UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
001-14786 CMP GROUP, INC. 01-0519429
83 Edison Drive, Augusta, Maine 04336
(207) 623-3521
1-5139 CENTRAL MAINE POWER COMPANY 01-0042740
83 Edison Drive, Augusta, Maine 04336
(207) 623-3521
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
CMP Group, Inc. Common Stock, $5 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange
Registrant Title of each class on which registered
Central Maine Power Company 6% Preferred Stock -
$100 Par Value (Voting,
Noncallable)
Dividend Series Preferred Stock -
$100 Par Value (Callable)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
CMP Group, Inc. Yes x No _
--
Central Maine Power Company Yes x No
---
This combined Form 10-K is separately filed by CMP Group, Inc., and Central
Maine Power Company. Information contained herein relating to either individual
registrant is filed by such registrant on its own behalf. Each registrant makes
no representation as to information relating to the other registrant.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
CMP Group, Inc. x
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value of such common
equity held by non-affiliates of the Company was:
CMP Group, Inc. $603,585,605 on March 24,
1999 (based, in the case of the
common stock of CMP Group, Inc., on
the last reported sale price thereof
on the New York Stock Exchange on
March 24, 1999).
Central Maine Power Company $0 (all held by CMP Group, Inc.)
(APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the
number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
As of March 24, 1999, the number of shares of Common Stock outstanding for each
registrant was as follows:
Registrant Shares
CMP Group, Inc., Common Stock, $5 Par Value 32,442,552
Central Maine Power Company, Common Stock, $5 Par Value (All
held by CMP Group, Inc.) 31,211,471
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated:(1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
Portions of the definitive proxy statement for CMP Group, Inc.'s 1999 Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.
CMP GROUP, INC. and
CENTRAL MAINE POWER COMPANY
INFORMATION REQUIRED IN FORM 10-K
Page
Glossary 1
Item Number Part I
Item 1. Business 5
Item 2. Properties 22
Item 3. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 4.1. Executive Officers of the Registrant 31
Part II
Item 5. Market for the Registrant's Common Equity and Related 33
Stockholder Matters
Item 6. Selected Financial Data 33
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations of CMP Group and Central Maine
Power Company 34
Item 7A Quantitative and Qualitative Disclosures About Market Risk 55
Item 8. Financial Statements and Supplementary Data 56
Item 9 Changes in and Disagreements with Accountants on Accounting 108
and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 108
Item 11. Executive Compensation 108
Item 12. Security Ownership of Certain Beneficial Owners and
Management 108
Item 13. Certain Relationships and Related Transactions 108
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 109
Signatures 110
GLOSSARY
The following abbreviations or acronyms are used in the text of this Form 10-K
as defined below:
Term Definition
Form 10-K Annual Report on Form 10-K
ARP Alternative Rate Plan
APB Accounting Principles Board
Assigned Agreements Maine Yankee's Power Contracts,
Additional Power Contracts and Capital Funds
Agreements, as amended, with its Sponsors.
Central Maine Central Maine Power Company, a regulated electric
utility and subsidiary of CMP Group.
Central Securities Central Securities Corporation, a
wholly owned subsidiary of Central Maine which
owns and manages real estate.
CERCLA Comprehensive Environmental Response, Compensa-
tion, and Liability Act.
CMP Group CMP Group, Inc., is the holding company
organized effective September 1, 1998, which owns
all of the common stock of Central Maine Power
Company, Union Water Power Company, MaineCom
Services, CNEX, MainePower, TeleSmart and New
England Gas Development.
CMP Group System CMP Group and its wholly-owned and directly and
indirectly controlled subsidiaries.
CMP Natural Gas CMP Natural Gas, L.L.C., a
limited-liability company owned by subsidiaries
of CMP Group and Energy East to distribute
natural gas in Maine.
CNEX A wholly owned subsidiary of CMP Group,
(previously called CMP International
Consultants), which provides utility consulting
(domestic and international) and research.
Cumberland Securities Cumberland Securities Corporation, a
wholly owned subsidiary of Central Maine which
owns and manages real estate.
Connecticut Yankee Connecticut Yankee Atomic Power Company
D&P Duff & Phelps Credit Rating Co.
DOE United States Department of Energy
DOJ United States Department of Justice
EITF Emerging Issues Task Force of FASB
Energy East Energy East Corporation, a New York holding
company and the parent company of NYSEG effective
May 1, 1998
EPA United States Environmental Protection Agency.
EPS Earnings per share
ERAM Electric Revenue Adjustment Mechanism
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FPL FPL Group, Inc.
Indenture General and Refunding Mortgage Indenture between
Central Maine and State Street Bank and Trust
Company, Trustee, dated as of April 15, 1976, as
amended and supplemented.
IPO Initial Public Offering
IRS United States Internal Revenue Service
ISO Independent System Operator
Kwh Kilowatt-hour
MaineCom MaineCom Services, a CMP Group subsidiary which
arranges fiber-optic data service for bulk
carriers.
MainePower A wholly owned subsidiary of CMP Group created in
September 1998.
MEPCO Maine Electric Power Company, Inc., a 78-percent
owned subsidiary of Central Maine which owns a
345-KV transmission line from Wiscasset, Maine,
to New Brunswick, Canada.
MRS Monitored Retrievable Storage
Moody's Moody's Investors Service
MPUC Maine Public Utilities Commission
Maine Yankee Maine Yankee Atomic Power Company, a 38-percent
owned subsidiary of Central Maine.
NB Power New Brunswick Power Corporation.
NEON NorthEast Optic Network, Inc., a corporation of
which MaineCom owns 38.5-percent of the common
stock, which is building a fiber optic network in
New England and New York.
NEPOOL New England Power Pool
NERC North American Electric Reliability Council
NORVARCO A wholly-owned subsidiary of Central Maine.
NORVARCO is one of two general partners with 50%
interests in Chester SVC Partnership, which owns
a static var compensator facility located in
Chester, Maine.
NPCC Northeast Power Coordinating Council
NRC United States Nuclear Regulatory Commission
NYSEG New York State Electric & Gas Corporation, a
utility subsidiary of Energy East.
NUG Non-utility generator
New England Gas Development New England Gas
Development Corporation, a wholly-owned
subsidiary of CMP Group created in September 1998
to hold up to a 50-percent ownership interest in
CMP Natural Gas.
OASIS Open Access Same-time Information System.
OI Nuclear Regulatory Commission's Office of
Investigations
OPA Maine Office of the Public Advocate
Plant Maine Yankee nuclear generating plant at
Wiscasset, Maine
PURPA Public Utility Regulatory Policies Act of 1978.
RCRA Resource Conservation and Recovery Act.
SAB Securities and Exchange Commission's Staff
Accounting Bulletins.
S&P Standard & Poor's Corp.
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
Secondary Purchasers 28 municipal and cooperative utilities
that had purchased Maine Yankee power under
identical contracts with Maine Yankee sponsors.
SFAS Statement of Financial Accounting Standards
TeleSmart A wholly owned subsidiary of CMP Group which
provides accounts receivable management.
Union Water The Union Water Power Company, a wholly owned
subsidiary of CMP Group.
Vermont Yankee Vermont Yankee Nuclear Power Corporation.
Waste Act Federal Low-level Radioactive Waste Policy
Amendments Act.
Yankee Atomic Yankee Atomic Electric Company
Basis of Presentation. This Annual Report on Form 10-K is a combined report of
CMP Group and Central Maine, a regulated electric-utility subsidiary of CMP
Group whose financial position and results of operations account for
substantially all of CMP Group's consolidated financial position and results of
operations. The Notes to Consolidated Financial Statements apply to both CMP
Group and Central Maine. CMP Group's consolidated financial statements include
the accounts of CMP Group and its wholly owned or controlled subsidiaries, which
are Central Maine, Union Water, CNEX, TeleSmart and MaineCom. Central Maine's
consolidated financial statements include its accounts as well as those of its
wholly owned or controlled subsidiaries, MEPCO, NORVARCO, Cumberland Securities
and Central Securities. Certain immaterial majority owned subsidiaries, which
were previously accounted for on the equity method, were consolidated in
September 1998.
Note re Forward-Looking Statements
This Report on Form 10-K contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. CMP Group
and Central Maine undertake no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Readers are urged to carefully
review and consider the factors in the succeeding paragraph.
Factors that could cause actual results to differ materially include, among
other matters, the outcome of the FERC proceeding involving Maine Yankee's
rates, decommissioning costs and issues related to the closing of the Maine
Yankee nuclear generating plant; the actual costs of decommissioning the Maine
Yankee plant; failure to resolve any significant aspect of the "Year 2000
problem"; electric utility industry restructuring, including the ongoing state
and federal activities that will determine Central Maine's ability to recover
its stranded costs and establish its revenue requirements and rate design as a
transmission-and-distribution utility commencing March 1, 2000; the results of
Central Maine's planned sale of its generating assets; Central Maine's ability
to recover its costs resulting from the January 1998 ice storms that damaged its
transmission and distribution system; future economic conditions;
earnings-retention and dividend-payout policies; developments in the
legislative, regulatory, and competitive environments in which CMP Group and
Central Maine operate; CMP Group's investment in unregulated businesses; and
other circumstances that could affect anticipated revenues and costs, such as
unscheduled maintenance or repair requirements at nuclear plants and other
facilities, and compliance with laws and regulations.
PART I
Item 1. BUSINESS.
Introduction
General. CMP Group is a holding company organized effective September 1, 1998,
which owns all of the common stock of Central Maine and the former non-utility
subsidiaries of Central Maine. As part of the reorganization, all of the shares
of Central Maine's common stock were converted into an equal number of shares of
CMP Group common stock, which are listed on the New York Stock Exchange under
the symbol CTP. The reorganization was approved by Central Maine's shareholders
on May 21, 1998, and on various dates in 1998 by the appropriate state and
federal regulatory agencies. CMP Group's principal executive offices are located
at 83 Edison Drive, Augusta, Maine, where its general telephone number is (207)
623-3521. For a discussion of business opportunities being pursued by CMP Group,
see "Expansion of Lines of Business," below.
Central Maine is a public utility incorporated in Maine in 1905. Central Maine
is primarily engaged in the business of generating, purchasing, transmitting,
distributing and selling electric energy for the benefit of retail customers in
southern and central Maine and wholesale customers, principally other utilities.
Its principal executive offices are located at 83 Edison Drive, Augusta, Maine
04336, where its general telephone number is (207) 623-3521.
Central Maine is the largest electric utility in Maine, serving approximately
533,000 customers in its 11,000 square-mile service area in southern and central
Maine and having $939 million in consolidated electric operating revenues in
1998 (reflecting consolidation of financial statements with its majority-owned
subsidiary, MEPCO, and with the wholly-owned Cumberland Securities, Central
Securities and NORVARCO. Central Maine's service area contains most of Maine's
industrial and commercial centers, including Portland (the state's largest
city), South Portland, Westbrook, Lewiston, Auburn, Rumford, Bath, Biddeford,
Saco, Sanford, Kittery, Augusta (the state's capital), Waterville, Fairfield,
Skowhegan and Rockland, and approximately 964,000 people, representing about 78
percent of the total population of the state. Central Maine's industrial and
commercial customers include major producers of pulp and paper products,
producers of chemicals, plastics, electronic components, processed food, and
footwear, and shipbuilders. Large pulp-and-paper industry customers account for
approximately 56 percent of Central Maine's industrial sales and approximately
21.6 percent of total service-area sales.
The following topics are discussed under the general heading of Business. Where
applicable, the discussions make reference to the various other Items of this
report.
Topic Page
- ----- ----
Regulation and Rates 7
Alternative Rate Plan 8
Electric-Utility Industry Restructuring 9
Agreement for Sale of Generation Assets 12
Expansion of Lines of Business 14
Permanent Shutdown of Maine Yankee Plant 15
Non-utility Generation 18
Financing and Related Considerations 18
Securities Ratings 19
"Year 2000" Computer Issues 19
Environmental Matters 20
Storm Damage to Central Maine's System 21
Employee Information 21
Regulation and Rates
General. Central Maine is subject to the regulatory authority of the MPUC as to
retail rates, accounting, service standards, territory served, the issuance of
securities maturing more than one year after the date of issuance, certification
of generation and transmission projects and various other matters. Central Maine
is also subject to the jurisdiction of the Federal Energy Regulatory Commission
("FERC") under Parts I, II and III of the Federal Power Act for some phases of
its business, including licensing of its hydroelectric stations, accounting,
rates relating to wholesale sales and to interstate transmission and sales of
energy and certain other matters. Other activities of CMP Group and Central
Maine from time to time are subject to the jurisdiction of various other state
and federal regulatory agencies.
The Maine Yankee Plant and the other nuclear generating facilities in which
Central Maine has an interest are subject to extensive regulation by the federal
Nuclear Regulatory Commission ("NRC"). The NRC is empowered to authorize the
siting, construction, operation and decommissioning of nuclear reactors after
consideration of public health, safety, environmental and antitrust matters.
Under its continuing jurisdiction, the NRC may, after appropriate proceedings,
require modification of units for which operating licenses are in effect, or
impose new conditions on such licenses, and may require that the operation of a
unit cease or that the level of operation of a unit be temporarily or
permanently reduced.
The United States Environmental Protection Agency ("EPA") administers programs
which affect Central Maine's thermal and hydroelectric generating facilities as
well as the nuclear facilities in which it has an interest. The EPA has broad
authority in administering these programs, including the ability to require
installation of pollution-control and mitigation devices. CMP Group and Central
Maine is also subject to regulation by various state, local and other federal
authorities with regard to land use and other environmental matters. For further
discussion of environmental considerations as they affect CMP Group and Central
Maine, see "Environmental Matters", below, and Item 3, "Legal Proceedings"
"Legal and Environmental Matters."
Under the Federal Power Act, Central Maine's hydroelectric projects (including
storage reservoirs) on navigable waters of the United States are required to be
licensed by the FERC. Central Maine is a licensee, either by itself or in some
cases with other parties, for 26 FERC-licensed projects, some of which include
more than one generating unit. Eleven licenses expired in 1993, one expired in
1997, and fourteen expire after 2000. Central Maine filed all applications for
relicensing the projects whose licenses were scheduled to expire in 1993 and
1997 and has been authorized to continue to operate those projects under annual
licenses pending action by the FERC. Central Maine's hydroelectric generating
and storage facilities are included in the generating assets Central Maine has
contracted to sell to FPL Group, Inc. For further discussion of the pending
sale, see "Agreement for Sale of Generating Assets," below.
The United States has the right upon expiration of a license to take over and
thereafter maintain and operate a project upon payment to the licensee of the
lesser of its "net investment" or the fair value of the property taken, and any
severance damages, less certain amounts earned by the licensee in excess of
specified rates of return. If the United States does not exercise its statutory
right, the FERC is authorized to issue a new license to the original licensee,
or to a new licensee upon payment to the original licensee of the amount the
United States would have been obligated to pay had it taken over the project.
The United States has not asserted such a right with respect to any of Central
Maine's licensed projects. The FERC, however, denied a license renewal for a
non-utility-owned hydroelectric project on the Kennebec River in Maine, which
ultimately resulted in an agreement to remove the dam in 1999.
Alternative Rate Plan
On January 1, 1995, Central Maine's ARP was put into effect. Instead of rate
changes based on the level of costs incurred and capital investments, the ARP
provides for one annual adjustment of an inflation-based cap on each of Central
Maine's rates, with no separate reconciliation and recovery of fuel and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and specify a range for its rate of return. The MPUC confirmed in its order
approving the ARP that the ARP is intended to comply with the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation." As a result, Central Maine will continue to
apply the provisions of SFAS No. 71 to its accounting transactions and its
future financial statements.
The ARP contains a mechanism that provides price-caps on Central Maine's retail
rates to be adjusted annually on each July 1, commencing in 1995, by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism, and (4) flow-through items and mandated costs. The price cap applies
to all of Central Maine's retail rates, and includes fuel and purchased power
costs that previously had been treated separately. Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.
A specified standard inflation index is the basis for each annual price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general productivity offset of 1.0%, and a second formula-based offset that
started in 1996 and was intended to reflect the limited effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.
The sharing mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below Central Maine's allowed return on equity (starting at the 10.55%
allowed return in 1995) and indexed annually for changes in capital costs.
Outside that range, profits and losses could be shared equally by Central Maine
and its customers in computing the price-cap adjustment. The ROE used for
earnings sharing is scheduled to be increased to 11.5% effective with the July
1999 price change.
The ARP also provides for partial flow-through to ratepayers of cost savings
from non-utility generator contract buy-outs and restructuring, recovery of
energy-management costs, and penalties for failure to attain customer-service
and energy-efficiency targets. The ARP also generally defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such treatment, the annual revenue requirement related to a
mandated cost must exceed $3 million and have a disproportionate effect on
Central Maine or the electric-power industry.
On May 13, 1998, Central Maine submitted its 1998 ARP compliance filing to the
MPUC. In keeping with its pledge of limiting increases to the inflation index,
Central Maine voluntarily limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP. Central Maine also proposed a rate reduction of
approximately ten percent contingent on the consummation of, and ratemaking
associated with, Central Maine's planned sale of generating assets. The filing
also reported information on the costs of restoring service to Central Maine's
customers after the January 1998 ice storm, as required by the earlier MPUC
order allowing Central Maine to defer those costs. Effective July 11, 1998, the
MPUC approved a stipulated 1.33% increase. The amount of the increase remains
subject to change, based on the outcome of the pending FERC proceeding related
to the permanent shutdown of the Maine Yankee plant. Depending on FERC's
decision, the price increase could increase or decrease, ranging from a ceiling
of 1.78% to a floor of 0.22%. However, the Offer of Settlement pending before
the FERC in Maine Yankee's rate case, which has been approved by the MPUC,
provides that the 1998 ARP increase will not be adjusted.
The components of the last three ARP price increases approved by the MPUC are as
follows:
1998 1997 1996
---- ---- ----
Inflation Index 1.78% 2.12% 2.55%
Productivity Offset (1.00) (1.00) (1.00)
Qualifying Facility Offset (.29) (.42) -
Earnings Sharing 1.12 - .32
Flowthrough and Mandated Items (.28) .40 (.61)
---- ----- -----
1.33% 1.10% 1.26%
==== ==== ====
Electric-Utility Industry Restructuring
Stranded Costs. The enactment by Congress of the Energy Policy Act of 1992
accelerated planning by electric utilities, including Central Maine, for a
transition to a more competitive industry. In Maine, legislation that will
restructure the electric-utility industry by March 1, 2000, was enacted by the
Maine Legislature in May 1997, and is discussed in detail under this heading
below. Such a departure from traditional regulation, however, could have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities would find their above-market costs to be "stranded", or
unrecoverable, in the new competitive setting.
Central Maine has substantial exposure to cost stranding relative to its size.
In general, its stranded costs reflect the excess costs of Central Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred charges and other regulatory assets. The major portion of Central
Maine's stranded costs is related to above-market costs of purchased-power
obligations arising from Central Maine's long-term, noncancelable contracts for
the purchase of capacity and energy from NUGs, with lesser estimated amounts
related to Central Maine's deferred regulatory assets.
There is a high degree of uncertainty that surrounds stranded-cost estimates,
resulting from having to rely on projections and assumptions about future
conditions, including, among others, estimates of the future market for power.
Higher market rates lower stranded-cost exposure, while lower market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level of stranded costs depends on such factors as state and federal
regulations, the extent, timing and form that competition for electric service
will take, the ongoing level of Central Maine's costs of operations, regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal initiatives on restructuring,
and the extent to which regulatory policies and decisions ultimately address
recovery of stranded costs, including the application of value from the sale of
Central Maine's generating assets.
The estimated market rate for power is based on anticipated regional market
conditions and future costs of producing power. The present value of future
purchased-power obligations and Central Maine's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expirations and continuing depreciation. Deferred regulatory-asset
totals include the current uncollected balances and existing amortization
schedules for purchased-power contract restructuring and buyouts negotiated by
Central Maine to lessen the impact of these obligations, along with energy
management costs, financing costs, and other regulatory commitments.
Maine Restructuring Legislation. The 1997 Maine restructuring legislation
requires the MPUC, when retail access to generation begins on March 1, 2000, to
provide a "reasonable opportunity" to recover stranded costs through the rates
of the transmission-and-distribution company, comparable to the utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation. Stranded costs are defined as the legitimate, verifiable
and unmitigable costs made unrecoverable as a result of the restructuring
required by the legislation and will be determined by the MPUC as provided in
the legislation. The MPUC has been conducting separate adjudicatory proceedings
to determine the stranded costs for each Maine utility, along with the
corresponding revenue requirements and stranded-cost charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding was completed in early 1999 and is discussed under the heading "MPUC
Proceeding on Stranded Costs, Revenue Requirements, and Rate Design," below.
In addition, the legislation requires utilities to use all reasonable means to
reduce their potential stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded costs in determining the amount of the utility's stranded costs.
Stranded costs and the related rates charged to customers will be prospectively
adjusted as necessary to correct substantial inaccuracies in the year 2003 and
at least every three years thereafter.
The principal restructuring provisions of the legislation provide for customers
to have direct retail access to generation services and for deregulation of
competitive electric providers, commencing March 1, 2000, with
transmission-and-distribution companies continuing to be regulated by the MPUC.
By that date, subject to possible extensions of time granted by the MPUC to
improve the sale value of generation assets, investor-owned utilities are
required to divest all generation assets and generation-related business
activities, with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side management or conservation
providers, brokers or hosts, and (2) ownership interests in nuclear power
plants. However, the MPUC can require Central Maine to divest its interest in
Maine Yankee Atomic Power Company on or after January 1, 2009. As discussed
below under "Agreement for Sale of Generating Assets," Central Maine has
contracted to sell its non-nuclear generating assets and, after a favorable
court decision, is proceeding toward a completion of the sale by April 7, 1999.
The legislation also requires investor-owned utilities, after February 29, 2000,
to sell their rights to the capacity and energy from all generation assets,
including the purchased-power contracts that had not previously been divested
pursuant to the legislation, with certain immaterial exceptions.
Upon the commencement of retail access on March 1, 2000, Central Maine, as a
transmission-and-distribution utility, will be prohibited from selling electric
energy to retail customers. Any competitive electricity provider that is
affiliated with Central Maine would be allowed to sell electricity outside
Central Maine's service territory without limitation as to amount, but within
Central Maine's service territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service territory, as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.
Other features of the legislation include the following:
(a) After the effective date of the legislation, if an entity purchases
10 percent or more of the stock of a distribution utility, including Central
Maine, the purchasing entity and any related entity would be prohibited from
selling generation service to any retail customer in Maine.
(b) The legislation encourages the generation of electricity from
renewable resources by requiring competitive providers, as a condition of
licensing, to demonstrate to the MPUC that no less than 30 percent of their
portfolios of supply sources for retail sales in Maine are accounted for by
renewable resources.
(c) The legislation requires the MPUC to ensure that standard-offer
service is available to all consumers, but any competitive provider affiliated
with Central Maine would be limited to providing such service for only up to 20
percent of the electric load in Central Maine's service territory.
(d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
(e) A customer who significantly reduces or eliminates consumption of
electricity due to self-generation, conversion to an alternative fuel, or
demand-side management may not be assessed an exit fee or re-entry fee in any
form for such reduction or elimination of consumption or for the
re-establishment of service with a transmission-and-distribution utility.
(f) Finally, the legislation provides for programs for low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility employees laid off as a result of the legislation, and
recovery of nuclear-plant decommissioning costs "[a]s required by federal law,
rule or order", all funded through transmission-and-distribution utility rates
and charges.
Legislative bills that would amend certain provisions of the 1997 legislation
have been submitted to the 1999 session of the Maine Legislature. CMP Group and
Central Maine cannot predict whether any changes to the 1997 legislation will be
enacted.
MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design. The
MPUC has completed the first phase of the proceeding contemplated by Maine's
restructuring legislation that will ultimately determine the recovery of Central
Maine's stranded costs, its revenue requirements, and the design of its rates to
be effective when Central Maine becomes a transmission-and-distribution utility
at the time retail access to generation begins in Maine on March 1, 2000. On
December 23, 1998, the MPUC Hearing Examiners in the proceeding issued their
report, in the form of a recommended decision. Central Maine disagreed with a
number of the individual recommendations in the stranded-costs and
revenue-requirements areas and filed exceptions to those recommendations. The
MPUC deliberated the recommendations on February 10 and 11, 1999, indicated
disagreement with some of the recommendations, and issued its written order on
March 19, 1999.
The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's transmission-and-distribution rates, effective March
1, 2000, but was not calculating the rates themselves because such calculations
at that time would rely excessively on estimates. The MPUC pointed out that it
would hold a "Phase II" hearing to set the actual rates and determine the
recoverable stranded costs after processing information expected to become
available during 1999.
With respect to stranded costs, the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to its mandate under the restructuring statute to provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is equivalent to the utility's opportunity to recover these costs
prior to the commencement of retail access. The MPUC also reviewed the
prescribed methodology for determining the amount of a utility's stranded costs,
including among other factors the application of excess value from divested
generation assets to offset stranded costs. At the beginning of the proceeding
Central Maine had estimated its total stranded costs to be approximately $1.3
billion.
In the area of revenue requirements, the Phase I order did not include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of common equity for Central Maine as a transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common equity with a 55-percent common equity component in the capital
structure. The MPUC, after weighing conflicting recommendations, decided on a
common-equity cost of 10.50 percent with a common-equity component of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.
In dealing with rate design, the MPUC limited itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1) facilitating the transition to a competitive market for
generation, and (2) implementing a "no-losers" policy, i.e., that the new rate
design would cause no Central Maine customer's bill to increase on March 1,
2000. Applying the latter principle, the MPUC rejected a newly designed standby
rate for self-generators proposed by Central Maine in favor of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive rate design and alternative rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience gained with the cost structures of other
transmission-and-distribution utilities after the commencement of retail access
to generation.
The Phase I order resulted from an extended proceeding with many points of view
represented and covers a wide variety of rate-related subjects. Definitive
findings by the MPUC in a number of the subject areas await the second phase of
the proceeding, which must be completed before March 1, 2000. CMP Group and
Central Maine cannot predict the definitive amount of stranded costs the MPUC
will determine that Central Maine will be entitled to recover pursuant to the
mandate of the restructuring statute, or the revenue requirements and rate
design that will result from Phase II of the MPUC proceeding.
Agreement for Sale of Generation Assets
On January 6, 1998, Central Maine announced that it had reached agreement to
sell all of its hydro, fossil and biomass power plants with a combined
generating capacity of 1,185 megawatts for $846 million in cash, including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related book value for these assets was approximately $218.9 million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine entered into energy buy-back agreements to assist in fulfilling its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage facilities to FPL Group for an
additional $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue associated with the properties that Central Maine will retain),
including $1.15 million for Union Water assets. The related book value of these
assets was approximately $11.9 million at December 31, 1998.
Central Maine's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone Unit No. 3 nuclear
generating unit in Waterford, Connecticut, its 3.59-percent interest in the
output of the Vermont Yankee nuclear generating plant in Vernon, Vermont, and
its entitlement in the NEPOOL Phase II interconnection with Hydro-Quebec all
attracted insufficient interest to be included in the pending sale. Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its interests in the Maine Yankee (Wiscasset, Maine), Connecticut
Yankee (Haddam, Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear
generating plants, all of which are in the process of being decommissioned.
Substantially all of the generating assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture"). Therefore, substantially all of the proceeds
from sale must be deposited initially with the trustee under the Indenture at
the closing of the sale to free the generating assets from the lien of the
Indenture. Central Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture, and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase outstanding equity securities. Central Maine must also
provide for payment of applicable taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors, including Indenture provisions, regulatory
requirements, market conditions and terms of outstanding securities.
On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern District of New York requesting a declaratory judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other issues, it believed that Central Maine could not comply with the
conditions in the purchase contract and that FPL Energy should not be bound to
complete the transaction.
FPL Energy contended in its complaint that the FERC rulings (1) constituted a
material adverse effect under the purchase agreement and substantially lessened
the value of Central Maine's generating assets, and (2) precluded Central Maine
from obtaining all federal, state and local consents and approvals required for
the ownership, operation and maintenance of the generating assets in a manner
substantially consistent with Central Maine's historical ownership, operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy asserted that the FERC rulings limited the ability of the prospective
buyer to get power from the Central Maine generating assets to market
unconstrained by transmission limitations resulting from new generators being
added to the NEPOOL system, and therefore, based on the doctrine of frustration
of purpose, FPL Energy should be "excused without further obligation or
liability from effecting the purchase of [Central Maine's] generating assets."
Central Maine, FPL Energy, NEPOOL, and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.
On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase agreement, finding the sale
to be in the public interest. The MPUC also made the findings required as a
prerequisite to a FERC designation of the generating facilities as "exempt
wholesale generators," which had been requested by FPL Energy.
On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL Energy, after making the required finding that the sale was
consistent with the public interest, and accepted certain implementing
agreements for filing. In discussing an issue raised by an intervenor the FERC
stated that by purchasing the generating assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier transmission-access
rulings. The FERC granted its approval of the transfer of hydroelectric and
water storage licenses on December 28, 1998, and the approval by FERC of
exempt-wholesale-generator status for the generating facilities, was granted on
February 24, 1999.
On March 11, 1999, the hearing on FPL Energy's request for a declaratory
judgment was held in the United States District Court for the Southern District
of New York. On the same day the presiding judge ruled that FPL Energy was not
entitled to the declaratory judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing of the sale on or before April 7, 1999, as required by the sale
agreement, and the parties are preparing for the closing.
Expansion of Lines of Business
General. CMP Group is also preparing for competition by expanding its business
opportunities through investments that capitalize on core competencies. MaineCom
Services is a subsidiary that arranges fiber-optic data service for bulk
carriers, offering support for cable television or "super-cellular" personal
communication vendors, and providing other telecommunications consulting
services. TeleSmart is a wholly-owned accounts receivable management subsidiary.
Another wholly-owned subsidiary, CNEX, formerly CMP International Consultants,
provides utility consulting (domestic and international) and research. The
wholly-owned Union Water Power Company provides management of rivers and
recreational facilities, locating of underground utility facilities and infrared
photography, real estate brokerage and management, modular housing, engineering
and environmental services, integrated energy solutions, and utility
construction services. Union Water's operating divisions include On Target
Utility Services, UnionLand Services, Maine HomeCrafters, E/PRO, and Combined
Energies(TM). These subsidiaries often utilize skills of former Central Maine
employees and regularly compete for business with other companies.
Natural Gas Distribution. CMP Group and Energy East, through subsidiaries, have
entered into a joint-venture agreement to pursue opportunities to distribute
natural gas at retail in many Maine communities that are not currently served
with that fuel. They would offer natural-gas service in several areas of Maine,
primarily the Augusta, Bangor, Bath-Brunswick, Bethel, Windham and Waterville
areas, none of which currently has a natural-gas distribution system in place.
The gas would be drawn from two new gas-pipeline projects now under development
by unrelated parties that would carry Canadian gas through Maine and into the
regional energy market using substantial portions of electric transmission-line
corridors owned by Central Maine and MEPCO. On July 24, 1998, the MPUC
authorized the joint venture to serve the areas it had applied to serve. The new
company (now "CMP Natural Gas, L.L.C.", equally owned by subsidiaries of CMP
Group and Energy East) would face competition from a new gas utility affiliated
with Bangor Hydro-Electric Company in the Bangor area, and in the Bath-Brunswick
area, from an existing gas utility, Northern Utilities, Inc., which has been
serving other areas of Maine, including the Portland and Lewiston-Auburn areas.
CMP Group's level of investment is dependent on the overall economic feasibility
of natural gas as a competitive energy option in Maine, a sufficient expression
of customer interest in gas service from CMP Natural Gas, and the prospects for
achieving an acceptable return on investment.
Fiber Optic Network. CMP Group, through its wholly-owned subsidiary MaineCom
Services, owns 38.5 percent of the common stock of Northeast Optic Network, Inc.
("NEON"), which is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers on
local loop, inter-city and interstate facilities. NEON is currently expanding
its fiber optic network to encompass over 1,000 fiber optic cable route miles,
or more than 65,000 fiber strand miles, in New England and New York, utilizing
primarily electric-utility rights-of-way, including some of Central Maine's in
Maine and some owned by other electric utilities including Northeast Utilities,
another substantial minority stockholder, in Connecticut, Massachusetts and New
Hampshire. As of December 31, 1998, NEON had completed construction of
approximately 600 route miles, or 49,000 fiber miles, of its planned system and
is currently engineering, constructing, or acquiring additional routes with a
goal of creating a continuous fiber optic link between New York City and
Portland, Maine, with access into and around Boston and numerous other major
service areas in the Northeast.
On August 5, 1998, NEON completed initial public offerings of $48.0 million of
common stock and $180.0 million of senior notes, and Central Maine, as part of
the common-stock offering, sold some of the shares in NEON it then owned for
proceeds of approximately $3.1 million. In addition, with some of the proceeds
of the offering NEON repaid approximately $18 million Central Maine had advanced
under an earlier construction loan agreement. CMP Group believes there is a
growing need for such a fiber optic network in the Northeast and that NEON's
outside financing will provide substantial assistance in completing construction
of the network, but cannot predict the results of this venture. The common stock
of NEON is listed on the Nasdaq Stock Market's National Market under the symbol
"NOPT".
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. As reported in detail in
Central Maine's Annual Report on Form 10-K for the year ended December 31, 1997,
the Plant had experienced a number of operational and regulatory problems and
did not operate after December 6, 1996. The decision to close the Plant
permanently was based on an economic analysis of the costs, risks and
uncertainties associated with operating the Plant compared to those associated
with closing and decommissioning it. The Plant's operating license from the NRC
was scheduled to expire on October 21, 2008.
FERC Rate Case. On November 6, 1997, Maine Yankee submitted to FERC for filing
certain amendments to the Power Contracts (the "Amendatory Agreements") and
revised rates to reflect the decision to shut down the Plant and to request
approval of an increase in the decommissioning component of its formula rates.
Maine Yankee's submittal also requested certain other rate changes, including
recovery of unamortized investment (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998, the FERC accepted Maine Yankee's new rates for filing,
subject to refund after a minimum suspension period, and set Maine Yankee's
Amendatory Agreements, rates and issues concerning the prudence of the
Plant-shutdown decision for hearing.
By Complaint dated December 9, 1997, the Maine Office of the Public Advocate
("OPA") sought a FERC investigation of Maine Yankee's actions leading to the
decision to shut down the Plant, including actions associated with the
management and operation of Maine Yankee since 1993. The MPUC had initiated an
investigation in Maine earlier, raising generally similar issues. By decision
dated May 4, 1998, the FERC consolidated the OPA Complaint with the
comprehensive rate proceeding. In addition, 28 municipal and cooperative
utilities that had purchased in the aggregate approximately 6.2 percent of the
output of the Plant from Maine Yankee's sponsors (the "Secondary Purchasers")
intervened in the FERC proceeding, raising similar prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.
In support of its request for an increase in decommissioning collections, Maine
Yankee submitted with its initial FERC filing a 1997 decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive competitive bid process to engage a Decommissioning Operations
Contractor ("DOC") to perform certain major decontamination and dismantlement
activities at the Plant on a fixed-price, turnkey basis. As a result of that
process, a consortium headed by Stone & Webster Engineering Corporation ("Stone
& Webster") was selected to perform such activities under a fixed-price
contract. The contract provides for, among other undertakings, construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning activities and site restoration by the end of 2004. The DOC
process resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.
Since the filing of the rate request, Maine Yankee and the active intervenors,
including among others the MPUC Staff, the OPA, Central Maine and other owners,
the Secondary Purchasers, and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery and negotiations. Those parties
participated in settlement discussions that resulted in an Offer of Settlement
filed by those parties with the FERC on January 19, 1999. On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and that the FERC approve it. Upon approval by the FERC, the
settlement would constitute a full settlement of all issues raised in the
consolidated FERC proceeding, including decommissioning-cost issues and issues
pertaining to the prudence of the management, operation, and decision to
permanently cease operation of the Plant. A separately negotiated settlement
filed with the FERC on February 5, 1999, would resolve the issues raised by the
Secondary Purchasers by limiting the amounts they will pay for decommissioning
the Plant and by settling other points of contention affecting individual
Secondary Purchasers. On February 24, 1999, the FERC Trial Staff recommended
certification and approval of the settlement with the Secondary Purchasers. On
March 10, 1999, the presiding judge certified to the FERC that both Offers of
Settlement were uncontested and joined in the Trial Staff's comments that both
were "fair, reasonable and in the public interest."
The Offer of Settlement provides for Maine Yankee to collect $33.6 million in
the aggregate annually, effective January 15, 1998, consisting of (1) $26.8
million for estimated decommissioning costs, and (2) $6.8 million for
ISFSI-related costs. The original filing with FERC on November 6, 1997, called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate. Under the settlement the amount collected
annually could be reduced to approximately $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual payment to the State of Texas pursuant to a compact
for low-level nuclear waste disposal, the future of which is now in question
after rejection of the selected disposal site in west Texas by a Texas
regulatory agency. Both would require authorizing legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.
The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective January 15, 1998, on equity balances up to maximum allowed equity
amounts. The Settling Parties also agreed in the proposed settlement not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing, subject to certain limitations including the right to
challenge any accelerated recovery of unamortized investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition, the settlement contains incentives for Maine Yankee
to achieve further savings in its decommissioning and ISFSI-related costs and
resolves issues concerning restoration and future use of the Plant site and
environmental matters of concern to certain of the intervenors in the
proceeding.
As a separate part of the Offer of Settlement, Central Maine, the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further agreement resolving retail rate issues and other issues
specific to the Maine parties, including those that had been raised concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine Agreement Central Maine would continue to recover its Maine
Yankee costs in accordance with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central Maine has collected from its retail customers a return on equity in
excess of the 6.50 percent contemplated by the Offer of Settlement, no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.
The final major provision of the Maine Agreement requires the Maine owners, for
the period from March 1, 2000, through December 1,2004, to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of Directors that served as a basis for the Plant shutdown
decision, up to a maximum cumulative amount of $41 million. Central Maine's
share of that amount would be $31.16 million for the period. The Maine
Agreement, which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.
CMP Group and Central Maine believe that the Offer of Settlement, including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC proceeding, and that approval of the Offer of Settlement by
the FERC would eliminate significant uncertainties concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding, including the FERC Trial Staff, support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty whether or in what form it will
be approved by the FERC.
Other Maine Yankee Shareholders. Periodically-higher nuclear-related costs have
affected the financial condition of other stockholders of Maine Yankee in
varying degrees. A default by a Maine Yankee stockholder in making payments
under its Power Contract or Capital Funds Agreement could have a material
adverse effect on Maine Yankee, depending on the magnitude of the default. CMP
Group and Central Maine cannot predict, however, what effect, if any, the
financial and regulatory difficulties experienced by some Maine Yankee
stockholders might have on Maine Yankee or Central Maine.
<PAGE>
Non-utility Generation
After enactment of the federal Public Utility Regulatory Policies Act of 1978
("PURPA") and companion legislation in Maine, Central Maine became an industry
leader in developing supplies of energy from non-utility generators ("NUGs"),
including cogeneration plants and small power producers. These sources supplied
3.2 billion kilowatt-hours of electricity to Central Maine in 1998, representing
32 percent of total generation, a decrease from 35 percent in 1997. The
Company's contracts with non-utility generators, however, which were entered
into pursuant to the mandates of PURPA and vigorous state implementation of its
policies, contributed the largest part of Central Maine increased costs and
resulting rate increases in the years immediately prior to implementation of the
ARP in 1995, and constitute the largest part of its strandable costs.
PURPA provided substantial economic incentives to NUGs by allowing cogenerators
and small power producers to sell their entire electrical output to an electric
utility at the utility's avoided-cost rate, which has often been substantially
higher than market rates, while purchasing their own electric energy
requirements at the utility's established rate for that customer class. Thus
Central Maine in a number of cases has been required to pay a higher price for
energy purchased from a NUG than the NUG, which in some cases is a large
customer of Central Maine, has paid Central Maine for the NUG's energy
requirements. In addition, prices paid by Central Maine under NUG contracts have
often been well above current wholesale market prices.
