participant to observe its covenant in the Participation
Agreement not to create certain liens on the Indenture Estate or the trust
estate and, in either case, the continuation of such failure for a period of 30
days after notice thereof has been given to the Owner Trustee, the Owner
Participant and the Company by the Indenture Trustee or to the Indenture
Trustee, the Company, the Owner Trustee and the Owner Participant by the Holders
of at least 25% in aggregate principal amount of the outstanding Bonds of all
series, considered as one class; provided, however, that the continuation of
such failure for a period of 30 days or more after such notice has been so given
(but in no event for a period that is greater than one year after such notice
has been given) shall not constitute an Indenture Event of Default if (i) such
failure can be remedied but cannot be remedied within such 30 days, (ii) the
Owner Trustee or the Owner Participant, as the case may be, is diligently
pursuing a remedy of such failure and (iii) such failure does not impair in any
material respect the mortgage and security interest created by the Indenture;
(h) any representation or warranty made by the Owner Trustee in the
Participation Agreement, or any representation or warranty made by the Owner
Participant in the Participation Agreement concerning liens against the trust
estate or the Indenture Estate as a result of claims against the Owner
Participant unrelated to the Transaction shall prove to have been incorrect in
any material respect when such representation or warranty was made or given and
remains materially incorrect at the time of discovery; provided, however, that
such failure of such representation or warranty to be correct shall not
constitute an Indenture Event of Default if (i) the facts or circumstances
making such representation or warranty incorrect can be remedied or changed so
that such representation or warranty will henceforth be correct in all material
respects, (ii) the Owner Trustee or the Owner Participant, as the case may be,
is diligently pursuing such a remedy or change, (iii) such remedy or change is,
in fact, accomplished within a period of one year from the time that the Owner
Trustee or the
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Owner Participant, as the case may be, has been notified of such
misrepresentation or breach of warranty and (iv) such facts or circumstances do
not impair in any material respect the mortgage and security interest created by
the Indenture;
(i)(x) the Owner Trustee shall file any petition for dissolution or
liquidation of the trust created by the trust agreement or shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or subsequently in effect, or the Owner Trustee shall have consented to the
entry of an order for relief with respect to the trust in an involuntary case
under any such law, or a receiver, custodian or trustee (or other similar
official) shall be appointed for the trust or shall take possession of any
substantial part of its property (other than at the instance of the Indenture
Trustee or the Holders of Bonds), or the Owner Trustee shall make a general
assignment for the benefit of the trust's creditors, or shall enter into an
agreement of composition with the trust's creditors; or (y) there shall be filed
(other than at the instance of the Indenture Trustee or the Holders of Bonds)
against the trust an involuntary petition in bankruptcy which results in an
order for relief being entered or, notwithstanding that an order for relief has
not been entered, the petition is not dismissed within 60 days after the date of
filing of the petition, or there shall be filed (other than at the instance of
the Indenture Trustee or the Holders of Bonds) under any Federal or state law
relating to bankruptcy, insolvency or relief of debtors any petition against the
Owner Trustee for reorganization, composition, extension or arrangement with
creditors that either (i) results in a finding or adjudication of insolvency of
the trust or (ii) is not dismissed within 60 days after the date of the filing
of such petition;
(j)(x) the Owner Participant shall file any petition for dissolution or
liquidation of the Owner Participant, or shall commence a voluntary case, under
any applicable bankruptcy, insolvency or other similar law now or subsequently
in effect, or the Owner Participant shall have consented to the entry of an
order for relief in an involuntary case under any such law, or shall fail
generally to pay its debts as such debts become due (within the meaning of the
United States Bankruptcy Code, as amended), or a receiver, custodian or trustee
(or other similar official) shall be appointed for the Owner Participant or
shall take possession of any substantial part of its property, or the Owner
Participant shall make a general assignment for the benefit of its creditors, or
shall enter into an agreement of composition with its creditors; or (y) there
shall be filed against the Owner Participant an involuntary
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petition in bankruptcy that results in an order for relief being entered or,
notwithstanding that an order for relief has not been entered, the petition is
not dismissed within 60 days after the date of the filing of the petition, or
there shall be filed under any Federal or state law relating to bankruptcy,
insolvency or relief of debtors, any petition against the Owner Participant for
reorganization, composition, extension or arrangement with creditors that either
(i) results in a finding or adjudication of insolvency of the Owner Participant
or (ii) is not dismissed within 60 days after the filing of such petition and in
either such event materially adversely affects the Holders of the Bonds; or
(k) after a Special Transfer has been effected and amounts payable to the
Owner Participant have been paid in full in accordance with the Participation
Agreement, any violation or breach of any covenant of the Company concerning the
Company's continuing obligation to pay rent under the Lease or concerning its
obligation to effectuate and evidence an assumption as described in "Description
of the Offered Bonds and the Indenture -- Assumption by the Company."
(Indenture, Section 7.01)
Notice; Waiver; Acceleration and Remedies
The Indenture Trustee, within 90 days after it has knowledge of any
Indenture Default or Indenture Event of Default, is required to give notice
thereof (unless such Indenture Default or Indenture Event of Default shall have
been waived or cured) in writing to the Holders of the outstanding Bonds of all
series, the Owner Trustee, the Owner Participant and the Company; provided that,
except in the case of any Indenture Default or Indenture Event of Default
specified in clause (a) or (f) above, the Indenture Trustee will be protected in
withholding such notice if in good faith it determines that the withholding of
such notice is in the interest of the Holders; and provided, further, that in
the case of an Indenture Event of Default specified in clause (g) above, no such
notice will be given until at least 30 days after the occurrence thereof. In the
event the Indenture Trustee has knowledge of an Event of Loss or Deemed Loss
Event in respect of which there has been a demand for payment under the
Participation Agreement or under any promissory note issued by the Company to
the Owner Participant pursuant to the Participation Agreement or in response to
which a Special
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Transfer has been effected, the Indenture Trustee shall give prompt notice
thereof, and in any event, within 90 days after occurrence thereof, to the
Holders of the outstanding Bonds. (Indenture, Section 8.02) In the absence of
actual knowledge of a Responsible Officer of the Indenture Trustee, the
Indenture Trustee will not be deemed to have knowledge of any Indenture Default
or Indenture Event of Default (except the failure of the Company to pay any
installment of basic rent within 5 business days after the same has become due)
unless notified thereof in writing by any Holder, the Owner Trustee, the Owner
Participant or the Company. (Indenture, Section 8.03) The Company and the Owner
Trustee are required to deliver to the Indenture Trustee, promptly after having
obtained knowledge thereof, written notice of any Indenture Default or Indenture
Event of Default, and the Company is required to deliver to the Indenture
Trustee an annual certificate regarding compliance by the Company with its
obligations under the Indenture for the preceding year and the nature and status
of any default by it in the performance of such obligations. (Indenture, Section
4.12)
The Holders of a majority in aggregate principal amount of the outstanding
Bonds of all series, considered as one class, may on behalf of the Holders of
all Bonds of all series waive any past default under the Indenture and its
consequences, except that only the Holders of all Bonds affected thereby may
waive a default (a) in the payment of the principal of or premium, if any, or
interest on such Bonds, or (b) in respect of a covenant or other provision of
the Indenture that under the Indenture cannot be modified or amended without the
consent of the Holder of each outstanding Bond affected. (Indenture, Section
7.09)
If an Indenture Event of Default has occurred and is continuing, the
Indenture Trustee may, and upon the written request of, and the proffering of
satisfactory indemnity by, the Holders of a majority in aggregate principal
amount of the outstanding Bonds of all series, considered as one class, shall,
declare the unpaid principal amount of all outstanding Bonds, with accrued
interest thereon, to be immediately due and payable, but the Indenture Trustee
shall not make any such declaration in the case of an Indenture Event of Default
that resulted from a failure by the Company to make a payment of rent under the
Lease until the Owner Trustee and the Owner Participant have been given an
opportunity to cure such default as described below under "Rights of Lessor to
Cure and Purchase Bonds." (Indenture, Sections 7.02, 7.16 and 8.03)
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Upon the occurrence and during the continuance of an Indenture Event of
Default, the Indenture Trustee may, and upon the written request of, and the
proffering of satisfactory indemnity or security by, the Holders of a majority
in aggregate principal amount of the outstanding Bonds of all series, considered
as one class, shall, subject to the Lessor's rights described under the
following two paragraphs and under "Rights of Lessor to Cure and Purchase Bonds"
and "Limitation on Remedies" below, exercise any or all of the rights and
remedies available to it under the Indenture and applicable law, including (a)
the institution of judicial proceedings, either at law or in equity or
otherwise, to protect its rights and those of the Holders under the Indenture or
for foreclosure of the lien thereof and (b) the sale in whole or in part of the
Indenture Estate. (Indenture, Sections 7.03 through 7.08 and Section 8.03) Prior
to foreclosing on the Undivided Interest, the Indenture Trustee may be legally
required to obtain appropriate approvals from the NRC with respect to the NRC
Facility Operating License for Seabrook 1. However, the Participation Agreement
provides that the Indenture Trustee shall not have any responsibility to take or
initiate any action with respect to any NRC licensing matter. See "Other
Agreements -- Operating Agreement" for a description of certain other
limitations on the sale of the Undivided Interest.
