PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 22, 1997)
$101,700,000
SEABROOK 1 SECURED LEASE OBLIGATION BONDS
7.83% SERIES DUE JANUARY 2, 2019
----------
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 January 2, 2019. 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), 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% 0.875% 100%
Total ................ $101,700,000 $889,875 $101,700,000
- ----------
(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 $640,147, and underwriting commissions will
be paid from the proceeds of the Offered Bonds. Expenses, estimated to
be $340,000, 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.
November 6, 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.................................................................. 47
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, 7.83% Series due January 2, 2019, 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), 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 Payment Date Installment Payment Amount Outstanding Balance Factor
- ------------------------ -------------------------- --------------------------
January 2, 1998 $8,554,026.08 0.9158896
January 2, 1999 5,463,741.83 0.8621655
January 2, 2000 4,792,604.65 0.8150405
January 2, 2001 1,934,452.03 0.7960194
January 2, 2002 1,958,576.00 0.7767610
January 2, 2003 1,784,604.42 0.7592133
January 2, 2004 1,866,276.91 0.7408625
January 2, 2005 2,114,205.61 0.7200738
January 2, 2006 3,097,153.33 0.6896200
January 2, 2007 5,020,118.01 0.6402580
January 2, 2008 4,517,016.68 0.5958429
Janaury 2, 2009 4,728,716.24 0.5493461
January 2, 2010 4,963,283.56 0.5005430
January 2, 2011 5,178,816.02 0.4496205
January 2, 2012 5,425,208.25 0.3962753
January 2, 2013 6,679,840.27 0.3305935
January 2, 2014 5,971,736.73 0.2718743
January 2, 2015 7,358,215.57 0.1995222
January 2, 2016 4,669,170.56 0.1536109
January 2, 2017 3,218,532.87 0.1219636
January 2, 2018 4,673,037.84 0.0760144
January 2, 2019 7,730,666.54 0.0000000
(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
S-4
<PAGE>
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 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
S-5
<PAGE>
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 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.
S-6
<PAGE>
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.
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>
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.
<TABLE>
<CAPTION>
Twelve Months
Ended June 30,
1997 Twelve Months Ended December 31,
(unaudited) 1996 1995 1994
----------- ---- ---- ----
(Thousands)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<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>
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:
<TABLE>
<CAPTION>
Twelve Months
Ended June 30, Twelve Months Ended December 31,
1997 ---------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
<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
<FN>
- ----------
(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.
</FN>
</TABLE>
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, 7.83%
Series due January 2,
S-11
<PAGE>
2019, of which $101,700,000 in principal amount are offered hereby (herein
sometimes called the "Offered Bonds").
The Offered Bonds will mature January 2, 2019. The Offered Bonds will bear
interest on the unpaid principal amount thereof from their date of issuance at
the rate of 7.83% 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
------------------------ ------------------------------
January 2, 1998 8.41103843162%
January 2, 1999 5.37241084161%
January 2, 2000 4.71249227921%
January 2, 2001 1.90211605806%
January 2, 2002 1.92583677519%
January 2, 2003 1.75477327562%
January 2, 2004 1.83508053652%
January 2, 2005 2.07886490585%
January 2, 2006 3.04538183940%
January 2, 2007 4.93620256244%
January 2, 2008 4.44151099523%
January 2, 2009 4.64967181714%
January 2, 2010 4.88031815272%
January 2, 2011 5.09224780391%
January 2, 2012 5.33452138974%
January 2, 2013 6.56818119239%
January 2, 2014 5.87191418991%
January 2, 2015 7.23521688628%
January 2, 2016 4.59112149905%
January 2, 2017 3.16473241649%
January 2, 2018 4.59492412649%
January 2, 2019 7.60144202513%
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)
S-14
<PAGE>
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
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 the
Make-Whole Premium.
The Make-Whole Premium 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
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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 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
25 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
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outstanding under the Indenture 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)
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).
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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 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.
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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).
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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.
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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.
Principal
Amount of
Name Offered Bonds
---- -------------
Morgan Stanley & Co. Incorporated........... $50,850,000
Citicorp Securities, Inc.................... 50,850,000
------------
Total................................ $101,700,000
============
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 .50% of the principal
amount of the Offered Bonds. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of .25% 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.
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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
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Underwriter. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Bonds.
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