Central Maine has reduced its NUG costs by implementing buyouts and
restructurings of its NUG contracts, whenever practicable. As a result, in
accordance with prior MPUC policy and the ARP, since January 1992 $99 million of
buyout or restructuring costs have been included in Deferred Charges and Other
Assets on Central Maine's balance sheet and will be amortized over their
respective fuel savings periods. Central Maine will continue to seek
opportunities to reduce its NUG costs, but cannot predict what level of
additional savings it will be able to achieve. Central Maine offered to sell its
NUG power entitlements as part of the auction of its generating assets, but the
offer attracted insufficient interest to be included in its pending sale.
Financing and Related Considerations
At the annual meeting of the stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350 million in principal amount of Central Maine's medium-term notes in
addition to the $150 million in principal amount to which they had previously
consented. This expansion of the medium-term note program to a maximum of $500
million in principal amount outstanding at any one time was implemented to
increase Central Maine's financing flexibility in anticipation of industry
restructuring and increased competition. During 1998, Central Maine issued
medium-term notes totaling $312 million in principal amount and such notes in
the amount of $18 million matured during the year. As of December 31, 1998, $337
million of medium-term notes were outstanding. During 1998, Central Maine
redeemed, repurchased, or paid at maturity a total of approximately $417 million
of mortgage bonds, preferred stock, and other debt. For a discussion of Central
Maine's 1998 financing activity and its available financing facilities, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations"-"Liquidity and Capital Resources," below.
Securities Ratings
The current ratings assigned Central Maine's securities by the three major
securities-rating agencies are shown below:
Mortgage Unsecured Commercial Preferred
Bonds Notes Paper Stock
S&P BBB+ BB+ A-3 BB+
Moody's Baa3 Ba1 P3 Ba1
D&P BBB- BB+ D-3 BB
"Year 2000" Computer Issues
The "Year 2000 problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore those computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results, with potentially serious and widespread adverse consequences.
CMP Group, through Central Maine, began its Year 2000 problem remediation
efforts in 1996, and since that time has developed a broad-based and
comprehensive project plan for addressing Year 2000 issues. The plan includes
both Information Technology ("IT") and non-IT systems, addresses both
centralized and distributed systems, and encompasses systems critical to the
generation, transmission, and distribution of electric energy as well as the
traditional business systems necessary to the CMP Group System.
As planned, by the end of 1998 CMP Group had completed much of the work
associated with Year 2000 readiness for IT infrastructure and centralized
business systems. The remaining work in those areas is scheduled to be completed
during the first six months of 1999. All vendors associated with this remaining
work have indicated availability of products and services that CMP Group
believes should permit CMP Group to be Year 2000 ready by June 1999.
CMP Group's target completion date for Year 2000 power generation and delivery
systems is also June 1999, consistent with the DOE's published request in May
1998 and the overall electric-utility industry guidelines prepared by the North
American Electric Reliability Council ("NERC"). CMP Group has contracted with
the appropriate vendors to complete critical generation control system
remediation work by June 1999, and believes it is on schedule to meet this
target.
In addition to the internal Year 2000 readiness activities discussed above, CMP
Group is actively participating in a joint ISO/NEPOOL initiative designed to
assess, and assure, power reliability within the NEPOOL area. This initiative
encompasses all participants, including Central Maine, within the New England
area.
CMP Group also has an active program in place to identify and address issues
associated with third-party providers. The program addresses business
relationships with all third-party providers, but focuses on those suppliers
deemed critical to CMP Group's business. At this time CMP Group has no
indication that any third-party with which CMP Group has a material relationship
is expecting a Year 2000-related business interruption. CMP Group will continue
to monitor and assess its third-party relationships.
CMP Group estimates it will incur approximately $4.0 million of costs associated
with making the necessary modifications identified to date to both the
centralized and non-centralized systems. As of December 31, 1998, approximately
$3.4 million of such costs has been incurred.
CMP Group recognizes that failure to correct problems associated with Year 2000
issues has the potential to result in material operational and financial risks
if the affected systems either cease to function or produce erroneous results.
Such risks could include inability to operate fossil and/or hydro generating
facilities, disruptions in the operation of Central Maine's transmission and
distribution systems, an inability to access interconnections with other
utilities, and disruptions to Central Maine's major business systems (customer
information and service, administrative, financial).
Central Maine believes, however, that the most likely worst case scenario
resulting from these risks would be a temporary, and short-term, disruption of
electric service. This could occur either as a failure on the part of Central
Maine to successfully address all critical Year 2000 issues, as a failure on the
part of a critical third-party provider, or as a failure on the part of other
entities, including ISO-New England, to successfully maintain the short-term
reliability of power supply and delivery on a regional basis. Central Maine does
not expect that any such short-term service disruption would have a material
impact on its operations, liquidity, or financial condition.
In order to minimize these risks, and the potential recovery time, from Year
2000 problems, CMP Group is actively involved in contingency planning. Although
CMP Group has extensive knowledge and specific experience in disaster/recovery
planning and execution, CMP Group recognizes the importance of Year 2000
specific contingency planning. Accordingly, Central Maine is participating in
the integrated contingency planning effort headed by the North American Electric
Reliability Council, and the Northeast Power Coordinating Council. Further,
Central Maine will be developing comprehensive Year 2000 specific contingency
plans for its own independent operations.
CMP Group believes its plans are adequate to attain Year 2000 readiness, and
that the contingency plans currently under development both internally and at a
regional level should substantially mitigate the risks discussed above.
Environmental Matters
Federal, state and local environmental laws and regulations cover air and water
quality, land use, power plant and transmission line siting, noise and
aesthetics, solid and hazardous waste and other environmental matters.
Compliance with these laws and regulations impacts the manner and cost of
electric service by requiring, among other things, changes in the design and
operation of existing facilities and changes or delays in the location, design,
construction and operation of new facilities. These environmental regulations
most significantly affect Central Maine's electric power generating facilities,
which are to be sold to FPL Group, as discussed above. In addition, certain
environmental proceedings under federal and state hazardous substance and
hazardous waste regulations (such as the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") and the Resource Conservation and
Recovery Act ("RCRA") and similar state statutes) are discussed below under Item
3, "Legal Proceedings" - "Legal and Environmental Matters." Central Maine
estimates that its capital expenditures for improvements needed to comply with
environmental laws and regulations were approximately $14.3 million for the five
years from 1994 through 1998.
Storm Damage to Central Maine's System
On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck Central Maine's service territory, causing power outages for
approximately 280,000 of Central Maine's 528,000 customers, and substantial
widespread damage to Central Maine's transmission and distribution system. To
restore its electrical system, Central Maine supplemented its own crews with
utility and tree-service crews from throughout the northeastern United States
and the Canadian maritime provinces, with assistance from the Maine national
guard. Central Maine's incremental non-capital costs of the repair effort were
$50.7 million, most of which is labor-related. In addition, approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.
On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the incremental non-capital costs associated with Central Maine's
efforts to restore service in response to the damage resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file information on the amounts deferred under the order and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was determined and the status of federal assistance was known Central
Maine would propose a plan for recovery of its costs. Based on the MPUC order,
Central Maine has deferred $52.4 million in storm related costs as of December
31, 1998. In October 1998, the MPUC staff issued its draft report of its summary
investigation of the Maine utilities' response to the January ice storm. This
report found no basis for formal adjudicatory investigation into the response
and supports the utilities' actions. On May 1, 1998, President Clinton signed a
Congressional appropriation bill that included $130 million for Presidentially
declared disasters in 1998, including storm-damage cost reimbursement for
electric utilities. On November 5, 1998 the United States Department of Housing
and Urban Development ("HUD") announced that of those funds, $2.2 million had
been awarded to Maine, with none designated for utility infrastructure, which
Central Maine and the Maine Congressional delegation protested as inadequate and
inconsistent with Congressional intent. On March 10, 1999, HUD published a
notice in the Federal Register inviting parties to re-apply for storm-damage
cost reimbursement. Central Maine cannot predict what portion of its ice
storm-related costs it will ultimately recover through federal assistance, if
any, or from its customers, or when any such recovery will take place.
Employee Information
A local union affiliated with the International Brotherhood of Electrical
Workers (AFL-CIO) represents operating and maintenance employees in each of
Central Maine's operating divisions, and certain office and clerical employees.
At December 31, 1998, Central Maine had 1,607 full-time employees, of whom
approximately 45 percent were represented by the union.
In April 1998 Central Maine and the union agreed to a two-year labor contract
extension that provided for an annual wage increase of 2.5 percent on May 1,
1998 and 2.5 percent on May 1, 1999.
On March 2, 1998, Central Maine and the Union reached agreement on a contract
covering 158 employees in power-generation positions. This contract is similar
to the agreement covering other Central Maine employees except that it provided
for a 2.5 percent general wage increase effective March 1, 1998. The contract
will expire on July 31, 1999 and, at the time of the closing of the
generation-asset sale, is expected to be absorbed by FPL Group, along with most
of the generation-related employees.
Item 2. PROPERTIES.
Existing Facilities
Central Maine's electric properties form a single integrated system which is
connected at 345 kilovolts and 115 kilovolts with the lines of Public Service
Company of New Hampshire at the southerly end and at 115 kilovolts with Bangor
Hydro-Electric Company at the northerly end of Central Maine's system. Central
Maine's system is also connected with the system of The New Brunswick Power
Corporation and with Bangor Hydro-Electric Company, in each case through the
345-kilovolt interconnection constructed by MEPCO, a 78 percent-owned subsidiary
of Central Maine. At December 31, 1998, Central Maine had approximately 2,293
circuit-miles of overhead transmission lines, 19,438 pole-miles of overhead
distribution lines and 1,434 miles of underground and submarine cable.
Central Maine operates 32 hydroelectric generating stations, of which 31 are
owned fully by Central Maine, with an estimated net capability of 373 megawatts,
and it purchases an additional 74 megawatts of non-utility hydroelectric
generation in Maine. Central Maine also operates two oil-fired steam-electric
generating stations, William F. Wyman Station in Yarmouth, Maine and Mason
Station in Wiscasset, Maine. Central Maine's share of William F. Wyman Station
has an estimated net capability of 594 megawatts. Mason Station has five units
totaling 145 megawatts although two of the units (42 megawatts) are retired. The
oil-fired stations are located on tidewater, permitting waterborne delivery of
fuel. Central Maine also has internal combustion generating facilities with an
estimated aggregate net capability of 42 megawatts. These facilities are
included in the pending sale of Central Maine's generating assets to FPL Group.
Central Maine also has ownership interests in five nuclear generating facilities
in New England, three of which have permanently ceased operations. The largest
is a 38-percent interest in Maine Yankee Atomic Power Company ("Maine Yankee")
which, as discussed above, has permanently shut down its plant in Wiscasset,
Maine. In addition, the Company owns a 9.5 percent interest in Yankee Atomic
Electric Company ("Yankee Atomic"), discussed below, which has permanently shut
down its plant located in Rowe, Massachusetts, a 6 percent interest in
Connecticut Yankee Atomic Power Company ("Connecticut Yankee"), discussed below,
which has permanently shut down its plant in Haddam, Connecticut, and a 4
percent interest in Vermont Yankee Nuclear Power Corporation ("Vermont Yankee"),
which owns an operating plant in Vernon, Vermont (collectively, with Maine
Yankee, the "Yankee Companies"). In addition to the four Yankee Companies,
pursuant to a joint-ownership agreement, the Company has a 2.5 percent direct
ownership interest in the Millstone 3 nuclear unit ("Millstone 3") in Waterford,
Connecticut.
<TABLE>
<S> <C> <C> <C> <C> <C>
Maine Yankee Connecticut Vermont Millstone
Yankee Atomic Yankee Yankee Unit 3
------ ------ ---- ------- ------ --- ------
Ownership Share 38% 9.5% 6% 4% 2.5%
Operating Status Permanently shut Permanently shut Permanently shut down Operating Operating
down August 6, down February 26, December 4, 1996
1997 1992
Location Wiscasset, Maine Rowe, Massachusetts Haddam, Vernon, Vermont Waterford,
Connecticut Connecticut
Capacity Share N/A N/A N/A 19 MW 29 MW
Equity Interest at
December 31, 1998 $30.0 Million $1.9 Million $6.3 Million $2.1 Million N/A
</TABLE>
Maine Yankee. In August 1997, the Board of Directors of Maine Yankee Atomic
Power Company voted to permanently shut down and decommission the Maine Yankee
plant. The Plant had experienced a number of operational and regulatory problems
and did not operate after December 6, 1996. The decision to close the Plant was
based on an economic analysis of the costs, risks and uncertainties associated
with operating the Plant compared to those associated with closing and
decommissioning it. For a detailed discussion of the issues relating to the
Maine Yankee Plant, see Item 1 "Business" - "Permanent Shutdown of the Maine
Yankee Plant," above.
Connecticut Yankee. In December 1996, the Board of Directors of Connecticut
Yankee Atomic Power Company voted to permanently shut down and decommission the
Connecticut Yankee plant for economic reasons. The plant did not operate after
July 22, 1996. Central Maine estimates its share of the cost of Connecticut
Yankee's continued compliance with regulatory requirements, recovery of its
plant investment, decommissioning and closing the plant to be approximately
$29.9 million and has recorded a corresponding regulatory asset and liability on
the consolidated balance sheet. Central Maine is currently recovering through
rates an amount adequate to recover these expenses. Issues relating to
Connecticut Yankee's decommissioning rates, as well as the prudence of operating
that plant and the decision to cease operations, remain pending before the FERC.
Yankee Atomic. In 1993 the FERC approved a settlement agreement regarding
recovery of decommissioning costs and plant investment, and all issues with
respect to the prudence of the decision to discontinue operation of the Yankee
Atomic plant. Central Maine estimates its remaining share of the cost of Yankee
Atomic's continued compliance with regulatory requirements, recovery of its
plant investment, decommissioning and closing the plant, to be approximately
$7.8 million. This estimate has been recorded by Central Maine as a
corresponding regulatory asset and liability on Central Maine's balance sheet.
Central Maine's current share of costs related to the shutdown of Yankee Atomic
is being recovered through rates.
Vermont Yankee. The Vermont Yankee plant is an operating unit. Its NRC operating
license is scheduled to expire in the year 2012.
Millstone Unit 3. Pursuant to a joint ownership agreement, Central Maine has a
2.5 percent direct ownership interest in the Millstone 3 nuclear unit in
Waterford, Connecticut, which is operated by Northeast Utilities. This facility
was off-line from March 31, 1996, to July 1998, due to NRC concerns regarding
license requirements. For a discussion of a lawsuit and arbitration claim filed
by Central Maine and other minority owners of Millstone 3 against the operators
of the unit, see Item 3 "Legal Proceedings"-"Millstone Unit No. 3 Litigation,"
below.
Central Maine is obligated to pay its proportionate share of the operating
expenses, including depreciation and a return on invested capital, of each of
the Yankee Companies referred to above for periods expiring at various dates to
2012. Pursuant to the joint ownership agreement for Millstone 3, Central Maine
is similarly obligated to pay its proportionate share of the operating costs of
Millstone 3. Central Maine is also required to pay its share of the estimated
decommissioning costs of each of the Yankee Companies and Millstone 3. The
estimated decommissioning costs are paid as a cost of energy in the amounts
allowed in rates by the FERC.
MEPCO. MEPCO owns and operates a 345-kilovolt transmission interconnection,
completed in 1971, extending from Central Maine's substation at Wiscasset to the
Canadian border where it connects with a line of The New Brunswick Power
Corporation ("NB Power") under an interconnection agreement. MEPCO transmits
power between NB Power and various New England utilities pursuant to MEPCO's
Open Access Transmission Tariff.
New England Power Pool Facilities. NEPOOL, of which the Company is a member,
contracted in connection with its Hydro-Quebec projects to purchase power from
Hydro-Quebec. The contracts entitle Central Maine to 44.5 megawatts of capacity
credit in the winter and 127.25 megawatts of capacity credit during the summer.
Central Maine also entered into facilities-support agreements for its share of
the related transmission facilities, with its share of the support
responsibility and of associated benefits being approximately 7 percent of the
totals. Central Maine is making facilities-support payments on approximately
$25.4 million, its share of the construction cost for the transmission
facilities incurred through December 31, 1998.
Maine Yankee Low-Level Waste Disposal. The federal Low-Level Radioactive Waste
Policy Amendments Act (the "Waste Act"), enacted in 1986, required states either
alone or in multistate compacts to provide for the disposal of low-level
radioactive waste generated within their borders. Subsequently, the states of
Maine, Texas and Vermont entered into a compact for the disposal of low-level
waste at a site in Texas. The compact provides for Texas to take Maine's
low-level waste over a 30-year period for disposal at a then-planned facility in
west Texas. In return, Maine would be required to pay $25 million, assessed to
Maine Yankee by the State of Maine, payable in two equal installments, the first
after ratification by Congress and the second upon commencement of operation of
the Texas facility; or, as a possible alternative, the states could agree to a
financing arrangement for the payment, in which case Maine Yankee's share, along
with interest, could be paid out over an extended period of time. In addition,
Maine Yankee would be assessed a total of $2.5 million for the benefit of the
Texas county in which the facility would be located and would also be
responsible for its pro-rata share of the Texas governing commission's operating
expenses.
The bill providing for ratification of the compact was before several sessions
of the Congress before finally being approved on September 2, 1998, and signed
by the President on September 21, 1998. However, on October 22, 1998, the Texas
Natural Resources Conservation Commission voted to deny a permit for the
proposed west Texas site for the facility.
Since the Maine Yankee Plant has permanently stopped operating, the compact is
less beneficial to Maine Yankee than it would have been if the Plant had
remained in operation, due to the new schedule for Maine Yankee's shipments and
the uncertainty associated with the schedule for opening a Texas facility.
Although other potential sites in Texas have been proposed by various parties,
CMP Group and Central Maine cannot predict whether or when a facility in Texas
will be licensed and built. Maine Yankee intends to utilize its on-site storage
facility as well as dispose of low-level waste at an active South Carolina site
or other available sites in the interim and continue to cooperate with the State
of Maine in pursuing all appropriate options. CMP Group and Central Maine are
unable to predict whether or when the state of Maine may assess any payments
required under the compact.
Nuclear Insurance. The Price-Anderson Act is a federal statute providing, among
other things, a limit on the maximum liability for damages resulting from a
nuclear incident. Coverage for the liability is provided for by existing private
insurance and retrospective assessments for costs in excess of those covered by
insurance, up to $88.095 million for each reactor owned, with a maximum
assessment of $10 million per reactor in any year. However, after appropriate
exemptive action by the NRC Maine Yankee, and therefore its sponsors, are not
responsible for retrospective assessments resulting from any event or incident
occurring after January 7, 1999. Based on Central Maine's stock ownership in the
Yankee companies and its 2.5 percent direct ownership interest in the Millstone
3 nuclear unit, Central Maine's retrospective premium for post-January 7, 1999,
events or incidents could be as high as $6 million in any year, for a cumulative
total of $52.9 million.
In addition to the insurance required by the Price-Anderson Act, the nuclear
generating facilities mentioned above carry additional nuclear property-damage
insurance. This additional insurance is provided from commercial sources and
from the nuclear electric utility industry's insurance company through a
combination of current premiums and retrospective premium adjustments. In
recognition of the reduced risk posed by the shutdown of the Maine Yankee Plant
and its defueled reactor, Maine Yankee substantially reduced its property-damage
coverage effective January 19, 1999.
Construction Program
Central Maine's plans for improvements and expansion of its facilities are under
continuing review. Actual construction expenditures depend on the availability
of capital and other resources, load forecasts, customer growth, general
business conditions, and, starting in 1999, the consummation of the sale of its
generating assets. Recent economic and regulatory considerations have led
Central Maine to hold its planned 1999 capital investment outlays, including
deferred demand-side management expenditures, to minimum levels. During the
five-year period ended December 31, 1998, Central Maine's construction and
acquisition expenditures amounted to $219.7 million (including investment in
jointly-owned projects and excluding MEPCO). The program is currently estimated
at approximately $56 million for 1999 and $228 million for 2000 through 2003.
The following table sets forth Central Maine's estimated capital expenditures as
discussed above, assuming completion of the generation asset sale in the spring
of 1999:
2000-
1999 2003 Total
Type of Facilities (Dollars in Millions)
Generating Projects $ 3 $ - $ 3
Transmission 3 22 25
Distribution 32 132 164
General facilities and Other 18 74 92
-- -- --
Total $56 $228 $284
=== === ===
Additionally, Central Maine, in conjunction with the Independent System
Operator-New England, is conducting system impact and facilities studies to
accommodate the interconnection of 19 merchant plants totaling in excess of
6,000 megawatts proposing to interconnect to its system and neighboring systems
over the next three years. One of these facilities has an expected on-line date
in the latter half of 1999. Central Maine anticipates spending approximately
$25,000,000 in 1999 for the construction and/or upgrade of transmission line and
substation facilities associated with this project as well as two other projects
expected to be on-line in 2000. The extent of transmission upgrades necessary to
accommodate the proposed merchant plants, and the entity ultimately responsible
for these costs, depends on the results of the studies mentioned above, the
number of proposed plants that actually are developed, and approval of the
criteria for determining needed transmission upgrades, which are being developed
within the context of NEPOOL's Congestion Management System be filed later in
1999 as required by the FERC.
Demand-side Management
Central Maine's demand-side-management initiatives have included programs aimed
at residential, commercial and industrial customers. Among the residential
efforts have been programs that offer free or low-cost weatherization, water
heater wraps and energy-efficient light bulbs. Among the commercial and
industrial efforts, in addition to operating programs that offer
energy-efficient lighting products and water-heater wraps, Central Maine has
provided incentives to customers who install conservation measures of any kind
that increase the efficiency of the use of electricity.
NEPOOL
Central Maine is a member of the New England Power Pool (NEPOOL), which is open
to electric utilities in New England under a 1971 agreement that provides for
coordinated planning and operation of approximately 99 percent of the electric
power production, purchases and transmission in New England. The NEPOOL
Agreement, which was recently revised to comply with the new regulatory
requirements discussed in the three succeeding paragraphs, imposes obligations
concerning generating capacity reserve and the use of major transmission lines,
and provides for central dispatch of the region's facilities.
On April 24, 1996, the FERC issued Order No. 888, which requires all public
utilities that own, control or operate facilities used for transmitting electric
energy in interstate commerce to file open access non-discriminatory
transmission tariffs that offer both load-based, network and contract-based,
point-to-point service, including ancillary service to eligible customers
containing minimum terms and conditions of non-discriminatory service. This
service must be comparable to the service they provide themselves at the
wholesale level; in fact, these utilities must themselves take the wholesale
transmission service they provide under the filed tariffs. The order also
permits public utilities and transmitting utilities the opportunity to recover
legitimate, prudent and verifiable wholesale stranded costs associated with
providing open access and certain other transmission services. It further
requires public utilities to functionally separate transmission from generation
marketing functions and communications. The intent of this order is to promote
the transition of the electric utility industry to open competition. Order No.
888 also clarifies federal and state jurisdiction over transmission in
interstate commerce and local distribution and provides for deference of certain
issues to state recommendations. The FERC subsequently issued Orders No. 888-A
and 888-B which generally reaffirm Order No.
888 and clarify certain terms.
On July 9, 1996, Central Maine and MEPCO submitted compliance filings to meet
the new pro-forma tariff non-price minimum terms and conditions of
non-discriminatory transmission service and since then have made additional
filings revising their tariffs in response to subsequent FERC and NEPOOL Orders.
Central Maine and MEPCO have been transmitting energy pursuant to their filed
tariffs, subject to refund.
On April 24, 1996, the FERC also issued Order No. 889, which requires public
utilities to functionally separate their wholesale power marketing and
transmission operation functions and to obtain information about their
transmission system for their own wholesale power transactions in the same way
their competitors do through the Open Access Same-time Information System
("OASIS"). The rule also prescribed standards of conduct and protocols for
obtaining the information. The standards of conduct are designed to prevent
employees of a public utility engaged in marketing functions from obtaining
preferential information. In 1998, both Central Maine and MEPCO submitted
standards of conduct filings that further clarified the separation of the
wholesale power marketing and transmission operations functions. The NEPOOL
Agreement and open-access transmission tariff have been revised to reflect the
new regulatory requirements and are pending FERC approval.
Fuel Supply
Central Maine's total kilowatt-hour production by energy source for each of the
last two years and as estimated for 1999, assuming completion of the generation
asset sale in the first half of 1999, is shown below.
Actual Estimated
1998 1997 1999 Source
Nuclear 2% 2% 3%
Hydro 16 16 10
Oil 35 35 4
Non-utility 32 35 35
Other purchases 13 10 37
Biomass 2 2 1
FPL-Hydro Buyback - - 7
FPL-Oil Buyback - - 3
----- ----- ----
100% 100% 100%
--- --- ----
The 1999 estimated kilowatt-hour output from oil and purchased power may vary
depending upon the relative costs of Company-generated power and power purchased
through independent producers and other sources.
Oil. Central Maine's William F. Wyman Station in Yarmouth, Maine, its Mason
Station in Wiscasset, Maine, and its internal combustion electric generating
units are oil-fired. Central Maine's last contract for the supply of fuel oil
requirements at market prices was allowed to expire in 1993. Since then Central
Maine has been purchasing its fuel-oil requirements on the open market.
The average cost per barrel of fuel oil purchased by Central Maine during the
five calendar years commencing with 1994 was $12.93, $16.16, $18.18, $17.04 and
$12.39, respectively. A substantial portion of the fuel oil burned by Central
Maine and the other member utilities of NEPOOL is imported. The availability and
cost of oil to Central Maine, both under contract and in the open market, could
be adversely affected by policies and events in oil-producing nations and other
factors affecting world supplies and domestic governmental action.
Maine Yankee Spent Fuel. Like other nuclear plant operators, Maine Yankee
entered into a contract with the United States Department of Energy ("DOE") for
disposal of its spent nuclear fuel, as required by the Nuclear Waste Policy Act
of 1982, pursuant to which a fee of one dollar per megawatt-hour was assessed
against net generation of electricity and paid to the DOE quarterly. Under this
Act, the DOE was given the responsibility for disposal of spent nuclear fuel
produced in private nuclear reactors. In addition, Maine Yankee is obligated to
make a payment with respect to generation prior to April 7, 1983 (the date
current DOE assessments began). Maine Yankee elected under terms of its DOE
contract to make a single payment of this obligation prior to the first delivery
of spent fuel to DOE, which was scheduled to begin by January 31, 1998. The
payment would consist of $50.4 million (all of which Maine Yankee previously
collected from its customers, but for which a reserve was not funded), which is
the approximate one-time fee charge, plus interest accrued at the 13-week
treasury-bill rate compounded on a quarterly basis from April 7, 1983, through
the date of the actual payment. Current costs incurred by Maine Yankee under
this contract are recoverable under the terms of its Power Contracts with its
sponsoring utilities, including Central Maine. Maine Yankee has accrued and
billed $82.8 million of interest cost for the period April 7, 1983, through
December 31, 1998.
Maine Yankee has formed a trust to provide for payment of its long-term spent
fuel obligation, and is funding the trust with deposits at least semiannually
which began in 1985, with currently projected annual deposits of approximately
$1.3 million through December 2003. Deposits are expected to total approximately
$78.2 million, with the total liability, including interest due at the time of
disposal, estimated to be approximately $168.7 million at December 31, 2003.
Maine Yankee estimates that trust fund deposits plus estimated earnings will
meet this total liability if funding continues without material changes.
Maine Yankee's spent fuel is currently stored in the spent fuel pool at the
Plant site. Federal legislation enacted in December 1987 directed the DOE to
proceed with the studies necessary to develop and operate a permanent high-level
waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also
provided for the possible development of a Monitored Retrievable Storage ("MRS")
facility and abandoned plans to identify and select a second permanent disposal
site. An MRS facility would provide temporary storage for high-level waste prior
to eventual permanent disposal. The DOE has indicated that the permanent
disposal site is not expected to open before 2010, although originally scheduled
to open in 1998.
In 1997 the two branches of the United States Congress approved separate bills
to comprehensively reform the federal spent nuclear fuel program. In the spring
of 1998 House and Senate members resolved differences between the bills, which
would have required the DOE to establish an interim storage facility and begin
accepting spent fuel from nuclear power plants by 2003. On June 2, 1998, the
Senate fell short of the 60 votes needed to end debate on the bill and the bill
was not brought to a vote in the House.
In 1994 several nuclear utilities other than Maine Yankee filed suit against the
DOE. The utilities sought a declaration from the United States Court of Appeals
for the District of Columbia Circuit that the Nuclear Waste Policy Act of 1982
required the DOE to take responsibility for spent nuclear fuel in 1998. In July
1996 the court held that the DOE was obligated "to start disposing of [spent
nuclear fuel] no later than January 31, 1998." The DOE did not appeal the
decision, but announced in December 1996 that it anticipated it would be unable
to start accepting spent nuclear fuel for disposal by January 31, 1998. A large
number of nuclear utilities and state regulators filed a new lawsuit against the
DOE in January 1997 seeking to force the DOE to honor its obligation to store
spent nuclear fuel and seeking other appropriate relief.
In November 1997 the U.S. Court of Appeals for the District of Columbia Circuit
confirmed the DOE's obligation. On February 19, 1998, Maine Yankee filed a
petition in the same court seeking to compel the DOE to take Maine Yankee's
spent fuel from the Plant site "as soon as physically possible," alleging that
removing the spent fuel on the DOE's indicated schedule would delay the
decommissioning of the Maine Yankee Plant indefinitely. On May 5, 1998, the
Court dismissed Maine Yankee's lawsuit, as well as that of the other nuclear
utilities and state regulators, saying that petitioners' failure to pursue
remedies under the standard contract rendered their appeal not appropriate at
that time for review. On June 2, 1998, Maine Yankee filed a claim for money
damages in the U.S. Court of Federal Claims for the costs associated with the
DOE's failure to begin to take fuel in 1998. On November 3, 1998, the Court
granted summary judgment in favor of Maine Yankee, ruling that the DOE had
violated its contractual obligations and leaving the amount of damages incurred
by Maine Yankee for later determination by the Court. Maine Yankee expects the
hearing on its claim to take place in late 1999 or early 2000. Maine Yankee
intends to pursue its claim for damages vigorously, but as an alternative to DOE
disposal is considering construction of an independent spent-fuel storage
installation ("ISFSI") on the Plant site.
Item 3. LEGAL PROCEEDINGS.
Generating Asset Sale. For a discussion of a lawsuit involving the sale of
Central Maine's generating assets, see Item 1. "Business"-"Agreement for Sale of
Generation Assets," above.
Legal and Environmental Matters. CMP Group, Central Maine and certain of their
affiliates are subject to regulation by federal and state authorities with
respect to air and water quality, the handling and disposal of toxic substances
and hazardous and solid wastes, and the handling and use of chemical products.
Electric utility companies generally use or generate in their operations a range
of potentially hazardous products and by-products that are the focus of such
regulation. CMP Group and Central Maine believe that their current practices and
operations are in compliance with all existing environmental laws except for
such non-compliance as would not have a material adverse effect on their
financial positions. Central Maine reviews its overall compliance and measures
the liability quarterly by assessing a range of reasonably likely costs for each
identified site using currently available information, including existing
technology, presently enacted laws and regulations, experience gained at similar
sites, and the probable level of involvement and financial condition of other
potentially responsible parties. These estimates include costs for site
investigations, remediation, operation and maintenance, monitoring and site
closure.
New and changing environmental requirements could hinder the construction and/or
modification of generating units, transmission and distribution lines,
substations and other facilities, and could raise operating costs significantly.
As a result, Central Maine may incur significant additional environmental costs,
greater than amounts reserved, in connection with the generation and
transmission of electricity and the storage, transportation and disposal of
by-products and wastes. Central Maine may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling activities.
The cumulative long-term cost impact of increasingly stringent environmental
requirements cannot accurately be estimated.
Central Maine has recorded a liability, based upon currently available
information, for what it believes are the estimated environmental remediation
costs that it expects to incur for identified waste disposal sites. In most
cases, additional future environmental cleanup costs are not reasonably
estimatable due to a number of factors, including the unknown magnitude of
possible contamination, the appropriate remediation methods, the possible
effects of future legislation or regulation and the possible effects of
technological changes. Central Maine cannot predict the schedule or scope of
remediation due to the regulatory process and involvement of non-governmental
parties. At December 31, 1998, the liability recorded by Central Maine for its
estimated environmental remediation costs amounted to $1.9 million, which
management has determined to be the most probable amount within the range of
$1.9 million to $8.6 million. Such costs may be higher if Central Maine is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.
Millstone Unit No. 3 Litigation. On August 7, 1997, Central Maine and other
minority owners of Millstone Unit No. 3 filed suit in Massachusetts Superior
Court against Northeast Utilities and its trustees, and initiated an arbitration
claim against two of its subsidiaries, alleging mismanagement of the unit by the
defendants. The minority owners are seeking to recover their additional costs
resulting from such mismanagement, including their replacement power costs.
Since August 1997 the parties have been engaged in resolving preliminary issues
and in extensive pre-hearing discovery on a schedule calling for an arbitration
hearing in the fall of 1999. Central Maine cannot predict the outcome of the
litigation and arbitration or whether the current schedule will be maintained.
Proposed Federal Income Tax Adjustments. On September 3, 1997, Central Maine
received from the Internal Revenue Service ("IRS") a Revenue Agent's Report
summarizing all adjustments proposed by the IRS as a result of its audit of
Central Maine's federal income tax returns for the years 1992 through 1994, and
on September 12, 1997, Central Maine received a notice of deficiency relating to
the proposed disallowances. There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of Central Maine's write-off of
the under-collected balance of fuel and purchased-power costs and the
unrecovered balance of its unbilled Electric Revenue Adjustment Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in connection with the adoption of the Alternative Rate Plan ("ARP")
effective January 1, 1995. The second major adjustment would disallow Central
Maine's 1994 deduction of the cost of the buyout of the Fairfield Energy Venture
purchased-power contract by Central Maine in 1994. The aggregate tax impact,
including both federal and state taxes, of the unresolved issues amounts to
approximately $39.0 million, over 90 percent of which is associated with the two
major disallowances. The two major disallowances relate largely to the timing of
the deductions and would not affect income except for the cumulative interest
impact which, through December 31, 1998, amounted to $18.8 million, or a
decrease in net income of $11.1 million, and which could increase interest
expense by approximately $500,000 per month until either the tax deficiency is
paid or the issues are resolved in favor of Central Maine, in which case no
interest would be due. If the IRS were to prevail, Central Maine believes the
deductions would be amortized over periods of up to twenty, post-1994, tax
years. Central Maine believes its tax treatment of the unresolved issues was
proper and as a result the potential interest has not been accrued. On December
10, 1997, Central Maine filed a petition in the United States Tax Court
contesting the entire amount of the deficiencies and sought review of the
asserted deficiencies by an IRS Appeals Officer to determine whether all or part
of the dispute could be resolved in advance of a court determination. As of
March 17, 1999, four of the seven issues in dispute had been resolved, but not
the two major disallowances. Central Maine will continue to work toward
resolving the remaining issues, but a trial may be necessary for one or more of
those issues. Absent such a resolution, Central Maine plans to pursue vigorously
the Tax Court litigation, but cannot predict the result.
Shareholder Suit. On September 25, 1997, a lawsuit was filed in the United
States District Court for the Southern District of New York by a New Jersey
resident claiming to be a shareholder of Central Maine against the members of
Central Maine's board of directors, including the then President and Chief
Executive Officer, and three former directors. The complaint contained a
derivative claim that the defendants recklessly mismanaged the oversight and
operation of the Maine Yankee Plant and an individual claim that the defendants
had failed to make timely and adequate disclosures of information in connection
with issues surrounding the Plant. The complaint did not seek damages against
Central Maine, but requested that the defendants disgorge the compensation they
had received during the period of alleged mismanagement, pay to Central Maine
costs incurred allegedly as a result of the claimed actions, and cause Central
Maine to take steps to prevent such actions.
The defendants moved to dismiss the suit for failure of the plaintiff to make a
pre-suit demand on Central Maine's board of directors, as required by Maine law,
and on February 18, 1998, the suit was dismissed. On April 2, 1998, the board
received such a demand from the plaintiff. On December 17, 1998, after
investigation of plaintiff's allegations, the board rejected the demand.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
CMP Group, Inc. The following are the present executive officers of CMP Group
with all positions and offices held. There are no family relationships between
any of them, nor are there any arrangements or understandings pursuant to which
any were selected as officers.
Name, Age, and Year First Became Officer Office
David M. Jagger, 57, 1998 Chairman of the Board of Directors
Charles H. Abbott, 63, 1998 Vice Chairman of the Board of Directors
David T. Flanagan, 51, 1998 President and Chief Executive Officer
Arthur W. Adelberg, 47, 1998 Executive Vice President
David E. Marsh, 51, 1998 Chief Financial Officer
Gerald C. Poulin, 57, 1999 Vice President, Generation
F. Michael McClain, 49, 1998 Vice President, Corporate Development
Anne M. Pare, 45, 1998 Treasurer, Corporate Counsel and Secretary
Central Maine Power Company. The following are the present executive officers of
Central Maine with all positions and offices held. There are no family
relationships between any of them, nor are there any arrangements or
understandings pursuant to which any were selected as officers.
Name, Age, and Year First Became Officer Office
David M. Jagger, 57, 1996 Chairman of the Board of Directors
Charles H. Abbott, 63, 1996 Vice Chairman of the Board of Directors
Sara J. Burns, 43, 1997 President
Michael R. Cutter, 45, 1997 Vice President
Curtis I. Call, 45, 1997 Treasurer
Anne M. Pare, 45, 1996 Secretary and Clerk
Each of the executive officers of CMP Group and Central Maine has for the past
five years been an officer or employee of CMP Group, Central Maine, or an
affiliate company, except Messrs. Jagger and Abbott, who have been non-employee
directors since 1988, and Mr. McClain. Mr. McClain joined Central Maine February
23, 1998. Prior to his employment with Central Maine, he was Group Vice
President and Chief Operating Officer, Petroleum Group, Dead River Company from
1981 to 1996.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
CMP Group's common stock has been traded on the New York Stock Exchange since
September 1, 1998. Prior to that date the numbers in the table below refer to
Central Maine's common stock. As of December 31, 1998, there were 32,590 holders
of record of CMP Group common stock.
Price Range of and Dividends on Common Stock
Market Price Dividends
High Low Declared
1998
First Quarter $17-13/16 $15-1/4 $0.225
Second Quarter 20-3/8 17-1/16 0.225
Third Quarter 20-1/2 16-15/16 0.225
Fourth Quarter 20 16-3/4 0.225
1997
First Quarter $11-5/8 10-1/2 $0.225
Second Quarter 12-3/4 10 0.225
Third Quarter 13-9/16 12-1/16 0.225
Fourth Quarter 15-1/2 12-7/8 0.225
Under the most restrictive terms of the Indenture securing Central Maine's
General and Refunding Mortgage Bonds and of Central Maine Articles of
Incorporation, no dividend may be paid on the common stock of Central Maine if
such dividend would reduce retained earnings below $29.6 million. At December
31, 1998, Central Maine's retained earnings were $76.3 million, of which $46.7
million was not so restricted. There are currently no such restrictions on the
payment of dividends by CMP Group. Future dividend decisions will be subject to
future earnings levels and the financial condition of CMP Group and Central
Maine and will reflect the evaluation by their Board of Directors of then
existing circumstances.
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data of CMP Group
and Central Maine for the five years ended December 31, 1994 through 1998. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included in Items 7 and 8 hereof.
The selected consolidated financial data for the years ended December 31, 1994
through 1998 are derived from the audited consolidated financial statements of
Central Maine.