Except in the case of Indenture Events of Default (i) described in clauses
(f) through (k) under "Indenture Events of Default" above and (ii) occurring or
continuing after a Special Transfer or an assumption of the Bonds by the Company
as described below under "Assumption by the Company," and except as described in
the next paragraph, the exercise of remedies against the Company under the Lease
(including the giving of directions and consents under all relevant documents)
will be controlled by the Owner Trustee. In such circumstances, however, the
Owner Trustee will be required to consult with the Indenture Trustee as to any
proposed exercise or pursuit of remedies and the Indenture Trustee will have the
right to cause the Owner Trustee to forbear from such action if the Indenture
Trustee has determined that such action would have a material adverse effect on
the Holders of the Bonds. In addition, the Owner Trustee will not exercise or
pursue remedies in a manner that would unreasonably deprive the Holders of the
Bonds of a material right or remedy unless the Owner Trustee is commensurately
adversely affected. There could be circumstances, therefore, in which amounts
due on the Bonds are not paid and the Indenture Trustee is not
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able to direct the Owner Trustee's pursuit of remedies against the Company under
the Lease. (Indenture, Sections 7.03 and 7.17)
Although, as described above, the exercise of remedies will generally be
within the control of the Owner Trustee, the Indenture Trustee will have the
right to sell the Indenture Estate in foreclosure or similar proceedings.
However, if such sale occurs prior to or simultaneously with the termination of
the Lease, the Indenture Trustee must have offered to sell to the Owner Trustee
the Indenture Estate at a stated price determined by the Indenture Trustee. If
the Owner Trustee does not, within 60 days following receipt of such offer,
elect to so purchase the Indenture Estate, the Indenture Trustee may foreclose
and sell the Indenture Estate within 180 days to any person (other than the
Indenture Trustee or a Holder or Holders of more than 25% of the outstanding
Bonds (including, in each case, affiliates thereof)) for not less than such
stated price. In the event of a sale by the Indenture Trustee pursuant to a
foreclosure or similar proceeding (other than a sale to the Owner Trustee), the
Indenture Trustee will have the right to terminate the Lease in connection with
such sale, subject, however, to the Company's rights under the Lease described
in "Limitation on Remedies" below. (Indenture, Section 7.17)
If an Indenture Event of Default occurs and is continuing, and the maturity
of the Bonds has been accelerated, any sums held or received by the Indenture
Trustee may be applied to reimburse the Indenture Trustee for any expense (to
the extent not previously reimbursed) incurred by it and to pay its fees and any
other amounts due it prior to any payments to Holders of the Bonds. (Indenture,
Section 3.03)
In the event of a bankruptcy of the Owner Participant, it is possible that,
notwithstanding that the Undivided Interest is owned by the Owner Trustee in
trust, the Undivided Interest and the Lease and Bonds might become subject to
bankruptcy proceedings. In such event, payments under the Lease or on the Bonds
might be interrupted and the ability of the Indenture Trustee to exercise its
remedies under the Indenture might be restricted, although the Indenture Trustee
would retain its status as a secured creditor in respect of the Lease and the
Undivided Interest.
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Rights of Lessor to Cure and Purchase Bonds
The Indenture provides that an Indenture Event of Default is to be deemed
cured if such Indenture Event of Default results from a non-payment of rent
under the Lease and the Owner Trustee or the Owner Participant has paid all
principal of and interest on the Bonds due (other than by acceleration) on the
date such rent was payable within 15 days after receipt by the Owner Trustee of
notice of such nonpayment. However, the Owner Trustee or the Owner Participant
is not permitted to exercise such right to cure the non-payment of rent with
respect to more than four basic rent payment dates or two consecutive basic rent
payment dates during the Lease term. (Indenture, Section 7.16)
If an Indenture Event of Default has occurred and is continuing and (a) the
Bonds have been accelerated and (b) the Owner Trustee, within 30 days after
receiving notice thereof from the Indenture Trustee, has given written notice to
the Indenture Trustee of its intention to purchase all the Bonds, then, upon
receipt by the Indenture Trustee within 10 business days after such notice from
the Owner Trustee of an amount equal to the aggregate unpaid principal amount of
and interest on the Bonds then outstanding (as well as any interest on overdue
principal and, to the extent permitted by law, overdue interest), each Holder of
a Bond will be required to sell such Bond, and its right, title and interest in
and to the Indenture and the Indenture Estate, to the Owner Trustee. (Indenture
Section 7.16)
Limitation on Remedies
Notwithstanding any other provision of the Indenture to the contrary, the
Indenture Trustee may not take or cause to be taken any action contrary to the
Company's rights under the Lease, including, without limitation, any action (x)
contrary to the Company's right to use and possession of the Undivided Interest
or (y) that would require prepayment of any scheduled payment of rent
thereunder, unless (1) an Indenture Event of Default arising out of a Lease
Event of Default shall have occurred and be continuing and (2) the Indenture
Trustee shall have notified the Owner Participant and the Owner Trustee in
writing that it has decided to take steps permitted under the Indenture in
anticipation of the sale of the Indenture Estate in foreclosure or similar
proceedings in accordance with the provisions of the Indenture. In addition, no
Holder shall have any right to pursue any remedy under the
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Indenture unless the Indenture Trustee shall have been given written notice of
an Indenture Event of Default, the Holders of at least 25% in principal amount
of all Bonds then outstanding shall have requested the Indenture Trustee to
pursue a remedy, the Indenture Trustee shall have been offered satisfactory
indemnity, and the Indenture Trustee shall have failed to comply with such
request within 60 days after receipt of such request. (Indenture, Sections 7.10
and 7.20)
Assumption by the Company
Upon the occurrence of an Event of Loss or Deemed Loss Event and subject to
the satisfaction of certain conditions described below, the Company, or the
Company and an Affiliate thereof jointly and severally, may elect, or may be
required upon the direction of the Indenture Trustee or Owner Trustee, to assume
the obligations of the Owner Trustee under the Indenture and on the Bonds. In
addition, the Company may elect to assume the Bonds if it chooses to exercise
any of certain purchase options described under "Description of the Lease --
Purchase Option for Significant Expenditures" or "-- Periodic Purchase Option."
Upon such assumption, the Indenture and the Bonds so assumed will become direct
obligations of the Company (and such Affiliate), the Lease will terminate, the
Undivided Interest of the Lessor in Unit I will be transferred to the Company
(and/or an Affiliate) subject to the lien of the Indenture, and the Owner
Trustee will be released and discharged from all further obligations and
liabilities under the Indenture and on the Bonds so assumed. Although certain
changes would be made to the Indenture to reflect the termination of the Lease,
the lien on and security interest in the Undivided Interest created by the
Indenture would not be affected.
Upon the occurrence of an Event of Loss, Deemed Loss Event or Lease Event
of Default, the Owner Participant can demand that the Company pay the excess of
Casualty Value (in the case of an Event of Loss or Lease Event of Default) or
Special Casualty Value (in the case of a Deemed Loss Event, subject to certain
exceptions) over the principal of and accrued interest on the Bonds then
outstanding. (Participation Agreement, Sections 15(a) and (b), Appendix B) The
Company has issued and delivered to the Owner Participant a promissory note
evidencing the Company's obligation to pay such amounts. Such promissory note is
secured by a lien on and security interest in the Lessee's right to its
leasehold estate under the Lease, and upon a Special Transfer, such promissory
note shall be secured by a lien on and
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security interest in the beneficial interest in the owner trust. (Participation
Agreement, Section 16) In addition, upon the occurrence of any such events, the
Owner Participant can effect a Special Transfer of the beneficial interest in
the owner trust to the Company. (Participation Agreement, Section 15(c))
If an Event of Loss or Deemed Loss Event occurred in respect of which the
Owner Participant has demanded payment as described above or in response to
which a Special Transfer has been effected, the Company, in order to effectuate
and evidence an assumption of the Owner Trustee's obligations under the
Indenture and on the Bonds, may, and upon the direction of the Indenture Trustee
(to be given at the direction of the Holders of not less than 5% in aggregate
principal amount of the Bonds outstanding of all series, considered as one
class) or the Owner Trustee, shall promptly, commence and diligently pursue all
steps requisite to deliver to the Indenture Trustee, among other things, (a) a
duly executed assumption agreement of the Company (and, if applicable, any of
its Affiliates), (b) an opinion of counsel as to, among other things, compliance
with the conditions of the assumption (including the obtainment of any necessary
governmental actions), (c) an indenture supplemental to the Indenture that,
among other things, confirms the release of the Owner Trustee and contains
provisions amending the Indenture to delete references to the Lease and to
reflect the fact that the obligations of the Owner Trustee have been assumed by
the Company (and, if applicable, such Affiliate), (d) a certificate of
responsible officers of the Company (and, if applicable, such Affiliate) to the
effect that (i) to the best of such officers' knowledge, no Indenture Default or
Indenture Event of Default has occurred and is continuing, (ii) such assumption
is permitted by the provisions of the Company's (and, if applicable, such
Affiliate's) articles of incorporation and by-laws (or similar corporate
documents) and (iii) the Company (and, if applicable, such Affiliate) is not
insolvent at the time of such assumption, and (e) a certificate of a responsible
officer of the Owner Trustee to the effect that, to the best of such officer's
knowledge, no Indenture Default or Indenture Event of Default has occurred and
is continuing. (Indenture, Section 2.16)
Upon satisfaction of the conditions and payment of the amounts described in
the preceding paragraph, the Lessor is required to transfer title to the
Undivided Interest to the Company or an Affiliate of the Company, subject to the
lien of the Indenture. (Lease, Sections 9(c) and (d))
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If the Company makes the payments to the Owner Participant as described
above upon the occurrence of an Event of Loss or Deemed Loss Event, but has not
yet delivered the documents listed in the second preceding paragraph, then the
Owner Participant must make a Special Transfer. (Participation Agreement,
Section 15(c))
Neither the occurrence of an Event of Loss nor a Deemed Loss Event would,
in and of itself, constitute an Indenture Event of Default. Nor would the
occurrence of an Event of Loss or a Deemed Loss Event require the prepayment of
the Bonds. As previously described, the occurrence of such event could require
substantial payments by the Company to the Owner Participant and could result in
the assumption of the Bonds by the Company.
Any of the following events will constitute "Events of Loss":
(a) a final shutdown of Unit 1 that could result from any of several
events, including, and in some cases, subject to certain grace periods, certain
NRC licensing problems with respect to Unit l, direction by the NRC or other
governmental authority to suspend operation of Unit l for reasons of
radiological health and safety for a period exceeding or reasonably expected (in
the opinion of an independent expert) to exceed 24 consecutive months, cessation
of operation of Unit 1 for such period if resumption of operation would require
concurrence of the NRC or other governmental authority and such cessation lasts
for or is reasonably expected (in the opinion of an independent expert) to last
for a period of 24 months, the occurrence of certain Nuclear Incidents (as
defined in the Atomic Energy Act) with respect to Unit 1 as a result of which
Unit 1 ceases to operate for a period exceeding or reasonably expected (in the
opinion of an independent expert) to exceed 18 consecutive months, the
occurrence of damage to Unit 1 and failure to restore Unit 1 within the shorter
of three years and the period from the occurrence of such damage until the end
of the Lease term, the destruction of Unit 1 or a declaration by the NRC that an
Extraordinary Nuclear Occurrence (as defined in the Atomic Energy Act) has
occurred with respect to Unit 1;
(b) a requisition of title of Unit 1 or the Undivided Interest or certain
shared facilities or the site of Unit 1 by a governmental authority for a period
of time that
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exceeds or is reasonably expected to exceed the shorter of 60 months and the
remaining Lease term, subject to certain contest rights of the Company; or
(c) a requisition of the use of Unit 1 or the Undivided Interest or certain
shared facilities or the site of Unit 1 by a governmental authority, other than
a requisition of title, which would significantly interfere with the use of Unit
1 or the Undivided Interest, and which requisition is for a period of time that
exceeds or is reasonably expected to exceed the shorter of 60 months and the
remaining Lease term, subject to certain contest rights of the Company.
Any of the following events will constitute "Deemed Loss Events":
(a) the Lessor or Owner Participant becoming subject to adverse regulation
as a public utility solely as a result of the Transaction;
(b) certain changes and/or new interpretations by a governmental authority
regarding applicable law, including the Price-Anderson Act, the Atomic Energy
Act, the Nuclear Waste Act or NRC regulations, as a result of which (i) the
Lessor or the Owner Participant would more likely than not become liable or
responsible in any capacity for payments owed in respect of the nuclear waste
fund or in respect of, among other things, the handling or disposal of nuclear
waste and other radioactive or hazardous materials or (ii) the Lessor or the
Owner Participant may be prohibited from asserting the limitation on liability
of lessors provided by the 1988 amendments to the Price-Anderson Act or is more
likely than not to be prohibited from asserting any other material right,
protection or defense available under applicable law as of the date of closing
of the Transaction with respect to civil or criminal actions brought in
connection with a nuclear incident;
(c) the Lessor or Owner Participant more likely than not being required to
become a licensee under the Atomic Energy Act or otherwise subject to the Atomic
Energy Act or otherwise subject to NRC or other significant regulation relating
to nuclear, energy, environmental or safety matters solely as a result of the
Transaction;
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(d) any governmental action or change in applicable law or (subject to
certain contest rights of the Company) any claim under New Hampshire law or
interpretation thereof, the effect of which is more likely than not to (i) cause
the Lessor or the Owner Participant to become liable with respect to the
decommissioning of Unit 1 or for funding any portion of any trust or other fund
established to provide for the decommissioning of Unit 1 or (ii) constitute an
assertion that (x) the exercise of certain rights of the Lessor or the Owner
Participant under any of the transaction documents would constitute
impermissible control over Unit 1 or the licensees of Unit 1 or would violate
certain NRC or Atomic Energy Act regulations or (y) the acquisition or transfer
of the Undivided Interest would violate applicable law;
(e) subject to certain exceptions and excluding certain outage time, Unit 1
having operated in three consecutive calendar years at a capacity factor below
60 percent; or
(f) at such times as the Company's senior long-term debt is rated below BBB
and Baa2 by Standard & Poor's Corporation and Moody's Investors Service Inc.,
respectively, (i) the ratio of the Company's available earnings to interest
charges for any calendar year ending during such time is less than 1.5 to 1.0,
(ii) the Company's unconsolidated indebtedness, exclusive of up to $10 million
of short-term debt, exceeds 62 1/2% of the cost of the Company's properties less
depreciation thereon, as shown on its books of account maintained for regulatory
purposes, or (iii) the ratio of the aggregate current and noncurrent liabilities
of the Company to total assets of the Company at December 31 of any year during
such time shall be greater than 0.8 to 1.0.
The Company may, at its option, but is not required to, assume all or a
portion of the Bonds if it chooses to exercise any of certain purchase options
described under "Description of the Lease -- Purchase Option for Significant
Expenditures" or "-- Periodic Purchase Option." Any such assumption would be
conditioned upon the prior delivery to the Indenture Trustee of the documents
listed in clauses (a) through (e) of the third paragraph under the heading "--
Assumption by the Company". (See Indenture, Section 2.16(b); Lease, Sections
13(f) and (g))
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Defeasance
The Bonds of any series, or any portion of the principal amount thereof,
will, prior to the maturity thereof, be deemed to have been paid for purposes of
the Indenture, and the entire indebtedness of the Owner Trustee (or other
obligor thereon) in respect thereof will be deemed to have been satisfied and
discharged, if the Owner Trustee shall have irrevocably deposited with the
Indenture Trustee, in trust, either:
(a) money in an amount that will be sufficient or
(b) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America or
certificates of an ownership interest in the principal of or interest on any of
such obligations, in each case not containing provisions permitting the
redemption or other prepayment thereof at the option of the issuer (such
obligations and certificates being hereinafter called "Federal Securities") the
principal of and the interest on which when due, without any reinvestment
thereof, will provide money that, together with the money, if any, deposited
with or held by the Indenture Trustee, will be sufficient, to pay when due the
principal of and premium, if any, and interest due and to become due on such
Bonds, or portions thereof, on and prior to the maturity date, installment
payment date or redemption date thereof, as the case may be; provided, however,
that such Bonds will not be deemed to have been satisfied and discharged unless,
among other things, there shall have been delivered to the Indenture Trustee,
(i) if Federal Securities shall have been deposited with the Indenture Trustee,
an opinion of an independent public accountant to the effect that such
obligations constitute Federal Securities and (ii) if such deposit shall have
occurred more than one year prior to the stated maturity of principal or
redemption date of such Bonds, an opinion of counsel to the effect that such
satisfaction and discharge of the indebtedness of the Owner Trustee with respect
to such Bonds shall not be deemed to be, or result in, a taxable event with
respect to the Holders of such Bonds for purposes of Federal income taxation,
except that no such opinion of counsel need be delivered if the Indenture
Trustee shall have received documentary evidence that each Holder of such Bonds
either is not subject to, or is exempt from, Federal income taxation.
(Indenture, Section 11.01)
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Releases
The Indenture Trustee will release from the lien of the Indenture any
property subject to the lien thereof that is taken by any governmental authority
pursuant to a power of eminent domain or other right to acquire such property
(whether or not such taking constitutes an Event of Loss) upon its receipt of,
among other things, a written request from the Owner Trustee or the Company
requesting such release and the net proceeds of any property so taken.