Selected Consolidated Financial Data
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CMP Group Central
Maine
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
Electric operating revenue $ 938,739 $ 938,561 $ 954,176 $ 967,046 $ 916,016 $ 904,883
Net income (loss) 52,910 54,823 13,422 60,229 37,980 (23,265)
Long-term obligations 346,281 343,834 400,923 587,987 622,251 638,841
Redeemable preferred stock 18,910 18,910 39,528 53,528 67,528 80,000
Total assets 2,262,884 2,223,480 2,298,966 2,010,914 1,992,919 2,046,007
Earnings (loss) per common share $ 1.63 $ 1.56 $0.16 $1.57 $0.86 $(1.04)
Dividends declared per common share
$0.90 $0.675* $0.90 $0.90 $0.90 $0.90
*1998 fourth quarter dividend of $0.225 per share was declared and paid in
January 1999.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CMP GROUP AND CENTRAL MAINE POWER COMPANY
This is a combined Report on Form 10-K of CMP Group and Central Maine.
Therefore, our Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) applies to both CMP Group and Central Maine. CMP
Group's consolidated financial statements include the accounts of CMP Group and
its wholly owned and controlled subsidiaries, including Central Maine
(collectively, the CMP Group System). Central Maine's consolidated financial
statements include its accounts as well as those of its wholly owned and
controlled subsidiaries. The MD&A should be read in conjunction with the
consolidated financial statements included herein.
Note re Forward-Looking Statements
This Report on Form 10-K contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. CMP Group
and Central Maine undertake no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Readers are urged to carefully
review and consider the factors in the succeeding paragraph.
Factors that could cause actual results to differ materially include, among
other matters, the outcome of the FERC proceeding involving Maine Yankee's
rates, decommissioning costs and issues related to the closing of the Maine
Yankee nuclear generating plant; the actual costs of decommissioning the Maine
Yankee plant; failure to resolve any significant aspect of the "Year 2000
problem"; electric utility industry restructuring, including the ongoing state
and federal activities that will determine Central Maine's ability to recover
its stranded costs and establish its revenue requirements and rate design as a
transmission-and-distribution utility commencing March 1, 2000; the results of
Central Maine's planned sale of its generating assets; Central Maine's ability
to recover its costs resulting from the January 1998 ice storms that damaged its
transmission and distribution system; future economic conditions;
earnings-retention and dividend-payout policies; developments in the
legislative, regulatory, and competitive environments in which CMP Group and
Central Maine operate; CMP Group's investment in unregulated businesses; and
other circumstances that could affect anticipated revenues and costs, such as
unscheduled maintenance or repair requirements at nuclear plants and other
facilities; and compliance with laws and regulations.
Formation of Holding Company
General. CMP Group is a holding company organized effective September 1, 1998,
which owns all of the common stock of Central Maine and the former non-utility
subsidiaries of Central Maine. As part of the reorganization, all of the shares
of Central Maine's common stock were converted into an equal number of shares of
CMP Group common stock, which are listed on the New York Stock Exchange under
the symbol CTP. The reorganization was approved by Central Maine's shareholders
on May 21, 1998, and on various dates in 1998 by the appropriate state and
federal regulatory agencies.
Results of Operations
CMP
Group Central Maine
(dollars in millions)
Net income (loss) Twelve months ended:
December 31, 1998 $52.9 $1.63/share $54.8
December 31, 1997 5.2 $0.16/share 13.4
----- ----
Increase $47.7 $41.4
Earnings (loss) applicable to common
stock
Twelve months ended:
December 31, 1998 N/A $50.0 $1.56/share
December 31, 1997 N/A 5.2 $0.16/share
-----
Increase $44.8
The 1998 results benefited significantly from a net benefit of $25 million
related to the expiration of a high-cost non-utility power contract; a $27.5
million decrease in purchased power capacity costs, chiefly due to the closing
of the Maine Yankee nuclear plant and a $4 million decrease in fuel cost for
Central Maine generation reflecting lower oil prices. In addition, the following
major, non-operating, non-recurring events had a significant impact on earnings:
1) MaineCom, a subsidiary of CMP Group, sold its 40-percent interest in New
England Fibre Communications. The sale resulted in a net after-tax gain of
approximately $5.7 million or $0.18 per share. 2) Central Maine sold shares then
owned directly in NEON, now a 38.5-percent-owned equity investment of MaineCom,
as part of the initial public offering of NEON common stock. The net after-tax
gain was approximately $1.9 million, or $0.06 per share. 3) Central Maine
finalized the sale of transmission-line easements and land. The net after-tax
gain of approximately $5.6 million resulted in increased earnings of
approximately $0.17 per share.
CMP Group electric operating revenue decreased by $15.4 million or 1.6 percent
to $938.7 million in 1998, and decreased by $12.9 million or 1.3 percent in 1997
to $954.2. Lower sales volume due to the January ice storm, warmer weather,
weaker sales to the pulp and paper industry, and the impact of the Asian
economic crisis, were the major reasons for the decreased revenue in 1998. The
major components of the change in electric operating revenue are as follows:
1998 1997
Revenue from Central Maine service-area kwh sales $(20.2) $ 17.9
Revenues from non-territorial sales 6.2 (27.1)
Other operating revenue 4.5 (1.5)
MEPCO fuel cost recovery (5.9) (2.2)
---- ----
$(15.4) $(12.9)
Service Area Kwh Sales. Central Maine's service area sales of electricity
totaled approximately 9.05 billion kilowatt-hours for the year ended December
31, 1998, down slightly from the 9.4 billion kilowatt-hour level of a year ago.
Central Maine's service-area sales for the years 1998, 1997 and 1996 are shown
in the following table:
(Kilowatt-hours in millions)
1998 1997 1996
---- ---- ----
% % %
KWH change KWH change KWH change
Residential 2,761 (2.0)% 2,817 (0.4)% 2,829 1.0%
Commercial 2,563 1.3 2,529 1.6 2,489 0.5
Industrial 3,487 (7.8) 3,784 2.6 3,689 4.0
Wholesale and
lighting 242 6.1 228 5.3 217 58.9
------ ----- ------
Total Service-
Area Sales 9,053 (3.2)% 9,358 1.5 % 9,224 2.9%
===== ===== =====
The primary factors in the service-area kilowatt-hour sales overall decrease in
1998 were the reduction in residential sales due to warm winter temperatures,
customer outages resulting from the January 1998 ice storm and lost sales in the
paper industry within the industrial sector.
The primary factors in the service-area kilowatt-hour sales increases in 1997
were the growth experienced by the paper mills and strong sales to other
industrial sectors. Nearly half of that growth directly related to an expansion
by a large industrial customer. The increase in 1996 was residential customers'
taking advantage of Central Maine's water-heating programs, increased sales in
the pulp and paper industry, and the addition of a wholesale customer.
The average number of residential customers increased by 4,607 in 1998, 4,822 in
1997 and 5,157 in 1996, while average usage per residential customer declined
3.0 percent in 1998, 1.5 percent in 1997 and 0.15 percent in 1996.
The 1998 increase in commercial sales reflects increased sales in the retail and
service sectors, which rebounded strongly after the warm winter temperatures and
the ice storm experienced early in 1998, due to the relatively healthy economy
and a strong tourist season in Central Maine's service territory.
Industrial sales levels are significantly affected by sales to the
pulp-and-paper industry, which accounts for approximately 56 percent of
industrial sales and approximately 22 percent of total service-area sales. Sales
to the pulp-and-paper sector decreased by 14.4 percent in 1998, 0.8 percent in
1997 and increased by 3.7 percent in 1996. The decrease in 1998 was due
primarily to the closing of two pulp and paper mills and the expiration of a
buy-sell contract with a third paper mill. In addition, the weakness in Asian
economies progressively impacted Maine's manufacturing sector in 1998, resulting
in lower than expected kwh sales in the industrial sector. The decrease in 1997
was due primarily to the permanent shutdown of one of the paper mills in 1997.
The increase in 1996 reflects special arrangements Central Maine has made with
several paper companies to back down some of their self-generation and buy
electricity from Central Maine at a discounted rate. Refer to "Alternative Rate
Plan" and "Competition and Economic Development," below, and Note 4 to
Consolidated Financial Statements, "Commitments and Contingencies -
Competition," for additional information regarding Central Maine's actions to
preserve its remaining large-industrial-customer base and other customer groups.
Sales to all other industrial customers as a group increased 2.2 percent in
1998, 8.2 percent in 1997 and 4.5 percent in 1996.
Operating Expenses
Central Maine's purchased power-energy expense decreased by $50 million in 1998.
The decrease is due primarily to the buyout, restructuring, and expiration of
contracts with non-utility generators. Central Maine's purchased power-capacity
expense decreased $27.5 million in 1998 due primarily to the permanent shutdown
of the Maine Yankee Plant in August 1997.
Central Maine incurred additional expenses of $46.0 million in 1997 over 1996 to
replace Maine Yankee energy and pay its share of capacity charges at the plant.
In addition, shutdowns at Millstone Unit No. 3 and Connecticut Yankee Plants
increased 1997 replacement-power cost by $5.0 million.
CMP Group maintenance expense increased $7.1 million for the year ended December
31, 1998 compared to 1997. This increase was due primarily to Central Maine's
operations personnel working in maintenance capacities as a result of the ice
storm in the first quarter, and to subsequent cleanup efforts.
Federal and state income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. This expense increased by $33.5
million in 1998 as compared to 1997, as a result of higher pre-tax earnings for
the year ended December 31, 1998. The decrease of $23.9 million in 1997 from
1996 is a reflection of lower pre-tax earnings for the year ended December 31,
1997.
Other Income and Expense
Equity in Earnings of Associated Companies for CMP Group decreased by $6.3
million for the year ended December 31, 1998, compared to 1997. The decrease is
due primarily to losses recognized due to start-up costs of NEON. See "Expansion
of Lines of Business" below for further discussion.
CMP Group's gain on sale of investments and properties increased in 1998 by
$22.5 million and by $12.9 million for Central Maine. The increase is due
primarily to the following:
CMP Group Central Maine
Sale of New England Fibre by MaineCom $ 9.5 $ -
Sale of stock in NEON 3.1 3.1
Gas pipeline easement sales 6.4 6.4
Sale of land 3.6 3.6
Other - miscellaneous (.1) (.2)
------ ------
$22.5 $12.9
==== ====
CMP Group Other Interest Expense increased by $0.7 million for the year 1998 as
compared to 1997. The increase was due primarily to higher levels of borrowing
on Central Maine's revolving credit facility to meet working capital needs.
Other interest expense increased in 1997 over 1996 primarily due to additional
interest incurred for tax audit settlements and amended returns interest.
In July 1997, Central Maine redeemed $14 million of its 8 7/8% Series Preferred
Stock at par, under the mandatory and optional sinking-fund provisions of that
series. On July 1, 1998, Central Maine redeemed the final $7 million of its 8
7/8% Preferred Stock under the mandatory sinking-fund provision, reducing
dividends in total by approximately $932 thousand for 1998 compared to 1997. On
April 1, 1998 Central Maine redeemed all of its 7 7/8% Preferred Stock ($30
million), reducing dividends by approximately $1.8 million for the year ended
December 31, 1998, compared to 1997. On June 8, 1998, $11.6 million of the
outstanding 7.99% Preferred Stock was repurchased, further reducing dividends by
approximately $697 thousand for the year ended December 31, 1998, compared to
1997.
Alternative Rate Plan
On January 1, 1995, Central Maine's ARP was put into effect. Instead of rate
changes based on the level of costs incurred and capital investments, the ARP
provides for one annual adjustment of an inflation-based cap on each of Central
Maine's rates, with no separate reconciliation and recovery of fuel and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and specify a range for its rate of return. The MPUC confirmed in its order
approving the ARP that the ARP is intended to comply with the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation." As a result, Central Maine will continue to
apply the provisions of SFAS No. 71 to its accounting transactions and its
future financial statements. See Note 3, "Regulatory matters," of Notes to
Consolidated Financial Statements - "Meeting the Requirements of SFAS No. 71,"
below.
The ARP contains a mechanism that provides price-caps on Central Maine's retail
rates to be adjusted annually on each July 1, commencing in 1995, by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism, and (4) flow-through items and mandated costs. The price cap applies
to all of Central Maine's retail rates, and includes fuel and purchased power
costs that previously had been treated separately. Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.
A specified standard inflation index is the basis for each annual price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general productivity offset of 1.0%, and a second formula-based offset that
started in 1996 and was intended to reflect the limited effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.
The sharing mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below Central Maine's allowed return on equity (starting at the 10.55%
allowed return in 1995) and indexed annually for changes in capital costs.
Outside that range, profits and losses could be shared equally by Central Maine
and its customers in computing the price-cap adjustment. The ROE used for
earnings sharing is scheduled to be increased to 11.5% effective with the July
1999 price change.
The ARP also provides for partial flow-through to ratepayers of cost savings
from non-utility generator contract buy-outs and restructuring, recovery of
energy-management costs, and penalties for failure to attain customer-service
and energy-efficiency targets. The ARP also generally defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such treatment, the annual revenue requirement related to a
mandated cost must exceed $3 million and have a disproportionate effect on
Central Maine or the electric-power industry.
On May 13, 1998, Central Maine submitted its 1998 ARP compliance filing to the
MPUC. In keeping with its pledge of limiting increases to the inflation index,
Central Maine voluntarily limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP. Central Maine also proposed a rate reduction of
approximately ten percent contingent on the consummation of, and ratemaking
associated with, Central Maine's planned sale of generating assets. The filing
also reported information on the costs of restoring service to Central Maine's
customers after the January 1998 ice storm, as required by the earlier MPUC
order allowing Central Maine to defer those costs. Effective July 11, 1998, the
MPUC approved a stipulated 1.33% increase. The amount of the increase remains
subject to change, based on the outcome of the pending FERC proceeding related
to the permanent shutdown of the Maine Yankee plant. Depending on FERC's
decision, the price increase could increase or decrease, ranging from a ceiling
of 1.78% to a floor of 0.22%. However, the Offer of Settlement pending before
the FERC in Maine Yankee's rate case, which has been approved by the MPUC,
provides that the 1998 ARP increase will not be adjusted.
The components of the last three ARP price increases approved by the MPUC are as
follows:
1998 1997 1996
---- ---- ----
Inflation Index 1.78% 2.12% 2.55%
Productivity Offset (1.00) (1.00) (1.00)
Qualifying Facility Offset (.29) (.42) -
Earnings Sharing 1.12 - .32
Flowthrough and Mandated Items (.28) .40 (.61)
---- ----- -----
1.33% 1.10% 1.26%
==== ==== ====
Electric-Utility Industry Restructuring
Stranded Costs. The enactment by Congress of the Energy Policy Act of 1992
accelerated planning by electric utilities, including Central Maine, for a
transition to a more competitive industry. In Maine, legislation that will
restructure the electric-utility industry by March 1, 2000, was enacted by the
Maine Legislature in May 1997, and is discussed in detail under this heading
below. Such a departure from traditional regulation, however, could have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities would find their above-market costs to be "stranded", or
unrecoverable, in the new competitive setting.
Central Maine has substantial exposure to cost stranding relative to its size.
In general, its stranded costs reflect the excess costs of Central Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred charges and other regulatory assets. The major portion of Central
Maine's stranded costs is related to above-market costs of purchased-power
obligations arising from Central Maine's long-term, noncancelable contracts for
the purchase of capacity and energy from NUGs, with lesser estimated amounts
related to Central Maine's deferred regulatory assets.
There is a high degree of uncertainty that surrounds stranded-cost estimates,
resulting from having to rely on projections and assumptions about future
conditions, including, among others, estimates of the future market for power.
Higher market rates lower stranded-cost exposure, while lower market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level of stranded costs depends on such factors as state and federal
regulations, the extent, timing and form that competition for electric service
will take, the ongoing level of Central Maine's costs of operations, regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal initiatives on restructuring,
and the extent to which regulatory policies and decisions address recovery of
stranded costs, including the application of value from the sale of Central
Maine's generating assets.
The estimated market rate for power is based on anticipated regional market
conditions and future costs of producing power. The present value of future
purchased-power obligations and Central Maine's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expirations and continuing depreciation. Deferred regulatory-asset
totals include the current uncollected balances and existing amortization
schedules for purchased-power contract restructuring and buyouts negotiated by
Central Maine to lessen the impact of these obligations, along with energy
management costs, financing costs, and other regulatory commitments.
Maine Restructuring Legislation. The 1997 Maine restructuring legislation
requires the MPUC, when retail access to generation begins on March 1, 2000, to
provide a "reasonable opportunity" to recover stranded costs through the rates
of the transmission-and-distribution company, comparable to the utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation. Stranded costs are defined as the legitimate, verifiable
and unmitigable costs made unrecoverable as a result of the restructuring
required by the legislation and will be determined by the MPUC as provided in
the legislation. The MPUC has been conducting separate adjudicatory proceedings
to determine the stranded costs for each Maine utility, along with the
corresponding revenue requirements and stranded-cost charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding was completed in early 1999 and is discussed under the heading "MPUC
Proceeding on Stranded Costs, Revenue Requirements, and Rate Design," below.
In addition, the legislation requires utilities to use all reasonable means to
reduce their potential stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded costs in determining the amount of the utility's stranded costs.
Stranded costs and the related rates charged to customers will be prospectively
adjusted as necessary to correct substantial inaccuracies in the year 2003 and
at least every three years thereafter.
The principal restructuring provisions of the legislation provide for customers
to have direct retail access to generation services and for deregulation of
competitive electric providers, commencing March 1, 2000, with
transmission-and-distribution companies continuing to be regulated by the MPUC.
By that date, subject to possible extensions of time granted by the MPUC to
improve the sale value of generation assets, investor-owned utilities are
required to divest all generation assets and generation-related business
activities, with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side management or conservation
providers, brokers or hosts, and (2) ownership interests in nuclear power
plants. However, the MPUC can require Central Maine to divest its interest in
Maine Yankee Atomic Power Company on or after January 1, 2009. As discussed
below under "Agreement for Sale of Generating Assets," Central Maine has
contracted to sell its non-nuclear generating assets and, after a favorable
court decision, is proceeding toward completing the sale by April 7, 1999. The
legislation also requires investor-owned utilities, after February 29, 2000, to
sell their rights to the capacity and energy from all generation assets,
including the purchased-power contracts that had not previously been divested
pursuant to the legislation, with certain immaterial exceptions.
Upon the commencement of retail access on March 1, 2000, Central Maine, as a
transmission-and-distribution utility, will be prohibited from selling electric
energy to retail customers. Any competitive electricity provider that is
affiliated with Central Maine would be allowed to sell electricity outside
Central Maine's service territory without limitation as to amount, but within
Central Maine's service territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service territory, as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.
Other features of the legislation include the following:
(a) After the effective date of the legislation, if an entity purchases
10 percent or more of the stock of a distribution utility, including Central
Maine, the purchasing entity and any related entity would be prohibited from
selling generation service to any retail customer in Maine.
(b) The legislation encourages the generation of electricity from
renewable resources by requiring competitive providers, as a condition of
licensing, to demonstrate to the MPUC that no less than 30 percent of their
portfolios of supply sources for retail sales in Maine are accounted for by
renewable resources.
(c) The legislation requires the MPUC to ensure that standard-offer
service is available to all consumers, but any competitive provider affiliated
with Central Maine would be limited to providing such service for only up to 20
percent of the electric load in Central Maine's service territory.
(d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
(e) A customer who significantly reduces or eliminates consumption of
electricity due to self-generation, conversion to an alternative fuel, or
demand-side management may not be assessed an exit fee or re-entry fee in any
form for such reduction or elimination of consumption or for the
re-establishment of service with a transmission-and-distribution utility.
(f) Finally, the legislation provides for programs for low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility employees laid off as a result of the legislation, and
recovery of nuclear-plant decommissioning costs "[a]s required by federal law,
rule or order", all funded through transmission-and-distribution utility rates
and charges.
Legislative bills that would amend certain provisions of the 1997 legislation
have been submitted to the 1999 session of the Maine Legislature. CMP Group and
Central Maine cannot predict whether any changes to the 1997 legislation will be
enacted.
MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design. The
MPUC has completed the first phase of the proceeding contemplated by Maine's
restructuring legislation that will ultimately determine the recovery of Central
Maine's stranded costs, its revenue requirements, and the design of its rates to
be effective when Central Maine becomes a transmission-and-distribution utility
at the time retail access to generation begins in Maine on March 1, 2000. On
December 23, 1998, the MPUC Hearing Examiners in the proceeding issued their
report, in the form of a recommended decision. Central Maine disagreed with a
number of the individual recommendations in the stranded-costs and
revenue-requirements areas and filed exceptions to those recommendations. The
MPUC deliberated the recommendations on February 10 and 11, 1999, indicated
disagreement with some of the recommendations, and issued its written order on
March 19, 1999.
The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's transmission-and-distribution rates, effective March
1, 2000, but was not calculating the rates themselves because such calculations
at that time would rely excessively on estimates. The MPUC pointed out that it
would hold a "Phase II" hearing to set the actual rates and determine the
recoverable stranded costs after processing information expected to become
available during 1999.
With respect to stranded costs, the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to its mandate under the restructuring statute to provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is equivalent to the utility's opportunity to recover these costs
prior to the commencement of retail access. The MPUC also reviewed the
prescribed methodology for determining the amount of a utility's stranded costs,
including among other factors the application of excess value from divested
generation assets to offset stranded costs. At the beginning of the proceeding
Central Maine had estimated its total stranded costs to be approximately $1.3
billion.
In the area of revenue requirements, the Phase I order did not include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of common equity for Central Maine as a transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common equity with a 55-percent common equity component in the capital
structure. The MPUC, after weighing conflicting recommendations, decided on a
common-equity cost of 10.50 percent with a common-equity component of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.
In dealing with rate design, the MPUC limited itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1) facilitating the transition to a competitive market for
generation, and (2) implementing a "no-losers" policy, i.e., that the new rate
design would cause no Central Maine customer's bill to increase on March 1,
2000. Applying the latter principle, the MPUC rejected a newly designed standby
rate for self-generators proposed by Central Maine in favor of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive rate design and alternative rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience gained with the cost structures of other
transmission-and-distribution utilities after the commencement of retail access
to generation.
The Phase I order resulted from an extended proceeding with many points of view
represented and covers a wide variety of rate-related subjects. Definitive
findings by the MPUC in a number of the subject areas await the second phase of
the proceeding, which must be completed before March 1, 2000. CMP Group and
Central Maine cannot predict the definitive amount of stranded costs the MPUC
will determine that Central Maine will be entitled to recover pursuant to the
mandate of the restructuring statute, or the revenue requirements and rate
design that will result from Phase II of the MPUC proceeding.
Agreement for Sale of Generation Assets
On January 6, 1998, Central Maine announced that it had reached agreement to
sell all of its hydro, fossil and biomass power plants with a combined
generating capacity of 1,185 megawatts for $846 million in cash, including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related book value for these assets was approximately $218.9 million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine entered into energy buy-back agreements to assist in fulfilling its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage facilities to FPL Group for an
additional $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue associated with the properties that CMP will retain), including $1.15
million for Union Water assets. The related book value of these assets was
approximately $11.9 million at December 31, 1998.
Central Maine's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone Unit No. 3 nuclear
generating unit in Waterford, Connecticut, its 3.59-percent interest in the
output of the Vermont Yankee nuclear generating plant in Vernon, Vermont, and
its entitlement in the NEPOOL Phase II interconnection with Hydro-Quebec all
attracted insufficient interest to be included in the pending sale. Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its interests in the Maine Yankee (Wiscasset, Maine), Connecticut
Yankee (Haddam, Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear
generating plants, all of which are in the process of being decommissioned.
Substantially all of the generating assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture"). Therefore, substantially all of the proceeds
from sale must be deposited initially with the trustee under the Indenture at
the closing of the sale to free the generating assets from the lien of the
Indenture. Central Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture, and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase outstanding equity securities. Central Maine must also
provide for payment of applicable taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors, including Indenture provisions, regulatory
requirements, market conditions and terms of outstanding securities.
On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern District of New York requesting a declaratory judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other issues, it believed that Central Maine could not comply with the
conditions in the purchase contract and that FPL Energy should not be bound to
complete the transaction.
FPL Energy contended in its complaint that the FERC rulings (1) constituted a
material adverse effect under the purchase agreement and substantially lessened
the value of Central Maine's generating assets, and (2) precluded Central Maine
from obtaining all federal, state and local consents and approvals required for
the ownership, operation and maintenance of the generating assets in a manner
substantially consistent with Central Maine's historical ownership, operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy asserted that the FERC rulings limited the ability of the prospective
buyer to get power from the Central Maine generating assets to market
unconstrained by transmission limitations resulting from new generators being
added to the NEPOOL system, and therefore, based on the doctrine of frustration
of purpose, FPL Energy should be "excused without further obligation or
liability from effecting the purchase of [Central Maine's] generating assets."
Central Maine, FPL Energy, NEPOOL, and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.
On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase agreement, finding the sale
to be in the public interest. The MPUC also made the findings required as a
prerequisite to a FERC designation of the generating facilities as "exempt
wholesale generators," which had been requested by FPL Energy.
On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL Energy, after making the required finding that the sale was
consistent with the public interest, and accepted certain implementing
agreements for filing. In discussing an issue raised by an intervenor the FERC
stated that by purchasing the generating assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier transmission-access
rulings. The FERC granted its approval of the transfer of hydroelectric and
water storage licenses on December 28, 1998, and the approval by FERC of
exempt-wholesale-generator status for the generating facilities, was granted on
February 24, 1999.
On March 11, 1999, the hearing on FPL Energy's request for a declaratory
judgment was held in the United States District Court for the Southern District
of New York. On the same day the presiding judge ruled that FPL Energy was not
entitled to the declaratory judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing of the sale on or before April 7, 1999, as required by the sale
agreement, and the parties are preparing for the closing.
Expansion of Lines of Business
General. CMP Group is also preparing for competition by expanding its business
opportunities through investments that capitalize on core competencies. MaineCom
Services is a subsidiary that arranges, through other investments fiber-optic
data service for bulk carriers, offering support for cable television or
"super-cellular" personal communication vendors, and providing other
telecommunications consulting services. TeleSmart is a wholly-owned accounts
receivable management subsidiary. Another wholly-owned subsidiary, CNEX,
formerly CMP International Consultants, provides utility consulting (domestic
and international) and research. The wholly-owned Union Water Power Company
provides management of rivers and recreational facilities, locating of
underground utility facilities and infrared photography, real estate brokerage
and management, modular housing, engineering and environmental services,
integrated energy solutions, and utility construction services. Union Water's
operating divisions include On Target Utility Services, UnionLand Services,
Maine HomeCrafters, E/PRO, and Combined Energies(TM). These subsidiaries often
utilize skills of former Central Maine employees and regularly compete for
business with other companies.
Natural Gas Distribution. CMP Group and Energy East, through subsidiaries, have
entered into a joint-venture agreement to pursue opportunities to distribute
natural gas at retail in many Maine communities that are not currently served
with that fuel. They would offer natural-gas service in several areas of Maine,
primarily the Augusta, Bangor, Bath-Brunswick, Bethel, Windham and Waterville
areas, none of which currently has a natural-gas distribution system in place.
The gas would be drawn from two new gas-pipeline projects now under development
by unrelated parties that would carry Canadian gas through Maine and into the
regional energy market using substantial portions of electric transmission-line
corridors owned by Central Maine and MEPCO. On July 24, 1998, the MPUC
authorized the joint venture to serve the areas it had applied to serve. The new
company (now "CMP Natural Gas, L.L.C.", equally owned by subsidiaries of CMP
Group and Energy East) would face competition from a new gas utility affiliated
with Bangor Hydro-Electric Company in the Bangor area, and in the Bath-Brunswick
area, from an existing gas utility, Northern Utilities, Inc., which has been
serving other areas of Maine, including the Portland and Lewiston-Auburn areas.
CMP Group's level of investment is dependent on the overall economic feasibility
of natural gas as a competitive energy option in Maine, a sufficient expression
of customer interest in gas service from CMP Natural Gas, and the prospects for
achieving an acceptable return on investment.
Fiber Optic Network. CMP Group, through its wholly-owned subsidiary MaineCom
Services, owns 38.5 percent of the common stock of Northeast Optic Network, Inc.
("NEON"), which is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers on
local loop, inter-city and interstate facilities. NEON is currently expanding
its fiber optic network to encompass over 1,000 fiber optic cable route miles,
or more than 65,000 fiber strand miles, in New England and New York, utilizing
primarily electric-utility rights-of-way, including some of Central Maine's in
Maine and some owned by other electric utilities including Northeast Utilities,
another substantial minority stockholder, in Connecticut, Massachusetts and New
Hampshire. As of December 31, 1998, NEON had completed construction of
approximately 600 route miles, or 49,000 fiber miles, of its planned system and
is currently engineering, constructing, or acquiring additional routes with a
goal of creating a continuous fiber optic link between New York City and
Portland, Maine, with access into and around Boston and numerous other major
service areas in the Northeast.
On August 5, 1998, NEON completed initial public offerings of $48.0 million of
common stock and $180.0 million of senior notes, and Central Maine, as part of
the common-stock offering, sold some of the shares in NEON it then owned for
proceeds of approximately $3.1 million. In addition, with some of the proceeds
of the offering NEON repaid approximately $18 million Central Maine had advanced
under an earlier construction loan agreement. CMP Group believes there is a
growing need for such a fiber optic network in the Northeast and that NEON's
outside financing will provide substantial assistance in completing construction
of the network, but cannot predict the results of this venture. The common stock
of NEON is listed on the Nasdaq Stock Market's National Market under the symbol
"NOPT".
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. As reported in detail in
Central Maine's Annual Report on Form 10-K for the year ended December 31, 1997,
the Plant had experienced a number of operational and regulatory problems and
did not operate after December 6, 1996. The decision to close the Plant
permanently was based on an economic analysis of the costs, risks and
uncertainties associated with operating the Plant compared to those associated
with closing and decommissioning it. The Plant's operating license from the NRC
was scheduled to expire on October 21, 2008.
FERC Rate Case. On November 6, 1997, Maine Yankee submitted to FERC for filing
certain amendments to the Power Contracts (the "Amendatory Agreements") and
revised rates to reflect the decision to shut down the Plant and to request
approval of an increase in the decommissioning component of its formula rates.
Maine Yankee's submittal also requested certain other rate changes, including
recovery of unamortized investment (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998, the FERC accepted Maine Yankee's new rates for filing,
subject to refund after a minimum suspension period, and set Maine Yankee's
Amendatory Agreements, rates and issues concerning the prudence of the
Plant-shutdown decision for hearing.
By Complaint dated December 9, 1997, the Maine Office of the Public Advocate
("OPA") sought a FERC investigation of Maine Yankee's actions leading to the
decision to shut down the Plant, including actions associated with the
management and operation of Maine Yankee since 1993. The MPUC had initiated an
investigation in Maine earlier, raising generally similar issues. By decision
dated May 4, 1998, the FERC consolidated the OPA Complaint with the
comprehensive rate proceeding. In addition, 28 municipal and cooperative
utilities that had purchased in the aggregate approximately 6.2 percent of the
output of the Plant from Maine Yankee's sponsors (the "Secondary Purchasers")
intervened in the FERC proceeding, raising similar prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.
In support of its request for an increase in decommissioning collections, Maine
Yankee submitted with its initial FERC filing a 1997 decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive competitive bid process to engage a Decommissioning Operations
Contractor ("DOC") to perform certain major decontamination and dismantlement
activities at the Plant on a fixed-price, turnkey basis. As a result of that
process, a consortium headed by Stone & Webster Engineering Corporation ("Stone
& Webster") was selected to perform such activities under a fixed-price
contract. The contract provides for, among other undertakings, construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning activities and site restoration by the end of 2004. The DOC
process resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.
Since the filing of the rate request, Maine Yankee and the active intervenors,
including among others the MPUC Staff, the OPA, Central Maine and other owners,
the Secondary Purchasers, and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery and negotiations. Those parties
participated in settlement discussions that resulted in an Offer of Settlement
filed by those parties with the FERC on January 19, 1999. On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and that the FERC approve it. Upon approval by the FERC, the
settlement would constitute a full settlement of all issues raised in the
consolidated FERC proceeding, including decommissioning-cost issues and issues
pertaining to the prudence of the management, operation, and decision to
permanently cease operation of the Plant. A separately negotiated settlement
filed with the FERC on February 5, 1999, would resolve the issues raised by the
Secondary Purchasers by limiting the amounts they will pay for decommissioning
the Plant and by settling other points of contention affecting individual
Secondary Purchasers. On February 24, 1999, the FERC Trial Staff recommended
certification and approval of the settlement with the Secondary Purchasers. On
March 10, 1999, the presiding judge certified to the FERC that both Offers of
Settlement were uncontested and joined in the Trial Staff's comments that both
were "fair, reasonable and in the public interest."
The Offer of Settlement provides for Maine Yankee to collect $33.6 million in
the aggregate annually, effective January 15, 1998, consisting of (1) $26.8
million for estimated decommissioning costs, and (2) $6.8 million for
ISFSI-related costs. The original filing with FERC on November 6, 1997, called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate. Under the settlement the amount collected
annually could be reduced to approximately $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual payment to the State of Texas pursuant to a compact
for low-level nuclear waste disposal, the future of which is now in question
after rejection of the selected disposal site in west Texas by a Texas
regulatory agency. Both would require authorizing legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.
The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective January 15, 1998, on equity balances up to maximum allowed equity
amounts. The Settling Parties also agreed in the proposed settlement not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing, subject to certain limitations including the right to
challenge any accelerated recovery of unamortized investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition, the settlement contains incentives for Maine Yankee
to achieve further savings in its decommissioning and ISFSI-related costs and
resolves issues concerning restoration and future use of the Plant site and
environmental matters of concern to certain of the intervenors in the
proceeding.
As a separate part of the Offer of Settlement, Central Maine, the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further agreement resolving retail rate issues and other issues
specific to the Maine parties, including those that had been raised concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine Agreement Central Maine would continue to recover its Maine
Yankee costs in accordance with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central Maine has collected from its retail customers a return on equity in
excess of the 6.50 percent contemplated by the Offer of Settlement, no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.
The final major provision of the Maine Agreement requires the Maine owners, for
the period from March 1, 2000, through December 1, 2004, to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of Directors that served as a basis for the Plant shutdown
decision, up to a maximum cumulative amount of $41 million. Central Maine's
share of that amount would be $31.16 million for the period. The Maine
Agreement, which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.
CMP Group and Central Maine believe that the Offer of Settlement, including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC proceeding, and that approval of the Offer of Settlement by
the FERC would eliminate significant uncertainties concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding, including the FERC Trial Staff, support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty whether or in what form it will
be approved by the FERC.
Other Maine Yankee Shareholders. Periodically-higher nuclear-related costs have
affected the financial condition of other stockholders of Maine Yankee in
varying degrees. A default by a Maine Yankee stockholder in making payments
under its Power Contract or Capital Funds Agreement could have a material
adverse effect on Maine Yankee, depending on the magnitude of the default. CMP
Group and Central Maine cannot predict, however, what effect, if any, the
financial and regulatory difficulties experienced by some Maine Yankee
stockholders might have on Maine Yankee or Central Maine.
Interests in Other Nuclear Plants
In December 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company voted to permanently shut down and decommission the Connecticut Yankee
plant for economic reasons. The plant did not operate after July 22, 1996.
Central Maine estimates its share of the cost of Connecticut Yankee's continued
compliance with regulatory requirements, recovery of its plant investment,
decommissioning and closing the plant to be approximately $29.9 million and has
recorded a corresponding regulatory asset and liability on the consolidated
balance sheet. Central Maine is currently recovering through rates an amount
adequate to recover these expenses. Issues relating to Connecticut Yankee's
decommissioning rates, as well as the prudence of operating that plant and the
decision to cease operations, remain pending before the FERC.
In 1993 the FERC approved a settlement agreement regarding recovery of
decommissioning costs and plant investment, and all issues with respect to the
prudence of the decision to discontinue operation of the Yankee Atomic plant.
Central Maine estimates its remaining share of the cost of Yankee Atomic's
continued compliance with regulatory requirements, recovery of its plant
investment, decommissioning and closing the plant, to be approximately $7.8
million. This estimate has been recorded by Central Maine as a corresponding
regulatory asset and liability on Central Maine's balance sheet. Central Maine's
current share of costs related to the shutdown of Yankee Atomic is being
recovered through rates.
The Vermont Yankee plant is an operating unit. Its NRC operating license is
scheduled to expire in the year 2012.
Pursuant to a joint ownership agreement, Central Maine has a 2.5 percent direct
ownership interest in the Millstone 3 nuclear unit in Waterford, Connecticut,
which is operated by Northeast Utilities. This facility was off-line from March
31, 1996, to July 1998, due to NRC concerns regarding license requirements.
On August 7, 1997, Central Maine and other minority owners of Millstone Unit No.
3 filed suit in Massachusetts Superior Court against Northeast Utilities and its
trustees, and initiated an arbitration claim against two of its subsidiaries,
alleging mismanagement of the unit by the defendants. The minority owners are
seeking to recover their additional costs resulting from such mismanagement,
including their replacement power costs. Since August 1997 the parties have been
engaged in resolving preliminary issues and in extensive pre-hearing discovery
on a schedule calling for an arbitration hearing in the fall of 1999. Central
Maine cannot predict the outcome of the litigation and arbitration or whether
the current schedule will be maintained.
Central Maine is obligated to pay its proportionate share of the operating
expenses, including depreciation and a return on invested capital, of each of
the Yankee Companies referred to above for periods expiring at various dates to
2012. Pursuant to the joint ownership agreement for Millstone 3, Central Maine
is similarly obligated to pay its proportionate share of the operating costs of
Millstone 3. Central Maine is also required to pay its share of the estimated
decommissioning costs of each of the Yankee Companies and Millstone 3. The
estimated decommissioning costs are paid as a cost of energy in the amounts
allowed in rates by the FERC.
Non-Utility Generators
In accordance with prior MPUC policy and the ARP, $99 million of power-purchase
contract buy-out or restructuring costs incurred since January 1992 are included
in Deferred Charges and Other Assets on Central Maine's balance sheet and will
be amortized over their respective fuel savings periods. Central Maine has
restructured 43 contracts representing 389 megawatts of capacity that should
result in approximately $231 million in fuel savings over the next five years.
During 1998 Central Maine purchased or restructured two power-purchase contracts
which it expects will result in savings to its customers the equivalent of
approximately $40.5 million in net present value.
On February 12, 1999, Central Maine restructured a power-purchase contract with
a NUG in Livermore, Maine, which it expects will save its customers the
equivalent of $20.4 million in net present value.
On December 31, 1998, two contracts with NUGs from which Central Maine was
obligated to purchase electricity at substantially above-market prices expired.
As a result, Central Maine expects to reduce power purchases by approximately
$2.7 million.
Open-Access Transmission Service Ruling
On April 24, 1996, the FERC issued Order No. 888, which requires all public
utilities that own, control or operate facilities used for transmitting electric
energy in interstate commerce to file open access non-discriminatory
transmission tariffs that offer both load-based, network and contract-based,
point-to-point service, including ancillary service to eligible customers
containing minimum terms and conditions of non-discriminatory service. This
service must be comparable to the service they provide themselves at the
wholesale level; in fact, these utilities must themselves take the wholesale
transmission service they provide under the filed tariffs. The order also
permits public utilities and transmitting utilities the opportunity to recover
legitimate, prudent and verifiable wholesale stranded costs associated with
providing open access and certain other transmission services. It further
requires public utilities to functionally separate transmission from generation
marketing functions and communications. The intent of this order is to promote
the transition of the electric utility industry to open competition. Order No.
888 also clarifies federal and state jurisdiction over transmission in
interstate commerce and local distribution and provides for deference of certain
issues to state recommendations. The FERC subsequently issued Orders No. 888-A
and 888-B which generally reaffirm Order No. 888 and clarify certain terms.
On July 9, 1996, Central Maine and MEPCO submitted compliance filings to meet
the new pro-forma tariff non-price minimum terms and conditions of
non-discriminatory transmission service and since then have made additional
filings revising their tariffs in response to subsequent FERC and NEPOOL Orders.
Central Maine and MEPCO have been transmitting energy pursuant to their filed
tariffs, subject to refund.
On April 24, 1996, the FERC also issued Order No. 889, which requires public
utilities to functionally separate their wholesale power marketing and
transmission operation functions and to obtain information about their
transmission system for their own wholesale power transactions in the same way
their competitors do through the Open Access Same-time Information System
("OASIS"). The rule also prescribed standards of conduct and protocols for
obtaining the information. The standards of conduct are designed to prevent
employees of a public utility engaged in marketing functions from obtaining
preferential information. In 1998, both Central Maine and MEPCO submitted
standards of conduct filings that further clarified the separation of the
wholesale power marketing and transmission operations functions. The NEPOOL
Agreement and open-access transmission tariff have been revised to reflect the
new regulatory requirements and are pending FERC approval.
Competition and Economic Development
Central Maine faces competition in several aspects of its traditional business
and anticipates that competition will continue to put pressure on both sales and
the prices Central Maine can charge for its product. Alternative fuels and
modifications to regulations that in the past had restricted competition from
suppliers outside of Central Maine's service territory have expanded customers'
energy options, even before the commencement of retail competition on March 1,
2000. As a result, Central Maine continues to pursue retention of its customer
base. This increasingly competitive environment has resulted in Central Maine's
entering into arrangements with its wholesale customers, as well as with certain
industrial, commercial, and residential customers, to provide their energy needs
at prices and margins lower than the current averages.
Pursuant to the pricing-flexibility provisions of the ARP, Central Maine offers
special prices for high-use residential customers and for industrial and
commercial customers with the capacity to change fuel sources.
Economic-Development price contracts and the Maine-Made Incentive Program
support Central Maine's business-development initiatives. In 1994, the Company
lowered tariffs for its large general-service customers and executed separate
five-year definitive agreements with 18 individual customers providing
additional reductions. Approximately 44 percent of annual service area
kilowatt-hour sales and 31 percent of annual revenues are covered under special
tariffs allowed under the pricing flexibility provisions of the ARP. These
reductions in rates were offered to customers after consideration of associated
NUG cost reductions, savings from further NUG consolidations and other general
cost reductions.
"Year 2000" Computer Issues
The "Year 2000 problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore those computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results, with potentially serious and widespread adverse consequences.
CMP Group, through Central Maine, began its Year 2000 problem remediation
efforts in 1996, and since that time has developed a broad-based and
comprehensive project plan for addressing Year 2000 issues. The plan includes
both Information Technology ("IT") and non-IT systems, addresses both
centralized and distributed systems, and encompasses systems critical to the
generation, transmission, and distribution of electric energy as well as the
traditional business systems necessary to the CMP Group System.
As planned, by the end of 1998 CMP Group had completed much of the work
associated with Year 2000 readiness for IT infrastructure and centralized
business systems. The remaining work in those areas is scheduled to be completed
during the first six months of 1999. All vendors associated with this remaining
work have indicated availability of products and services that CMP Group
believes should permit CMP Group to be Year 2000 ready by June 1999.
CMP Group's target completion date for Year 2000 power generation and delivery
systems is also June 1999, consistent with the DOE's published request in May
1998 and the overall electric-utility industry guidelines prepared by the North
American Electric Reliability Council ("NERC"). CMP Group has contracted with
the appropriate vendors to complete critical generation control system
remediation work by June 1999, and believes it is on schedule to meet this
target.
In addition to the internal Year 2000 readiness activities discussed above, CMP
Group is actively participating in a joint ISO/NEPOOL initiative designed to
assess, and assure, power reliability within the NEPOOL area. This initiative
encompasses all participants, including Central Maine, within the New England
area.
CMP Group also has an active program in place to identify and address issues
associated with third-party providers. The program addresses business
relationships with all third-party providers, but focuses on those suppliers
deemed critical to CMP Group's business. At this time CMP Group has no
indication that any third-party with which CMP Group has a material relationship
is expecting a Year 2000-related business interruption. CMP Group will continue
to monitor and assess its third-party relationships.
CMP Group estimates it will incur approximately $4.0 million of costs associated
with making the necessary modifications identified to date to both the
centralized and non-centralized systems. As of December 31, 1998, approximately
$3.4 million of such costs has been incurred.
CMP Group recognizes that failure to correct problems associated with Year 2000
issues has the potential to result in material operational and financial risks
if the affected systems either cease to function or produce erroneous results.
Such risks could include inability to operate fossil and/or hydro generating
facilities, disruptions in the operation of Central Maine's transmission and
distribution systems, an inability to access interconnections with other
utilities, and disruptions to Central Maine's major business systems (customer
information and service, administrative, financial).
Central Maine believes, however, that the most likely worst case scenario
resulting from these risks would be a temporary, and short-term, disruption of
electric service. This could occur either as a failure on the part of Central
Maine to successfully address all critical Year 2000 issues, as a failure on the
part of a critical third-party provider, or as a failure on the part of other
entities, including ISO-New England, to successfully maintain the short-term
reliability of power supply and delivery on a regional basis. Central Maine does
not expect that any such short-term service disruption would have a material
impact on its operations, liquidity, or financial condition.
In order to minimize these risks, and the potential recovery time, from Year
2000 problems, CMP Group is actively involved in contingency planning. Although
CMP Group has extensive knowledge and specific experience in disaster/recovery
planning and execution, CMP Group recognizes the importance of Year 2000
specific contingency planning. Accordingly, Central Maine is participating in
the integrated contingency planning effort headed by the North American Electric
Reliability Council, and the Northeast Power Coordinating Council. Further,
Central Maine will be developing comprehensive Year 2000 specific contingency
plans for its own independent operations.
CMP Group believes its plans are adequate to attain Year 2000 readiness, and
that the contingency plans currently under development both internally and at a
regional level should substantially mitigate the risks discussed above.
Liquidity and Capital Resources
Increases in Central Maine's retail rates are limited by Central Maine's ARP.
For a discussion of the ARP, including a 1.33-percent rate increase effective
July 11, 1998, and a proposed rate reduction contingent on the consummation of
Central Maine's planned sale of generating assets in 1999, see Note 3,
"Regulatory Matters" - "Alternative Rate Plan."
Approximately $158.3 million and $159.8 million of cash was provided during the
year ended December 31, 1998 for CMP Group and Central Maine, respectively, from
net income before non-cash items, primarily depreciation, amortization and
deferred income taxes. During that period approximately $66.8 million and $73.5
million of cash was used for fluctuations in certain assets and liabilities and
from other operating activities for CMP Group and Central Maine, respectively.
Included in net income is $19.1 million for CMP Group and $9.5 million for
Central Maine representing gains associated with the sale of investments and
properties.
Investing activities, primarily construction expenditures, utilized $17.4
million in cash during 1998 for generation, transmission, distribution, and
general construction expenditures for CMP Group and $9.1 for Central Maine. In
order to accommodate existing and future loads on its electric system Central
Maine, CMP Group's major subsidiary, is engaged in a continuing construction
program. Central Maine's plans for improvements and expansions, its load
forecast and its power-supply sources are under a process of continuing review.
Actual construction expenditures depend upon the availability of capital and
other resources, load forecasts, the timing of its divestiture of its generating
assets, customer growth and general business conditions. The ultimate nature,
timing and amount of financing for Central Maine's total construction programs,
refinancing and energy-management capital requirements will be determined in
light of market conditions, earnings and other relevant factors.
CMP Group received proceeds of approximately $21.3 million from the sale of
investments and properties. In addition, Central Maine received approximately
$20.1 million resulting from the sale of four subsidiaries to CMP Group.
During 1998 CMP Group paid dividends on common stock of $28.9 million, while
preferred-stock dividends, paid by Central Maine, utilized $6.7 million of cash.
In addition, Central Maine reacquired 1.2 million shares of stock from CMP Group
for $19 million following the holding company formation.
Central Maine's Articles of Incorporation limit certain unsecured indebtedness
that may be outstanding to 20% of capitalization, as defined without the consent
of the holders of Central Maine's preferred stock; 20% of defined capitalization
amounted to $143 million as of December 31, 1998. Unsecured indebtedness, as
defined, amounted to $131 million as of December 31, 1998. Central Maine's $500
million medium-term note program, having received the consent of Central Maine's
preferred stockholders in May 1997, is not included in "unsecured indebtedness"
for purposes of the 20-percent limitation.
At the annual meeting of the stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350 million in principal amount of Central Maine's medium-term notes in
addition to the $150 million in principal amount to which they had previously
consented. This expansion of the medium-term note program was implemented to
increase Central Maine's financing flexibility in anticipation of restructuring
and increased competition.
During 1998 Central Maine issued $312 million principal amount of its
medium-term notes and paid $18 million at maturity, making a total of $337 of
medium-term notes outstanding at December 31, 1998 of which $10 million was
short-term. During the year Central Maine redeemed, repurchased or paid at
maturity the following General and Refunding Mortgage Bonds (stated in principal
amounts) and Dividend Series Preferred Stock (in par value), a total of $351
million:
March 30 Series R Bonds, 7-7/8% ($50 million)
March 30 Series N Bonds, 8.50% ($11 million)
April 1 Preferred Stock, 7-7/8% Series ($30 million)
April 15 Series U Bonds, 7.54% ($25 million)
June 8 Preferred Stock, 7.99% Series ($11.6 million)
June 15 Series P Bonds, 7.66% ($31.3 million)
July 1 Preferred Stock, 8 7/8% Series ($7 million)
August 15 Series S Bonds, 6.03% ($60 million)
November 1 Series T Bonds, 6.25% ($75 million)
December 31 Series O Bonds, 7-3/8% ($50 million)
For further details on the financing activities of Central Maine and CMP Group
during 1998, see Item 8, "Notes to Consolidated Financial Statements" - Note 10,
"Capitalization and Interim Financing," below.
To support its short-term capital requirements, in October 1996, Central Maine
entered into a $125 million Credit Agreement with several banks, with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement originally had two credit facilities: a $75 million, 364-day
revolving credit facility and a $50-million, 3-year revolving credit facility.
Effective December 15, 1998, the banks' commitments under the 364-day facility
were reduced from $75 million to $25 million by agreement of the parties, and
other provisions were amended to reflect the reorganization of Central Maine
into a holding-company structure and recognize other changed circumstances. Both
credit facilities require annual fees on the total credit lines. The fees are
based on Central Maine's credit ratings and allow for various borrowing options
including LIBOR-priced, base-rate-priced and competitive-bid-priced loans.
Access to commercial paper markets has been substantially precluded based upon
Central Maine's past credit ratings. The amount of outstanding short-term
borrowing will fluctuate with day-to-day operational needs, the timing of
long-term financing, and market conditions. Central Maine had $55 million in
outstanding notes as of December 31, 1998 under the credit facilities.
On August 5, 1998, the MPUC approved Central Maine's application to purchase up
to 11 million shares of its outstanding common stock over a three-year period,
with a limitation of three million shares that may be repurchased prior to the
closing of the sale of Central Maine's generating assets. The amount of any
stock purchases and their timing by Central Maine or CMP Group will depend on
the need for equity in the respective Company's capital structure, investment
opportunities and other considerations. Neither Central Maine nor CMP Group has
adopted a formal stock-purchase plan.
Environmental Matters
CMP Group and its subsidiaries assess compliance with laws and regulations
related to hazardous substance remediation on an ongoing basis. At December 31,
1998, Central Maine had an accrued liability of $1.9 million for remediation
costs at various sites. The costs at identified sites may be significantly
higher if, among other things, other potentially responsible parties are not
financially able to contribute to these costs or identified possible outcomes
change. See Note 4, "Commitments and Contingencies." - "Legal and Environmental
Matters" for further discussion of this matter.
Storm Damage Central Maine's System
On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck Central Maine's service territory, causing power outages for
approximately 280,000 of Central Maine's 528,000 customers, and substantial
widespread damage to Central Maine's transmission and distribution system. To
restore its electrical system, Central Maine supplemented its own crews with
utility and tree-service crews from throughout the northeastern United States
and the Canadian maritime provinces, with assistance from the Maine national
guard. Central Maine's incremental non-capital costs of the repair effort were
$50.7 million, most of which is labor-related. In addition, approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.
On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the incremental non-capital costs associated with Central Maine's
efforts to restore service in response to the damage resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file information on the amounts deferred under the order and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was determined and the status of federal assistance was finalized
Central Maine would propose a plan for recovery of its costs. Based on the MPUC
order, Central Maine has deferred $52.4 million in storm related costs as of
December 31, 1998. In October 1998, the MPUC staff issued its draft report of
its summary investigation of the Maine utilities' response to the January ice
storm. This report found no basis for formal adjudicatory investigation into the
response and supports the utilities' actions. On May 1, 1998, President Clinton
signed a Congressional appropriation bill that included $130 million for
Presidentially declared disasters in 1998, including storm-damage cost
reimbursement for electric utilities. On November 5, 1998 the United States
Department of Housing and Urban Development ("HUD") announced that of those
funds, $2.2 million had been awarded to Maine, with none designated for utility
infrastructure, which Central Maine and the Maine Congressional delegation
protested as inadequate and inconsistent with Congressional intent. On March 10,
1999, HUD published a notice in the Federal Register inviting parties to
re-apply for storm-damage cost reimbursement. Central Maine cannot predict what
portion of its ice storm-related costs it will ultimately recover through
federal assistance, if any, or from its customers, or when any such recovery
will take place.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
CMP Group is exposed to interest rate risk through the use of fixed-rate and
variable-rate debt and preferred stock as sources of capital. Its exposure to
changes in applicable interest rates has increased during 1998, due to its
issuance of $312 million of medium-term notes during the year, $227 million of
which bear floating, LIBOR-based, rates. Most of the floating-rate medium-term
notes issued during 1998 replaced fixed-rate mortgage bonds or other fixed-rate
securities.
Variable Long Term Fixed Long Term
Weighted Average Rates 6.63% 7.46%
Balance at December 31, 1998 $278,704 $321,476
Maturity Period 1999 - 2018 1999 - 2023
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
Index to Financial Statements and Financial Statement Schedules
Management report on responsibility for financial reporting 57
Report of Independent Accountants 58
Consolidated Financial Statements 59
CMP Group, Inc.
Consolidated Statement of Earnings for the three years ended
December 31, 1998, 1997 and 1996 59
Consolidated Balance Sheet as of December 31, 1998 and 1997 60
Consolidated Statement of Capitalization and Interim
Financing as of December 31, 1998 and 1997 62
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1998, 1997 and 1996 63
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998, 1997 and 1996 64
Central Maine Power Company
Consolidated Statement of Earnings for the three years ended
December 31, 1998, 1997 and 1996 65
Consolidated Balance Sheet as of December 31, 1998 and 1997 66
Consolidated Statement of Capitalization and Interim
Financing as of December 31, 1998 and 1997 68
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1998, 1997 and 1996 69
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998, 1997 and 1996 70
Notes to Consolidated Financial Statements - CMP Group, Inc.
and Central Maine Power Company 71
Financial Statement Schedule:
Central Maine Power Company
Schedule II - Valuation and Qualifying Accounts 128
Report of Management
The Managements of CMP Group and its subsidiaries ("CMP Group") and Central
Maine Power Company and its subsidiaries ("Central Maine") are responsible for
the consolidated financial statements and the related financial information
appearing in this annual report. The financial statements are prepared in
conformity with generally accepted accounting principles and include amounts
based on informed estimates and judgments of management. The financial
information included elsewhere in this report is consistent, where applicable,
with the financial statements.
CMP Group and Central Maine maintain a system of internal accounting controls
that are designed to provide reasonable assurance that the respective assets are
safeguarded, transactions are executed in accordance with management's
authorization, and the financial records are reliable for preparing the
financial statements. While no system of internal accounting controls can
prevent the occurrence of errors or irregularities with absolute assurance,
management's objective is to maintain a system of internal accounting controls
that meets their goals in a cost-effective manner.
CMP Group and Central Maine have policies and procedures in place to support and
document the internal accounting controls that are revised on a continuing
basis. Internal auditors conduct reviews, provide ongoing assessments of the
effectiveness of selective internal controls, and report their findings and
recommendations for improvement to management.
The Board of Directors of CMP Group have established an Audit Committee,
composed entirely of outside directors, which oversees the financial reporting
process on behalf of the Board of Directors. The Audit Committee meets
periodically with management, internal auditors, and the independent public
accountants to review accounting, auditing, internal accounting controls, and
financial reporting matters. The internal auditors and the independent public
accountants have full and free access to meet with the Audit Committee, with or
without management present, to discuss auditing or financial reporting matters.
PricewaterhouseCoopers LLP, independent public accountants, has been retained to
audit CMP Group and Central Maine's consolidated financial statements. The
accompanying report of independent public accountants is based on their audit,
conducted in accordance with generally accepted auditing standards, including a
review of selected internal accounting controls and tests of accounting
procedures and records.
David T. Flanagan Sara J. Burns
CMP Group, Inc. Central Maine Power Company
President and Chief Executive Officer President
David E. Marsh Curtis I. Call
CMP Group, Inc. Central Maine Power Company
Chief Financial Officer Treasurer
Report of Independent Accountants
To the Shareholders and Directors of
CMP Group, Inc. and the Shareholders and
Directors of Central Maine Power Company
In our opinion, the accompanying consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the consolidated
financial position of CMP Group, Inc. and its subsidiaries ("CMP Group") at
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998 and the consolidated financial position of Central Maine Power Company and
its subsidiaries ("Central Maine") at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of management of CMP
Group and Central Maine; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Portland, Maine
January 26, 1999
<TABLE>
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CONSOLIDATED FINANCIAL STATEMENTS
CMP Group, Inc. and Subsidiaries
Consolidated Statement Of Earnings
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per-share amounts)
1998 1997 1996
Revenues (Notes 1 and 3)
Electric operating revenues $938,739 $954,176 $967,046
Other non-utility revenues 11,588 2,070 859
-------- --------- ----------
Total Revenues 950,327 956,246 967,905
------- ------- -------
Operating Expenses
Fuel used for company generation (Notes 1 and 9) 30,898 34,946 16,827
Purchased power
Energy (Notes 1 and 9) 369,411 419,144 407,926
Other (capacity) (Note 9) 85,321 112,810 108,720
Other operation 213,489 210,513 183,688
Maintenance 41,051 33,973 37,537
Depreciation and amortization (Note 1) 56,493 54,132 53,694
Taxes other than income taxes 27,783 28,303 27,861
-------- -------- --------
Total Operating Expenses 824,446 893,821 836,253
------- ------- -------
Operating Income 125,881 62,425 131,652
------- ------- -------
Other Income (Expense)
Equity in earnings of associated companies (Note 9) (60) 6,260 6,138
Allowance for equity funds used during construction (Note 1) 653 642 851
Other, net 1,383 3,639 4,709
Minority interest in consolidated net income (205) (233) (48)
Gain on sale of investments and properties 22,912 418 601
-------- --------- ----------
Total Other Income (Expense) 24,683 10,726 12,251
-------- ------- --------
Interest Charges
Long-term debt (Note 10) 43,276 44,346 47,966
Other interest (Note 10) 8,366 7,660 4,341
Allowance for borrowed funds used during construction (Note 1) (495) (439) (655)
--------- --------- -----------
Total Interest Charges 51,147 51,567 51,652
------- ------- --------
Income Before Income Taxes and Preferred Dividends 99,417 21,584 92,251
Income taxes (Notes 2 and 3) 41,698 8,162 32,022
Dividends on Preferred Stock of Subsidiary 4,809 8,209 9,452
------- -------- ---------
Net Income $52,910 $ 5,213 $ 50,777
====== ======== ========
Weighted Average Number Of Shares Of Common
Stock Outstanding 32,442,685 32,442,752 32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted) $1.63 $0.16 $1.57
Dividends Declared Per Share Of Common Stock $0.90 $0.90 $0.90
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<S> <C> <C>
CMP Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
---- ----
Current Assets
Cash and cash equivalents $ 30,540 $ 20,841
Accounts receivable, less allowance for uncollectible accounts of
$3,136 in 1998 and $2,400 in 1997
Service - billed 81,169 84,323
- unbilled (Notes 1 and 3) 53,296 46,807
Other accounts receivable 13,753 15,247
Inventories, at average cost
Fuel oil 5,879 5,390
Materials and supplies 13,126 11,779
Funds on deposit with trustee (Note 10) 1 61,694
Prepayments and other current assets 10,268 9,110
----------- ------------
Total Current Assets 208,032 255,191
---------- ----------
Electric Property, at original cost (Notes 9 and 10) 1,750,837 1,674,876
Less: Accumulated depreciation (Notes 1 and 9) 694,410 634,384
---------- ----------
Net electric property in service 1,056,427 1,040,492
--------- ---------
Construction work in progress (Note 4) 19,538 15,105
Nuclear fuel, less accumulated amortization of $9,316 in 1998 and
$9,035 in 1997 1,147 1,157
------------ ------------
Total net electric property 1,077,112 1,056,754
Investments In Associated Companies, at equity (Notes 1 and 9) 71,880 76,509
----------- -----------
Total Net Electric Property and Investments in Associated Companies
1,148,992 1,133,263
Deferred Charges And Other Assets
Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
78,539 84,026
Yankee Atomic purchased-power contract (Note 9) 7,761 13,056
Connecticut Yankee purchased-power contract (Note 9) 29,913 36,877
Maine Yankee purchased-power contract (Note 9) 273,895 329,206
Regulatory assets - deferred taxes (Note 2) 235,451 236,632
Other deferred charges and other assets (Notes 1 and 3) 280,301 210,715
---------- ----------
Deferred Charges and Other Assets, Net 905,860 910,512
---------- ----------
Total Assets $2,262,884 $2,298,966
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C> <C>
CMP Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1998 and 1997
(Dollars in thousands)
STOCKHOLDERS' EQUITY AND LIABILITIES 1998 1997
---- ----
Current Liabilities and Interim Financing
Interim financing (see separate statement) (Note 10) $ 298,356 $ 238,000
Sinking-fund requirements (Note 10) 11,455 9,411
Accounts payable 90,960 97,080
Dividends payable 7,304 9,202
Accrued interest 7,524 11,201
Accrued income taxes (Note 2) 19,911 3,001
Miscellaneous current liabilities 15,909 15,762
----------- -----------
Total Current Liabilities and Interim Financing 451,419 383,657
---------- ----------
Commitments and Contingencies (Notes 4 and 9)
Reserves and Deferred Credits
Accumulated deferred income taxes (Note 2) 376,043 350,912
Unamortized investment tax credits (Note 2) 29,064 30,533
Yankee Atomic purchased-power contract (Note 9) 7,761 13,056
Connecticut Yankee purchased-power contract (Note 9) 29,913 36,877
Maine Yankee purchased-power contract (Note 9) 273,895 329,206
Regulatory liabilities - deferred taxes (Note 2) 58,376 56,852
Other reserves and deferred credits (Note 5) 116,805 104,257
---------- ----------
Total Reserves and Deferred Credits 891,857 921,693
---------- ----------
Long-Term Debt (see separate statement) (Note 10)
Mortgage debt 117,683 259,563
Other long-term obligations 228,598 141,360
---------- ----------
Total Long-Term Obligations 346,281 400,923
---------- ----------
Redeemable Preferred Stock 18,910 39,528
----------- -----------
Stockholders' Equity (see separate statement) (Note 10)
Common-stock 162,213 162,214
Other paid in capital 285,835 277,168
Reacquired common stock (827) -
Retained earnings 71,668 48,212
Preferred stock 35,528 65,571
----------- -----------
Total Stockholders' Equity 554,417 553,165
---------- ----------
Total Stockholders' Equity and Liabilities $2,262,884 $2,298,966
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
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CMP Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CAPITALIZATION AND INTERIM FINANCING
(Dollars in thousands)
December 31
-----------
1998 1997
---- ----
Amount % Amount %
Capitalization (Note 10)
Common-Stock Investment:
Common stock, par value $5 per share:
Authorized - 80,000,000 shares
Outstanding - 32,442,552 shares in 1998 and
32,442,752 in 1997 $ 162,213 $ 162,214
Other paid-in capital 285,835 277,168
Reacquired common stock, at cost (55,510 shares) (827)
Retained earnings 71,668 48,212
----------- -----------
Total Common-Stock Investment 518,889 42.6% 487,594 39.6
---------- ------ ---------- ------
Preferred Stock - not subject to mandatory redemption
35,528 2.9 65,571 5.3
----------- ------ ----------- ------
Redeemable Preferred Stock - subject to mandatory
redemption 27,910 46,528
Less: current sinking fund requirements 9,000 7,000
------------ ------------
Redeemable Preferred Stock - subject to mandatory
redemption 18,910 1.6 39,528 3.2
----------- ------ ----------- ------
Long-Term Obligations:
Mortgage bonds 118,717 421,000
Less: unamortized debt discount 1,034 1,437
------------ ------------
Total Mortgage Bonds 117,683 419,563
---------- ----------
Total Medium-Term Notes 327,000 43,000
---------- -----------
Other Long-Term Obligations:
Lease obligations 32,773 34,517
Pollution-control facility and other notes 153,280 84,254
---------- -----------
Total Other Long-Term Obligations 186,053 118,771
---------- ----------
Less: Current Sinking Fund Requirements and Current
Maturities 284,455 180,411
---------- ----------
Total Long-Term Obligations 346,281 28.4 400,923 32.6
---------- ------ ---------- ------
Total Capitalization 919,608 75.5 993,616 80.7
---------- ------ ---------- ------
Interim Financing (Note 10):
Short-term obligations 15,000 60,000
Current maturities of long-term obligations 283,356 178,000
---------- -----------
Total Interim Financing 298,356 24.5 238,000 19.3
---------- ------ ----------- ------
Total Capitalization and Interim Financing $1,217,964 100.0% $1,231,616 100.0%
========= ===== ========= =====
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
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CMP Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
For the three years ended December 31, 1998
Amount at Other Reacquired
par paid-in common Retained Preferred
Shares value capital stock earnings Shares Stock Total
------ --------- ------- -------- -------- ------ ---------
Balance - December 31, 1995 32,442,752 $162,214 $276,287 $51,504 655,713 $65,571 $555,576
----------
Net Income 60,229 60,229
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (9,452) (9,452)
Reacquired preferred stock 536 (536) -
Capital stock expense
(5) (5)
Balance - December 31, 1996 32,422,752 162,214 276,818 - 72,546 655,713 65,571 577,149
---------- ------- ------- ------- ------ ------- ------ -------
Net Income 13,422 13,422
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (8,209) (8,209)
Reacquired preferred stock 348 (348) -
Capital stock expense
2 2
- - - - - -
Balance - December 31, 1997 32,422,752 162,214 277,168 - 48,212 655,713 65,571 553,165
---------- ------- ------- ------- ------ ------- ------ -------
Net Income 57,718 57,718
Dividends declared:
Common stock (29,198) (29,198)
Preferred stock (4,809) (4,809)
Common stock (200) (1) (2) (1) (4)
Reacquired common stock (827) (827)
Increase in equity of investee 9,413 9,413
(Note 8)
Preferred stock (300,430) (30,043) (30,043)
Reacquired preferred stock (771) (254) (1,025)
Capital stock expense 27 27
------------------------------------ ------- ----------- ---------------------- ----------
Balance - December 31, 1998 32,442,552 $162,213 $285,835 $(827) $71,668 355,283 $35,528 $554,417
---------- ======= ======= ==== ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
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CMP Group, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Year ended December 31
1998 1997 1996
CASH FROM OPERATION
Net income $ 52,910 $ 5,213 $ 50,777
Items not requiring (not providing) cash:
Depreciation 47,130 44,170 44,104
Amortization 38,873 34,291 34,881
Deferred income taxes and investment tax credits, net 20,016 (2,204) 3,318
Allowance for equity funds used during construction (653) (642) (851)
Preferred stock dividends of subsidiary 4,809 8,209 9,452
Gain on sale of investments and properties (19,108) - -
Changes in certain assets and liabilities:
Accounts receivable (2,999) 1,257 (3,565)
Other current assets (1,158) 390 (308)
Inventories (1,836) 4,259 (4,884)
Accounts payable (9,785) 4,617 (16,862)
Accrued taxes and interest 13,233 2,856 (4,970)
Miscellaneous current liabilities 147 (5,580) 7,472
Deferred ice storm cost (52,433) - -
Deferred energy-management costs (2,615) (1,940) (5,222)
Maine Yankee outage accrual - (10,350) 8,280
Purchased power contracts (22,500) - (75)
Other, net 13,194 7,664 3,961
------- -------- ---------
Net Cash Provided by Operating Activities 77,225 92,210 125,508
------- ------- -------
INVESTING ACTIVITIES
Construction expenditures (42,405) (40,306) (46,922)
Investments in and loans to affiliates (17,800) (4,769) (12,059)
Repayment of loan by affiliates 17,800 - -
Proceeds from sale of investments and properties 21,347 - -
Changes in accounts payable - investing activities 3,665 (734) 1,889
-------- --------- ----------
Net Cash Used by Investing Activities (17,393) (45,809) (57,092)
------- -------- ---------
FINANCING ACTIVITIES
Issuances:
Revolving credit agreement 50,000 52,500 7,500
Medium-term notes 302,000 - 10,000
Other long-term obligations - - 870
Short-term obligations, net 10,000 - -
Redemptions:
Mortgage bonds (302,283) - (11,500)
Preferred stock (48,618) (14,000) (14,000)
Medium-term notes (18,000) (25,000) (34,000)
Finance Authority of Maine (7,400) (6,800) (6,300)
Other long-term obligations (6,049) (645) (1,780)
Short-term obligations, net (55,000) - -
Funds on deposit with trustee 61,693 (2,182) (29,593)
Purchase of treasury stock (827) - -
Dividends:
Common stock (28,943) (29,220) (29,220)
Preferred stock of subsidiary (6,706) (8,520) (9,763)
--------- -------- -----------
Net Cash Used by Financing Activities (50,133) (33,867) (117,786)
-------- ------- ---------
Net Increase (Decrease) in Cash 9,699 12,534 (49,370)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 20,841 8,307 57,677
------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 30,540 $ 20,841 $ 8,307
======= ======= =========
Supplemental Cash-Flow Information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 50,256 $ 47,551 $ 47,835
Income taxes $ 6,581 $ 7,105 $ 32,632
</TABLE>
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased having a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Central Maine Power Company and Subsidiaries
Consolidated Statement Of Earnings
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per-share amounts)
1998 1997 1996
---- ---- ----
Revenues (Notes 1 and 3)
Electric operating revenues $938,561 $954,176 $967,046
Other non-utility revenues 2,969 2,070 859
--------- --------- ----------
Total Revenues 941,530 956,246 967,905
------- ------- -------
Operating Expenses
Fuel used for company generation (Notes 1 and 9) 30,898 34,946 16,827
Purchased power
Energy (Notes 1 and 9) 369,411 419,144 407,926
Other (capacity) (Note 9) 85,321 112,810 108,720
Other operation 204,286 210,513 183,688
Maintenance 40,961 33,973 37,537
Depreciation and amortization (Note 1) 56,257 54,132 53,694
Taxes other than income taxes 27,747 28,303 27,861
-------- -------- --------
Total Operating Expenses 814,881 893,821 836,253
------- ------- -------
Operating Income 126,649 62,425 131,652
------- -------- -------
Other Income (Expense)
Equity in earnings of associated companies (Note 9) 1,762 6,260 6,138
Allowance for equity funds used during construction (Note 1) 653 642 851
Other, net 2,097 3,639 4,709
Minority interest in consolidated net income (205) (233) (48)
Gain on sale of investments and properties 13,314 418 601
-------- ---------- ----------
Total Other Income (Expense) 17,621 10,726 12,251
-------- -------- --------
Interest Charges
Long-term debt (Note 10) 43,223 44,346 47,966
Other interest (Note 10) 8,286 7,660 4,341
Allowance for borrowed funds used during construction (Note 1) (495) (439) (655)
---------- ---------- -----------
Total Interest Charges 51,014 51,567 51,652
-------- -------- --------
Income Before Income Taxes 93,256 21,584 92,251
Income taxes (Notes 2 and 3) 38,433 8,162 32,022
-------- --------- --------
Net Income 54,823 13,422 60,229
Dividends on Preferred Stock 4,809 8,209 9,452
--------- --------- ---------
Earnings Applicable to Common Stock $ 50,014 $ 5,213 $ 50,777
======== ========= ========
Weighted Average Number Of Shares Of Common
Stock Outstanding 32,113,357 32,442,752 32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted) $1.56 $0.16 $1.57
Dividends Declared Per Share Of Common Stock $0.675* $0.90 $0.90
*1998 fourth quarter dividend of $0.225 per share was declared and paid in
January 1999.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C>
Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
December 31, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
---- ----
Current Assets
Cash and cash equivalents $ 22,628 $ 20,841
Accounts receivable, less allowance for uncollectible accounts of
$3,136 in 1998 and $2,400 in 1997
Service - billed 81,082 84,323
- unbilled (Notes 1 and 3) 53,110 46,807
Other accounts receivable 12,698 15,247
Inventories, at average cost
Fuel oil 5,879 5,390
Materials and supplies 12,755 11,779
Funds on deposit with trustee (Note 10) 1 61,694
Prepayments and other current assets 10,161 9,110
----------- ------------
Total Current Assets 198,314 255,191
---------- ----------
Electric Property, at original cost (Notes 9 and 10) 1,750,777 1,674,876
Less: Accumulated depreciation (Notes 1 and 9) 694,463 634,384
---------- ----------
Net electric property in service 1,056,314 1,040,492
--------- ---------
Construction work in progress (Note 4) 19,483 15,105
Nuclear fuel, less accumulated amortization of $9,316 in 1998 and 1,147 1,157
------------ ------------
$9,035 in 1997
Total net electric property 1,076,944 1,056,754
Investments In Associated Companies, at equity (Notes 1 and 9) 48,406 76,509
----------- -----------
Total Net Electric Property and Investments in Associated Companies
1,125,350 1,133,263
Deferred Charges And Other Assets
Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
78,539 84,026
Yankee Atomic purchased-power contract (Note 9) 7,761 13,056
Connecticut Yankee purchased-power contract (Note 9) 29,913 36,877
Maine Yankee purchased-power contract (Note 9) 273,895 329,206
Regulatory assets - deferred taxes (Note 2) 235,451 236,632
Other deferred charges and other assets (Notes 1 and 3) 274,257 210,715
---------- ----------
Deferred Charges and Other Assets, Net 899,816 910,512
---------- ----------
Total Assets $2,223,480 $2,298,966
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C> <C>
Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
December 31, 1998 and 1997
(Dollars in thousands)
STOCKHOLDERS' EQUITY AND LIABILITIES 1998 1997
---- ----
Current Liabilities and Interim Financing
Interim financing (see separate statement) (Note 10) $ 298,183 $ 238,000
Sinking-fund requirements (Note 10) 11,455 9,411
Accounts payable 93,012 97,080
Dividends payable 5 9,202
Accrued interest 7,491 11,201
Income taxes payable to parent company (Note 2) 20,822 3,001
Miscellaneous current liabilities 15,455 15,762
----------- -----------
Total Current Liabilities and Interim Financing 446,423 383,657
---------- ----------
Commitments and Contingencies (Notes 4 and 9)
Reserves and Deferred Credits
Accumulated deferred income taxes (Note 2) 372,243 350,912
Unamortized investment tax credits (Note 2) 29,064 30,533
Yankee Atomic purchased-power contract (Note 9) 7,761 13,056
Connecticut Yankee purchased-power contract (Note 9) 29,913 36,877
Maine Yankee purchased-power contract (Note 9) 273,895 329,206
Regulatory liabilities - deferred taxes (Note 2) 58,376 56,852
Other reserves and deferred credits (Note 5) 111,506 104,257
---------- ----------
Total Reserves and Deferred Credits 882,758 921,693
---------- ----------
Long-Term Debt (see separate statement) (Note 10)
Mortgage debt 117,683 259,563
Other long-term obligations 226,151 141,360
---------- ----------
Total Long-Term Obligations 343,834 400,923
---------- ----------
Redeemable Preferred Stock 18,910 39,528
----------- -----------
Stockholders' Equity (see separate statement) (Note 10)
Common-stock 162,213 162,214
Other paid in capital 276,422 277,168
Reacquired common stock (19,000) -
Retained earnings 76,349 48,212
Preferred stock 35,571 65,571
----------- -----------
Total Stockholders' Equity 531,555 553,165
---------- ----------
Total Stockholders' Equity and Liabilities $2,223,480 $2,298,966
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C> <C> <C>
Central Maine Power Company and Subsidiaries
CONSOLIDATED STATEMENT OF CAPITALIZATION AND INTERIM FINANCING
(Dollars in thousands)
December 31
-----------
1998 1997
---- ----
Amount % Amount %
Capitalization (Note 10)
Common-Stock Investment:
Common stock, par value $5 per share:
Authorized - 80,000,000 shares
Outstanding - 31,211,471 shares in 1998 and
32,442,752 in 1997 $ 162,213 $ 162,214
Other paid-in capital 276,422 277,168
Reacquired common stock (1,231,081 shares) (19,000) -
Retained earnings 76,349 48,212
----------- -----------
Total Common-Stock Investment 495,984 41.6% 487,594 39.6
---------- ------ ---------- ------
Preferred Stock - not subject to mandatory redemption
35,571 3.0 65,571 5.3
----------- ------ ----------- ------
Redeemable Preferred Stock - subject to mandatory
redemption 27,910 46,528
Less: current sinking fund requirements 9,000 7,000
------------ ------------
Redeemable Preferred Stock - subject to mandatory
redemption 18,910 1.6 39,528 3.2
----------- ------ ----------- ------
Long-Term Obligations:
Mortgage bonds 118,717 421,000
Less: unamortized debt discount 1,034 1,437
------------ ------------
Total Mortgage Bonds 117,683 419,563
---------- ----------
Total Medium-Term Notes 327,000 43,000
---------- -----------
Other Long-Term Obligations:
Lease obligations 32,773 34,517
Pollution-control facility and other notes 150,833 84,254
---------- -----------
Total Other Long-Term Obligations 183,606 118,771
---------- ----------
Less: Current Sinking Fund Requirements and Current
Maturities 284,455 180,411
---------- ----------
Total Long-Term Obligations 343,834 28.8 400,923 32.6
---------- ------ ---------- ------
Total Capitalization 894,299 75.0 993,616 80.7
---------- ------ ---------- ------
Interim Financing (Note 10):
Short-term obligations 15,000 60,000
Current maturities of long-term obligations 283,183 178,000
---------- -----------
Total Interim Financing 298,183 25.0 238,000 19.3
---------- ------ ----------- ------
Total Capitalization and Interim Financing $1,192,482 100.0% $1,231,616 100.0%
========= ===== ========= =====
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
For the three years ended December 31, 1998
Other Reacquired
Amount at paid-in common Retained Preferred
Shares par value capital stock earnings Shares Stock Total
Balance - December 31, 1995 32,442,752 $162,214 $276,287 $ $ 51,504 655,713 $65,571 $555,576
Net income 60,229 60,229
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (9,452) (9,452)
Reacquired preferred stock 536 (536) -
Capital stock expense (5)
------------------------------------ ------------------------ ---------------------- ------------
(5)
Balance - December 31, 1996 32,442,752 162,214 276,818 72,546 655,713 65,571 577,149
---------- ------- ------- ------------ ------- ------- ------ -------
Net income 13,422 13,422
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (8,209) (8,209)
Reacquired preferred stock 348 (348) -
Capital stock expense 2
------------------------------------- ----------------------- ---------------------- ------------
2
Balance - December 31, 1997 32,442,752 162,214 277,168 48,212 655,713 65,571 553,165
---------- ------- ------- ------------ ------ ------- ------ -------
Net income 54,823 54,823
Dividends declared:
Common stock (21,622) (21,622)
Preferred stock (4,809) (4,809)
Common stock - Retired (200) (1) (2) (1) (4)
Reacquired common stock (1,231,081) (19,000) (19,000)
Preferred stock (300,000 (30,000) (30,000)
Reacquired preferred stock (771) (254) (1,025)
Capital stock expense 27 27
------------------------------------- ----------------------- ---------------------- -----------
Balance - December 31, 1998 31,211,471 $162,213 $276,422 $(19,000) $76,349 355,713 $35,571 $531,555
========== ======= ======= ======= ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<S> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Year ended December 31
1998 1997 1996
CASH FROM OPERATION
Net income $ 54,823 $ 13,422 $ 60,229
Items not requiring (not providing) cash:
Depreciation 47,130 44,170 44,104
Amortization 38,868 34,291 34,881
Deferred income taxes and investment tax credits, net 19,653 (2,204) 3,318
Allowance for equity funds used during construction (653) (642) (851)
Gain on sale of investments and properties (9,545) - -
Changes in certain assets and liabilities:
Accounts receivable (513) 1,257 (3,565)
Other current assets (1,051) 390 (308)
Inventories (1,465) 4,259 (4,884)
Accounts payable (7,764) 4,617 (16,862)
Accrued taxes and interest 14,111 2,856 (4,970)
Miscellaneous current liabilities (307) (5,580) 7,472
Deferred Ice storm costs (52,433) - -
Deferred energy-management costs (2,615) (1,940) (5,222)
Maine Yankee outage accrual - (10,350) 8,280
Purchased power contracts (22,500) - (75)
Other, net 1,016 7,664 3,961
--------- --------- ---------
Net Cash Provided by Operating Activities 76,755 92,210 125,508
-------- -------- -------
INVESTING ACTIVITIES
Construction expenditures (42,384) (40,306) (46,922)
Investments in loans to affiliates (18,661) (4,769) (12,059)
Repayment of loan by affiliates 17,800 - -
Sale of subsidiaries to CMP Group, Inc. 20,093 - -
Proceeds from sale of investments and properties 10,347 - -
Changes in accounts payable - investing activities 3,696 (734) 1,889
--------- ---------- ----------
Net Cash Used by Investing Activities (9,109) (45,809) (57,092)
--------- --------- ---------
FINANCING ACTIVITIES
Issuances:
Revolving credit agreement 50,000 52,500 7,500
Medium-term notes 302,000 - 10,000
Other long-term obligations - 870
Short-term obligations, net 10,000 - -
Redemptions:
Mortgage bonds (302,283) - (11,500)
Preferred stock (48,618) (14,000) (14,000)
Medium-term notes (18,000) (25,000) (34,000)
Finance Authority of Maine (7,400) (6,800) (6,300)
Other long-term obligations (3,602) (645) (1,780)
Short-term obligations, net (55,000) - -
Funds on deposit with trustee 61,693 (2,182) (29,593)
Treasury stock (19,000) - -
Dividends:
Common stock (28,943) (29,220) (29,220)
Preferred stock (6,706) (8,520) (9,763)
---------- --------- -----------
Net Cash Used by Financing Activities (65,859) (33,867) (117,786)
--------- -------- ---------
Net Increase (Decrease) in Cash 1,787 12,534 (49,370)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,841 8,307 57,677
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,628 $ 20,841 $ 8,307
======== ======== =========
Supplemental Cash-Flow Information Cash paid during the year for:
Interest (net of amounts capitalized) $ 50,251 $ 47,551 $ 47,835
Income taxes $ 6,563 $ 7,105 $ 32,632
</TABLE>
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased having a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these financial statements
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
General Description
CMP Group was organized effective September 1, 1998, at which time all of the
shares of Central Maine were converted into an equal number of shares of CMP
Group. CMP Group owns all of the shares of Central Maine and the former
non-utility subsidiaries of Central Maine (TeleSmart, MaineCom, CNEX and Union
Water Power Company) in addition to New England Gas Development Corporation, a
newly formed subsidiary.