(Indenture, Section 13.01)
Subject to the following paragraph, the Owner Trustee or, with the consent
of the Owner Trustee, the Company, may obtain the release from the lien of the
Indenture of the Owner Trustee's interest in any component of Unit 1 the removal
of which would not materially impair the operating capacity, cost efficiency,
utility or value of Unit 1, and the Indenture Trustee will release from the lien
of the Indenture its interest in any such component upon its receipt of, among
other things, a written request from the Owner Trustee or the Company requesting
such release and a certificate of an engineer or other expert (who may in
certain cases be an employee of the Owner Trustee or the Company or any
Affiliate of either thereof) certifying (x) the fair value of the property to be
released and (y) that, in the opinion of such expert, the proposed release will
not impair the security under the Indenture in violation of the provisions
thereof. (Indenture, Section 13.02)
In addition to the release provisions described above, the Owner Trustee or
the Company, with the Owner Trustee's consent, may sell or otherwise dispose of,
free from the lien of the Indenture and without obtaining any release or other
consent from the Indenture Trustee, the Owner Trustee's interest in any
components of Unit 1 that have become obsolete or otherwise permanently no
longer useful for the operation of Unit 1. All replacement components
incorporated in Unit 1 will, to the extent of the Owner Trustee's interest
therein, immediately become subject to the lien of the Indenture. (Indenture,
Section 13.03)
Supplemental Indentures
Without the consent of the Holders of any Bonds, the Owner Trustee, the
Company and the Indenture Trustee may enter into supplemental indentures for the
following purposes:
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(a) to establish the form and terms of Bonds of any series;
(b) to evidence the succession of another corporation to the Company and
the assumption by any such successor of the covenants of the Company contained
in the Indenture, or to evidence the succession of another bank or trust company
to the Owner Trustee and the assumption by any such successor of the covenants
of the Owner Trustee contained in the Indenture and in the Bonds or the
appointment of a co-trustee pursuant to the terms of the Trust Agreement;
(c) to evidence the succession of a new trustee or the appointment of a
co-trustee or a separate trustee under the Indenture;
(d) to grant or confer upon the Indenture Trustee for the benefit of the
Holders any additional rights, remedies, powers, authority or security that may
be lawfully so granted or conferred and which grant or conferral is not contrary
to or inconsistent with the Indenture;
(e) to add to the covenants of the Owner Trustee or the Company for the
benefit of the Holders or to evidence the surrender of any right or power
conferred in the Indenture upon the Owner Trustee or the Company;
(f) to convey, transfer and assign to the Indenture Trustee, and to subject
to the lien of the Indenture, additional properties or assets, or to correct or
amplify the description of any property at any time subject to the lien of the
Indenture, or to assure, convey and confirm unto the Indenture Trustee any
property subject or required to be subject to the lien of the Indenture;
(g) to modify, eliminate or add to the provisions of the Indenture to the
extent necessary to continue the qualification of the Indenture (including any
supplemental indenture) under the Trust Indenture Act of 1939, as amended, or
under any similar Federal statute subsequently enacted, or to add (subject to
certain exclusions) to the Indenture such other provisions as may be expressly
permitted by that Act;
(h) to permit or facilitate the issuance of Bonds in uncertificated form;
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(i) to change or eliminate any provision of the Indenture; provided,
however, that if such change or elimination will adversely affect the interests
of the Holders of Bonds of any series, such change or elimination will become
effective with respect to such series only when no Bond of such series remains
outstanding;
(j) to evidence an assumption by the Company of the Bonds, and the release
of the Owner Trustee from its obligations thereon, and to make the related
changes in the Indenture;
(k) to cure any ambiguity or to correct or supplement any provision in the
Indenture that may be defective or inconsistent with any other provision in the
Indenture;
(l) to accomplish any adjustments of the principal amounts of Bonds to be
redeemed through operation of sinking funds or to be prepaid in an installment
payment of principal; or
(m) to make any other provisions with respect to matters or questions
arising under the Indenture, provided such action shall not adversely affect the
interest of the Holders of the Bonds then outstanding in any material respect.
Without limiting the generality of the foregoing, if the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), is amended after the date
of the Indenture to require changes to the Indenture or the incorporation
therein of additional provisions or permit changes to, or the elimination of,
provisions that, at the date of the Indenture or at any time thereafter, are
required by the Trust Indenture Act to be contained in the Indenture, the
Company, the Indenture Trustee and the Owner Trustee may, without the consent of
any Holders, enter into one or more supplemental indentures to effect or reflect
any such change, incorporation or elimination. (Indenture, Section 10.01)
Subject to the foregoing paragraphs, with the consent of the Holders of not
less than a majority in aggregate principal amount of the outstanding Bonds of
all series, considered as one class, the Owner Trustee and the Company may, and
the Indenture Trustee shall, enter into
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supplemental indentures for the purpose of adding any provisions to, or changing
in any manner or eliminating any of the provisions of, the Indenture; provided
that if there is more than one series of Bonds outstanding and if a proposed
supplemental indenture directly affects the Holders of at least one, but not
all, of such series, then only the consent of a majority in aggregate principal
amount of the outstanding Bonds of all series so directly affected, considered
as one class, will be required; and provided, further, that without the consent
of the Holder of each outstanding Bond directly affected thereby no such
supplemental indenture may:
(a) change the stated maturity of the principal of, or any installment of
interest on, or the date or circumstances of payment of premium, if any, on, any
Bond, or reduce the principal amount thereof or the interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency in
which, any Bond or the premium, if any, or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment of
principal or interest on or after the stated maturity thereof (or, in the case
of redemption, on or after the redemption date) or such payment of premium, if
any, on or after the date such premium becomes due and payable, or change the
dates or amounts of payments to be made through the operation of the sinking
fund in respect of such Bonds, except as otherwise described herein;
(b) except as described under "Releases" or "Assumption by the Company"
above, permit the creation of any lien prior to or, except with respect to
additional series of Bonds issued in accordance with the Indenture, equal to the
lien of the Indenture with respect to any of the Indenture Estate, or deprive
any Holder of the benefit of the lien of the Indenture upon any part of the
Indenture Estate for the security of its Bonds;
(c) reduce the percentage in principal amount of the outstanding Bonds the
consent of whose Holders is required for any supplemental indenture or for any
waiver provided for in the Indenture or reduce the requirements of the Indenture
relating to (1) a quorum for meetings of Holders or (2) action taken by Holders
pursuant to the Indenture at meetings thereof;
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(d) modify the orders of priority in which distributions of income and
proceeds from the Indenture Estate are to be made under the Indenture;
(e) modify the definitions of "Outstanding", "Indenture Default" or
"Indenture Event of Default"; or
(f) modify any of the above provisions or the provisions of the Indenture
dealing with waivers of past defaults, except to increase the percentage of the
Holders whose consent is required for certain action or to provide that certain
other specified provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each Bond affected thereby. (Indenture, Section
10.02)
Limitations on Amendments of Other Documents
The Indenture Trustee, without the consent of the Holders of any Bonds, (a)
will, upon receipt of written instructions to such effect from the Company and
the Owner Trustee, consent to amendments of or supplements to, or waivers of any
provisions of, the Lease or any other transaction document included in the
Indenture Estate or (b) may join in the execution of amendments of or
supplements to, or waivers of any provisions of, the Participation Agreement, in
each case for the purpose of adding any provision to, or changing in any manner
or waiving or eliminating any provisions of, any such transaction document;
provided, however, that, without the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Bonds of all series,
considered as one class, the Indenture Trustee will not consent to any such
amendment, supplement or waiver that amends or waives certain provisions of the
Lease relating to, among other things, liens, the right of the Company to assign
or sublease its rights and obligations under the Lease, certain Lease Events of
Default or the exercise of remedies under the Lease; and provided, further,
that, without the consent of the Holders of the outstanding Bonds of all series,
the Indenture Trustee will not consent to any such amendment, supplement or
waiver that will:
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(1) amend or waive certain provisions of the Lease relating to, among other
things, the sufficiency of certain rental payments to provide funds at least
equal to amounts payable on the Bonds, the "net lease" obligations of the
Company thereunder and the Company's unconditional obligation to make basic
rental and certain other payments under the Lease, the obligation of the Owner
Trustee to redeem the Bonds in the event of an obsolescence termination of the
Lease by the Company, or the Lease Event of Default occasioned by the failure of
the Company to pay basic rent when due;
(2) modify the definitions of "Default" or "Event of Default" under the
Lease; or
(3)(A) release the Company from its obligation to pay basic rent, Casualty
Value, Special Casualty Value or any payment required to be made by it pursuant
to an exercise of remedies under the Lease or (B) reduce the amount or change
the timing of any payments of basic rent, Casualty Value, Special Casualty Value
or any payments required to be made by the Company pursuant to an exercise of
remedies under the Lease so that such payments would be insufficient to pay the
principal of, and interest on, the outstanding Bonds of all series when due.