Central Maine is a public utility primarily engaged in the sale of electric
energy at the wholesale and retail levels to residential, commercial,
industrial, and other classes of customers in the State of Maine.
Financial Statements
The consolidated financial statements include CMP Group and Central Maine, a
regulated electric utility subsidiary of CMP Group. CMP Group's consolidated
financial statements include the accounts of CMP Group and its wholly owned and
controlled subsidiaries, including Central Maine. Central Maine's consolidated
financial statements include its accounts as well as those of its wholly owned
and controlled subsidiaries. Certain immaterial majority owned subsidiaries,
which were previously accounted for on the equity method, have been consolidated
for the year ended December 31, 1998. Central Maine's financial position and
results of operations account for substantially all of CMP Group's consolidated
financial position and results of operations. For all periods prior to September
1, 1998, the historical financial position and results of operations of CMP
Group reflect the activity of Central Maine. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock-Based Compensation
CMP Group accounts for employee stock-based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". This statement encourages
companies to adopt a fair value approach to valuing stock options that would
require compensation cost to be recognized based on the fair value of stock
options granted. CMP Group has elected, as permitted by the standard, to
continue to follow its intrinsic value based method of accounting for stock
options consistent with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic method, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the company's
stock at the measurement date over the exercise price.
Earnings per Share
Stock options and performance shares granted to date under CMP Group's long-term
incentive plan resulted in potential incremental shares of common stock
outstanding for purposes of computing both basic and diluted earnings per share
for the twelve months ending December 31, 1998. These incremental shares were
not material in the periods presented and did not cause diluted earnings per
share to differ from basic earnings per share.
Reclassification
Certain amounts from prior years financial statements have been reclassified to
conform to the current year presentation.
Impact of New Accounting Standards
FAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" became effective for periods beginning after December 15, 1997.
This pronouncement provides disclosure requirements as well as guidance for
determining reportable segments. Based on the operating results regularly
reviewed by the entities' chief operating decision-makers, CMP Group and Central
Maine have determined that there are no material reportable segments.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. The new standard applies to all entities and is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. It requires companies to record derivatives on the
balance sheet at their fair value depending on the intended use of the
derivative. Based on CMP Group and Central Maine's current business practices
the adoption of this standard is not anticipated to have a significant impact on
their financial statements.
Regulation
The rates, operations, accounting, and certain other practices of Central Maine
and MEPCO are subject to the regulatory authority of the MPUC and the FERC.
Electric Operating Revenues
Electric operating revenues include amounts billed to customers and an estimate
of unbilled sales, for services rendered but not yet billed.
Utility Plant
Utility plant is stated at original cost of construction. The costs of
replacements of property units are capitalized. Maintenance and repairs and
replacements of minor items are expensed as incurred. The original cost of
property retired, net of salvage value, and the related costs of removal are
charged to accumulated depreciation.
Central Maine and its subsidiaries utility plant in service as of December 31
was comprised as follows:
Average
Average Remaining
Service Service Life
1998 1997 Life* 12/31/98
---- ---- ------ ------------
Generation $ 535,550 $ 514,815 37.6 years 20.0 years
Transmission 282,677 250,109 41.6 years 24.2 years
Distribution 724,224 704,345 37.7 years 28.5 years
General 208,326 205,607 18.6 years 12.8 years
$1,750,777 $1,674,876
========= =========
*Based on Central Maine's last depreciation represcription study as of December
31, 1992.
Depreciation
Depreciation of electric property is calculated using the straight-line method.
The weighted average composite rate was 3.1 percent in 1998 and 3.0 percent in
1997 and 1996.
Allowance for Funds Used During Construction (AFC)
Central Maine and its subsidiaries capitalize AFC as part of construction costs.
AFC represents the composite interest and equity costs of capital funds used to
finance that portion of construction costs not yet eligible for inclusion in
rate base. AFC is capitalized in "Utility plant" with offsetting noncash credits
to "Other income" and "Interest." The composite AFC rates were 8.8 percent, 9.7
percent, and 8.7 percent in 1998, 1997, and 1996, respectively.
Deferred Charges and Other Assets
CMP Group defers and amortizes certain costs in a manner consistent with
authorized or probable ratemaking treatment. CMP Group capitalizes carrying
costs as a part of certain deferred charges, principally energy-management
costs, and classifies such carrying costs as other income. The following table
depicts the components of deferred charges and other assets at December 31,
1998, and 1997:
(Dollars in thousands) 1998 1997
---- ----
NUG contract buy-outs and restructuring (Note 9) $ 98,752 $ 92,946
1998 ice storm costs 52,433 -
Energy-management costs 28,418 31,995
Postretirement benefits (Note 5) 19,604 20,900
Financing costs 17,121 18,560
Environmental site clean-up costs (Note 4) 8,766 7,891
Non-operating property, net 7,427 7,624
Workers Compensation 4,650 5,350
Other 37,086 25,449
-------- -------
Sub-Total Central Maine 274,257 210,715
CMP Group - Other 6,044 -
-------- -------
Total - CMP Group $280,301 $210,715
======= =======
Certain costs are being amortized and recovered in rates over periods ranging
from three to 30 years. Amortization expense for the next five years is shown
below:
(Dollars in thousands) Amount
1999 $28,811
2000 27,664
2001 23,896
2002 22,749
2003 13,414
Recoverable Costs of Seabrook I and Abandoned Projects
The recoverable after-tax investments in Seabrook I and abandoned projects are
reported as assets, pursuant to May 1985 and February 1991 MPUC rate orders. CMP
Group is allowed a current return on these assets based on Central Maine's
authorized rate of return. In accordance with these rate orders, the deferred
taxes related to these recoverable costs are amortized over periods of four to
10 years. As of December 31, 1998, substantially all deferred taxes related to
Seabrook I have been amortized. The recoverable investments as of December 31,
1998, and 1997 are as follows:
December 31 Recovery
(Dollars in thousands) 1998 1997 periods ending
---- ---- --------------
Recoverable costs of:
Seabrook I $141,084 $141,084 2015
Other Projects 57,491 57,491 2001
------- -------
198,575 198,575
------- -------
Less: accumulated amortization 119,861 114,035
Less: related income taxes 175 514
--------- ---------
Total Net Recoverable Investment $ 78,539 $ 84,026
======= =======
Note 2: Income Taxes
The components of federal and state income-tax provisions reflected in CMP
Group's Consolidated Statement of Earnings are as follow:
Year ended December 31
(Dollars in thousands) 1998 1997 1996
----- ---- ----
Federal:
Current $17,640 $ 8,534 $21,682
Deferred 14,837 (5,922) 5,751
Investment tax credits, net (1,469) (1,455) (464)
Regulatory deferred 2,054 5,390 (623)
------- ----- -------
Total Federal Taxes 33,062 6,547 26,346
------ ----- ------
State:
Current $ 4,052 $ 1,831 $ 7,022
Deferred 3,933 (1,720) (10)
Regulatory deferred 651 1,504 (1,336)
-------- ----- -------
Total State Taxes 8,636 1,615 5,676
------- ----- -------
Total Federal and State Income Taxes $41,698 $8,162 $32,022
====== ===== ======
Federal income tax, excluding federal regulatory deferred taxes, differs from
the amount of tax computed by multiplying income before federal tax by the
statutory federal rate. The following table reconciles the statutory federal
rate to a rate determined by dividing the total federal income-tax expense by
income before that expense:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31
1998 1997 1996
---- ---- ----
Amount % Amount % Amount %
(Dollars in thousands)
Income tax expense at statutory federal
rate $30,090 35.0% $ 6,990 35.0% $30,301 35.0%
------ ----- ----- ---- ------ ----
Permanent differences:
Investment tax-credit amortization
(1,469) (1.7) (1,469) (7.3) (1,482) (1.7)
Dividend-received deduction
and equity in earnings (losses) of
associated companies 2,077 2.5 (1,911) (9.6) (1,895) (2.2)
Other, net 168 0.2 (80) (.4) (293) (0.3)
-------- ----- ------- ----- ------- ----
30,866 36.0 3,530 17.7 26,631 30.8
------ ---- ----- ---- ------ ----
Effect of timing differences for items
which receive flow through treatment:
Tax-basis repairs (559) (0.7) (1,020) (5.1) (1,229) (1.4)
Depreciation differences flowed through
in prior years 3,127 3.6 2,923 14.6 2,327 2.7
Accelerated flowback of deferred taxes
on loss on abandoned generating projects
1,700 2.0 1,700 8.5 1,708 1.9
Benefits related to Section 1245 Losses
(1,210) (1.4) (1,818) (9.1) - -
IRS audit resolution regarding
depreciation methods - - 852 4.3 (3,230) (3.7)
Loss on Reacquired Debt 436 0.5 540 2.7 537 0.6
Flowback of Excess Federal Deferred
Taxes due to TRA86 (1,129) (1.3) (1,005) (5.0) (520) (0.6)
Other, net (169) (0.2) 845 4.2 122 0.1
-------- ---- ------ ---- ------- -----
Federal Income Tax Expense and
Effective Rate $33,062 38.5 $6,547 32.8% $26,346 30.4%
</TABLE>
CMP Group and Central Maine record deferred income-tax expense in accordance
with regulatory authority; it also defers investment and energy tax credits and
amortizes them over the estimated lives of the assets that generated the
credits.
A valuation allowance has not been recorded at December 31, 1998, and 1997, as
CMP Group expects that all deferred income tax assets will be realized in the
future.
Accumulated deferred income taxes consisted of the following in 1998 and 1997:
(Dollars in thousands) 1998 1997
---- ----
Deferred tax assets resulting from:
Investment tax credits, net $ 20,034 $ 21,047
Regulatory liabilities 29,081 25,188
Alternative minimum tax 6,135 6,053
All other 35,073 27,072
-------- -------
90,323 79,360
Deferred tax liabilities resulting from:
Property 300,996 295,293
Abandoned plant 54,138 57,921
Regulatory assets 111,407 77,572
------- --------
466,541 430,786
Accumulated deferred income taxes, end of year, net $376,218 $351,426
======= =======
Accumulated deferred income taxes, recorded as:
Accumulated deferred income taxes $376,043 $350,912
Recoverable costs of Seabrook 1 and abandoned projects,
net 175 514
--------- ---------
$376,218 $351,426
Note 3: Regulatory Matters
Alternative Rate Plan
On January 1, 1995, Central Maine's ARP was put into effect. Instead of rate
changes based on the level of costs incurred and capital investments, the ARP
provides for one annual adjustment of an inflation-based cap on each of Central
Maine's rates, with no separate reconciliation and recovery of fuel and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and specify a range for its rate of return. The MPUC confirmed in its order
approving the ARP that the ARP is intended to comply with the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation." As a result, Central Maine will continue to
apply the provisions of SFAS No. 71 to its accounting transactions and its
future financial statements. See "Meeting the Requirements of SFAS No. 71,"
below.
The ARP contains a mechanism that provides price-caps on Central Maine's retail
rates to be adjusted annually on each July 1, commencing in 1995, by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism, and (4) flow-through items and mandated costs. The price cap applies
to all of Central Maine's retail rates, and includes fuel and purchased power
costs that previously had been treated separately. Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.
A specified standard inflation index is the basis for each annual price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general productivity offset of 1.0%, and a second formula-based offset that
started in 1996 and was intended to reflect the limited effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.
The sharing mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below Central Maine's allowed return on equity (starting at the 10.55%
allowed return in 1995) and indexed annually for changes in capital costs.
Outside that range, profits and losses could be shared equally by Central Maine
and its customers in computing the price-cap adjustment. The ROE used for
earnings sharing is scheduled to be increased to 11.5% effective with the July
1999 price change.
The ARP also provides for partial flow-through to ratepayers of cost savings
from non-utility generator contract buy-outs and restructuring, recovery of
energy-management costs, and penalties for failure to attain customer-service
and energy-efficiency targets. The ARP also generally defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such treatment, the annual revenue requirement related to a
mandated cost must exceed $3 million and have a disproportionate effect on
Central Maine or the electric-power industry.
On May 13, 1998, Central Maine submitted its 1998 ARP compliance filing to the
MPUC. In keeping with its pledge of limiting increases to the inflation index,
Central Maine voluntarily limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP. Central Maine also proposed a rate reduction of
approximately ten percent contingent on the consummation of, and ratemaking
associated with, Central Maine's planned sale of generating assets. The filing
also reported information on the costs of restoring service to Central Maine's
customers after the January 1998 ice storm, as required by the earlier MPUC
order allowing Central Maine to defer those costs. Effective July 11, 1998, the
MPUC approved a stipulated 1.33% increase. The amount of the increase remains
subject to change, based on the outcome of the pending FERC proceeding related
to the permanent shutdown of the Maine Yankee plant. Depending on FERC's
decision, the price increase could increase or decrease, ranging from a ceiling
of 1.78% to a floor of 0.22%. However, the Offer of Settlement pending before
the FERC in Maine Yankee's rate case, which has been approved by the MPUC,
provides that the 1998 ARP increase will not be adjusted.
The components of the last three ARP price increases approved by the MPUC are as
follows:
1998 1997 1996
---- ---- ----
Inflation Index 1.78% 2.12% 2.55%
Productivity Offset (1.00) (1.00) (1.00)
Qualifying Facility Offset (.29) (.42) -
Earnings Sharing 1.12 - .32
Flowthrough and Mandated Items (.28) .40 (.61)
---- ----- -----
1.33% 1.10% 1.26%
==== ==== ====
Electric-Utility Industry Restructuring
Stranded Costs - The enactment by Congress of the Energy Policy Act of 1992
accelerated planning by electric utilities, including Central Maine, for a
transition to a more competitive industry. In Maine, legislation that will
restructure the electric-utility industry on March 1, 2000, was enacted by the
Maine Legislature in May 1997, and is discussed in detail under this heading
below. Such departure from traditional regulation, however, could have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities would find their above-market costs to be "stranded", or
unrecoverable, in the new competitive setting.
Central Maine has substantial exposure to cost stranding relative to its size.
In general, its stranded costs reflect the excess costs of Central Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred charges and other regulatory assets. The major portion of Central
Maine's stranded costs is related to above-market costs of purchased-power
obligations arising from Central Maine's long-term, noncancelable contracts for
the purchase of capacity and energy from NUGs, with lesser estimated amounts
related to Central Maine's deferred regulatory assets.
There is a high degree of uncertainty that surrounds stranded-cost estimates,
resulting from having to rely on projections and assumptions about future
conditions, including, among others, estimates of the future market for power.
Higher market rates lower stranded-cost exposure, while lower market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level of stranded costs depends on such factors as state and federal
regulations, the extent, timing and form that competition for electric service
will take, the ongoing level of Central Maine's costs of operations; regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal initiatives on restructuring;
and the extent to which regulatory policies and decisions ultimately address
recovery of strandable costs including the application of value from the sale of
Central Maine's generating assets.
The estimated market rate for power is based on anticipated regional market
conditions and future costs of producing power. The present value of future
purchased-power obligations and Central Maine's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expirations and continuing depreciation. Deferred regulatory-asset
totals include the current uncollected balances and existing amortization
schedules for purchased-power contract restructuring and buyouts negotiated by
Central Maine to lessen the impact of these obligations, along with energy
management costs, financing costs, and other regulatory commitments.
Maine Restructuring Legislation - The 1997 Maine restructuring legislation
requires the MPUC, when retail access to generation begins on March 1, 2000, to
provide a "reasonable opportunity" to recover stranded costs through the rates
of the transmission-and-distribution company, comparable to the utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation. Stranded costs are defined as the legitimate, verifiable
and unmitigable costs made unrecoverable as a result of the restructuring
required by the legislation and will be determined by the MPUC as provided in
the legislation. The MPUC has been conducting separate adjudicatory proceedings
to determine the stranded costs for each Maine utility, along with the
corresponding revenue requirements and stranded-cost charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding was completed in early 1999 and is discussed in this note under the
heading "MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate
Design," below.
In addition, the legislation requires utilities to use all reasonable means to
reduce their potential stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded costs in determining the amount of the utility's stranded costs.
Stranded costs and the related rates charged to customers will be prospectively
adjusted as necessary to correct substantial inaccuracies in the year 2003 and
at least every three years thereafter.
The principal restructuring provisions of the legislation provide for customers
to have direct retail access to generation services and for deregulation of
competitive electric providers, commencing March 1, 2000, with
transmission-and-distribution companies continuing to be regulated by the MPUC.
By that date, subject to possible extensions of time granted by the MPUC to
improve the sale value of generation assets, investor-owned utilities are
required to divest all generation assets and generation-related business
activities, with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side management or conservation
providers, brokers or hosts, and (2) ownership interests in nuclear power
plants. However, the MPUC can require the Company to divest its interest in
Maine Yankee Atomic Power Company on or after January 1, 2009. As discussed
below under "Agreement for Sale of Generating Assets," Central Maine has
contracted to sell its non-nuclear generating assets and, after a favorable
court decision, is proceeding toward a completion of the sale by April 7, 1999.
The legislation also requires investor-owned utilities, after February 29, 2000,
to sell their rights to the capacity and energy from all generation assets,
including the purchased-power contracts that had not previously been divested
pursuant to the legislation, with certain immaterial exceptions.
Upon the commencement of retail access on March 1, 2000, Central Maine, as a
transmission-and-distribution utility, will be prohibited from selling electric
energy to retail customers. Any competitive electricity provider that is
affiliated with Central Maine would be allowed to sell electricity outside
Central Maine's service territory without limitation as to amount, but within
Central Maine's service territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service territory, as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.
Other features of the legislation include the following:
(a) After the effective date of the legislation, if an entity purchases
10 percent or more of the stock of a distribution utility, including Central
Maine, the purchasing entity and any related entity would be prohibited from
selling generation service to any retail customer in Maine.
(b) The legislation encourages the generation of electricity from
renewable resources by requiring competitive providers, as a condition of
licensing, to demonstrate to the MPUC that no less than 30 percent of their
portfolios of supply sources for retail sales in Maine are accounted for by
renewable resources.
(c) The legislation requires the MPUC to ensure that standard-offer
service is available to all consumers, but any competitive provider affiliated
with Central Maine would be limited to providing such service for only up to 20
percent of the electric load in Central Maine's service territory.
(d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
(e) A customer who significantly reduces or eliminates consumption of
electricity due to self-generation, conversion to an alternative fuel, or
demand-side management may not be assessed an exit fee or re-entry fee in any
form for such reduction or elimination of consumption or for the
re-establishment of service with a transmission-and-distribution utility.
(f) Finally, the legislation provides for programs for low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility employees laid off as a result of the legislation, and
recovery of nuclear-plant decommissioning costs "[a]s required by federal law,
rule or order", all funded through transmission-and-distribution utility rates
and charges.
Legislative bills that would amend certain provisions of the 1997 legislation
have been submitted to the 1999 legislative session of the Maine Legislature.
CMP Group and Central Maine cannot predict whether any changes to the 1997
legislation will be enacted.
MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design. - As
noted above, the MPUC has completed the first phase of the proceeding
contemplated by Maine's restructuring legislation that will ultimately determine
the recovery of Central Maine's stranded costs, its revenue requirements, and
the design of its rates to be effective when Central Maine becomes a
transmission-and-distribution utility at the time retail access to generation
begins in Maine on March 1, 2000. On December 23, 1998, the MPUC Hearing
Examiners in the proceeding issued their report, in the form of a recommended
decision. Central Maine disagreed with a number of the individual
recommendations in the stranded-costs and revenue-requirements areas and filed
exceptions to those recommendations. The MPUC deliberated the recommendations on
February 10 and 11, 1999, indicated disagreement with some of the
recommendations, and issued its written order on March 19, 1999.
The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's transmission-and-distribution rates, effective March
1, 2000, but was not calculating the rates themselves because such calculations
at that time would rely excessively on estimates. The MPUC pointed out that it
would hold a "Phase II" hearing to set the actual rates and determine the
recoverable stranded costs after processing information expected to become
available during 1999.
With respect to stranded costs, the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to its mandate under the restructuring statute to provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is equivalent to the utility's opportunity to recover these costs
prior to the commencement of retail access. The MPUC also reviewed the
prescribed methodology for determining the amount of a utility's stranded costs,
including among other factors the application of excess value from divested
generation assets to offset stranded costs. At the beginning of the proceeding
Central Maine had estimated its total stranded costs to be approximately $1.3
billion.
In the area of revenue requirements, the Phase I order did not include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of common equity for Central Maine as a transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common equity with a 55-percent common equity component in the capital
structure. The MPUC, after weighing conflicting recommendations, decided on a
common-equity cost of 10.50 percent with a common-equity component of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.
In dealing with rate design, the MPUC limited itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1) facilitating the transition to a competitive market for
generation, and (2) implementing a "no-losers" policy, i.e., that the new rate
design would cause no Central Maine customer's bill to increase on March 1,
2000. Applying the latter principle, the MPUC rejected a newly designed standby
rate for self-generators proposed by Central Maine in favor of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive rate design and alternative rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience gained with the cost structures of other
transmission-and-distribution utilities after the commencement of retail access
to generation.
The Phase I order resulted from an extended proceeding with many points of view
represented and covers a wide variety of rate-related subjects. Definitive
findings by the MPUC in a number of the subject areas await the second phase of
the proceeding, which must be completed before March 1, 2000. CMP Group and
Central Maine cannot predict the definitive amount of stranded costs the MPUC
will determine that Central Maine will be entitled to recover pursuant to the
mandate of the restructuring statute, or the revenue requirements and rate
design that will result from Phase II of the MPUC proceeding.
Agreement for Sale of Generation Assets
On January 6, 1998, Central Maine announced that it had reached agreement to
sell all of its hydro, fossil and biomass power plants with a combined
generating capacity of 1,185 megawatts for $846 million in cash, including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related book value for these assets was approximately $ 218.9 million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine entered into energy buy-back agreements to assist in fulfilling its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage facilities to FPL Group for an
additional $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue associated with the properties that CMP will retain), including $1.15
million for Union Water assets. The related book value of these assets was
approximately $11.9 million at December 31, 1998.
Central Maine's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone Unit No. 3 nuclear
generating unit in Waterford, Connecticut, its 3.59-percent interest in the
output of the Vermont Yankee nuclear generating plant in Vernon, Vermont, and
its entitlement in the NEPOOL Phase II interconnection with Hydro-Quebec all
attracted insufficient interest to be included in the pending sale. Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its interests in the Maine Yankee (Wiscasset, Maine), Connecticut
Yankee (Haddam, Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear
generating plants, all of which are in the process of being decommissioned.
Substantially all of the generating assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture"). Therefore, substantially all of the proceeds
from sale must be deposited initially with the trustee under the Indenture at
the closing of the sale to free the generating assets from the lien of the
Indenture. Central Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture, and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase outstanding equity securities. Central Maine must also
provide for payment of applicable taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors, including Indenture provisions, regulatory
requirements, market conditions and terms of outstanding securities.
On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern District of New York requesting a declaratory judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other issues, it believed that Central Maine could not comply with the
conditions in the purchase contract and that FPL Energy should not be bound to
complete the transaction.
FPL Energy contended in its complaint that the FERC rulings (1) constituted a
material adverse effect under the purchase agreement and substantially lessened
the value of Central Maine's generating assets, and (2) precluded Central Maine
from obtaining all federal, state and local consents and approvals required for
the ownership, operation and maintenance of the generating assets in a manner
substantially consistent with Central Maine's historical ownership, operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy asserted that the FERC rulings limited the ability of the prospective
buyer to get power from the Central Maine generating assets to market
unconstrained by transmission limitations resulting from new generators being
added to the NEPOOL system, and therefore, based on the doctrine of frustration
of purpose, FPL Energy should be "excused without further obligation or
liability from effecting the purchase of [Central Maine's] generating assets."
Central Maine, FPL Energy, NEPOOL, and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.
On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase agreement, finding the sale
to be in the public interest. The MPUC also made the findings required as a
prerequisite to a FERC designation of the generating facilities as "exempt
wholesale generators," which had been requested by FPL Energy.
On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL Energy, after making the required finding that the sale was
consistent with the public interest, and accepted certain implementing
agreements for filing. In discussing an issue raised by an intervenor the FERC
stated that by purchasing the generating assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier transmission-access
rulings. The FERC granted its approval of the transfer of hydroelectric and
water storage licenses on December 28, 1998, the approval by FERC of
exempt-wholesale-generator status for the generating facilities, was granted on
February 24, 1999.
On March 11, 1999, the hearing on FPL Energy's request for a declaratory
judgment was held in the United States District Court for the Southern District
of New York. On the same day the presiding judge ruled that FPL Energy was not
entitled to the declaratory judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing of the sale on or before April 7, 1999, as required by the sale
agreement, and the parties are preparing for the closing.
Storm Damage to Central Maine's System
On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck Central Maine's service territory, causing power outages for
approximately 280,000 of Central Maine's 528,000 customers, and substantial
widespread damage to Central Maine's transmission and distribution system. To
restore its electrical system, Central Maine supplemented its own crews with
utility and tree-service crews from throughout the northeastern United States
and the Canadian maritime provinces, with assistance from the Maine national
guard. Central Maine's incremental non-capital costs of the repair effort were
$50.7 million, most of which is labor-related. In addition, approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.
On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the incremental non-capital costs associated with Central Maine's
efforts to restore service in response to the damage resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file information on the amounts deferred under the order and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was determined and the status of federal assistance was finalized
Central Maine would propose a plan for recovery of its costs. Based on the MPUC
order, Central Maine has deferred $52.4 million in storm related costs as of
December 31, 1998. In October 1998, the MPUC staff issued its draft report of
its summary investigation of the Maine utilities' response to the January ice
storm. This report found no basis for formal adjudicatory investigation into the
response and supports the utilities' actions. On May 1, 1998, President Clinton
signed a Congressional appropriation bill that included $130 million for
Presidentially declared disasters in 1998, including storm-damage cost
reimbursement for electric utilities. On November 5, 1998 the United States
Department of Housing and Urban Development ("HUD") announced that of those
funds, $2.2 million had been awarded to Maine, with none designated for utility
infrastructure, which Central Maine and the Maine Congressional delegation
protested as inadequate and inconsistent with Congressional intent. On March 10,
1999, HUD published a notice in the Federal Register inviting parties to
re-apply for storm-damage cost reimbursement. Central Maine cannot predict what
portion of its ice storm-related costs it will ultimately recover through
federal assistance, if any, or from its customers, or when any such recovery
will take place.
Meeting the Requirements of SFAS No. 71
Central Maine continues to meet the requirements of SFAS No. 71. The standard
provides specialized accounting for regulated enterprises, which requires
recognition of "regulatory" assets and liabilities that enterprises in general
could not record. Examples of regulatory assets include deferred income taxes
associated with previously flowed through items, NUG buyout costs, losses on
abandoned plants, deferral of postemployment benefit costs, and losses on debt
refinancing. If an entity no longer meets the requirements of SFAS No. 71, then
regulatory assets and liabilities must be written off.
The ARP provides incentive-based rates intended to recover the cost of service
plus a rate of return on Central Maine's investment together with a sharing of
the costs or earnings between ratepayers and the shareholders should the
earnings be less than or exceed a target rate of return. Central Maine has
received recognition from the MPUC that the rates implemented as a result of the
ARP continue to provide specific recovery of costs deferred in prior periods.
The 1997 legislation enacted in Maine providing for industry restructuring
specifically addressed the issue of cost recovery of regulatory assets stranded
as a result of industry restructuring. Specifically, the legislation requires
the MPUC, when retail access begins, to provide a "reasonable opportunity" for
the recovery of stranded costs through the rates of the
transmission-and-distribution company, comparable to the utility's opportunity
to recover stranded costs before the implementation of retail access under the
legislation. As provided for in EITF 97-4, "Deregulation of the Pricing of
Electricity," Central Maine will continue to record regulatory assets in a
manner consistent with SFAS No. 71 as long as future recovery is probable, since
the Maine legislation provides the opportunity to recover regulatory assets
including stranded costs through the rates of the transmission-and-distribution
company. Central Maine anticipates that once a detailed plan for deregulation of
generation is known, the application of SFAS No. 71 to the unregulated
generation segment will no longer apply and Central Maine will be required to
discontinue SFAS No. 71 for any remaining generation segment of its business.
Central Maine further anticipates, based on current generally accepted
accounting principles, that SFAS No. 71 will continue to apply to the regulated
distribution and transmission segments of its business. Future regulatory rules
or other circumstances could cause the application of SFAS No. 71 to be
discontinued, which could result in a non-cash write-off of previously
established regulatory assets.
Note 4: Commitments and Contingencies
Construction Program
Central Maine's plans for improving and expanding generating, transmission,
distribution facilities, and power-supply sources are under continuing review.
Actual construction expenditures will depend upon the availability of capital
and other resources, load forecasts, customer growth, and general business
conditions. Central Maine's current forecast of capital expenditures, assuming
completion of the generation asset sale in the spring of 1999, for the five-year
period 1999 through 2003, is as follows:
(Dollars in millions) 1999 2000-2003 Total
---- --------- -----
Type of Facilities:
Generating projects $ 3 $ - $ 3
Transmission 3 22 25
Distribution 32 132 164
General facilities and other 18 74 92
-- --- ---
Total Estimated Capital Expenditures $56 $228 $284
== === ===
Customer Retention
Central Maine entered into five-year definitive agreements with 18 customers
that lock-in non-cumulative rate reductions of 15% for the three years 1995
through 1997, 16% for 1998, and 18% for 1999, below the December 1, 1994,
levels. These contracts also protect these customers from price increases that
might otherwise be allowed under the ARP. The participating customers agreed to
take electrical service from Central Maine for five years and not to switch
fuels, install new self-generation equipment, or seek another supplier of
electricity for existing electrical load during that period. New electrical load
in excess of a stated minimum level could be served by other sources, but
Central Maine could compete for that load.
Central Maine believes that without offering the competitive pricing provided in
the agreements, a number of these customers would be likely to install
additional self-generation or take other steps to decrease their electricity
purchases from Central Maine. The revenue loss from such a usage shift could
have been substantial.
Central Maine estimates that based on the rate reductions provided in these
agreements, its gross revenues were approximately $45 million lower in 1996,
approximately $65 million lower in 1997 and approximately $62 million lower in
1998, than would have been the case if these customers continued to pay full
retail rates without reducing their purchases from the Company.
However, these rate reductions were negotiated giving consideration to important
related cost savings. Electricity price changes affect the cost of some NUG
power contracts. The reduction in rates to large customers reduced
purchased-power costs by approximately $22 million as a result of linkage
between retail tariffs and some contract prices.
Operating Lease Obligations
Central Maine has a number of operating-lease agreements primarily involving
computer and other office equipment, land, and telecommunications equipment.
These leases are noncancelable and expire on various dates through 2007.
Following is a schedule by year of future minimum rental payments required under
the operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998:
(Dollars in thousands) Amount
1999 $ 5,605
2000 5,033
2001 4,330
2002 4,257
2003 4,238
Thereafter 1,070
$24,533
Rent expense under all operating leases was approximately $6.3 million, $6.1
million, and $5 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Legal and Environmental Matters
Central Maine and certain of its affiliates are subject to regulation by federal
and state authorities with respect to air and water quality, the handling and
disposal of toxic substances and hazardous and solid wastes, and the handling
and use of chemical products. Electric utility companies generally use or
generate in their operations a range of potentially hazardous products and
by-products that are the focus of such regulation. Central Maine believes that
its current practices and operations are in compliance with all existing
environmental laws except for such non-compliance as would not have a material
adverse effect on Central Maine's financial position. Central Maine reviews its
overall compliance and measures the liability quarterly by assessing a range of
reasonably likely costs for each identified site using currently available
information, including existing technology, presently enacted laws and
regulations, experience gained at similar sites, and the probable level of
involvement and financial condition of other potentially responsible parties.
These estimates include costs for site investigations, remediation, operation
and maintenance, monitoring and site closure.
New and changing environmental requirements could hinder the construction and/or
modification of generating units, transmission and distribution lines,
substations and other facilities, and could raise operating costs significantly.
As a result, Central Maine may incur significant additional environmental costs,
greater than amounts reserved, in connection with the generation and
transmission of electricity and the storage, transportation and disposal of
by-products and wastes. Central Maine may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling activities.
The cumulative long-term cost impact of increasingly stringent environmental
requirements cannot accurately be estimated.
Central Maine has recorded a liability, based upon currently available
information, for what it believes are the estimated environmental remediation
costs that it expects to incur for identified waste disposal sites. In most
cases, additional future environmental cleanup costs are not reasonably
estimable due to a number of factors, including the unknown magnitude of
possible contamination, the appropriate remediation methods, the possible
effects of future legislation or regulation and the possible effects of
technological changes. Central Maine cannot predict the schedule or scope of
remediation due to the regulatory process and involvement of non-governmental
parties. At December 31, 1998, the liability recorded by Central Maine for its
estimated environmental remediation costs amounted to $1.9 million, which
management has determined to be the most probable amount within the range of
$1.9 million to $8.6 million. Such costs may be higher if Central Maine is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.
Proposed Federal Income Tax Adjustments - On September 3, 1997, Central Maine
received from the Internal Revenue Service ("IRS") a Revenue Agent's Report
summarizing all adjustments proposed by the IRS as a result of its audit of
Central Maine's federal income tax returns for the years 1992 through 1994, and
on September 12, 1997, Central Maine received a notice of deficiency relating to
the proposed disallowances. There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of Central Maine's write-off of
the under-collected balance of fuel and purchased-power costs and the
unrecovered balance of its unbilled Electric Revenue Adjustment Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in connection with the adoption of the Alternative Rate Plan ("ARP")
effective January 1, 1995. The second major adjustment would disallow Central
Maine's 1994 deduction of the cost of the buyout of the Fairfield Energy Venture
purchased-power contract by Central Maine in 1994. The aggregate tax impact,
including both federal and state taxes, of the unresolved issues amounts to
approximately $39.0 million, over 90 percent of which is associated with the two
major disallowances. The two major disallowances relate largely to the timing of
the deductions and would not affect income except for the cumulative interest
impact which, through December 31, 1998, amounted to $18.8 million, or a
decrease in net income of $11.1 million, and which could increase interest
expense by approximately $500,000 per month until either the tax deficiency is
paid or the issues are resolved in favor of Central Maine, in which case no
interest would be due. If the IRS were to prevail, Central Maine believes the
deductions would be amortized over periods of up to twenty, post-1994, tax
years. Central Maine believes its tax treatment of the unresolved issues was
proper and as a result the potential interest has not been accrued. On December
10, 1997, Central Maine filed a petition in the United States Tax Court
contesting the entire amount of the deficiencies and sought review of the
asserted deficiencies by an IRS Appeals Officer to determine whether all or part
of the dispute could be resolved in advance of a court determination. As of
March 17, 1999, four of the seven issues in dispute had been resolved, but not
the two major disallowances. Central Maine will continue to work toward
resolving the remaining issues, but a trial may be necessary for one or more of
those issues. Absent such a resolution, Central Maine plans to pursue vigorously
the Tax Court litigation, but cannot predict the result.
Nuclear Insurance
The Price-Anderson Act is a federal statute providing, among other things, a
limit on the maximum liability for damages resulting from a nuclear incident.
Coverage for the liability is provided for by existing private insurance and
retrospective assessments for costs in excess of those covered by insurance, up
to $88.095 million for each reactor owned, with a maximum assessment of $10
million per reactor in any year. However, after appropriate exemptive action by
the NRC Maine Yankee, and therefore its sponsors, are not responsible for
retrospective assessments resulting from any event or incident occurring after
January 7, 1999. Based on Central Maine's stock ownership in four nuclear
generating facilities and its 2.5 percent direct ownership interest in the
Millstone 3 nuclear unit, Central Maine's retrospective premium for post-January
7, 1999, events or incidents could be as high as $6 million in any year, for a
cumulative total of $52.9 million.
In addition to the insurance required by the Price-Anderson Act, the nuclear
generating facilities mentioned above carry additional nuclear property-damage
insurance. This additional insurance is provided from commercial sources and
from the nuclear electric utility industry's insurance company through a
combination of current premiums and retrospective premium adjustments. In
recognition of the reduced risk posed by the shutdown of the Maine Yankee Plant
and its defueled reactor, Maine Yankee substantially reduced its property-damage
coverage effective January 19, 1999.
Joint Venture
CMP Group and Energy East, through subsidiaries, have entered into a
joint-venture agreement to distribute natural gas to many Maine communities that
are not now served with that fuel. On July 24, 1998, the MPUC authorized the
provision of such service by the joint venture. CMP Group's level of investment
is dependent on the overall economic feasibility of natural gas as a competitive
energy option in Maine, a sufficient expression of customer interest in gas
service from CMP Natural Gas, and the prospects for achieving an acceptable
return on investment. CMP Natural Gas, L.L.C., which is owned equally by
subsidiaries of CMP Group and Energy East, is positioning itself to offer gas in
the Augusta and Bangor areas, and in other communities including Bath, Bethel,
Brunswick, Windham, Rumford, and Waterville.
Note 5: Pension and Other Benefits
Pension Benefits
CMP Group has two separate non-contributory, defined-benefit plans that cover
substantially all of its union and non-union employees. CMP Group funding policy
is to contribute amounts to the separate plans that are sufficient to meet the
funding requirements set forth in the Employee Retirement Income Security Act
(ERISA), plus such additional amounts as CMP Group may determine to be
appropriate. Plan benefits under the non-union retirement plan are based on
average final earnings, as defined within the plan, and length of employee
service; benefits under the union plan are based on average career earnings and
length of employee service.
A summary of the components of net periodic pension cost for the non-union and
union defined-benefit plans in 1998, 1997 and 1996 follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
---- ---- ----
Non- Non- Non-
(Dollars in thousands) union Union union Union union Union
----- ----- ----- ----- ----- -----
Service cost $2,791 $1,969 $2,375 $1,694 $2,334 $1,780
Interest cost 6,170 4,170 5,727 3,973 5,225 3,852
Expected return on plan
assets (6,364) (3,987) (5,734) (3,519) (5,441) (3,359)
Amortization on
unrecognized transition
(asset)/obligation 29 (270) 29 (270) 29 (270)
Amortization of
unrecognized prior
service cost 155 129 155 129 155 129
Amortization of
unrecognized (gain)/
loss - - (14) - - -
-------- -------- ------ -------- -------- ----
Net periodic
pension cost $2,781 $2,011 $2,538 $2,007 $2,302 $2,132
===== ===== ====== ====== ===== =====
</TABLE>
Assumptions used in accounting for the non-union and union defined-benefit plans
in 1998, 1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
Weighted average discount rate 6.50% 7.00% 7.50%
Rate of increase in future compensation levels 4.50% 4.50% 4.50%
Expected long-term return on assets 8.75% 8.75% 8.50%
The following table sets forth the change in benefit obligations, the change in
plan assets, and the funded status on CMP Group balance sheet at December 31,
1998, and 1997:
<TABLE>
<S> <C> <C> <C> <C>
Non-Union Union
--------- -----
1998 1997 1998 1997
---- ---- ---- ----
Change in Benefit Obligation
Projected Benefit Obligation at Beginning of Year $ 87,606,945 $ 75,569,512 $60,806,647 $ 55,687,980
Service Cost 2,790,886 2,375,101 1,969,293 1,693,530
Interest Cost 6,170,100 5,727,139 4,170,129 3,973,237
Actuarial (Gain)/Loss 9,812,272 8,737,997 4,839,188 2,627,316
Benefits Paid (4,760,258) (4,802,804) (3,099,550) (3,175,416)
------------ ------------ ----------- ------------
Projected Benefit Obligation at End of Year $101,619,945 $ 87,606,945 $68,685,707 $ 60,806,647
Change in Plan Assets
Fair Value of Assets at Beginning of Year $ 85,706,828 $ 77,996,183 $54,803,329 $ 48,090,441
Actual Return on Plan Assets 15,698,483 10,682,687 10,249,172 7,285,549
Employer Contributions 2,967,216 1,830,762 4,006,793 2,602,755
Benefits Paid (4,760,258) (4,802,804) (3,099,550) (3,175,416)
------------ ------------ ----------- ------------
Fair Value of Assets at End of Year $ 99,612,269 $ 85,706,828 $65,959,744 $ 54,803,329
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-Union Union
--------- -----
1998 1997 1998 1997
---- ---- ---- ----
Funded Status at December 31 $ (2,007,676) $ (1,900,117) $(2,725,963) $ (6,003,318)
Unrecognized Transition (Asset)/Obligation 104,583 133,634 (1,134,557) (1,404,689)
Unrecognized Prior Service Cost 1,473,873 1,629,207 1,223,028 1,352,027
Unrecognized (Gain)/Loss (15,536,708) (16,014,958) (6,306,647) (4,883,992)
----------- ----------- ---------- ------------
Net Amount Recognized - Accrued Benefit Cost $(15,965,928) $(16,152,234) $(8,944,139) $(10,939,972)
</TABLE>
Savings Plan
CMP Group offers an employee savings plan to all eligible employees. The
non-union plan allows participants to invest from 2% to 15% of their salaries
among several alternatives. The employer contribution equals 60% of the first 5%
(total of 3%) of the employees' contribution.
As part of the collective bargaining agreement, effective in May 1997, the union
plan allows maximum deferrals of up to 16% of their salaries among several
alternatives. The employer contribution equals 60% of the first 5% and 50% of
the next 2% invested, bringing the maximum employer contribution to 4% if an
employee defers 7% of compensation.
CMP Group's contributions to the savings plan trust were $1.9 million in 1998,
$1.8 million in 1997 and $1.7 million in 1996.
Post-Retirement Benefits
In addition to pension and savings-plan benefits, CMP Group provides certain
health-care and life-insurance benefits for substantially all of its retired
employees.
The MPUC approved a rulemaking on SFAS No. 106, effective July 20, 1993, that
adopted the accrual method of accounting for the expected cost of such benefits
during the employees' years of service, and authorized the establishment of a
regulatory asset for the deferral of such costs until they are "phased-in" for
ratemaking purposes. The effect of the change can be reflected in annual
expenses over the active service life of employees or a period of 20 years,
rather than in the year of adoption.
The MPUC prescribes the maximum amortization period of the average remaining
service life of active employees or 20 years, whichever is longer, for the
transition obligation. CMP Group is utilizing a 20 year amortization period.
Segregation in an external fund is required for amounts collected in rates.
Central Maine (CMP Group was not formed until September 1998) funded $3 million
in November 1997 and July 1998 and plans to monitor and fund the same amount
annually in order to meet its obligation.
As a result of the MPUC order, CMP Group records the cost of these benefits by
charging expense in the period recovered through rates. The annual
post-retirement benefit expense is currently included in rates as well as an
amount designed to recover the deferred balance over a period of 20 years. The
amounts included in rates in 1998, 1997 and 1996 were $10.8, $9.7 and $9.8
million, respectively. With the reduction in the deferred account of $1.5
million in 1998 and, $1.8 million in 1997. The total amount deferred as a
regulatory asset as of December 31, 1998 and 1997 was $19.6 million and $21
million, respectively. A summary of the components of net periodic
postretirement benefit cost for the plan in 1998, 1997 and 1996 follows:
(Dollars in thousands) 1998 1997 1996
---- ---- ----
Service cost $ 1,867 $ 1,201 $ 1,347
Interest cost 5,438 4,702 5,720
Expected return on plan assets (360) - -
Amortization of unrecognized transition obligation 3,704 3,704 4,080
Amortization of prior service cost - - 35
Amortization of unrecognized (gain)/loss (80) (1,029) (329)
--------- ----- -------
Postretirement benefits expense 10,569 8,578 10,853
Deferred postretirement benefits expense - - (1,056)
---------- -------- -------
Postretirement Benefit Expense Recognized in the
Statement of Earnings $ 10,569 $ 8,578 $ 9,797
======= ===== ======
The following table sets forth the change in benefit obligation, change in plan
assets and the funded status of the plan, and the liability recognized on CMP
Group's balance sheet at December 31, 1998 and 1997:
(Dollars in thousands) 1998 1997
---- ----
Change in Benefit Obligation
Benefit obligation at beginning of year $ 69,749 $ 73,903
Service cost 1,867 1,201
Interest cost 5,438 4,702
Estimated benefits paid (6,334) (5,401)
Actuarial (gain)/loss 16,232 (4,656)
------- -------
Benefit obligation at end of year 86,952 69,749
Change in Plan Assets
Fair value of plan assets at beginning of year 3,025 849
Actual return on plan assets 711 66
Employer contribution 9,100 7,511
Estimated benefits paid (6,334) (5,401)
------- -------
Fair value of plan assets at end of year 6,502 3,025
Funded Status (80,450) (66,724)
Unrecognized transition (asset)/obligation 51,859 55,563
Unrecognized prior service cost 4 5
Unrecognized actuarial (gain)/loss (3,718) (19,680)
------- -------
Accrued benefit cost $(32,305) $(30,836)
======= =======
The assumed health-care cost-trend rate was an average gross medical trend of
approximately 6% for 1998 reducing to 5% overall in the year 2020. Rates range
from 5.6% to 6.5% for 1997 reducing to 5.0% overall over a period of 25 years.
Rates range from 5.7% to 6.8% for 1996, reducing to 5.0% overall, over a period
of 10 years. The effect of a one-percentage-point increase in the assumed
health-care cost-trend rate for each future year would increase the aggregate of
the service and interest-cost components of the net periodic postretirement
benefit cost by $1.1 million and the accumulated postretirement benefit
obligation ("APBO") by $11.0 million. The effect of a one-percentage-point
decrease in the assumed healthcare cost-trend rate for each future year would
decrease the aggregate of the service and interest-cost components of the net
periodic postretirement benefit cost by $947 thousand and the APBO by $9.3
million. Additional assumptions used in accounting for the postretirement
benefit plan in 1998, 1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
Weighted-average discount rate 6.50% 7.00% 7.50%
Rate of increase in future compensation levels 4.50% 4.50% 4.50%
CMP Group is exploring alternatives for mitigating the cost of postretirement
benefits and for funding its obligations. These alternatives include mechanisms
to fund the obligation prior to actual payment of benefits, plan-design changes
to limit future expense increases, and additional cost-control and cost-sharing
programs.
Note 6: Incentive Compensation
Stock options granted are exerciseable at the market price of the common stock
on the date of the grant. They expire seven years from their grant date. One
third options vest annually, commencing on the first anniversary of the option
grant date. Upon vesting stock options are exerciseable during periods of active
employment or within thirty (30) days after termination of employment, provided
termination did not occur due to cause.
Stock options granted for the year 1998 are summarized as follows:
Weighted Average
Exercise Price
Shares
Outstanding at the beginning of 1997 -
Granted during the year 253,925 $17.375
Expired/canceled during the year 11,929 $17.375
------
Outstanding as of December 31, 1998 241,996 $17.375
=======
The stock options were granted with a grant date fair value of $2.28. The fair
value was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Expected option life 7 Years
Risk free interest rate 6.00%
Expected volatility 0.154%
Dividend yield 5.10%
CMP Group uses the intrinsic value based method to recognize compensation
expense related to stock options. No compensation expense was recognized in 1998
related to stock options granted, since they contained an exercise price equal
to the fair market value on the date of the grant. Had compensation costs for
stock options been determined based on the fair value at the grant dates for
awards under this plan consistent with the method of SFAS No. 123, the CMP
Group's net income and earnings per share would have been reduced to the pro
forma amounts indicated as follows:
1998
Net Income:
As Reported $52,910
Pro Forma $52,583
Earnings Per Share:
As Reported $1.63
Pro Forma $1.62
Performance Shares - Performance shares are shares of CMP Group stock granted at
the end of a 3-year performance cycle, based on achievement of performance goals
that are directly linked to increasing shareholder value. If the goals are not
achieved at the end of the 3-year cycle, the performance shares are forfeited.
Contingently issuable performance shares for the three year period beginning in
1997 and 1998, totaled 61,437 and 66,906, respectively.
CMP Group is accruing the compensation expense associated with these shares over
the applicable three year period. The total expense recognized in 1998 was
approximately $743 thousand.
Note 7: Transactions with Affiliated Companies
Central Maine provides certain services to CMP Group and its subsidiaries,
including administrative support services and pension and employee benefit
arrangements. Charges related to those services have been determined based on a
combination of direct charges and allocations designed to recover Central
Maine's cost. These assessments are reflected as an offset to Central Maine's
expenses and totaled approximately $3 million for the year ended December 31,
1998.
CMP Group provides certain managerial services to its subsidiaries. Charges
related to those services have been determined based on a combination of direct
charges and allocation in order to recover the majority of their expenses. These
assessments are reflected as an offset to CMP Group's expenses and totaled
approximately $1.2 million for the year ended December 31, 1998.
In addition, a subsidiary of CMP Group provides certain real estate and river
management services charged to Central Maine at cost and environmental,
engineering, utility locator and construction services based on a contracted
rate. These expenses amounted to $2.7 million for the year ended December 31,
1998.
As of December 31, 1998, Central Maine's accounts receivable and accounts
payable balances include the following balances with affiliated companies:
(dollars in thousands)
Accounts Receivable Accounts Payable
CMP Group $ 180 $1,590
MainePower 43 604
CNEX 190 138
MaineCom 138 -
TeleSmart 78 36
Union Water 950 1,386
------ -----
$1,579 $3,754
===== =====
Note 8: Fiber Optic Network
In July 1998, MaineCom's equity investments, FiveCom, Inc., and FiveCom of
Maine, LLC reorganized along with other related companies to form a new company,
Northeast Optic Network, Inc. ("NEON"). MaineCom's ownership interest of
53.5-percent in the new company was equal to its combined ownership interest in
FiveCom and FiveCom of Maine.
In August 1998 NEON issued 4 million new shares of common stock at $12.00 per
share on the open market in an initial public offering ("IPO"). NEON's IPO had
the effect of decreasing MaineCom's ownership interest from 53.5-percent to
approximately 40-percent. The shares were issued at an amount greater than
MaineCom's per share investment, resulting in an increase in MaineCom's
investment in NEON of $15.9 million. In accordance with the SEC's Staff
Accounting Bulletins ("SAB") 51 and 84 MaineCom increased additional paid in
capital by $9.4 million and deferred tax reserve liability by $6.5 million. CMP
Group's accounting policy for such transactions is to recognize a gain in
income. However, the above transaction was reflected in additional paid in
capital as required by the SEC SAB's.
In conjunction with the IPO, Central Maine sold 282,023 NEON shares, resulting
in a net after tax gain of approximately $1.9 million and further reducing its
(now MaineCom's) ownership percentage to 38.5-percent of the outstanding common
shares.
NEON is a facilities-based provider of technologically advanced, high-bandwidth,
fiber optic transmission capacity for communications carriers on local loop,
inter-city and interstate facilities. NEON is currently expanding its fiber
optic network to encompass over 1,000 fiber optic cable route miles, or more
than 65,000 fiber strand miles, in New England and New York, utilizing primarily
electric-utility rights-of-way, including some of Central Maine's in Maine and
some owned by other electric utilities including Northeast Utilities, another
substantial minority stockholder, in Connecticut, Massachusetts and New
Hampshire. As of December 31, 1998, NEON had completed construction of
approximately 600 route miles, or 49,000 fiber miles, of its planned system and
is currently engineering, constructing, or acquiring additional routes with a
goal of creating a continuous fiber optic link between New York City and
Portland, Maine, with access into and around Boston and numerous other major
service areas in the Northeast.
CMP Group believes there is a growing need for such a fiber optic network in the
Northeast and that NEON's outside financing will provide substantial assistance
in completing construction of the network, but cannot predict the results of
this venture.
Note 9: Capacity Arrangements
Power Agreements
Central Maine, through certain equity interests, is entitled to a portion of the
generating capacity and energy production of four nuclear generating facilities
(the Yankee companies), three of which have been permanently shut down, and is
obligated to pay its proportionate share of costs, which include fuel,
depreciation, operation-and-maintenance expenses, a return on invested capital,
and the estimated cost of decommissioning the nuclear plants.
Pertinent data related to these power agreements as of December 31, 1998, are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
(Dollars in thousands) Maine Yankee Vermont Connecticut Yankee Atomic
Yankee Yankee
Ownership share 38% 4% 6% 9.5%
-- - - ---
Operating Status Permanently Operating Permanently Permanently
shutdown shutdown shutdown
August 6, 1997 December 4, February 26,
1996 1992
Contract expiration date 2008 2012 1998 2000
Capacity (MW) - 531 - -
Company's share of: Capacity (MW)
- 19 - -
1998 energy and capacity costs $ 41,631 $ 7,012 $ 4,737 $ 4,513
Long-term obligations and redeemable
preferred stock $ 75,461 $ 7,884 $ 8,894 -
Estimated decommissioning obligation
$273,895 $16,272 $29,913 $ 7,761
Accumulated decommissioning fund
$ 80,812 $ 7,620 $14,992 $14,313
</TABLE>
Under the terms of its agreements, Central Maine pays its ownership share (or
entitlement share) of estimated decommissioning expense to each of the Yankee
companies and records such payments as a cost of purchased power.
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. The Plant experienced a number
of operational and regulatory problems and did not operate after December 6,
1996. The decision to close the Plant permanently was based on an economic
analysis of the costs, risks and uncertainties associated with operating the
Plant compared to those associated with closing and decommissioning it. The
Plant's operating license from the NRC was scheduled to expire on October 21,
2008.
Central Maine continues to incur costs, which are substantially less than in
1997, in connection with its 38% share of Maine Yankee as well as additional
costs for replacement power since the Plant has been shut down. For the twelve
months ended December 31, 1998, such costs amounted to approximately $41.6
million for Central Maine, $3.1 million related to energy costs and $38.5
million for capacity charges. The power formerly received from Maine Yankee has
been primarily replaced with two long-term purchased power arrangements that
Central Maine has made with Canadian sources through February 2000.
Central Maine's 38% ownership interest in Maine Yankee's common equity amounted
to $30 million as of December 31, 1998, and under Maine Yankee's Power Contracts
and Additional Power Contracts, Central Maine is responsible for 38% of the
costs of decommissioning the Plant. Maine Yankee's most recent estimate of the
cost of decommissioning is $380.6 million, based on a 1997 study by an
independent engineering consultant, plus estimated costs of interim spent-fuel
storage of $127.6 million, for an estimated total cost of $508.2 million (in
1997 dollars). This would result in approximately $36.4 million being collected
annually from Maine Yankee's sponsors. The previous estimate for
decommissioning, by the same consultant, was $316.6 million (in 1993 dollars),
which resulted in approximately $14.9 million being collected annually from
Maine Yankee's sponsors pursuant to a 1994 Federal Energy Regulatory Commission
("FERC") rate order. Through December 31, 1998, Maine Yankee had collected
approximately $212.7 million for its decommissioning obligations.
FERC Rate Case. On November 6, 1997, Maine Yankee submitted to FERC for filing
certain amendments to the Power Contracts (the "Amendatory Agreements") and
revised rates to reflect the decision to shut down the Plant and to request
approval of an increase in the decommissioning component of its formula rates.
Maine Yankee's submittal also requested certain other rate changes, including
recovery of unamortized investment (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998, the FERC accepted Maine Yankee's new rates for filing,
subject to refund after a minimum suspension period, and set Maine Yankee's
Amendatory Agreements, rates and issues concerning the prudence of the
Plant-shutdown decision for hearing.
By Complaint dated December 9, 1997, the Maine Office of the Public Advocate
("OPA") sought a FERC investigation of Maine Yankee's actions leading to the
decision to shut down the Plant, including actions associated with the
management and operation of Maine Yankee since 1993. The MPUC had initiated an
investigation in Maine earlier, raising generally similar issues. By decision
dated May 4, 1998, the FERC consolidated the OPA Complaint with the
comprehensive rate proceeding. In addition, 28 municipal and cooperative
utilities that had purchased in the aggregate approximately 6.2 percent of the
output of the Plant from Maine Yankee's sponsors (the "Secondary Purchasers")
intervened in the FERC proceeding, raising similar prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.
In support of its request for an increase in decommissioning collections, Maine
Yankee submitted with its initial FERC filing a 1997 decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive competitive bid process to engage a Decommissioning Operations
Contractor ("DOC") to perform certain major decontamination and dismantlement
activities at the Plant on a fixed-price, turnkey basis. As a result of that
process, a consortium headed by Stone & Webster Engineering Corporation ("Stone
& Webster") was selected to perform such activities under a fixed-price
contract. The contract provides for, among other undertakings, construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning activities and site restoration by the end of 2004. The DOC
process resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.
Since the filing of the rate request, Maine Yankee and the active intervenors,
including among others the MPUC Staff, the OPA, Central Maine and other owners,
the Secondary Purchasers, and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery and negotiations. Those parties
participated in settlement discussions that resulted in an Offer of Settlement
filed by those parties with the FERC on January 19, 1999. On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and that the FERC approve it. Upon approval by the FERC, the
settlement would constitute a full settlement of all issues raised in the
consolidated FERC proceeding, including decommissioning-cost issues and issues
pertaining to the prudence of the management, operation, and decision to
permanently cease operation of the Plant. A separately negotiated settlement
filed with the FERC on February 5, 1999, would resolve the issues raised by the
Secondary Purchasers by limiting the amounts they will pay for decommissioning
the Plant and by settling other points of contention affecting individual
Secondary Purchasers. On February 24, 1999, the FERC Trial Staff recommended
certification and approval of the settlement with the Secondary Purchasers.
The Offer of Settlement provides for Maine Yankee to collect $33.6 million in
the aggregate annually, effective January 15, 1998, consisting of (1) $26.8
million for estimated decommissioning costs, and (2) $6.8 million for
ISFSI-related costs. The original filing with FERC on November 6, 1997, called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate. Under the settlement the amount collected
annually could be reduced to approximately $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual payment to the State of Texas pursuant to a compact
for low-level nuclear waste disposal, the future of which is now in question
after rejection of the selected disposal site in west Texas by a Texas
regulatory agency. Both would require authorizing legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.
The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective January 15, 1998, on equity balances up to maximum allowed equity
amounts. The Settling Parties also agreed in the proposed settlement not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing, subject to certain limitations including the right to
challenge any accelerated recovery of unamortized investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition, the settlement contains incentives for Maine Yankee
to achieve further savings in its decommissioning and ISFSI-related costs and
resolves issues concerning restoration and future use of the Plant site and
environmental matters of concern to certain of the intervenors in the
proceeding.
As a separate part of the Offer of Settlement, Central Maine, the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further agreement resolving retail rate issues and other issues
specific to the Maine parties, including those that had been raised concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine Agreement Central Maine would continue to recover its Maine
Yankee costs in accordance with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central Maine has collected from its retail customers a return on equity in
excess of the 6.50 percent contemplated by the Offer of Settlement, no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.
The final major provision of the Maine Agreement requires the Maine owners, for
the period from March 1, 2000, through December 1,2004, to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of Directors that served as a basis for the Plant shutdown
decision, up to a maximum cumulative amount of $41 million. Central Maine's
share of that amount would be $31.16 million for the period. The Maine
Agreement, which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.
CMP Group and Central Maine believe that the Offer of Settlement, including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC proceeding, and that approval of the Offer of Settlement by
the FERC would eliminate significant uncertainties concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding, including the FERC Trial Staff, support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty whether or in what form it will
be approved by the FERC.
Condensed financial information on Maine Yankee Atomic Power Company is as
follows:
<TABLE>
<S> <C> <C> <C>
(Dollars in thousands) 1998 1997 1996
---- ---- ----
Earnings:
Operating revenues $ 110,608 $238,586 $185,661
Operating income 13,430 18,170 17,150
Net income 6,295 9,037 8,106
Earnings applicable to common stock 4,916 7,613 6,637
Central Maine's Equity Share of Net Earnings $ 1,868 $ 2,893 $ 2,522
----------- ---------- ---------
Investment:
Net electric property and nuclear fuel $ 687 $ 17,938 $222,360
Current assets 20,896 71,098 44,979
Deferred charges and other assets 1,161,715 1,279,107 334,722
--------- --------- -------
Total Assets 1,183,298 1,368,143 602,061
--------- --------- -------
Less:
Redeemable preferred stock 16,800 17,400 18,000
Long-term obligations 201,614 270,299 223,572
Current liabilities 15,122 35,518 34,265
Reserves and deferred credits 870,856 966,561 255,472
--------- --------- -------
Net Assets $ 78,906 $ 78,365 $ 70,752
---------- ---------- --------
Company's Equity in Net Assets $ 29,984 $ 29,779 $ 26,886
========== ========== ========
</TABLE>
Other Nuclear Investments
In December 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company announced a permanent shutdown of the Connecticut Yankee plant in
Haddam, Connecticut, and decided to decommission the plant for economic reasons.
The Company has a 6% equity interest in Connecticut Yankee, totaling
approximately $6.3 million at December 31, 1998. Central Maine estimates its
share of the cost of Connecticut Yankee's continued compliance with regulatory
requirements, recovery of its plant investments, decommissioning and closing the
plant to be approximately $29.9 million and has recorded a regulatory asset and
a liability on the consolidated balance sheet. Central Maine is currently
recovering through rates an amount adequate to recover these expenses.
On February 26, 1992, the Board of Directors of Yankee Atomic Electric Company
(Yankee Atomic) decided to permanently discontinue power operation at the Yankee
Atomic Plant in Rowe, Massachusetts, and to decommission that facility. Central
Maine relied on Yankee Atomic for less than 1% of the Company's system capacity.
Its 9.5% equity investment in Yankee Atomic is approximately $1.9 million.
Central Maine has estimated its remaining share of the cost of Yankee Atomic's
continued compliance with regulatory requirements, recovery of its plant
investments, decommissioning and closing the plant, to be approximately $7.8
million.
Central Maine has approximately a 60% ownership interest in the jointly owned,
Company-operated, 620-megawatt oil-fired W. F. Wyman Unit No. 4. See Note 3,
"Regulatory Matters" - "Agreement for Sale of Generation Assets." Central Maine
also has a 2.5% ownership interest in the Millstone Unit No. 3 nuclear plant
operated by Northeast Utilities, and is entitled to approximately a 29-megawatt
share of that unit's capacity. Central Maine's plant in service, nuclear fuel,
decommissioning fund, and related accumulated depreciation and amortization
attributable to these units as of December 31, 1998, and 1997 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Wyman 4 Millstone 3
------- -----------
(Dollars in thousands) 1998 1997 1998 1997
---- ---- ---- ----
Plant in service, nuclear fuel and decommissioning
fund $116,075 $116,367 $112,907 $112,227
Accumulated depreciation and amortization 69,028 66,239 45,433 42,412
</TABLE>
Power-Pool Agreements
The New England Power Pool, of which Central Maine is a member, has contracted
in its Hydro-Quebec Projects to purchase power from Hydro-Quebec. The contracts
entitle Central Maine to 44.5 megawatts of capacity credit in the winter and
127.25 megawatts of capacity credit during the summer. Central Maine has entered
into facilities-support agreements for its share of the related transmission
facilities. Central Maine's share of the support responsibility and of
associated benefits is approximately 7%.
Central Maine is making facilities-support payments on approximately $25.4
million, its remaining share of the construction cost for these transmission
facilities incurred through December 31, 1998. These obligations are reflected
on the Company's consolidated balance sheet as lease obligations with a
corresponding charge to electric property.
Non-Utility Generators
Central Maine has entered into a number of long-term, non-cancelable contracts
for the purchase of capacity and energy from non-utility generators (NUG). The
agreements generally have terms of five to 30 years, with expiration dates
ranging from 1999 to 2023. They require Central Maine to purchase the energy at
specified prices per kilowatt-hour, which are often above market prices. As of
December 31, 1998, facilities having 508 megawatts of capacity covered by these
contracts were in-service. The costs of purchases under all of these contracts
amounted to $265 million in 1998, $306.4 million in 1997, and $313.4 million in
1996.
Central Maine's estimated contractual obligations with NUGs as of December 31,
1998, are as follows:
(Dollars in Amount
millions)
1999 $ 280
2000 281
2001 260
2002 267
2003 271
2004 - 2023 1,857
-----
$3,216
Note 10: Capitalization and Interim Financing
Retained Earnings
Under terms of the most restrictive test in Central Maine's General and
Refunding Mortgage Indenture and Central Maine's Articles of Incorporation, no
dividend may be paid on the common stock of Central Maine if such dividend would
reduce retained earnings below $29.6 million. At December 31, 1998, Central
Maine's retained earnings were $76.3 million, of which $46.7 million were not so
restricted. There are no such restrictions on CMP Group. Future dividend
decisions will be subject to future earnings levels and the financial condition
of CMP Group and Central Maine and will reflect the evaluation by their Board of
Directors of then existing circumstances.
Mortgage Bonds
Substantially all of Central Maine's electric-utility property and franchises
are subject to the lien of the General and Refunding Mortgage.
Central Maine's outstanding mortgage bonds may be redeemed at established prices
plus accrued interest to the date of redemption, subject to certain refunding
limitations. Bonds may also be redeemed under certain conditions at their
principal amount plus accrued interest by means of cash deposited with the
trustee under certain provisions of the mortgage indenture. Under the Indenture
such cash may be applied at any time, at the direction of Central Maine, to the
redemption of bonds outstanding under the Indenture at a price equal to the
principal amount of the bonds being redeemed, without premium, plus accrued
interest to the date fixed for redemption. Such cash may also be withdrawn by
Central Maine by substitution of allocated property additions or available
bonds. At December 31, 1998, there was approximately $1,000 of such cash on
deposit with the trustee.
Mortgage Bonds outstanding as of December 31, 1998, and 1997 were as follows:
Central Maine Power Company
General and Refunding Mortgage Bonds:
Interest
Series Maturity rate 1998 1997
------ -------- ---- ---- ----
(Dollars in thousands)
U 1998-April 15 7.54% $ $ 25,000
-
S 1998-August 15 6.03 - 60,000
T 1998-November 1 6.25 - 75,000
O 1999-January 1 7 3/8 - 50,000
P 2000-January 15 7.66 43,717 75,000
N 2001-September 15 8.50 - 11,000
Q 2008-March 1 7.05 75,000 75,000
R 2023-June 1 7 7/8 50,000
------- --------
-
Total Mortgage Bonds $118,717 $421,000
======= =======
During 1998, Central Maine paid at maturity or redeemed the following principal
amounts of its General and Refunding Mortgage Bonds: on March 30, $50 million of
Series R 7-7/8%, Due 2023; on the same day $11 million of Series N 8.50%, Due
2001; on April 15, $25 million of Series U 7.54%, Due 1998; on June 15, $31.3
million of Series P 7.66%, Due 2000; on August 15, $60 million principal amount
of Series S 6.03%, Due 1998; on November 1, $75 million principal amount of
Series T 6.25%, Due 1998; and on December 31, $50 million principal amount of
Series O 7.375%, Due 1999. No premiums were paid by Central Maine for the bonds.
Limitations on Unsecured Indebtedness
Central Maine's Articles of Incorporation limit certain unsecured indebtedness
that may be outstanding to 20 percent of capitalization, as defined without the
consent of the holders of Central Maine's preferred stock; 20 percent of defined
capitalization amounted to $143 million as of December 31, 1998. Unsecured
indebtedness, as defined, amounted to $131 million as of December 31, 1998.
Central Maine's $500 million medium-term note program, having received the
consent of Central Maine's preferred stockholders in May 1997, is not included
in "unsecured indebtedness" for purposes of the 20-percent limitation.
Medium-Term Notes
At the annual meeting of the stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350 million in principal amount of Central Maine's medium-term notes in
addition to the $150 million in principal amount to which they had previously
consented in 1989. As of December 31, 1998, $337 million of medium-term notes
were outstanding of which $10 million are classified as short-term. Interest on
fixed-rate notes is payable on March 1 and September 1, while interest on
floating-rate notes is payable on the dates indicated thereupon.
Medium-Term Notes outstanding as of December 31, 1998, and 1997 were as follows:
(Dollars in thousands)
Maturity Interest rate 1998 1997
------------- ---- ----
Series A:
2000 9.65% $ 5,000 $ 5,000
Series B:
1998 5.32 - 8,000
Series C:
1999-2001 5.67-7.81 127,000 30,000
Series D:
1999-2000 5.52-7.04 205,000 -
------- -----
Medium-Term Notes 337,000 43,000
Less: Amount Due Within One Year 10,000 -
-------- -----
Total Medium-Term Notes $327,000 $43,000
======= ======
Pollution-Control Facility and Other Notes
Pollution-control facility and other notes outstanding as of December 31, 1998,
and 1997 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
(Dollars in thousands)
Series Interest rate Maturity 1998 1997
- ------ ------------- -------- ---- ----
Central Maine Power Company:
Yarmouth Installment Notes 6 3/4% June 1, 2002 $ 9,330 $ 9,805
Yarmouth Installment Notes 6 3/4 December 1, 2003 1,000 1,000
Industrial Development
Authority of the State of
New Hampshire Notes 7 3/8 May 1, 2014 19,500 19,500
Finance Authority of Maine 8.16 January 1, 2005 45,929 53,329
Revolving Credit Agreement 6.1125 October 22, 1999 50,000 -
Maine Electric Power Company, Inc.:
Promissory Notes Variable* November 1, 2000 420 620
NORVARCO: Promissory Note 10.48 November 1, 2020 24,090 -
NORVARCO: Senior Note 7.05 November 1, 2020 1,747 -
Union Water Power Company-Bank Notes
7.99 December 2011 1,163 -
Union Water Power Company-Bank Notes
Variable** October 2018 1,284 -
-------- ------
Pollution-Control Facility and Other Notes
154,463 84,254
Less: Amount Due Within One Year 1,183 -
--------- ------
$153,280 $84,254
======= ======
</TABLE>
*The average rate was 6.48% in 1998 and 6.5% in 1997.
**The average rate was 8.25% in 1998.
The bonds issued by the Industrial Development Authority of the State of New
Hampshire are supported by loan agreements between Central Maine and the
Authority. The bonds are subject to redemption at the option of Central Maine at
their principal amount plus accrued interest and premium, beginning in 2001.
On October 26, 1994, FAME issued $79.3 million of Taxable Electric Rate
Stabilization Revenue Notes Series 1994A (FAME notes). FAME and Central Maine
entered into a loan agreement under which Central Maine issued FAME a note for
approximately $66.4 million, evidencing a loan in that amount. The remaining
$12.9 million of FAME-notes proceeds over the $66.4 million was placed in a
capital-reserve account. The amount in the capital-reserve account is equal to
the highest amount of principal and interest on the FAME notes to accrue and
come due in any year the FAME notes are outstanding. The amounts invested in the
capital reserve account are initially invested in government securities designed
to generate interest income at a rate equal to the interest on the FAME notes.
Under the terms of the loan agreement, Central Maine is also responsible for or
receives the benefit from the interest rate differential and investment gains
and losses on the capital reserve account.
Capital Lease Obligations
CMP Group leases some of its buildings and equipment under lease arrangements,
and accounts for certain transmission agreements as capital leases using periods
expiring between 2006 and 2021. The net book value of property under capital
leases was $29.4 million and $31.2 million at December 31, 1998, and 1997,
respectively. Assets acquired under capital leases are recorded as electric
property at the lower of fair-market value or the present value of future lease
payments, in accordance with practices allowed by the MPUC, and are amortized
over their contract terms. The related obligation is classified as other
long-term debt. Under the terms of the lease agreements, executory costs are
excluded from the minimum lease payments.
Estimated future minimum lease payments for the five years ending December 31,
2003, together with the present value of the minimum lease payments, are as
follows:
(Dollars in thousands) Amount
------
1999 $ 5,257
2000 5,088
2001 4,919
2002 4,749
2003 4,580
Thereafter 47,024
------
Total minimum lease payments 71,617
Less: amounts representing interest 38,844
------
Present Value of Net Minimum Lease Payments $32,773
======
Sinking-Fund Requirements
Consolidated sinking-fund requirements for long-term obligations, including
capital lease payments and maturing debt issues, for the five years ending
December 31, 2003, are as follows:
(Dollars in thousands)
Sinking fund Maturing debt
Total
1999 2,455 282,000 284,455
2000 10,519 128,717 139,236
2001 10,949 10,000 20,949
2002 18,766 - 18,766
2003 11,889 - 11,889
Disclosure of Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practicable are discussed below. The
carrying amounts of cash and temporary investments approximate fair value
because of the short maturity of these investments. The fair value of redeemable
preferred stock and pollution-control facility and other notes is based on
quoted market prices as of December 31, 1998 and 1997. The fair value of
long-term obligations is based on quoted market prices for the same or similar
issues, or on the current rates offered to the particular company based on the
weighted average life of each class of instruments.
The estimated fair values of the CMP Group's financial instruments as of
December 31, 1998, and 1997 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
Carrying Carrying
(Dollars in thousands) amount Fair value amount Fair value
Redeemable preferred stock $ 27,910 $ 28,747 $ 46,528 $ 48,247
Mortgage bonds 118,717 120,782 421,000 421,151
Medium-term notes 327,000 326,226 43,000 43,378
Pollution-control facility and other notes 153,280 157,771 84,254 83,163
</TABLE>
Cumulative Preferred Stock
Preferred-stock balances outstanding as of December 31, 1998 and 1997 were as
follows:
(Dollars in thousands, except per-share amounts)
Current shares
outstanding 1998 1997
Preferred Stock - Not Subject to
Mandatory Redemption:
$25 par value - authorized 2,000,000
shares; outstanding: None $ - $ -
$100 par value noncallable -authorized
5,713 shares; outstanding 6% voting 5,713 571 571
$100 par value callable - authorized
2,300,000* shares; outstanding:
3.50% series (redeemable at $101) 220,000 22,000 22,000
4.60% series (redeemable at $101) 30,000 3,000 3,000
4.75% series (redeemable at $101) 50,000 5,000 5,000
5.25% series (redeemable at $102) 50,000 5,000 5,000
7 7/8% series (optional redemption after
9/1/97, at $100) - 30,000
6% stock owned by CMP Group, Inc. 533 (43) -
------- ------
Total $35,528 $65,571
====== ======
Redeemable Preferred Stock - Subject to
Mandatory Redemption:
Flexible Money Market Preferred Stock,
Series A - 7.999% (279,100 shares in
1998, 395,275 sharesin 1997 and 1996) 189,100 27,910 39,528
8 7/8% series (redeemable at $101 - 7,000
Total $27,910 $46,528
*Total authorized $100 par value callable is 2,300,000 shares. Shares
outstanding are classified as Not Subject to Mandatory Redemption and Subject to
Mandatory Redemption.
Sinking-fund provisions for the 8 7/8% Series Preferred Stock require the
Company to redeem all shares at par plus an amount equal to dividends accrued to
the redemption date on the basis of 70,000 shares annually commencing on July,
1996. The Company also has the non-cumulative right to redeem up to an equal
amount of the respective number of shares annually, beginning in 1996, at par
plus an amount equal to dividends accrued to the redemption date. The
sinking-fund requirement for the five-year period ending December 31, 2000 is
$7.0 million annually beginning in 1996. The Company redeemed $14 million of
these shares at par in 1996 and 1997 pursuant to the mandatory and optional
sinking-fund provisions. On July 1, 1998 Central Maine redeemed the final $7
million of its Preferred Stock 8 7/8% Series through its mandatory sinking fund
provisions. In connection with the Central Maine common stock conversion, a
number of holders of the 6% preferred stock requested payment at fair value for
their shares pursuant to section 910 of the Maine Business Corporation Act. CMP
Group purchased 533 shares from various shareholders of Central Maine 6%
preferred stock.
Sinking-fund provisions for the Flexible Money Market Preferred Stock, Series A,
7.999%, require Central Maine to redeem all shares at par plus an amount equal
to dividends accrued to the redemption date on the basis of 90,000 shares
annually beginning in October 1999. Central Maine also has the non-cumulative
right to redeem up to an equal number of shares annually beginning in 1999, at
par plus an amount equal to dividends accrued to the redemption date. The
sinking-fund requirement for the period 1998 through 2001 is $9 million annually
with a final sinking fund requirement of $910 thousand in 2002.
On April 1, 1998, Central Maine redeemed all of the outstanding 300,000 shares
of its Preferred Stock 7-7/8% Series at a redemption price of $100 per share. No
accrued dividends were paid on the preferred stock since the redemption date was
a regular dividend payment date.
Interim Financing and Credit Agreements
Central Maine uses funds obtained from short-term borrowing to provide initial
financing for construction and other corporate purposes.