(Indenture, Section 10.03)
If in the opinion of the Indenture Trustee any document required to be
executed by it in accordance with the provisions of the Indenture described in
the proceeding paragraph and the third paragraph under "Supplemental Indentures"
adversely affects any interest, right, immunity or indemnity in its favor under
the Indenture or the Participation Agreement, the Indenture Trustee may in its
discretion decline to execute such document. (Indenture, Section 10.05)
Limitation of Liability
The Bonds will not be direct obligations of, or guaranteed by, the Company,
the Owner Participant, or any institution or individual acting as Owner Trustee
in its individual capacity. All payments to be made by the Owner Trustee under
the Indenture or on the Bonds
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will be made only from the Indenture Estate or the income and proceeds received
by the Indenture Trustee therefrom. Neither the Owner Participant, the Indenture
Trustee nor, except as otherwise expressly provided in the Indenture, the Owner
Trustee in its individual capacity will be liable to any Holder (nor, in the
case of the Owner Participant and the Owner Trustee in its individual capacity,
to the Indenture Trustee) for any amounts payable on any Bonds or otherwise
under the Indenture. (Indenture, Section 2.15)
Additional Bonds
The Indenture permits the issuance of additional Bonds at any time or from
time to time, subject to certain conditions, for cash in the original principal
amount of such additional Bonds for the following purposes: (a) refunding any
previously issued series of Bonds in whole or in part and providing funds for
the payment of certain expenses incurred in connection therewith and/or (b)
providing funds for all or any portion of the Owner Trustee's share of certain
capital improvements to Unit 1. (Indenture, Section 2.05) (Such capital
improvements would be the property of the Owner Trustee and would be subject to
the lien of the Indenture.) All of the Bonds issued and outstanding under the
Indenture will rank on a parity with each other and will as to each other be
secured equally and ratably thereunder, without preference, priority or
distinction of any thereof over any other by reason of difference in time of
issuance or otherwise. (Indenture, Section 2.03)
DESCRIPTION OF THE LEASE
The statements contained under this caption are intended to summarize the
Lease as it relates to the Offered Bonds; they do not purport to be complete and
are qualified in their entirety by reference to the Lease, a copy of the form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Term and Rentals
The Lessor has acquired its Undivided Interest and has leased such interest
to the Company pursuant to the Lease, which has a term expiring on July 2, 2021
unless earlier
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terminated or extended as described below. Basic rent is required to be paid by
the Company under the Lease in immediately available funds on each January 2 and
July 2, commencing July 2, 1991 and ending July 2, 2021. (Lease, Sections 2(b)
and 3(a)) The amount of basic rent payable under the Lease on each basic rent
payment date will be calculated to be at least equal to the scheduled amount of
principal of and interest then payable on all Bonds then outstanding. (Lease,
Section 3(g)) The term of the Lease and the rent payable thereunder have been
determined assuming that the NRC Facility Operating License for Seabrook 1 shall
be extended to May 25, 2029, as contemplated by the Participation Agreement. In
the event that such license is not so extended, the term of the Lease shall end
on July 2, 2019 unless earlier terminated as described below, and rent and
amounts payable as Casualty Value and Special Casualty Value shall be adjusted
accordingly. (Lease, Section 3(e)) Each payment of basic rent by the Company
during such time as the Indenture is in effect will be made to the Indenture
Trustee and applied first to the payment of principal and interest due from the
Lessor on the Bonds. Except in the case of an acceleration of Bonds due to a
continuing Indenture Event of Default, the balance of any payments of basic rent
under the Lease, after payment of the scheduled principal of and premium, if
any, and interest on the Bonds, will be distributed to the Owner Trustee on
behalf of the Owner Participant, as beneficial owner of the trust that is the
owner of the Undivided Interest. (Indenture, Sections 3.01, 3.03 and 3.06).
Net Lease
The obligations of the Company under the Lease are those of a lessee under
a "net lease," and the Company will be responsible under the Lease for paying
all insurance premiums, operating and maintenance costs, decommissioning costs
and all other similar costs associated with the Undivided Interest. Payments of
rent under the Lease by the Company are to be made without counterclaim, setoff,
defense, abatement, suspension or reduction except for certain rights of setoff
the exercise of which would not reduce the amount of rent required to be paid by
the Company to an amount insufficient to pay in full the principal of, premium,
if any, and interest on the Bonds then due. (Lease, Section 4)
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Capital Improvements
The Company may incur costs from time to time in connection with capital
improvements to Unit 1. Certain of such costs, based on the Owner Trustee's
proportionate interest in Unit 1, may be financed through a Supplemental
Financing. (See "Description of the Offered Bonds and the Indenture --
Additional Bonds.") In the event of such a Supplemental Financing, the rent
under the Lease will be increased to cover the additional debt service. In
addition, the Owner Participant may elect to make an additional equity
investment with respect to the cost of any capital improvements on terms to be
agreed upon. (Lease, Section 8(f))
Rights to Assign or Sublease
The Company is permitted to assign, sublease, encumber or transfer its
rights and obligations under the Lease or other documents related to the
Transaction so long as the Company remains the primary obligor on the Lease and
such documents. (Lease, Section 11)
Insurance
The Company is required under the Lease to carry and maintain (or cause any
operator of Unit 1 to maintain) the insurance described below:
(a) Provided that such insurance is commercially available at a
commercially reasonable cost, "all-risk" property insurance (excluding flood and
earthquake insurance) covering physical loss with respect to the Undivided
Interest;
(b) Provided that such insurance is commercially available at a
commercially reasonable cost, bodily injury and property damage liability
insurance covering claims arising out of the ownership, operation, maintenance,
condition or use of Unit 1; and
(c) Nuclear liability insurance.
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With respect to each of the types of insurance described in (a) through (c)
above, the Company is required to maintain (or cause any operator of Unit 1 to
maintain) such insurance in such amounts and with such terms as are consistent
with the Operating Agreement, and in any event in such amounts and with such
terms as are consistent with applicable law and prudent utility practice. The
nuclear liability insurance referred to in (c) above is discussed under "Nuclear
Generation -- Insurance Requirements" in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The Company is also required to
maintain supplier's and transporter's insurance and master workers policy
coverages, in each case in amounts consistent with the Operating Agreement,
prudent utility practice and applicable law. The Company will use its best
efforts to cause all policies of insurance as described above to include the
Owner Trustee, the Owner Participant and the Indenture Trustee, as additional
insureds and loss payees. (Lease, Section 10)
Proceeds of property insurance received by the Lessor or the Company as a
result of the occurrence of an Event of Loss shall be applied in reduction of
the Company's obligation to make payment of the excess of Casualty Value over
the principal of and accrued interest on the Bonds to the Owner Participant with
the balance, if any, of such proceeds to be paid to the Company, subject,
however, to any priority allocation of such proceeds as may be required by law
in the event of stabilization and decontamination activities. (Lease, Section
9(g)) In general, any rights of the Indenture Trustee in respect of the proceeds
of property insurance will be limited to amounts then due and owing in respect
of the principal of and premium, if any, and interest on the Bonds.
Purchase and Renewal Options at the End of the Lease Term
The Company has the option under the Lease to purchase the Lessor's
Undivided Interest (i) at the end of the basic term of the Lease for a purchase
price equal to the lesser of (A) the estimated fair market value at the end of
the basic lease term as determined by an appraiser as of the closing date of the
Transaction, and (B) the fair market sales value at the end of the basic lease
term or (ii) on the date of the expiration of any renewal term (if elected) for
a purchase price equal to the fair market sales value at such date, or to renew
the Lease for one or more periods of three years, at a fair market rental value
or, subject to receipt of a satisfactory appraisal, which will address certain
tax matters, to renew the
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Lease at the end of the initial Lease term at a fixed rate rental for a single
period of at least two years. (Lease, Sections 12 and 13) If the Company does
not give notice of its election to exercise the options to purchase the
Undivided Interest or renew the Lease two years prior to the expiration of the
Lease, the Lessor may, on at least one year's prior written notice, terminate
the Lease on the date specified in the notice. Upon such termination, the
Company must pay to the Lessor all basic rent then due or accrued, together with
any other amounts then payable to the Owner Trustee, the Owner Participant and
the Indenture Trustee. On or prior to such termination, the Lessor would be
required to deposit with the Indenture Trustee cash in an amount equal to the
unpaid principal amount of all Bonds outstanding on such date, and all premium,
if any, and interest accrued or to accrue on and as of such termination. (Lease,
Section 14(c))
Purchase Option for Significant Expenditures
The Company has the option on any January 2 or July 2 on or after January
2, 2000 to terminate the Lease if the Company is planning or required to make
any significant expenditure for certain types of capital improvements to Unit 1.