To support its short-term capital requirements, in October 1996, Central Maine
entered into a $125 million Credit Agreement with several banks, with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement originally had two credit facilities: a $75 million, 364-day
revolving credit facility and a $50-million, 3-year revolving credit facility
that matures on October 22, 1999. Effective December 15, 1998, the banks'
commitments under the 364-day facility were reduced from $75 million to $25
million, and other provisions were amended to reflect the reorganization of
Central Maine into a holding-company structure and recognize other changed
circumstances. Both credit facilities require annual fees on the total credit
lines. The fees are based on Central Maine's credit ratings and allow for
various borrowing options including LIBOR-priced, base-rate-priced and
competitive-bid-priced loans. Access to commercial paper markets has been
substantially precluded based upon Central Maine's past credit ratings. The
amount of outstanding short-term borrowing will fluctuate with day-to-day
operational needs, the timing of long-term financing, and market conditions. The
amount of outstanding short-term borrowing will fluctuate with day-to-day
operational needs, the timing of long-term financing, and market conditions.
Central Maine had $5.0 million outstanding under the 364-day revolving credit
facility at 6.63% and $50 million outstanding under the 3-year revolving credit
facility at 6.11%.
CMP Group and its subsidiaries had a total of $16.4 million outstanding, made up
of revolving credit facility and other short-term financings as of December 31,
1998.
Note 11: Quarterly Financial Data (Unaudited)
CMP Group's unaudited, consolidated quarterly financial data pertaining to the
results of operations are shown below.
<TABLE>
<S> <C> <C> <C> <C>
(Dollars in thousands, except per-
share amounts) Quarter ended
March 31* June 30* September 30 December 31
-------- ------- ------------ -----------
1998
Electric operating revenues $248,745 $208,216 $234,056 $247,722
Operating income 39,934 14,326 26,370 45,251
Net income (loss) 16,398 572 17,440 18,500
Earnings (loss) per common share* .51 .02 .54 .57
</TABLE>
For the years prior to 1998, CMP Group, Inc. was not in existence; the figures
for the years 1996 and 1997 are the same as Central Maine's.
*Same results as Central Maine. CMP Group was formed September 1, 1998.
Central Maine's unaudited, consolidated quarterly financial data pertaining to
the results of operations are shown below.
<TABLE>
<S> <C> <C> <C> <C>
(Dollars in thousands, except per-
share amounts) Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
Electric operating revenues $248,745 $208,216 $234,027 $247,573
Operating income 39,934 14,326 25,753 46,636
Net income (loss) 18,295 1,646 13,135 21,747
Earnings (loss) per common share* .51 .02 .38 .67
1997
Electric operating revenues $268,367 $210,074 $226,134 $249,601
Operating income 27,513 8,881 7,394 19,491
Net income (loss) 16,027 (2,539) (5,845) 5,779
Earnings (loss) per common share* .43 (.15) (.24) .12
1996
Electric operating revenues $274,139 $216,358 $228,987 $247,562
Operating income 39,601 20,495 14,667 32,909
Net income 27,857 9,096 3,392 19,884
Earnings per common share* .78 .20 .04 .54
</TABLE>
*Earnings per share are computed using the weighted-average number of common
shares outstanding during the applicable quarter.
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.
See the information under the heading "Election of Directors" in the
registrants' definitive proxy material for its annual meeting of shareholders to
be held on May 20, 1999, and Item 4.1, Executive Officers of the Registrant,
above, both of which are hereby incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
See the information under the heading "Board Committees, Meetings and
Compensation" and the heading "Executive Compensation" in the registrants'
definitive proxy material for its annual meeting of shareholders to be held on
May 20, 1999, which is hereby incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
See the information under the heading "Security Ownership" in the
registrants' definitive proxy material for its annual meeting of shareholders to
be held on May 20, 1999, which is hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information under the heading, "Board Committees, Meetings and
Compensation" in the registrants' definitive proxy material for its annual
meeting of shareholders to be held on May 20, 1999, which is hereby incorporated
herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data
See the Index to Financial Statements and Schedules under Item 8
in Part II hereof, where these documents are listed, on page 56.
(2) Exhibits - see (c) below.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K during the last quarter of 1998 and thereafter to date:
Date of Report Items Reported
November 17, 1998 Item 5
CMP Group and Central Maine reported that FPL Group was seeking a declaratory
judgment in the United States District Court for the Southern District of New
York that Central Maine could not meet essential terms of its January 6, 1998,
agreement to sell its non-nuclear generating assets to FPL Group and that
therefore FPL Group should be excused from completing its purchase of the
assets.
Date of Report Items Reported
January 19, 1999 Item 5
a) The registrants reported on the status of the FPL Group declaratory judgment
action discussed above.
b) The registrants reported on an Offer of Settlement filed with the FERC in
Maine Yankee's decommissioning rate case.
c) The registrants reported on the status of the MPUC proceeding on Central
Maine's stranded costs, revenue requirements, and rate design.
d) CMP Group reported on a bylaw provision dealing with shareholder proposals
and nominations of directors by shareholders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
CMP GROUP, INC.
Date: March 31, 1999 By /s/ David E. Marsh
---------------- -------------------
David E. Marsh
Chief Financial Officer
(Duly Authorized Officer)
CENTRAL MAINE POWER COMPANY
Date: March 31, 1999 By /s/ Curtis I. Call
---------------- -------------------
Curtis I. Call
Treasurer
(Duly Authorized Officer)
<TABLE>
<S> <C> <C>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in the capacities and on the dates indicated.
Signature Title Date
CMP Group, Inc.:
/s/ David T. Flanagan President and Chief Executive Officer; Director March 31, 1999
- -----------------------------
David T. Flanagan
(Principal Executive Officer)
/s/ David E. Marsh Chief Financial Officer March 31, 1999
- ------------------------------
David E. Marsh
(Principal Financial Officer)
/s/ Michael W. Caron March 31, 1999
- ----------------------------
Michael W. Caron
(Principal Accounting Officer)
Central Maine Power Company:
/s/ Sara J. Burns President; Director March 31, 1999
- ---------------------------------
Sara J. Burns
(Principal Executive Officer)
/s/ Curtis I. Call Treasurer March 31, 1999
- -----------------------------------
Curtis I. Call
(Principal Financial Officer)
/s/ Michael W. Caron Comptroller March 31, 1999
- -----------------------------
Michael W. Caron
(Principal Accounting Officer)
CMP Group, Inc. and Central Maine Power Company:
/s/ David M. Jagger Chairman of the Board of Directors March 31, 1999
- -------------------------------
David M. Jagger
/s/ Charles H. Abbott Vice Chairman of the Board of Directors March 31, 1999
- ------------------------------
Charles H. Abbott
/s/ Charleen M. Chase Director March 31, 1999
- -----------------------------
Charleen M. Chase
/s/ Duane D. Fitzgerald Director March 31, 1999
- ------------------------------
Duane D. Fitzgerald
/s/ David T. Flanagan Director March 31, 1999
- ------------------------------
David T. Flanagan
/s/ Robert H. Gardiner Director March 31, 1999
- ------------------------------
Robert H. Gardiner
/s/ Peter J. Moynihan Director March 31, 1999
- -----------------------------
Peter J. Moynihan
/s/ William J. Ryan Director March 31, 1999
- ------------------------------
William J. Ryan
/s/ Kathryn M. Weare Director March 31, 1999
- ---------------------------
Kathryn M. Weare
/s/ Lyndel J. Wishcamper Director March 31, 1999
- -------------------------
Lyndel J. Wishcamper
</TABLE>
EXHIBIT INDEX
The following designated exhibits, as indicated below, are either filed herewith
or have heretofore been filed with the Securities and Exchange Commission under
the Securities Act of 1933, the Securities Exchange Act of 1934 or the Public
Utility Holding Company Act of 1935 and are incorporated herein by reference to
such filings. Reference is made to Item 8 of this Form 10-K for a listing of
certain financial information and statements incorporated by reference herein.
NOTE: In this exhibit index the "Company" or "Central Maine" refers to Central
Maine Power Company. "CMP Group" refers to CMP Group, Inc. All exhibits are
Central Maine exhibits unless otherwise designated.
<TABLE>
<S> <C> <C> <C> <C>
Prior
Exhibit Description of Exhibit
No. Document SEC Docket No.
EXHIBIT 2: PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION
Not Applicable.
2-1 Form Of Agreement And Plan Of Merger 333-49677 2
EXHIBIT 3: ARTICLES OF INCORPORATION AND BY-LAWS
Incorporated herein by reference:
3-1 Articles of Incorporation, as amended. Annual Report on Form 10-K 3.1
for year ended December 31,
1992
3-1.1 Form of Articles of Amendment of CMP Group 333-49677 3.1
3-2 Bylaws, as amended. Annual Report on Form 10-K 3.2
for year ended December 31,
1996
3-2.1 Form of By laws of CMP Group 333-49677 3.2
EXHIBIT 4: INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Incorporated herein by reference:
4-1 General and Refunding Mortgage between the Company 2-58251 2.18
and The First National Bank of Boston, as Trustee,
dated as of April 15, 1976, relating to the Series
A Bonds.
4-2 First Supplemental Indenture dated as of March 15, 2-60786 2.19
1977 to the General and Refunding Mortgage.
4-3 Supplemental Indenture to the General and Annual Report on Form 10-K A
Refunding Mortgage Indenture dated as of October for the year ended December
1, 1978 relating to the Series B Bonds. 31, 1978
4-4 Supplemental Indenture to the General and Quarterly Report on Form A
Refunding Mortgage Indenture dated as of October 10-Q for the quarter ended
1, 1979, relating to the Series C Bonds. September 30, 1979
4.10 Supplemental Indenture to the General and 33-9232 4.16
Refunding Mortgage Indenture dated as of December
1, 1986, relating to the Series I Bonds.
4.14 Indenture, dated as of August 1, 1989, between the 33-29626 4.1
Company and The Bank of New York, Trustee,
relating to the Medium-Term Notes.
4.15 First Supplemental Indenture, dated as of August Current Report on Form 8-K 4.15
7, 1989, relating to the Medium-Term Notes, Series dated August 16, 1989
A, and supplementing the Indenture relating to the
Medium-Term Notes.
4.15.1 Second Supplemental Indenture, dated as of January Current
Report on Form 8-K 4.1 10, 1992, relating to the
Medium-Term Notes, dated January 28, 1992 Series B, and
supplementing the Indenture relating to the Medium-Term
Notes.
4.15.2 Third Supplemental Indenture, dated as of December Annual
Report on Form 10-K 4.15.2 15, 1994, relating to the
Medium-Term Notes, for year ended December 31, Series C,
and supplementing the Indenture relating 1994 to the
Medium-Term Notes.
4.15.3 Fourth Supplemental Indenture, dated as of 333-35235 4.4
February 26, 1998, relating to the Medium-Term
Notes, Series D, and supplementing the Indenture relating
to the Medium-Term Notes.
4.17 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of dated September 17, 1991
September 15, 1991, relating to the Series N Bonds.
4.18 Supplemental Indenture to the General and Current Report on Form 8-K 1.2
Refunding Mortgage Indenture, dated as of December dated December 10, 1991
1, 1991, relating to the Series O Bonds.
4.19 Supplemental Indenture to the General and Annual Report on Form 10-K 4.19
Refunding Mortgage Indenture, dated as of December for year ended December 31,
15, 1992, relating to the Series P Bonds. 1992
4.20 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of February dated March 1, 1993
15, 1993, relating to the Series Q Bonds.
4.21 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of May 20, dated May 20, 1993
1993, relating to the Series R Bonds.
4.22 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of August dated November 30, 1993
15, 1993, relating to the Series S Bonds.
4.23 Supplemental Indenture to the General and Current Report on Form 8-K 4.2
Refunding Mortgage Indenture, dated as of November dated November 30, 1993
1, 1993, relating to the Series T Bonds.
4.24 Supplemental Indenture to the General and Annual Report on Form 10-K 4.24
Refunding Mortgage Indenture, dated as of April for year ended December 31,
12, 1994, relating to the Series U Bonds. 1994
4.26 Supplemental Indenture to the General and Annual Report on Form 10-K 4.26
Refunding Mortgage Indenture, dated as of February for year ended December 31,
15, 1996, evidencing the succession of State 1995
Street Bank and Trust Company as Trustee
EXHIBIT 9: VOTING TRUST AGREEMENT
Not applicable.
EXHIBIT 10: MATERIAL CONTRACTS
Incorporated herein by reference:
10-1 Agreement dated April 1, 1968 between the Company 2-30554 4.27
and Northeast Utilities Service Company relating
to services in connection with the New England
Power Pool and NEPEX.
10-2 Form of New England Power Pool Agreement dated as 2-55385 4.8
of September 1, 1971 as amended to November 1,
1975.
10-3 Agreement setting forth Supplemental NEPOOL 2-50198 5.10
Understandings dated as of April 2, 1973.
10-4 Sponsor Agreement dated as of August 1, 1968 among 2-32333 4.27
the Company and the other sponsors of Vermont
Yankee Nuclear Power Corporation.
10-5 Power Contract dated as of February 1, 1968 2-32333 4.28
between the Company and Vermont Yankee Nuclear
Power Corporation.
10-6 Amendment to Exhibit 10.5 dated as of June 1, 1972. 2-46612 13-21
10-7 Capital Funds Agreement dated as of February 1, 2-32333 4.29
1968 between the Company and Vermont Yankee
Nuclear Power Corporation.
10-8 Amendment to Exhibit 10.7 dated as of March 12, 70-4611 B-3
1968.
10-9 Stockholder Agreement dated as of May 20, 1968 2-32333 4.30
among the Company and the other stockholders of
Maine Yankee Atomic Power Company.
10-10 Power Contract dated as of May 20, 1968 between 2-32333 4.31
the Company and Maine Yankee Atomic Power Company.
10-10.1 Amendment No. 1 to Exhibit 10-10 dated as of March Annual Report on Form 10-K 10-1.1
1, 1984. for the year ended December
31, 1985 of Maine Yankee
Atomic Power company (File
No. 1-6554)
10-10.2 Amendment No. 2 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.2
January 1, 1984. for the year ended December
31, 1985 of Maine Yankee
Atomic Power Company (File
No. 1-6554)
10-10.3 Amendment No. 3 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.3
October 1, 1984. for the year ended December
31, 1985 of Maine Yankee
Atomic Power Company (File
No. 1-6554)
10-10.4 Additional Power Contract between the Company and Annual Report on Form 10-K 10-1.4
Maine Yankee Atomic Power Company dated February for the year ended December
1, 1984. 31, 1985 of Maine Yankee
Atomic Power Company (File
No. 1-6554)
10-11 Capital Funds Agreement dated as of May 20, 1968 2-32333 4.32
between the Company and Maine Yankee Atomic Power
Company.
10-11.1 Amendment No. 1 to Exhibit 10-11 dated as of Annual Report on Form 10-K 10-2.1
August 1, 1985. for the year ended December
31, 1985 of Maine Yankee
Atomic Power Company (File
No. 1-6554)
10-25 Agreement dated as of May 1, 1973 for Joint 2-48966 13-57
Ownership, Construction and Operation of New
Hampshire Nuclear Units among Public Service
Company of New Hampshire and certain other
utilities, including the Company.
10-42 Twentieth Amendment to Exhibit 10-25 dated as of Annual Report on Form 10-K 10-42
September 19, 1986. for the year ended December
31, 1986
10-46 Participation Agreement, dated June 20, 1969 among 2-35073 4.23.1
Maine Electric Power Company, Inc., the Company
and certain other utilities.
10-47 Power Purchase and Transmission Agreement dated 2-35073 4.23.2
August 1, 1969, among Maine Electric Power
Company, Inc., the Company and certain other utilities,
relating to purchase and transmission of power from The
New Brunswick Electric Power
Commission.
10-48 Agreement amending Exhibit 10-47 dated June 24, 2-37987 4.41
1970.
10-49 Agreement supplementing Exhibit 10-47 dated 2-51545 5.7.4
December 1, 1971.
10-50 Assignment Agreement dated March 20, 1972, between 2-51545 5.7.5
Maine Electric Power Company, Inc., and the New
Brunswick Electric Power Commission.
10-51 Capital Funds Agreement dated as of September 1, 2-24123 4.19.1
1964 among Connecticut Yankee Atomic Power
Company, the Company and certain other utilities.
10-52 Power Contract dated as of July 1, 1964 among 2-24123 4.19.2
Connecticut Yankee Atomic Power Company, the
Company and certain other utilities.
10-53 Stockholder Agreement dated as of July 1, 1964 2-24123 4.19.3
among the stockholders of Connecticut Yankee
Atomic Power Company, including the Company.
10-54 Connecticut Yankee Transmission Agreement dated as 2-24123
4.19.4 of October 1, 1964 among the stockholders of
Connecticut Yankee Atomic Power Company, including
the Company.
10-55 Agreements with Yankee Atomic Electric Company each dated
June 30, 1959, as follows:
10-55.1 Stock Agreement. 2-15553 4.17.1
10-55.2 Power Contract. 2-15553 4.17.2
10.55.3 Research Agreement. 2-15553 4.17.3
10-56 Transmission Agreement with Cambridge Electric 2-15553 4.18
Light Company and other sponsoring stockholders of
Yankee Atomic Electric Company.
10-57 Agreement for Joint Ownership, Construction and 2-52900 5.16
Operation of Wyman Unit No. 4 dated November 1,
1974 among the Company and certain utilities.
10-58 Amendment to Exhibit 10-57 dated as of June 30, 2-55458 5.48
1975.
10-59 Amendment to Exhibit 10-57 dated as of August 16, 2-58251 5.19
1976.
10-60 Amendment to Exhibit 10-57 dated as of December 2-68184 5.31
31, 1978.
10-61 Transmission Agreement dated November 1, 1974 2-54449 13-57
among the Company and certain other utilities,
relating to Wyman Unit No. 4.
10-62 Sharing Agreement--1979 Connecticut Nuclear Unit 2-50142 2.43
dated September 1, 1973 among the Company and
certain other utilities, relating to Millstone
Unit No. 3.
10-63 Amendment to Exhibit 10-62 dated as of August 1, 2-51999 5.16
1974, relating to Millstone Unit
No. 3.
10-64 Agreement dated as of February 25, 1977 among the 2-58251 5.24
Company, the Connecticut Light and Power Company,
the Hartford Electric Light Company and Western
Massachusetts Electric Company, relating to
Millstone Unit No. 3.
10-70 Project Agreement dated December 5, 1984 among the Annual
Report on Form 10-K 10-69 Company, the Cities of Lewiston
and Auburn, Maine for the year ended December and certain
other parties, relating to development 31, 1984 of
hydro-electric plant.
10-73 Trust Indenture dated as of June 1, 1977 between 2-60786 5.27
the Town of Yarmouth and Casco Bank & Trust
Company, as trustee, relating to the Town of Yarmouth's 6
3/4% Pollution Control Revenue Bonds (Central Maine Power
Company, 1977 Series A).
10-74 Installment Sale Agreement dated as of June 1, 2-60786 5.28
1977 between the Town of Yarmouth and the Company.
10-75 Agreements Relating to $11,000,000 Floating/Fixed
Rate Pollution Control Revenue Refunding Bonds:
10-75.1 Bond Purchase Agreement dated as of May 1, 1984. Quarterly Report on Form 28.3
10-Q for the quarter ended
June 30, 1984
10-75.2 Loan Agreement dated as of May 1, 1984. Quarterly Report on Form 28.4
10-Q for the quarter ended
June 30, 1984
10-76 Agreements Relating to $8,500,000 Floating/Fixed
Rate Pollution Control Revenue Bonds:
10-76.1 Bond Purchase Agreement dated December 28, 1984. Annual Report on Form 10-K 10-77.1
for year ended December 31,
1984
10-76.2 Loan Agreement dated as of December 1, 1984. Annual Report on Form 10-K 10-77.2
for year ended December 31,
1984
10-77.1 Indenture of Trust dated as of March 14, 1988 Annual Report on Form 10-K 10-1.4
between Maine Yankee Atomic Power Company and for year ended December 31,
Maine National Bank relating to decommissioning 1987, of Maine Yankee Atomic
trust funds. Power Company (1-6554)
10-77.1(a) Amended and Restated Indenture of Trust dated as Annual Report on Form 10-K 10-6.1
of January 1, 1993 between Maine Yankee Atomic for year ended December 31,
Power Company and The Bank of New York relating to 1992, of Maine Yankee Atomic
decommissioning trust funds. Power Company (1-6554)
10-77.2 Indenture of Trust dated as of October 16, 1985 Annual Report on Form 10-K 10-7
between the Company and Norstar Bank of Maine for year ended December 31,
relating to the spent fuel disposal funds. 1985, of Maine Yankee Atomic
Power Company (1-6554)
10-78 Form of Agreement of Purchase and Sale dated Annual Report
on Form 10-K 10.79 February 19, 1986 between the Company
and Eastern for the year ended December Utilities
Associates, relating to the sale of the 31, 1985 Company's
Seabrook Project interest.
10-79 Addendum to Agreement of Purchase and Sale dated Quarterly
Report on Form 2.1 June 23, 1986, among the Company,
Eastern 10-Q for the quarter ending Utilities Associates
and EUA Power Corporation, June 30, 1986 amending Exhibit
10-78.
10-80 Agreement, dated as of October 29, 1986, between Quarterly
Report on Form 2.1 the Company and EUA Power Corporation,
relating to 10-Q for the quarter ended the sale of the
Company's interest in the Seabrook September 30, 1986
Project.
10-81 Credit Agreement, dated as of October 15, 1986, Quarterly Report on Form 2.2
among the Company, various banks and Continental 10-Q for the quarter ended
Illinois National Bank and Trust Company of September 30, 1986
Chicago, as agent, establishing the terms of a $40
million unsecured credit facility.
10-86 Labor Agreement dated as of May 1, 1989 between Annual
Report on Form 10-K 10.86 the Company (Northern, Western
and Southern for the year ended December Division) and
Local 1837 of the International 31, 1989 Brotherhood of
Electrical Workers.
10-86.1 Agreement dated as of November 25, 1991 extending Annual Report on Form 10-K 10.86.1
Labor Contract. for year ended December 31,
1991
10-89 1987 Executive Incentive Plan, as amended January Annual Report on Form 10-K 10.89
20, 1993.* for year ended December 31,
1992
10-90 Deferred Compensation Plan for Non-Employee Annual Report on Form 10-K 10.90
Directors, as amended and restated effective for year ended December 31,
February 1, 1992.* 1992
10-91 Retirement Plan for Outside Directors, as amended Annual
Report on Form 10-K 10.91 and restated effective April 24,
1991.* for year ended December 31,
1992
10-93 Central Maine Power Company Long-Term Incentive Annual Report on Form 10-K 10.93
Plan.* for year ended December 31,
1993.
10-93.1 Transfer of 10-93 to CMP Group 333-49643 -
10-94.1 Central Maine Power Company Supplemental Executive Annual Report on Form 10-K 10-94.1
Retirement Plan, as Amended and Restated Effective for
year ended December 31, January 1, 1993, and as further
Amended Effective 1995 January 1, 1996.*
10-95 Competitive Advance and Revolving Credit Facility Annual Report on Form 10-K 10.95
between the Company and Chemical Bank dated as of for year ended December 31,
November 7, 1994. 1994
10-98 Credit Agreement dated as of October 23, 1996, Annual Report on Form 10-K 10-98
between the Company and certain banks. for year ended December 31,
1996
10-98.1 Amendment of 10-98 dated as of December 15, 1998 Filed herewith
10-98.2 Credit Agreement dated as of December 15, 1998, Filed herewith
between Central Maine and certain banks
10-99 Asset Purchase Agreement, dated as of January 6, 333-35235 99.2
1998, by and between the Company, other sellers,
and National Energy Holdings, Inc.
10.100 Employment Agreement between CMP Group and David Annual Report on Form 10-K 10.100
T. Flanagan dated December 31, 1997 for year ended December 31,
1997
10.101 Employment Agreement between CMP Group and Arthur Annual Report on Form 10-K 10.101
W. Adelberg dated January 1, 1998 for year ended December 31,
1997
10.102 Employment Agreement between CMP Group and David Annual Report on Form 10-K 10.102
E. Marsh dated January 1, 1998 for year ended December 31,
1997
10.103 Employment Agreement between CMP Group and Gerald Annual Report on Form 10-K 10.103
C. Poulin dated January 1, 1998 for year ended December 31,
1997
10.104 Employment Agreement between the Company and Sara Annual Report on Form 10-K 10.104
J. Burns dated June 30, 1997 for year ended December 31,
1997
10-105 Employment Agreement between CMP Group and F. Filed herewith -
Michael McClain dated August 26, 1998
10-106 Employment Agreement between Central Maine and Filed herewith -
Michael R. Cutter dated June 30, 1997
10-107 Employment Agreement between Central Maine and Filed herewith -
Curtis I. Call dated June 30, 1997
10-108 Employment Agreement between CMP Group and Anne M. Filed herewith -
Pare dated June 30, 1997
*Management contract or compensatory plan or arrangement required to be filed
in response to Item 14(c) of Form 10-K.
EXHIBIT 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Not Applicable.
EXHIBIT 12: STATEMENTS RE COMPUTATION OF RATIOS
Not Applicable.
EXHIBIT 13: ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR
QUARTERLY REPORT TO SECURITY HOLDERS
Not Applicable.
EXHIBIT 16: LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not Applicable.
EXHIBIT 18: LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
Not Applicable.
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANTS Filed herewith
EXHIBIT 22: PUBLISHED REPORT CONCERNING MATTERS SUBMITTED TO
VOTE OF SECURITY HOLDERS
Not Applicable.
EXHIBIT 23: CONSENTS OF EXPERTS AND COUNSEL
23-1 Consent of PricewaterhouseCoopers LLP to the Filed herewith
incorporation by reference of their reports
included or incorporated by reference herein in
the Company's Registration Statements (File Number
33-36679, 33-39826, 33-44754, 33-51611, 33-56939
and 333-35235) and CMP Group's Registration
Statements (File Number 333-49677, 333-49643, and
33-39826).
EXHIBIT 24: POWER OF ATTORNEY
Not Applicable.
EXHIBIT 27: FINANCIAL DATA SCHEDULE Filed herewith
EXHIBIT 28: INFORMATION FROM REPORTS FURNISHED TO STATE
INSURANCE REGULATORY AUTHORITIES
Not Applicable.
EXHIBIT 99: ADDITIONAL EXHIBITS
To be filed under cover of a Form 10-K/A amendment of this
Form 10-K within 180 days after December 31, 1998,
pursuant to Rule 15d-21 under the Securities Exchange Act
of 1934:
99-1 and -2 Information, financial statements and exhibits
required by Form 11-K with respect to certain employee
savings plans maintained by the Company.
</TABLE>
Central Maine Power Company
Form 10-K - 1998
Schedule II
Page 1 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1998
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Charged Charged to
Balance to costs other Balance
at Beginning and accounts- Deductions at end
Description of Period Expenses describe -describe of period
Reserves deducted from assets to which they apply:
Uncollectible accounts $ 2,400 $5,644 $ - $4,908(A) $ 3,136
Reserves not applied against assets:
Casualty and insurance $ 1,500 $ 1,379 $ $ 516(C) $ 2,363
Workers' compensation 8,494 1,485 294(B) 1,779(C) 8,494
Hazardous material
clean-up 2,108 (368) (188)(D) 1,928
Total $12,102 $2,496 $294 $2,107 $12,785
</TABLE>
Notes:
(A) Amounts charged off as uncollectible after deducting customers' deposits
and recoveries of accounts previously charged off.
(B) Amounts transferred to capital and billable accounts.
(C) Principally payments for various injuries and damages and expenses in
connection therewith. (D) Amounts charged to regulatory asset account.
Central Maine Power Company
Form 10-K - 1998
Schedule II
Page 2 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1997
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Charged Charged to
Balance to costs other Balance
at Beginning and accounts- Deductions at end
Description of Period Expenses describe -describe of period
Reserves deducted from assets to which they apply:
Uncollectible accounts $ 4,177 $5,514 $ - $7,291(A) $ 2,400
Reserves not applied against assets:
Casualty and insurance $ 1,275 $ 1,862 $ $ 1,637(C) $ 1,500
Workers' compensation 7,994 1,692 423(B) 1,615(C) 8,494
Hazardous material
clean-up 3,639 1,069 2,600(D) 2,108
Total $12,908 $4,623 $423 $5,852 $12,102
</TABLE>
Notes:
(A) Amounts charged off as uncollectible after deducting customers' deposits
and recoveries of accounts previously charged off.
(B) Amounts transferred to capital and billable accounts.
(C) Principally payments for various injuries and damages and expenses in
connection therewith. (D) Amounts charged to regulatory asset account.
Central Maine Power Company
Form 10-K - 1998
Schedule II
Page 3 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1996
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions
Charged Charged to
Balance to costs other Balance
at Beginning and accounts- Deductions at end
Description of Period Expenses describe -describe of period
Reserves deducted from assets to which they apply:
Uncollectible accounts $ 3,313 $7,396 $ - $6,532(A) $ 4,177
Reserves not applied against assets:
Casualty and insurance $ 1,275 $ 798 $ $ 798(C) $ 1,275
Workers' compensation 6,400 2,820 270(B) 1,496(C) 7,994
Hazardous material
clean-up 3,540 895 796(D) 3,639
Total $11,215 $4,513 $270 $3,090 $12,908
</TABLE>
Notes:
(A) Amounts charged off as uncollectible after deducting customers' deposits
and recoveries of accounts previously charged off.
(B) Amounts charged to capital accounts.
(C) Principally payments for various injuries and damages and expenses in
connection therewith. (D) Amounts charged to regulatory asset account.
Exhibit 10-98.1
CENTRAL MAINE POWER COMPANY
83 Edison Drive
Augusta, Maine 04336
CREDIT AGREEMENT
Amendment No. 2
This Agreement dated as of December 15, 1998 is among Central Maine
Power Company, a Maine corporation (the "Company"), the Lenders party hereto and
BankBoston, N.A. (formerly known as The First National Bank of Boston), and The
Bank of New York, each as agent (together, the "Managing Agents"). The parties
agree as follows:
1. Reference to Credit Agreement; Background.
1.1. Reference to Credit Agreement; Definitions. Reference is made to
the Credit Agreement dated as of October 23, 1996 as amended by Amendment No. 1
thereof dated as of July 20, 1998 (the "Credit Agreement") among the Company,
the Lenders and the Managing Agents. The Credit Agreement, as amended by the
amendments set forth in Section 2 hereof, is referred to as the "Amended Credit
Agreement." Terms defined in the Amended Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
1.2. Background. The Company has requested that the Credit Agreement be
amended to permit the sale of the Company's non-nuclear generating assets, to
permit the reorganization of the Company as a wholly-owned subsidiary of a
publicly-held utility holding company and to achieve other objectives of the
Company. The Lenders party hereto have agreed to such amendments on the
conditions set forth herein. The Company and all of the Lenders party hereto
acknowledge and agree that the Commitments of the Lenders to provide the 364-Day
Revolving Loan have expired.
2. Amendments to Credit Agreement. Subject to all of the terms and conditions
hereof and in reliance upon the representations and warranties set forth or
incorporated by reference in Section 3 hereof, the Credit Agreement is amended,
effective as of the date hereof (the "Amendment Closing Date") or as of such
other date as may be specified with respect to any particular amendment, as
follows:
2.1. Section 1 of the Credit Agreement is amended, effective as of the
Amendment Closing Date, by amending the introductory paragraph of Section 1.4 to
read in its entirety as follows:
1.4. "Applicable Margin" means for the Three-Year Revolving
Loan the greater of (x) on each day prior to March 1, 1999 .50% per
annum and on each day on and after March 1, 1999 .75% per annum and (y)
the percentage per annum in the following table set opposite the
applicable Rating Level:
2.2. Section 1 of the Credit Agreement is further amended, effective as
of September 1, 1998, by adding thereto a new Section 1.35A reading in its
entirety as follows:
1.35A. "Consolidated EBIT" means, for any period, the total of:
(a) Consolidated Net Income;
plus (b) all amounts deducted in computing such Consolidated
Net Income in respect of:
(i) interest on, and commitment fees with respect to,
Indebtedness (including payments in the nature of interest
under Capitalized Leases and Interest Rate Protection
Agreements),
(ii) taxes based upon or measured by net income, and
(iii) dividends on preferred stock.
2.3. Section 1.39 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
1.39. [Intentionally omitted.]
2.4. Section 1 of the Credit Agreement is further amended, effective as
of September 1, 1998, by adding thereto a new Section 1.46A reading in its
entirety as follows:
1.46A. "Distribution" means, with respect to the Company:
(a) the declaration or payment of any dividend or
distribution on or in respect of any shares of any class of
capital stock of or other equity interests in the Company;
(b) the purchase, redemption or other retirement of
any shares of any class of capital stock of or other equity
interest in the Company or of options, warrants or other
rights for the purchase of such shares, directly, indirectly
through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any
shares of any class of capital stock of or equity or other
beneficial interest in the Company;
(d) any payment of principal or interest with respect
to, or any purchase, redemption or defeasance of any
Indebtedness of the Company which by its terms or the terms of
any agreement is subordinated to the payment of the Credit
Obligations; and
(e) any payment, loan or advance by the Company to,
or any other Investment by the Company in, the holder of any
shares of any class of capital stock of or equity interest in
the Company, or any Affiliate of such holder (including the
payment of management and transaction fees and expenses);
provided, however, that the term "Distribution" shall not include (i)
dividends payable in perpetual common stock of or other similar equity
interests in the Company or (ii) payments in the ordinary course of
business in respect of (A) reasonable compensation paid to employees,
officers and directors, (B) advances and reimbursements to employees
for travel expenses, drawing accounts and similar expenditures, or (C)
rent paid to, or accounts payable for services rendered or goods sold
by, non-Affiliates that own capital stock of or other equity interests
in the Company.
2.5. Section 1 of the Credit Agreement is further amended, effective as
of September 1, 1998, by adding thereto a new Section 1.46B reading in its
entirety as follows:
1.46B. "Distribution Plant" means, with respect to the
Company, the distribution assets of the Company as reported from time
to time by the Company to the Federal Energy Regulatory Commission on
F.E.R.C. Form 1.
2.6. Section 1.61 of the Credit Agreement is amended, effective as of
the Amendment Closing Date, to read in its entirety as follows:
1.61. "Facility Fee" means for the Three-Year Revolving Loan
the greater of (x) .25% per annum and (y) the percentage per annum in
the table below set opposite the applicable Rating Level, in either
case multiplied by the Maximum Amount of Three-Year Revolving Credit.
2.7. Section 1.72 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
1.72. "General and Refunding Mortgage Indenture" means the
General and Refunding Mortgage Indenture dated as of April 15, 1976
between the Company and The First National Bank of Boston, as trustee
(State Street Bank and Trust Company, successor trustee), as currently
in effect and as hereafter supplemented and amended in a manner
permitted under Section 6.2.4 and any additional or substitute mortgage
indenture permitted under Section 6.2.4.
2.8. Section 1 of the Credit Agreement is further amended, effective as
of September 1, 1998, by adding thereto a new Section 1.72A reading in its
entirety as follows:
1.72A. "Generating Assets Sale Date" means the date on which
the non-nuclear generating assets of the Company are sold as permitted
by Section 6.10.4.
2.9. Section 1 of the Credit Agreement is further amended, effective as
of the Amendment Closing Date, by adding thereto a new Section 1.92A reading in
its entirety as follows:
1.92A. "New 364-Day Revolving Credit Agreement" means the
Credit Agreement dated as of December 15, 1998, as from time to time
amended, among the Company, BankBoston and Bank of New York, as
managing agents, and the lenders party thereto.
2.10. Section 1 of the Credit Agreement is further amended, effective
as of September 1, 1998, by adding thereto a new Section 1.112A reading in its
entirety as follows:
1.112A. "Reorganization Date" means September 1, 1998.
2.11. Section 6.2.4 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
6.2.4. General and Refunding Mortgage Indenture. The General
and Refunding Mortgage Indenture shall not be amended so as to increase
the aggregate principal amount of bonds which may be outstanding
thereunder at any one time or so as to include financial covenants or
events of default that are more restrictive than those included in the
Credit Documents. In addition, the Company may enter into a new
mortgage indenture in addition to or in substitution for the General
and Refunding Mortgage Indenture in effect on September 1, 1998 so long
as (1) the aggregate principal amount of Indebtedness which may be
outstanding at any one time under the General and Refunding Mortgage
Indenture and such additional or substitute mortgage indenture shall
not exceed 70% of the aggregate book value of the Distribution Plant of
the Company (including additions thereto), (2) the security for the
Indebtedness issued under such additional or substitute mortgage
indenture shall be limited to the Distribution Plant of the Company
(including additions thereto), (3) the financial covenants and events
of default included in such additional or substitute mortgage indenture
shall not be more restrictive than those included in the Credit
Documents and (4) no Default shall have occurred and be continuing or
shall exist immediately upon the effectiveness of such additional or
substitute mortgage indenture.
2.12. Section 6.2 of the Credit Agreement is amended, effective as of
September 1, 1998, by adding thereto a new Section 6.2.5 reading in its entirety
as follows:
6.2.5. More Favorable Provisions. In any transaction providing
for Indebtedness in excess of $1,000,000, the Company shall not enter
into or become bound by any credit agreement or other document or
instrument which (i) contains financial covenants or events of default
that are more restrictive or onerous on the Company than those
covenants or events of default contained in this Agreement or (ii)
provides for, or permits the exercise of, remedies upon the occurrence
of an event of default thereunder which are not provided for in, or
permitted to be exercised under or in respect of, this Agreement (each
such covenant, event of default and provision described in the
preceding clauses (i) and (ii) being herein called a "More Favorable
Provision"), unless, prior to or simultaneously with the Company
entering into or becoming bound by such credit agreement or other
document or instrument, (x) the Company executes and delivers to the
Lenders an amendment to this Agreement and such other documents and
instruments as the Managing Agents shall reasonably request, in each
case reasonably satisfactory in form and substance to the Managing
Agents, which modify the provisions of this Agreement and the terms of
the transactions contemplated hereby and by the Credit Documents so as
to give the Lenders the benefit of each More Favorable Provision, and
(y) the Company furnishes to the Lenders a copy of such credit
agreement, or other document or instrument.
2.13. Section 6.4.3 (c) of the Credit Agreement is amended, effective
as of September 1, 1998, to read in its entirety as follows:
(c) From and after the Reorganization Date, such effective
registration statements, definitive proxy statements and regular or
periodic reports, including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and
8-K, as may be filed by the parent corporation of the Company or by the
Company or any of its Subsidiaries with the Securities and Exchange
Commission (other than filings and reports with respect to dividend
reinvestment, employee benefits or other similar plans, and filings and
reports pertaining to sales of or other transactions in securities of
such parent or the Company or any Subsidiary by Persons other than such
parent or the Company or such Subsidiary).
2.14. Section 6.5.1 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
6.5.1. Consolidated Net Worth. Consolidated Net Worth shall at
all times prior to the Generating Assets Sale Date equal or exceed the
sum of (a) $450,000,000 plus (b) the amount by which (i) 100% of the
proceeds to the Company (net of issuance costs) realized after the
Initial Closing Date resulting from any Equity Transaction of the
Company and its Subsidiaries as determined in accordance with GAAP by
PricewaterhouseCoopers LLP (or, if they cease to be auditors of the
Company and its Subsidiaries, other independent certified public
accountants of recognized national standing selected by the Company)
exceeds (ii) $5,000,000 plus (c) the amount by which (i) 100% of the
Consolidated after-tax gain on sales of assets by the Company and its
Subsidiaries after the Initial Closing Date as determined quarterly in
accordance with GAAP by PricewaterhouseCoopers LLP (or, if they cease
to be auditors of the Company and its Subsidiaries, other independent
certified public accountants of recognized national standing selected
by the Company) exceeds (ii) $5,000,000.