On such January 2 or July 2, the Company must pay to the Lessor an amount equal
to the higher of the fair market sales value of the Undivided Interest and
Casualty Value determined as of such January 2 or July 2 together with any other
amounts then payable to the Owner Trustee, the Owner Participant and the
Indenture Trustee and, assuming such payment, the Lessor would be required to
transfer the Undivided Interest to the Company. If the Company has assumed all
or a portion of the Bonds then outstanding, such amount shall be reduced by the
principal amount of the Bonds so assumed. A "significant expenditure" is an
expenditure or series of expenditures with respect to certain capital
improvements to Unit 1 that (i) for the period from the Transaction closing date
until and including, the date immediately preceding the twentieth anniversary of
the closing date, shall have been reasonably estimated by the Company to exceed
$250,000,000 (which amount shall be periodically adjusted for inflation) and
(ii) for the period from the day next succeeding the last day of the period
specified in clause (i) above until the end of the Lease term, shall have been
reasonably estimated by the Company to exceed $100,000,000 (which amount shall
be periodically adjusted for inflation). (Lease, Section 13(f))
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Periodic Purchase Option
The Company has the option on January 2 in each of the years 2001, 2006 and
2011 to terminate the Lease and to purchase the Undivided Interest. On such
January 2, the Company must pay the Lessor (x) if it exercises such option on
January 2, 2001 or January 2, 2011, an amount equal to the higher of the fair
market sales value of the Undivided Interest and Casualty Value determined as of
such January 2, together with any other amounts then payable to the Owner
Trustee, the Owner Participant and the Indenture Trustee or (y) if it exercises
such option on January 2, 2006, an amount equal to the higher of the estimated
fair market value of the Undivided Interest on January 2, 2006 as determined by
an appraiser as of the closing date of the Transaction and Casualty Value
determined as of such January 2, 2006, together with any other amounts then
payable to the Owner Trustee, the Owner Participant and the Indenture Trustee.
If the Company has assumed all or a portion of the Bonds then outstanding, such
amount shall be reduced by the principal amount of the Bonds so assumed.
(Lease, Section 13(g))
Termination for Obsolescence
The Company has the option on any January 2 or July 2, on or after January
2, 2001, to terminate the Lease if the Company's Board of Directors determines,
in its sole discretion, that the Company's leasehold interest in the Undivided
Interest is uneconomic or obsolete for the Company's purposes. In such event,
the Lessor may elect to either retain the Undivided Interest or sell it to the
highest bidder. On the Lease termination date, if the Lessor has not elected to
retain the Undivided Interest, the Lessor will be required to sell the Undivided
Interest to the highest bidder (which may not be either the Company or any
Affiliate thereof) and the Company must pay to the Lessor an amount equal to the
excess, if any, of Special Casualty Value as of the termination date over such
net sale price, and any other amounts then payable to the Owner Trustee, the
Owner Participant and the Indenture Trustee; provided, however, that if the
highest bid shall be less than Special Casualty Value, the Lessee may reject the
bid, in which case no sale shall occur. If no such sale shall occur or if the
Company shall not have fulfilled its obligations in respect of such termination,
the Lease will continue in full force and effect. (Lease, Sections 14(a) and
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14(b)) In the event of such a termination, the Bonds will be redeemed.
(Indenture, Section 5.02(a))
Lease Events of Default
The following are Lease Events of Default:
(a) the Company shall fail to make, or cause to be made, (x) any payment of
basic rent, Casualty Value, Special Casualty Value, or the payment of the equity
portion of Casualty Value or Special Casualty Value or any other amount
determined by reference to any of such amounts, pursuant to any of the
transaction documents, within five business days after the same shall become due
or (y) any payment of supplemental rent (other than Casualty Value, Special
Casualty Value, or the payment of the equity portion of Casualty Value or
Special Casualty Value) including, without limitation, any payments due under
the Tax Indemnification Agreement or the general tax indemnification provisions
of the Participation Agreement, within 20 days after the same shall become due
or be demanded, as the case may be; or
(b) the Company shall (x) fail to perform or observe any covenant,
condition or agreement to be performed or observed by it under the Participation
Agreement relating to the maintenance of its corporate existence and maintenance
of certain of its material franchises and the conditions under which it may
merge, consolidate or dispose of all or substantially all of its assets or the
assignment and sublease provisions of the Lease or (y) fail to make payments
referred to in the portion of the decommissioning provisions of the
Participation Agreement concerning funding therefor at the times and in the
manner so required (unless the obligation to make such payment shall be
permitted to be, and is currently being, contested in accordance with such
provisions) within ten business days after the same shall become due; or
(c) the Company shall fail to perform or observe any covenant, condition or
agreement (other than those referred to in clauses (a), (b) and (f) of this
paragraph) to be performed or observed by it under the Lease or any other
transaction document (other than under the Tax Indemnification Agreement or
under certain general tax indemnity provisions of the
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Participation Agreement), and such failure shall continue for a period of 30
days after there shall have been given to the Company by the Lessor or the Owner
Participant a notice specifying such failure and requiring it to be remedied;
provided, however, that the continuation of such failure for a period of 30 days
or more after such notice has been so given (but in no event for a period that
is greater than one year after such notice has been given) shall not constitute
a Lease Event of Default if (a) such failure can be remedied but cannot be
remedied within such 30 days, (b) the Company is diligently pursuing a remedy of
such failure and (c) such failure does not impair in any material respect the
Company's ability to perform its obligations under any of the transaction
documents to which the Company is a party, or the Lessor's interest in Unit 1 or
the mortgage and security interest created by the Indenture; or
(d) any representation or warranty made by the Company in the Lease, any
other transaction document (other than the Tax Indemnification Agreement) or any
agreement, document or certificate delivered by the Company in connection with
the Transaction shall prove to have been incorrect in any material respect when
such representation or warranty was made or given, if such representation or
warranty continues to be material and remains materially incorrect at the time
in question; provided, however, that such failure of such representation or
warranty to be correct shall not constitute a Lease Event of Default if (i) the
facts or circumstances making such representation or warranty incorrect can be
remedied or changed so that such representation or warranty will thenceforth be
correct in all material respects, (ii) the Company is diligently pursuing such a
remedy or change, (iii) such remedy or change is, in fact, accomplished within a
period of one year from the time that the Company has been notified of or has
knowledge of such misrepresentation or breach of warranty and (iv) such facts or
circumstances do not impair in any material respect the Company's ability to
perform its obligations under any of the transaction documents to which the
Company is a party, or the Lessor's interest in Unit 1 or the mortgage and
security interest created by the Indenture; or
(e)(x) the Company shall (i) admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due, (ii) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (iii) make a general assignment for the benefit of
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its creditors, (iv) commence a voluntary case under the U.S. Bankruptcy Code,
(v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (vi) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the U.S. Bankruptcy Code, or (vii) take any corporate
action for the purpose of effecting any of the foregoing; or (y) a proceeding or
case shall be commenced, without the application or consent of the Company, in
any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or adjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Company or of all or any substantial part of its assets, or
(iii) similar relief in respect of the Company under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 60 or more days; or an
order for relief against the Company shall be entered in an involuntary case
under the U.S. Bankruptcy Code; or
(f) any suspension, revocation or termination of the nuclear liability
insurance required to be maintained under the Lease; provided, however, that
such suspension, revocation or termination shall not constitute a Lease Event of
Default solely because the applicable insurer has failed to comply with
applicable notice termination provisions of the pertinent policy; and provided,
further, that the foregoing proviso shall cease to apply upon the earlier of (x)
five business days following receipt by the Company of actual notice of such
suspension, revocation or termination or (y) the applicable termination date of
such policy assuming that the insurer had complied with its notice obligations
under the pertinent policy; or
(g) any material obligation of the Company under the Lease or any other
transaction document to which it is a party shall at any time for any reason
cease to be valid and binding on the Company, or shall be declared to be null
and void (except as to judgments of a state court that have been effectively
stayed pending appeal and that, during such stay, shall not have a material
adverse effect on the Lessor, the Owner Participant or the Holders of the
Bonds), or the validity or enforceability thereof shall be contested by the
Company,
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or any court or administrative agency shall issue an order upholding a
governmental agency or authority contest of the validity or enforceability
thereof (except as to such orders that have been effectively stayed pending
appeal and that, during such stay, shall not have a material adverse effect on
the Lessor, the Owner Participant or the Holders of the Bonds), or the Company
shall assert that it has no further liability or obligation under the Lease or
any other transaction document to which it is a party; or
(h) final judgment for the payment of money in excess of $10,000,000 shall
be rendered against the Company and the Company shall not have discharged the
same or provided for its discharge in accordance with its terms or bonded the
same or procured a stay of execution thereof within 60 days from the entry
thereof. (Lease, Section 15)
Remedies
Upon the occurrence and continuance of any Lease Event of Default, the
Lessor may declare the Lease to be in default by written notice to the Company
and may exercise one or more of the remedies set forth in the Lease, which
include the following: (a) the Lessor may terminate the Lease; (b) the Lessor
may repossess the Undivided Interest; (c) the Lessor may sell the Undivided
Interest or any part thereof; (d) the Lessor may hold, keep idle or lease to
others all or any part of the Undivided Interest; (e) the Lessor may demand any
unpaid rent plus, as liquidated damages, any of the following amounts that the
Lessor, in its sole discretion, shall specify: (i) an amount equal to the excess
of Casualty Value over the fair market rental value of the Undivided Interest
until the end of the remaining useful life of Unit 1 (discounted to present
value), (ii) an amount equal to the excess of Casualty Value over the fair
market sales value of the Undivided Interest, (iii) an amount equal to the
excess of the present value of all installments of basic rent until the end of
the Lease term over the present value of the fair market rental value of the
Undivided Interest until the end of such term, or (iv) an amount equal to the
highest of Casualty Value, such discounted fair market rental value and such
fair market sales value; and (f) if the Lessor shall have sold all the Undivided
Interest pursuant to clause (c) above, the Lessor, in lieu of exercising its
rights under clause (e) above may demand that the Company pay to the Lessor,
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as liquidated damages, any unpaid rent plus the amount of any deficiency between
the sale proceeds and Casualty Value, together with interest on the amount of
such rent and such deficiency.
The remedies in the Lease are cumulative and in addition to any other
remedy available to the Lessor at law or in equity, and no exercise of any
remedy under the Lease will, except as specifically provided therein, relieve
the Company of any of its liabilities and obligations under the Lease. (Lease,
Section 16)
See "Description of the Offered Bonds and the Indenture -- Notice; Waiver;
Acceleration and Remedies" for a description of the rights of the Owner Trustee
and the Indenture Trustee in respect of the exercise of remedies under the
Lease.
The rights of the Lessor under the Lease, including the right to sell the
Undivided Interest and the exercise of remedies, as well as the rights of the
Indenture Trustee under the Indenture, are subject to the Operating Agreement.
(See "Other Agreements -- Operating Agreement.")
Quiet Enjoyment
The transaction documents provide that, unless a Lease Event of Default has
occurred and is continuing, the Company's use and possession of Unit 1,
including the Undivided Interest, and certain other property and rights leased
to the Company by the Lessor during the term of the Lease shall not be
interfered with or interrupted by the Lessor or any person claiming by, through
or under the Lessor. (Lease, Section 6)
OTHER AGREEMENTS
The discussion of the Operating Agreement, Participation Agreement and Tax
Indemnification Agreement below is merely intended to summarize certain
provisions of those agreements as they relate to the Offered Bonds and the
Transaction; it does not purport to be complete and is qualified in its entirety
by reference to those agreements, the respective forms of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
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Operating Agreement
The Operating Agreement among the Company and the other Joint Owners
governs the terms and conditions of the ownership and operation of the Seabrook
Station. Pursuant to the Assignment, Assumption and Further Agreement among the
Company, certain of the Joint Owners and the Owner Trustee, the Company has
assigned to the Owner Trustee an interest in the Company's rights in the
Operating Agreement to the extent that such rights relate to the Undivided
Interest. The Owner Trustee has reassigned such interest to the Company for the
term of the Lease, with the result that the Company shall continue to be treated
as the owner of the Undivided Interest for purposes of the Operating Agreement
during the term of the Lease. The Owner Trustee's rights under the Assignment,
Assumption and Further Agreement have, subject to the Lessee's rights
thereunder, been assigned to the Indenture Trustee and constitute a portion of
the Indenture Estate.
The rights of the Indenture Trustee under the Indenture, as well as the
rights of the Lessor under the Lease, insofar as they relate to the disposition
of the Undivided Interest, are subject to the rights of the other Joint Owners
under the Operating Agreement. Mortgagees and holders of security interests in
interests in the Seabrook Station, such as the Indenture Trustee, may succeed to
and acquire all rights of an owner under the Operating Agreement. Pursuant to
the Operating Agreement, an owner of an interest in the Seabrook Station may not
sell such interest unless such sale is to an entity that is engaged in the
electric utility business in New England, but no such sale shall be made unless
the other Joint Owners have first been offered an opportunity in writing to
purchase the interest involved separately or in the aggregate on equal or better
terms than those of the offer of sale and have declined such opportunity. Any
prospective sale of the Undivided Interest by the Indenture Trustee in the
exercise of remedies available to it under the Indenture, or by the Lessor
pursuant to the Lease, would be subject to such provisions. Such an offer to the
other Joint Owners would not be required in connection with the reacquisition by
the Company of the Undivided Interest.
Participation Agreement
In the Participation Agreement the Company has agreed, among other things,
that it will at all times maintain its corporate existence and will not
consolidate with or merge into, or sell, transfer or otherwise dispose of
substantially all of its assets to, any person unless a number of conditions are
met, including the requirements that (a) immediately after giving effect to such
transaction, the survivor be a corporation organized under the laws of the
United States of America, a State thereof or the District of Columbia, (b)
immediately after giving effect to such transaction, the survivor of such
transaction shall have assumed the obligations of the Company under each of the
documents relating to the Transaction to which the Company was a party, (c) the
ratings of the senior long-term debt of the survivor is reasonably anticipated
to be rated as high as or higher than that of the Company immediately prior to
such transaction, (d) immediately after giving effect to such transaction, all
governmental actions and corporate approvals shall have been obtained for the
transaction, and (e) immediately after giving effect to such transaction, the
survivor shall have
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delivered to the Owner Participant, the Owner Trustee and the Indenture Trustee
opinions and officers' certificates as to, among other things, compliance with
the transfer conditions above. (Participation Agreement, Section 9(b)(3))
Subject to certain first refusal rights of the Company, the Owner
Participant may at any time assign, convey or otherwise transfer its interests
in, to and under any transaction document or its trust estate to a person with a
net worth at the time of such transfer of not less than $50 million or to a
person whose obligations under the transaction documents have been guaranteed by
a person with such a net worth. The transferring Owner Participant will, with
certain limited exceptions, be released from its obligations under the
transaction documents and the transferee Owner Participant shall succeed to such
obligations and rights of the transferring Owner Participant. (Participation
Agreement, Section 14)
Tax Indemnification Agreement
Pursuant to the Tax Indemnification Agreement, between the Company and the
Owner Participant, the Company is obligated to pay to the Owner Participant,
among other things, amounts which, on an after-tax basis, equal the amounts of
additional Federal income taxes payable by the Owner Participant with respect to
any current or prior taxable year as a result of a Tax Loss and any interest,
penalties or additions to any tax imposed as a result of such Tax Loss or the
contest thereof. For purposes of the Tax Indemnification Agreement, "Tax Loss"
includes, subject to certain exceptions: (a) loss to the Owner Participant of
depreciation or analogous deductions with respect to the Undivided Interest or
interest deductions with respect to the Bonds; (b) loss to the Owner Participant
of foreign tax credits due to the treatment of any item of income, gain, loss or
deduction with respect to the Transaction as derived from, or allocable to,
foreign sources (in the case of either (a) or (b) as a result of, among other
things, (i) any act or failure to act by the Company, (ii) any misrepresentation
or breach of warranty or covenant in the transaction documents by the Company,
(iii) bankruptcy of the Company or any disposition of the Undivided Interest
pursuant to the exercise of remedies under the Indenture or (iv) damage to or
the taking of the Undivided Interest); or (c) unanticipated income of the Owner
Trustee with respect to the Undivided Interest.
PLAN OF DISTRIBUTION
The Prospectus Supplement relating to a series of Offered Bonds will set
forth the terms of the offering of the Offered Bonds, including the names of
underwriters, including Morgan Stanley & Co. Incorporated and Citicorp
Securities, Inc., the proceeds to the Owner Trustee from such sale, any items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed to dealers. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time. The Offered Bonds will be acquired by
the
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underwriters for their own account and may be resold from time to time in one or
more transactions including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of each resale. Unless
otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase the Offered Bonds will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all such Offered
Bonds if any are purchased; provided that the agreement with the underwriters
providing for the sale of the Offered Bonds may provide that under certain
circumstances involving a default of underwriters, less than all of the Offered
Bonds may be purchased.
Each Prospectus Supplement relating to a particular offering of Offered
Bonds will contain a statement (1) as to whether or not the existence of a
secondary market for such securities can be predicted and, if such existence is
predicted, as to the extent of such secondary market, and (2) as to whether or
not the underwriter or underwriters intend to make a market in such securities.
Subject to certain conditions, the Company may agree to indemnify the
underwriter or underwriters and their controlling persons against certain civil
liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this Prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 1996 have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements and related financial statement
schedule as of December 31, 1995 and 1994 and for the two years in the period
ended December 31, 1995 incorporated in this Prospectus constituting part of the
Post Effective Amendment No. 1 to the Registration Statement on Form S-3 (File
No. 33-64003) have been so included in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
LEGALITY
Legal matters in connection with the issuance of the Offered Bonds will be
passed upon for the Company by Wiggin & Dana, New Haven, Connecticut, Reid &
Priest LLP, New York, New York, and Devine, Millimet & Branch, Professional
Association, Manchester, New Hampshire, and for the Underwriters by Winthrop,
Stimson, Putnam & Roberts, New York, New York. Certain matters with respect to
the legality of the Offered Bonds will be passed upon for the Owner
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Trustee by Haight Gardner Holland & Knight, A Law Office of Holland & Knight
LLP, New York, New York.
The statements made herein, in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and in the above-referenced Quarterly Reports
on Form 10-Q, in each case as to matters of law and legal conclusions,
pertaining to titles to properties, franchises and other operating rights of the
Company, regulations to which the Company is subject and any legal proceedings
to which the Company is a party, are made on the authority of Wiggin & Dana, and
such statements are included herein in reliance upon their authority as experts.
GLOSSARY
Certain capitalized terms used in this Prospectus have the following
meanings and such meanings shall apply to terms both singular and plural unless
the context clearly requires otherwise:
"Affiliate" means with respect to the Company any other person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company. For purposes of this definition, the term "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"Bond" means any bond that may be issued under the Indenture.
"Casualty Value" means an amount specified in the Lease that the Company
must pay to the Lessor under the Lease in certain circumstances, which amount
is, in general and among other things, calculated to preserve the net economic
return of the Owner Participant. The amount of Casualty Value payable as of any
date shall be no less than the aggregate principal amount of the Bonds
outstanding on such date, together with accrued interest thereon.
"Commission" means the Securities and Exchange Commission.
"Company" or "UI" means The United Illuminating Company.
"Connecticut Yankee" means the Connecticut Yankee Atomic Power Company.
"Deemed Loss Event" means any of the events described as a Deemed Loss
Event in the Lease upon the occurrence of which the Company must (subject to
certain conditions) acquire the beneficial interest of the Owner Participant
and/or assume the Bonds. (See "Description of the Offered Bonds and the
Indenture -- Assumption by the Company").
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"DPUC" means the Connecticut Department of Public Utility Control.
"Event of Loss" means any of the events described as an Event of Loss in
the Lease upon the occurrence of which the Company must (subject to certain
conditions) acquire the beneficial interest of the Owner Participant and/or
assume the Bonds. (See "Description of the Offered Bonds and the Indenture --
Assumption by the Company.")
"Excepted Payment" means (i) any indemnity payment (including payments
under the Tax Indemnification Agreement) payable to the Owner Trustee or the
Owner Participant, (ii) any amount payable under any transaction document to
reimburse the Lessor or the Owner Participant for performing or complying with
any of the obligations of the Company under and as permitted by any transaction
document, (iii) any insurance proceeds or other payments received with respect
to an Event of Loss in excess of amounts then due and owing to reimburse the
Indenture Trustee for any of its expenses and to pay the reasonable remuneration
of the Indenture Trustee plus amounts then due and owing in respect of the
principal of and premium, if any, and interest on all Bonds outstanding, (iv)
any insurance proceeds under liability policies and under any insurance policies
not required by the Lease, (v) any payment of the equity portion of Casualty
Value or Special Casualty Value in respect (vi) amounts payable to the Owner
Trustee in connection with the exercise by the Company of its option to purchase
the Undivided Interest during the term of the Lease (subject, in any event, to
the condition that the Company shall have assumed all of the Bonds then
outstanding and none of such Bonds are then to be redeemed) or its option to
purchase the Undivided Interest at end of the basic term of the Lease, (vii) any
amount payable to the Owner Participant by any transferee as the purchase price
of the Owner Participant's interest in the trust estate, (viii) the ongoing fees
and expenses of the Owner Trustee under the transaction documents and (ix) any
payments in respect of interest to the extent attributable to payments referred
to in clauses (i) through (vi) above.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended.
"FERC" means the Federal Energy Regulatory Commission.
"Holder" means the registered holder of Bonds, as indicated on the Bond
Register maintained under the Indenture.
"Indenture" means the Indenture of Mortgage and Deed of Trust, dated as of
August 1, 1990, among the Lessor, the Company and the Indenture Trustee, as
supplemented, pursuant to which the Offered Bonds are issued.
"Indenture Default" means an event or condition which, with the giving of
notice or the lapse of time, or both, would constitute an Indenture Event of
Default.
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"Indenture Estate" means the trust estate assigned, transferred and pledged
by the Lessor to the Indenture Trustee under the Indenture, for the ratable
benefit of the Holders of the Bonds issued thereunder.
"Indenture Event of Default" means an "Indenture Event of Default" as
defined in the Indenture. (See "Description of the Offered Bonds and the
Indenture -- Indenture Events of Default.")
"Indenture Trustee" means The Bank of New York, as trustee under the
Indenture, and each successor trustee and the co-trustee thereunder.
"Initial Series Bonds" means the Bonds of the series originally issued upon
the consummation of the Transaction to finance a portion of the purchase price
of the Undivided Interest.
"Joint Owners" means the parties to the Operating Agreement. (See "Other
Agreements -- Operating Agreement.")
"Lease" means the Facility Lease, dated as of August 1, 1990, as
supplemented, under which the Company leases the Undivided Interest in Unit 1
from the Lessor in connection with the Transaction.
"Lease Default" means an event or condition that, with the giving of notice
or lapse of time, or both, would constitute a Lease Event of Default.
"Lease Event of Default" means an Event of Default as such term is defined
under the Lease. (See "Description of the Lease -- Lease Events of Default.")
"Lessor" means First Union Trust Company, National Association, not acting
in its individual capacity but acting solely as Owner Trustee under the trust
agreement (and each successor trustee thereunder) with the Owner Participant and
as Lessor under the Lease and which, in such capacity, has purchased the
Undivided Interest in Unit 1 as part of the Transaction.
"Make-Whole Premium" means the amount in addition to the unpaid principal
amounts of the Offered Bonds that may be payable in the event that they are
redeemed at the option of the Owner Trustee. (See "Certain Terms of the Offered
Bonds -- Redemption -- Optional Redemption.")
"NRC" means the Nuclear Regulatory Commission of the United States of
America or any successor agency.
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"Offered Bonds" means Bonds offered by this Prospectus and any accompanying
Prospectus Supplement.
"Operating Agreement" means the Agreement for Joint Ownership, Construction
and Operation of New Hampshire Nuclear Units, dated May 1, 1973, as amended by
twenty-three amendments.
"Owner Participant" means the corporation that, in connection with the
Transaction, has acquired a beneficial interest in the owner trust that is the
owner and Lessor of the Undivided Interest.
"Owner Trustee" means First Union Trust Company, National Association,
acting as successor owner trustee under the trust agreement with the Owner
Participant in connection with the Transaction.
"Participation Agreement" means the Participation Agreement, dated as of
August 1, 1990, as amended, entered into among the Company, the Owner
Participant, the Lessor and the Indenture Trustee, which relates to the
Transaction and sets forth the terms and conditions upon which the Transaction
was consummated.
"Refinancing" means the series of transactions pursuant to which the
Initial Series Bonds will be refinanced.
"Seabrook 1" means Unit No. 1 of the Seabrook Station.
"Seabrook Station" means the Seabrook Nuclear Power Plant located in
Seabrook, New Hampshire.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Casualty Value" means an amount specified in the Lease that the
Company must pay to the Lessor under the Lease in certain circumstances, which
amount is, in general and among other things, calculated to preserve the net
economic return of the Owner Participant. The amount of Special Casualty Value
payable as of any date shall be no less than the aggregate principal amount of
the Bonds outstanding on such date, together with accrued interest thereon.
"Special Transfer" mans the assignment and transfer by the Owner
Participant of its beneficial interest in the owner trust to the Company or its
designee upon the occurrence of an Event of Loss, Deemed Loss Event or a Lease
Event of Default.
"Supplemental Financing" means the issuance of additional Bonds under the
Indenture to finance the Lessor's proportionate share of capital improvements to
Unit 1.
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"Supplemental Indenture" means supplemental indenture to the Indenture that
sets forth the terms and the form of the Offered Bonds.
"Tax Indemnification Agreement" means the tax indemnification agreement,
dated as of August 1, 1990, as amended, between the Company and the Owner
Participant.
"2006 Initial Series Bonds" means the Initial Series Bonds maturing in
2006.
"2020 Initial Series Bonds" means the Initial Series Bonds maturing in
2020.
"Transaction" means the transaction pursuant to which the Company sold the
Undivided Interest in Unit 1 to the Lessor under an owner trust agreement and
leased back such interest pursuant to the Lease. (See "The Transaction and the
Refinancing.")
"Undivided Interest" means the undivided interest in Unit 1, which
represents an approximately 11.6% interest in Unit 1 and which was sold by the
Company to the Owner Trustee under an owner trust agreement with the Owner
Participant, and then leased back to the Company on a long-term net lease basis.
"Unit 1" means Seabrook 1, exclusive of certain transmission, pollution
control and other facilities, together with certain capital improvements
thereto.
"UI" or "Company" means The United Illuminating Company.
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