2.15. Section 6.5 of the Credit Agreement is amended, effective as of
September 1, 1998, to add a new Section 6.5.1A reading in its entirety as
follows:
6.5.1A. Consolidated Net Worth. Consolidated Net Worth shall
at all times on and after the Generating Assets Sale Date equal or
exceed the sum of (a) $275,000,000 plus (b) the amount by which (i)
100% of the proceeds to the Company (net of issuance costs) realized
after the Generating Assets Sale Date resulting from any Equity
Transaction of the Company and its Subsidiaries as determined in
accordance with GAAP by PricewaterhouseCoopers LLP (or, if they cease
to be auditors of the Company and its Subsidiaries, other independent
certified public accountants of recognized national standing selected
by the Company) exceeds (ii) $5,000,000 plus (c) the amount by which
(i) 100% of the Consolidated after-tax gain on sales of assets by the
Company and its Subsidiaries which take place after the Generating
Assets Sale Date as determined quarterly in accordance with GAAP by
PricewaterhouseCoopers LLP (or, if they cease to be auditors of the
Company and its Subsidiaries, other independent certified public
accountants of recognized national standing selected by the Company)
exceeds (ii) $5,000,000.
2.16. Section 6.5.3 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
6.5.3. Consolidated EBIT to Consolidated Interest Expense.
Consolidated EBIT for each period of four consecutive fiscal quarters
of the Company shall equal or exceed 175% of Consolidated Interest
Expense for such period.
2.17. Section 6.6.7 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
6.6.7. Indebtedness of the Company evidenced by General and
Refunding Mortgage Bonds of the Company issued under the General and
Refunding Mortgage Indenture, but only so long as the Company is in
compliance with Section 6.2.4.
2.18. Section 6.6.8 of the Credit Agreement is amended, effective as of
September 1, 1998, to read in its entirety as follows:
6.6.8. Indebtedness of the Company in respect of its Unsecured
Medium Term Notes, provided that the aggregate principal amount of all
Indebtedness permitted by this Section 6.6.8 at any one time
outstanding shall not exceed $500,000,000.
2.19. Section 6.6.9 of the Credit Agreement is amended, effective as of
the Amendment Closing Date, to read in its entirety as follows:
6.6.9. Indebtedness in respect of unsecured debt to banks
other than the Credit Obligations and the Indebtedness permitted by
Section 6.6.12; provided that the aggregate principal amount of all
Indebtedness permitted by this Section 6.6.9 at any time outstanding
shall not exceed $10,000,000.
2.20. Section 6.6.10 of the Credit Agreement is amended, effective as
of the Amendment Closing Date, to read in its entirety as follows:
6.6.10. Indebtedness of the Company in respect of commercial
paper, provided that the sum of the aggregate principal amount of all
Indebtedness permitted by this Section 6.6.10 and by Sections 6.6.9 and
6.6.12 and the principal amount of the Credit Obligations at any one
time outstanding shall not exceed $85,000,000.
2.21. Section 6.6 of the Credit Agreement is amended, effective as of
the Amendment Closing Date, to add a new Section 6.6.12 reading in its entirety
as follows:
6.6.12. Unsecured Indebtedness of the Company outstanding
under the New 364-Day Revolving Credit Agreement.
2.22. The first sentence of Section 6.10 of the Credit Agreement,
effective as of September 1, 1998, is deleted and replaced by two sentences
reading in their entirety as follows:
The Company shall not merge with or enter into a consolidation with
another Person, except that CMP Merger Co., a Maine corporation, may
merge into the Company on terms substantially identical to those
provided in the form of Agreement and Plan of Merger set forth in
Appendix B to the Proxy Statement of the Company dated April 15, 1998.
The Company shall not sell, transfer or otherwise dispose of (or pledge
or assign) any accounts receivable (except for collection or
enforcement in the ordinary course of business).
2.23. Section 6.10 of the Credit Agreement is further amended,
effective as of September 1, 1998, by adding thereto a new Section 6.10.4
reading in its entirety as follows:
6.10.4. Upon obtaining final approvals of such sale from the
Maine Public Utilities Commission and the Federal Energy Regulatory
Commission, the Company may sell to an affiliate of FPL Group pursuant
to the bid submitted by such buyer on December 10, 1997 all of the
Company's hydro, fossil and biomass generating assets, including its
interest in certain Subsidiaries which operate or participate in such
assets, with a combined generating capacity of 1,185 megawatts.
2.24. Section 6.11 of the Credit Agreement is amended, effective as of
the Amendment Closing Date, by adding thereto a new subsection (d) reading in
its entirety as follows:
(d) The New 364-Day Revolving Credit Agreement.
2.25. Section 6 of the Credit Agreement is amended, effective as of
September 1, 1998, by adding thereto a new Section 6.14 reading in its entirety
as follows:
6.14. Distributions. The Company shall make no Distribution
(or become contractually committed to do so) if after giving effect to
such Distribution any Default shall exist under Section 6.5.1, 6.5.1A
or 6.5.2.
3. Representations and Warranties. In order to induce the Lenders to enter into
this Agreement, the Company represents and warrants to each of the Lenders that:
3.1. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of any
borrowing under the Amended Credit Agreement, nor the consummation of any
transaction referred to in or contemplated by this Agreement, the Amended Credit
Agreement or any other Credit Document, nor the fulfillment of the terms hereof
or thereof has constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any of its
Subsidiaries is a party or by which it is bound, or of the Charter or
By-laws of the Company or any of its Subsidiaries (including without
limitation any provision of the Charter of the Company restricting the
issuance of unsecured debt securities);
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
of its Subsidiaries;
(c) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any of its
Subsidiaries; or
(d) the creation or triggering of any redemption, retirement
or other repurchase obligation of the Company or any of its
Subsidiaries under any Charter, By-law, agreement, instrument, deed or
lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement, the performance of this Agreement,
the Amended Credit Agreement or any other Credit Document, the making of any
borrowing under the Amended Credit Agreement, the transactions contemplated
hereby or thereby or the consummation of the reorganization of the Company
contemplated by the first sentence of Section 6.10 of the Amended Credit
Agreement (the "Reorganization") or of the sale of the non-nuclear generating
assets of the Company contemplated by Section 6.10.4 of the Amended Credit
Agreement (the "Sale"), except for such approvals of the Reorganization as have
been obtained and except that approvals of the Maine Public Utilities Commission
and the Federal Energy Regulatory Commission are required to be obtained for the
Sale.
3.2. Defaults. Immediately after giving effect to the Amendment, no
Default shall exist.
3.3. Material Adverse Change. Since December 31, 1997 no Material
Adverse Change has occurred.
3.4. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to the Amendment, the representations and
warranties set forth in Section 7 of the Amended Credit Agreement will be true
and correct as if originally made on and as of the Amendment Closing Date
(except to the extent of any representation or warranty which refers to a
specific earlier date).
4. Conditions. The effectiveness of the amendments set forth in Section 2 hereof
shall be subject to the satisfaction of the following conditions:
4.1. Governmental Approvals. The Company shall have provided to the
Lenders written evidence of the approvals of the Reorganization by the Maine
Public Utilities Commission, the Securities and Exchange Commission, the Federal
Energy Regulatory Commission and the Nuclear Regulatory Commission.
4.2. Proper Proceedings. All proper proceedings shall have been taken
by the Company to authorize this Agreement, the Amended Credit Agreement and the
transactions contemplated hereby and thereby. On or before the Amendment Closing
Date, the Managing Agents shall have received copies of all documents, including
legal opinions of counsel and records of corporate proceedings which the
Managing Agents may have requested in connection therewith, such documents,
where appropriate, to be certified by proper corporate or governmental
authorities.
5. General. The Amended Credit Agreement and all of the other Credit Documents
are each confirmed as being in full force and effect. This Agreement, the
Amended Credit Agreement and the other Credit Documents referred to herein or
therein constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral, with respect to such
subject matter. The invalidity or unenforceability of any provision hereof shall
not affect the validity and enforceability of any other term or provision
hereof. The headings in this Agreement are for convenience of reference only and
shall not alter, limit or otherwise affect the meaning hereof. Each of this
Agreement and the Amended Credit Agreement is a Credit Document and may be
executed in any number of counterparts, which together shall constitute one
instrument, and shall bind and inure to the benefit of the parties and their
respective successors and assigns, including as such successors and assigns all
holders of any Note. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts applicable to
contracts made and to be performed entirely within The Commonwealth of
Massachusetts.
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
CENTRAL MAINE POWER COMPANY
By ______________________________________
Title:
BANKBOSTON, N.A., for Itself and as
Boston Managing Agent
By ______________________________________
Authorized Officer
THE BANK OF NEW YORK, for Itself
and as New York Managing Agent
By ______________________________________
Authorized Officer
FLEET BANK OF MAINE
By ______________________________________
Authorized Officer
KEYBANK NATIONAL ASSOCIATION
By ______________________________________
Authorized Officer
COOPERATIEVE-CENTRALE
RAIFEISSEN-BOERLEENBANK, B.A.,
"RABOBANK NEDERLAND, NEW YORK
By ______________________________________
Authorized Officer
By ______________________________________
Authorized Officer
THE TOKAI BANK, LIMITED, the New York
By ______________________________________
Authorized Officer
UNION BANK OF CALIFORNIA, N.A.
By ______________________________________
Authorized Officer
Exhibit 10-98.2
CENTRAL MAINE POWER COMPANY
CREDIT AGREEMENT
Dated as of December 15, 1998
BANKBOSTON, N.A., Managing Agent
THE BANK OF NEW YORK, Managing Agent
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Page
1. Definitions; Certain Rules of Construction...............................................................1
2. The Credits.............................................................................................18
2.1. [Reserved].....................................................................................18
2.2. 364-Day Revolving Credit.......................................................................18
2.2.1. 364-Day Revolving Loan.................................................................18
2.2.2. Maximum Amount of 364-Day Revolving Credit............................................19
2.2.3. Borrowing Requests....................................................................19
2.2.4. 364-Day Revolving Notes...............................................................19
2.3. Competitive Auction Facility Credit............................................................19
2.3.1. Request by the Company................................................................20
2.3.2. Dissemination of Requests for Bids for Competitive Auction Facility
Loans................................................................................20
2.3.3. Bids for Competitive Auction Facility Loans...........................................21
2.3.4. Acceptance of Bids by the Borrower....................................................21
2.3.5. Funding by the New York Managing Agent; Competitive Auction
Facility Loan Account, etc...........................................................22
2.3.6. Prepayments in Respect of Competitive Auction Facility Loans..........................23
2.4. Application of Proceeds........................................................................23
2.4.1. [Reserved].............................................................................24
2.4.2. 364-Day Revolving Loan................................................................24
2.4.3. Competitive Auction Facility Loan.....................................................24
2.4.4. Specifically Prohibited Applications..................................................24
2.5. Nature of Obligations of Lenders to Make Extensions of Credit..................................24
2.5.1. Revolving Loans.......................................................................24
2.5.2. Competitive Auction Facility Loans....................................................24
2.6. Extension of Final Maturity Date of the Revolving Loan.........................................24
2.6.1. [Reserved].............................................................................24
2.6.2. 364-Day Final Maturity Date...........................................................25
3. Interest; Eurodollar Pricing Options; Fees..............................................................25
3.1. Interest on Revolving Loan.....................................................................25
3.2. Interest on Competitive Auction Facility Loans.................................................25
3.3. Eurodollar Pricing Options.....................................................................25
3.3.1. Election of Eurodollar Pricing Options................................................25
3.3.2. Notice to Lenders and Company.........................................................26
3.3.3. Selection of Eurodollar Interest Periods..............................................26
3.3.4. Additional Interest...................................................................27
3.3.5. Violation of Legal Requirements.......................................................27
3.3.6. Funding Procedure.....................................................................27
3.4. Facility Fees..................................................................................28
3.5. Changes in Circumstances; Yield Protection.....................................................28
3.5.1. Reserve Requirements, etc.............................................................28
3.5.2. Taxes.................................................................................28
3.5.3. Capital Adequacy......................................................................29
3.5.4. Regulatory Changes....................................................................29
3.5.5. Compensation Claims...................................................................29
3.5.6. Mitigation............................................................................30
3.6. Computations of Interest and Fees..............................................................30
4. Payment.................................................................................................30
4.1. Payment at Maturity............................................................................30
4.2. Contingent Required Prepayments for Excess Credit Exposure.....................................31
4.3. Voluntary Prepayments..........................................................................31
4.4. Reborrowing; Application of Payments, etc......................................................31
4.4.1. Reborrowing...........................................................................31
4.4.2. Order of Application..................................................................31
4.4.3. Payments for Lenders..................................................................31
5. Conditions to Extending Credit..........................................................................31
5.1. Conditions on Initial Closing Date.............................................................32
5.1.1. Officer's Certificate..................................................................32
5.1.2. Revolving Notes........................................................................32
5.1.3. Commitment Fee.........................................................................32
5.1.4. Legal Opinions.........................................................................32
5.1.5. [Reserved].............................................................................32
5.1.6. Maine Public Utilities Commission......................................................32
5.1.7. Proper Proceedings.....................................................................33
5.1.8. General................................................................................33
5.2. Conditions to Each Extension of Credit.........................................................33
5.2.1. Bring-Down of Representations and Warranties...........................................33
5.2.2. Material Adverse Change................................................................33
5.2.3. Legality, etc..........................................................................34
6. General Covenants.......................................................................................34
6.1. Taxes and Other Charges; Accounts Payable......................................................34
6.1.1. Taxes and Other Charges................................................................34
6.1.2. Accounts Payable.......................................................................34
6.2. Conduct of Business, etc.......................................................................35
6.2.1. Types of Business......................................................................35
6.2.2. Maintenance of Properties..............................................................35
6.2.3. Statutory Compliance...................................................................35
6.2.4. General and Refunding Mortgage Indenture...............................................36
6.2.5. More Favorable Provisions..............................................................36
6.3. Insurance......................................................................................36
6.4. Financial Statements and Reports...............................................................37
6.4.1. Annual Reports........................................................................37
6.4.2. Quarterly Reports.....................................................................38
6.4.3. Other Reports.........................................................................38
6.4.4. Notice of Litigation, Defaults, etc...................................................39
6.4.5. ERISA Reports.........................................................................39
6.4.6. Other Information; Audit..............................................................40
6.5. Certain Financial Tests........................................................................40
6.5.1. Consolidated Net Worth................................................................40
6.5.2. Common Stock Investment to Total Capitalization.......................................41
6.5.3. Consolidated EBIT to Consolidated Interest Expense....................................41
6.6. Indebtedness...................................................................................41
6.7. Guarantees.....................................................................................42
6.8. Liens..........................................................................................43
6.9. Certain Investments............................................................................46
6.10. Asset Dispositions and Mergers.................................................................46
6.11. Negative Pledge Clauses........................................................................46
6.12. ERISA..........................................................................................47
6.13. Environmental Laws.............................................................................47
6.13.1. Compliance with Law and Permits......................................................47
6.13.2. Notice of Claims, etc................................................................47
6.14. Distributions..................................................................................47
7. Representations and Warranties..........................................................................47
7.1. Organization and Business......................................................................48
7.1.1. The Company...........................................................................48
7.1.2. Subsidiaries..........................................................................48
7.1.3. Qualification.........................................................................48
7.1.4. Capitalization........................................................................48
7.2. Financial Statements and Other Information; Material Agreements................................48
7.2.1. Financial Statements and Other Information............................................48
7.2.2. Material Agreements...................................................................49
7.3. Agreements Relating to Financing Debt..........................................................49
7.4. Changes in Condition...........................................................................50
7.5. Title to Assets................................................................................50
7.6. Operations in Conformity With Law, etc.........................................................50
7.7. Litigation.....................................................................................50
7.8. Authorization and Enforceability...............................................................50
7.9. No Legal Obstacle to Agreements................................................................51
7.10. Defaults.......................................................................................51
7.11. Licenses, etc..................................................................................52
7.12. Tax Returns....................................................................................52
7.13. Certain Business Representations...............................................................52
7.13.1. Labor Relations......................................................................52
7.13.2. Burdensome Obligations...............................................................52
7.14. Environmental Regulations......................................................................52
7.14.1. Environmental Compliance.............................................................52
7.14.2. Environmental Litigation.............................................................53
7.14.3. Hazardous Material...................................................................53
7.15. Pension Plans..................................................................................54
7.16. Foreign Trade Regulations; Government Regulation; Margin Stock.................................54
7.16.1. Foreign Trade Regulations............................................................54
7.16.2. Government Regulation................................................................54
7.17. Disclosure.....................................................................................54
8. Defaults................................................................................................54
8.1. Events of Default..............................................................................54
8.1.1. Payment...............................................................................54
8.1.2. Specified Covenants...................................................................55
8.1.3. Other Covenants.......................................................................55
8.1.4. Representations and Warranties........................................................55
8.1.5. Cross Default, etc....................................................................55
8.1.6. Enforceability, etc...................................................................56
8.1.7. Judgments.............................................................................56
8.1.8. ERISA.................................................................................56
8.1.9. Bankruptcy, etc.......................................................................56
8.2. Certain Actions Following an Event of Default..................................................57
8.2.1. Terminate Obligation to Extend Credit.................................................57
8.2.2. Specific Performance; Exercise of Rights..............................................57
8.2.3. Acceleration..........................................................................58
8.2.4. Enforcement of Payment; Credit Security; Setoff.......................................58
8.2.5. Cumulative Remedies...................................................................58
8.3. Annulment of Defaults..........................................................................58
8.4. Waivers........................................................................................58
9. Expenses; Indemnity.....................................................................................59
9.1. Expenses.......................................................................................59
9.2. General Indemnity..............................................................................59
10. Operations; Managing Agents.............................................................................60
10.1. Interests in Credits...........................................................................60
10.2. Roles of Managing Agents.......................................................................60
10.3. Managing Agents' Authority to Act, etc.........................................................60
10.4. Company to Pay New York Managing Agent, etc....................................................60
10.5. Lender Operations for Advances, etc............................................................61
10.5.1. Advances.............................................................................61
10.5.2. New York Managing Agent to Allocate Payments, etc....................................61
10.5.3. Delinquent Lenders; Nonperforming Lenders............................................62
10.6. Sharing of Payments, etc.......................................................................62
10.7. Amendments, Consents, Waivers, etc.............................................................63
10.8. Managing Agent's Resignation...................................................................64
10.9. Concerning the Managing Agents.................................................................65
10.9.1. Action in Good Faith, etc............................................................65
10.9.2. No Implied Duties, etc...............................................................65
10.9.3. Validity, etc........................................................................65
10.9.4. Compliance...........................................................................65
10.9.5. Employment of Agents and Counsel.....................................................66
10.9.6. Reliance on Documents and Counsel....................................................66
10.9.7. Managing Agents' Reimbursement.......................................................66
10.10. Rights as a Lender.............................................................................66
10.11. Independent Credit Decision....................................................................67
10.12. Indemnification................................................................................67
11. Successors and Assigns; Lender Assignments and Participations...........................................67
11.1. Assignments by Lenders.........................................................................68
11.1.1. Assignees and Assignment Procedures..................................................68
11.1.2. Terms of Assignment and Acceptance...................................................69
11.1.3. Register.............................................................................70
11.1.4. Acceptance of Assignment and Assumption..............................................70
11.1.5. Federal Reserve Bank.................................................................70
11.1.6. Further Assurances...................................................................70
11.2. Credit Participants............................................................................70
11.3. Replacement of Lender..........................................................................71
12. Confidentiality.........................................................................................72
13. Foreign Lenders.........................................................................................73
14. Notices.................................................................................................74
15. Course of Dealing; Amendments and Waivers...............................................................74
16. No Strict Construction..................................................................................75
17. Defeasance..............................................................................................75
18. Venue; Service of Process...............................................................................75
19. WAIVER OF JURY TRIAL....................................................................................76
20. General.................................................................................................76
</TABLE>
EXHIBITS
2.2.4 - Form of 364-Day Revolving Note
2.3.1 - Form of Competitive Auction Facility Loan Bid Request
2.3.2 - Form of Invitation to Bid on Competitive Auction Facility Loan
2.3.3A - Form of Competitive Auction Facility Loan Bid
2.3.3B - Form of List of Competitive Auction Facility Loan Bids
2.3.4A - Form of List of Acceptances and Non-Acceptances of Competitive
Auction Facility Loan Bids
2.3.4B - Form of Acceptance of Competitive Auction Facility Loan Bid
2.3.4C - Form of Non-Acceptance of Competitive Auction Facility Loan Bid
2.3.4D - Form of Notice of Competitive Auction Facility Loan
2.3.5 - Form of Competitive Auction Facility Note
5.1.1 - Form of Officer's Certificate
7.2.2 - Material Agreements
7.3 - Financing Debt
10.1 - Percentage Interests
11.1.1 - Form of Assignment and Acceptance
<PAGE>
CENTRAL MAINE POWER COMPANY
CREDIT AGREEMENT
This Agreement, dated as of December 15, 1998, is among Central Maine
Power Company, a Maine corporation, the Lenders from time to time party hereto,
BankBoston, N.A., both in its capacity as a Lender and in its capacity as agent
for itself and the other Lenders, and The Bank of New York, both in its capacity
as a Lender and in its capacity as agent for itself and the other Lenders. The
parties agree as follows:
. Certain capitalized terms are used in this Agreement and in the other Credit
Documents with the specific meanings defined below in this Section 1. Except as
otherwise explicitly specified to the contrary or unless the context clearly
requires otherwise, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) references to a particular statute or regulation
include all rules and regulations thereunder and any successor statute,
regulation or rules, in each case as from time to time in effect and (g)
references to a particular Person include such Person's successors and assigns
to the extent not prohibited by this Agreement and the other Credit Documents.
References to "the date hereof" mean the date first set forth above.
1.1. "Affected Lender" is defined in Section 11.3.
1.2. "Affiliate" means, with respect to the Company (or any other
specified Person), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Company (or
such specified Person), and shall include (a) any officer or director or general
partner of the Company (or such specified Person) and (b) any Person of which
the Company (or such specified Person) or any Affiliate (as defined in clause
(a) above) of the Company (or such specified Person) shall, directly or
indirectly, beneficially own either (i) at least 10% of the outstanding equity
securities having the general power to vote or (ii) at least 10% of all equity
interests.
1.3. "Agreement" means this Credit Agreement as from time to time amended,
modified and in effect.
1.4. "Applicable Margin" means on each day three-quarters of one percent
(.75%) per annum.
1.5. "Applicable Rate" means, at any date, the sum of:
(a) (i) with respect to each portion of the Revolving Loan subject to
a Eurodollar Pricing Option, the sum of the Applicable Margin plus the
Eurodollar Rate with respect to such Eurodollar Pricing Option;
(ii) with respect to each other portion of the Revolving Loan, the
Base Rate;
plus (b) an additional 2% effective on the day the New York
Managing Agent notifies the Company that the interest rates
hereunder are increasing as a result of the occurrence and
continuance of an Event of Default under Section 8.1.1 until
the earlier of such time as (i) such Event of Default is no
longer continuing or (ii) such Event of Default is deemed no
longer to exist, in each case pursuant to Section 8.3.
1.6. "Assignee" is defined in Section 11.1.1.
1.7. "Assignment and Acceptance" is defined in Section 11.1.1.
1.8. "BankBoston" means BankBoston, N.A.
1.9. "Bank of New York" means The Bank of New York.
1.10. "Banking Day" means any day other than Saturday, Sunday or a day
on which banks in Portland, Maine, New York, New York and Boston, Massachusetts
are authorized or required by law or other governmental action to close and, if
such term is used with reference to a Eurodollar Pricing Option, any day on
which dealings are effected in the Eurodollars in question by first-class banks
in the inter-bank Eurodollar markets in London, England.
1.11. "Bankruptcy Code" means Title 11 of the United States Code.
1.12. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.9.
1.13. "Base Rate" means, on any date, the greater of (a) the rate of
interest announced by Bank of New York at the New York Office as its Base Rate
or (b) the sum of 1/2% plus the Federal Funds Rate.
1.14. "Base Rate Advances" means advances under a Revolving Loan on
which the applicable rate of interest is the Base Rate.
1.15. "Boston Managing Agent" means BankBoston in its capacity as a
Managing Agent hereunder.
1.16. "By-laws" means all written by-laws and all other similar
constituent documents relating to the management, governance or internal
regulation of any Person other than an individual, or interpretive of the
Charter of such Person, all as from time to time in effect.
1.17. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including to the extent applicable Statement Nos. 13 and 98 of the Financial
Accounting Standards Board.
1.18. "Capitalized Lease Obligations" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including to the extent
applicable Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
1.19. "Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
having a maturity of nine months or less and issued by any United
States financial institution having capital and surplus and undivided
profits aggregating at least $100,000,000 and rated at least Prime-1 by
Moody's or A-1 by S&P or issued by any Lender or Affiliate thereof;
(b) corporate obligations having a maturity of nine months
or less and rated at least Prime-1 by Moody's or A-1 by S&P or issued
by any Lender;
(c) any direct obligation of the United States of America or
any agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or which is subject to a repurchase agreement
with any Lender or Affiliate thereof (or any other financial
institution referred to in clause (a) above) exercisable within one
year from the time of purchase and (ii) which, in the case of
obligations of any state or municipality, is rated at least Aa by
Moody's or AA by S&P;
(d) any mutual fund or other pooled investment vehicle rated
at least Aa by Moody's or AA by S&P which invests principally in
obligations described above; and
(e) any Investment by a Foreign Subsidiary in its local
jurisdiction comparable to the items described above.
1.20. "CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
1.21. "CERCLIS" means the federal Comprehensive Environmental Response
Compensation Liability Information System List (or any successor document)
issued under CERCLA.
1.22. "Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other charter
document of any Person other than an individual, each as from time to time in
effect.
1.23. "Closing Date" means the Initial Closing Date and each other date
on which any extension of credit is made pursuant to Section 2.2 and the
Competitive Auction Facility Loan Closing Dates.
1.24. "Code" means the federal Internal Revenue Code of 1986, as
amended.
1.25. "Commitment" means, with respect to any Lender, such Lender's
obligations to extend the credits contemplated by Section 2. The original
Commitments are set forth in Exhibit 10.1 and the current Commitments are
recorded from time to time in the Register.
1.26."Company" means Central Maine Power Company, a Maine corporation.
1.27. "Competitive Auction Facility Loan" is defined in Section 2.3.
1.28. "Competitive Auction Facility Loan Accounts" is defined in Section
2.3.5.
1.29. "Competitive Auction Facility Loan Closing Date" is defined in
Section 2.3.1.
1.30. "Competitive Auction Facility Loan Interest Payment Date" is defined
in Section 2.3.1.
1.31. "Competitive Auction Facility Loan Maturity Date" is defined in
Section 2.3.1.
1.32. "Competitive Auction Facility Note" is defined in Section 2.3.5.
1.33. "Competitive Auction Facility Rates" is defined in Section 2.3.3.
1.34. "Consolidated" and "Consolidating", when used with reference to any
term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified, consolidated (or
combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.
1.35. "Consolidated Current Assets" means, at any date, all amounts
carried as current assets on the balance sheet of the Company and its
Subsidiaries determined in accordance with GAAP on a Consolidated basis.
1.35A. "Consolidated EBIT" means, for any period, the total of:
(a) Consolidated Net Income;
plus (b) all amounts deducted in computing such Consolidated Net
Income in respect of:
(i) interest on, and commitment fees with respect to,
Indebtedness (including payments in the nature of interest
under Capitalized Leases and Interest Rate Protection
Agreements),
(ii) taxes based upon or measured by net income, and
(iii) dividends on preferred stock.
1.36. "Consolidated Interest Expense" means, for any period, the
aggregate amount of interest, including commitment fees, payments in the nature
of interest under Capitalized Leases and net payments under Interest Rate
Protection Agreements, accrued by the Company and its Subsidiaries (whether such
interest is reflected as an item of expense or capitalized) in accordance with
GAAP on a Consolidated basis.
1.37. "Consolidated Net Income" means, for any period, the net income
(or loss) applicable to common stock of the Company and its Subsidiaries,
determined in accordance with GAAP on a Consolidated basis; provided, however,
that Consolidated Net Income shall not include:
(a) all amounts included in computing such net income (or
loss) in respect of (i) the write-up of any asset after December 31,
1995 or (ii) the retirement of any Indebtedness or equity at less than
face value after December 31, 1995;
(b) extraordinary and nonrecurring gains; and
(c) any after-tax gains or losses attributable to returned
surplus assets of any Plan.
1.38. "Consolidated Net Worth" means, at any date, the total of
stockholders' equity of the Company and its Subsidiaries determined in
accordance with GAAP on a Consolidated basis; provided, however, that
Consolidated Net Worth shall not include all amounts included in computing such
Consolidated Net Worth in respect of (i) the write-up of any asset after
December 31, 1995 or (ii) the retirement of any Indebtedness or equity at less
than face value after December 31, 1995.
1.39. [Reserved].
1.40. "Credit Documents" means:
(a) this Agreement, the Notes and each Interest Rate
Protection Agreement provided by a Lender (or an Affiliate of a Lender)
in connection with this Agreement and the Notes to the Company or any
of its Subsidiaries, each as from time to time in effect;
(b) all financial statements, reports, notices, mortgages,
assignments, UCC financing statements and certificates delivered to
either of the Managing Agents or any of the Lenders by the Company or
any of its Subsidiaries in connection herewith or therewith; and
(c) any other present or future agreement or instrument from
time to time entered into among the Company or any of its Subsidiaries,
on one hand, and the Managing Agents or all the Lenders, on the other
hand, relating to, amending or modifying this Agreement or any other
Credit Document referred to above or which is stated to be a Credit
Document, each as from time to time in effect.
1.41. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company owing to either of the Managing
Agents or any Lender (or any Affiliate of a Lender) under or in connection with
this Agreement or any other Credit Document, including obligations in respect of
principal, interest, reimbursement obligations under Interest Rate Protection
Agreements provided by a Lender (or an Affiliate of a Lender) in connection with
this Agreement and the Notes, Facility Fees, amounts provided for in Sections
3.3.4, 3.5 and 9 and other fees, charges, indemnities and expenses from time to
time owing hereunder or under any other Credit Document (whether accruing before
or after a Bankruptcy Default).
1.42. "Credit Participant" is defined in Section 11.2.
1.43. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default and the filing against the Company or any of its Subsidiaries
of a petition commencing an involuntary case under the Bankruptcy Code.
1.44. "Delinquency Period" is defined in Section 10.5.3.
1.45. "Delinquent Lender" is defined in Section 10.5.3.
1.46. "Delinquent Payment" is defined in Section 10.5.3.
1.46A. "Distribution" means, with respect to the Company:
(a) the declaration or payment of any dividend or
distribution on or in respect of any shares of any class of capital
stock of or other equity interests in the Company;
(b) the purchase, redemption or other retirement of any
shares of any class of capital stock of or other equity interest in the
Company or of options, warrants or other rights for the purchase of
such shares, directly, indirectly through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of
any class of capital stock of or equity or other beneficial interest in
the Company;
(d) any payment of principal or interest with respect to, or
any purchase, redemption or defeasance of any Indebtedness of the
Company which by its terms or the terms of any agreement is
subordinated to the payment of the Credit Obligations; and
(e) any payment, loan or advance by the Company to, or any
other Investment by the Company in, the holder of any shares of any
class of capital stock of or equity interest in the Company, or any
Affiliate of such holder (including the payment of management and
transaction fees and expenses);
provided, however, that the term "Distribution" shall not include (i) dividends
payable in perpetual common stock of or other similar equity interests in the
Company or (ii) payments in the ordinary course of business in respect of (A)
reasonable compensation paid to employees, officers and directors, (B) advances
and reimbursements to employees for travel expenses, drawing accounts and
similar expenditures, or (C) rent paid to, or accounts payable for services
rendered or goods sold by, non-Affiliates that own capital stock of or other
equity interests in the Company.
1.46B. "Distribution Plant" means, with respect to the Company, the
distribution assets of the Company as reported from time to time by the Company
to the Federal Energy Regulatory Commission on F.E.R.C. Form 1.
1.47. "Domestic Subsidiary" means any Subsidiary that is not a Foreign
Subsidiary.
1.48. "Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules and regulations (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment, including OSHA.
1.49. "Equity Transaction" means any issuance by the Company or any of
its Subsidiaries to any Person (other than the Company's or a Subsidiary's
officers, employees and directors) of any shares of its capital stock, other
equity interests or options, warrants or other purchase rights to acquire such
capital stock or other equity interests.
1.50. "ERISA" means the federal Employee Retirement Income Security Act of
1974.
1.51. "ERISA Group Person" means the Company and any Person which is a
member of the controlled group or under common control with the Company within
the meaning of section 414 of the Code or section 4001(a)(14) of ERISA.
1.52. "Eurodollars" means, with respect to any Lender, deposits of
United States Funds in a non-United States office or an international banking
facility of such Lender.
1.53. "Eurodollar Basic Reference Rate" means, for any Eurodollar
Interest Period, the rate of interest at which Eurodollar deposits in an amount
comparable to the Percentage Interest of the Reference Lender in the portion of
the Revolving Loan as to which a Eurodollar Pricing Option has been elected and
which have a term corresponding to the Eurodollar Interest Period are offered to
the Reference Lender by first-class banks in the London inter-bank market for
deposits in United States dollars for delivery in immediately available funds at
the Eurodollar Office on the first day of such Eurodollar Interest Period as
determined by the Reference Lender at approximately 10:00 a.m. (New York time)
two Banking Days prior to the date upon which such Eurodollar Interest Period is
to commence (which determination by the Reference Lender shall, in the absence
of manifest error, be conclusive).
1.54. "Eurodollar Interest Period" means any period, selected as
provided in Section 3.3.1, of one, two, three or six months, commencing on any
Banking Day and ending on the corresponding date in the subsequent calendar
month so indicated (or, if such subsequent calendar month has no corresponding
date, on the last day of such subsequent calendar month); provided, however,
that subject to Section 3.3.3, if any Eurodollar Interest Period so selected
would otherwise begin or end on a date which is not a Banking Day, such
Eurodollar Interest Period shall instead begin or end, as the case may be, on
the immediately preceding or succeeding Banking Day as determined by the New
York Managing Agent in accordance with the then current banking practice in the
inter-bank Eurodollar market with respect to deposits at the Eurodollar Office,
which determination by the New York Managing Agent shall, in the absence of
manifest error, be conclusive.
1.55. "Eurodollar Office" means a non-United States office or international
banking facility of Bank of New York.
1.56. "Eurodollar Pricing Options" means the options granted pursuant
to Section 3.3.1 to have the interest on any portion of the Revolving Loan
computed on the basis of a Eurodollar Rate.
1.57. "Eurodollar Rate" for any Eurodollar Interest Period means the
rate, rounded upward to the nearest 1/100%, obtained by dividing (a) the
Eurodollar Basic Reference Rate for such Eurodollar Interest Period by (b) an
amount equal to 1 minus the Eurodollar Reserve Rate; provided, however, that if
at any time during such Eurodollar Interest Period the Eurodollar Reserve Rate
applicable to any outstanding Eurodollar Pricing Option changes, the Eurodollar
Rate for such Eurodollar Interest Period shall automatically be adjusted to
reflect such change, effective as of the date of such change to the extent
required by the Legal Requirement implementing such change.
1.58. "Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic, supplemental,
marginal or emergency reserve or any reserve asset), if any, as from time to
time in effect, required by any Legal Requirement to be maintained by any Lender
against (a) "Eurocurrency liabilities" as specified in Regulation D of the Board
of Governors of the Federal Reserve System applicable to Eurodollar Pricing
Options, (b) any other category of liabilities that includes Eurodollar deposits
by reference to which the interest rate on portions of the Revolving Loan
subject to Eurodollar Pricing Options is determined, (c) the principal amount of
or interest on any portion of the Revolving Loan subject to a Eurodollar Pricing
Option, to the extent that such reserves arise by reason of Eurodollar funding,
or (d) any other category of extensions of credit, or other assets, that
includes loans subject to a Eurodollar Pricing Option by a non-United States
office of any of the Lenders to United States residents, in each case without
the benefits of credits for prorations, exceptions or offsets that may be
available to a Lender.
1.59. "Event of Default" is defined in Section 8.1.
1.60. "Exchange Act" means the federal Securities Exchange Act of 1934, as
amended.
1.61. "Facility Fee" means .25% per annum multiplied by the Maximum Amount
of 364-Day Revolving Credit.
1.62. "FAME Loan Agreement" means the Loan Agreement dated as of October
19, 1994 between Finance Authority of Maine and the Company relating to the
$79,300,000 Finance Authority of Maine Taxable Electric Rate Stabilization
Revenue Notes, Series 1994A (Central Maine Power Company).
1.63. "Federal Funds Rate" means, for any day, the rate equal to the
weighted average (rounded upward to the nearest 1/8%) of (a) the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, (a) as such weighted average is published for
such day (or, if such day is not a Banking Day, for the immediately preceding
Banking Day) by the Federal Reserve Bank of New York or (b) if such rate is not
so published for such Banking Day, quotations received by the New York Managing
Agent from three federal funds brokers of recognized standing selected by the
New York Managing Agent. Each determination by the New York Managing Agent of
the Federal Funds Rate shall, in the absence of manifest error, be conclusive.
1.64. [Reserved]
1.65. "Final Maturity Date" means the 364-Day Final Maturity Date.
1.66. "Financial Officer" of the Company (or other specified Person) means
its chief executive officer, chief financial officer, chief operating officer,
chairman, president or treasurer, or any of its vice presidents whose primary
responsibility is for its financial affairs, all of whose incumbency and
signatures have been certified to the Managing Agents by the secretary or other
appropriate attesting officer of the Company (or such specified Person).
1.67. "Financing Debt" means each of the items described in clauses (a)
through (f) of the definition of the term "Indebtedness" and, without
duplication, any Guarantees of such items.
1.68. "Foreign Subsidiary" means each Subsidiary that is organized under
the laws of, and conducting its business primarily in a jurisdiction outside of,
the United States of America.
1.69. "Foreign Trade Regulations" means (a) any act that prohibits or
restricts, or empowers the President or any executive agency of the United
States of America to prohibit or restrict, exports to or financial transactions
with any foreign country or foreign national, (b) the regulations with respect
to certain prohibited foreign trade transactions set forth at 22 C.F.R. Parts
120-130 and 31 C.F.R. Part 500 and (c) any order, regulation or ruling relating
to any of the foregoing.
1.70. "Funding Liability" means, without duplication, (a) any Eurodollar
deposit which was used (or deemed by Section 3.3.6 to have been used) to fund
any portion of the Revolving Loan subject to a Eurodollar Pricing Option, and
(b) any portion of the Revolving Loan subject to a Eurodollar Pricing Option
funded (or deemed by Section 3.3.6 to have been funded) with the proceeds of any
such Eurodollar deposit.
1.71. "GAAP" means generally accepted accounting principles as from time to
time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board.
1.72. "General and Refunding Mortgage Indenture" means the General and
Refunding Mortgage Indenture dated as of April 15, 1976 between the Company and
The First National Bank of Boston, as trustee (State Street Bank and Trust
Company, successor trustee), as currently in effect and as hereafter
supplemented and amended in a manner permitted under Section 6.2.4 and any
additional or substitute mortgage indenture permitted under Section 6.2.4.
1.72A. "Generating Assets Sale Date" means the date on which the
non-nuclear generating assets of the Company are sold as permitted by Section
6.10.4.
1.73. "Guarantee" means, with respect to the Company (or other specified
Person):
(a) any guarantee by the Company (or such specified Person)
of the payment or performance of, or any contingent obligation by the
Company (or such specified Person) in respect of the complete or
partial payment of, any Indebtedness of any primary obligor;
(b) any other arrangement whereby credit is extended to a
primary obligor on the basis of any promise or undertaking of the
Company (or such specified Person) in writing, including any binding
"comfort letter" or "keep well agreement" written by the Company (or
such specified Person), to a creditor or prospective creditor of such
primary obligor, to (i) pay the Indebtedness of such primary obligor,
(ii) purchase an obligation owed by such primary obligor, (iii) pay for
the purchase or lease of assets or services regardless of the actual
delivery thereof or (iv) maintain the capital, working capital,
solvency or general financial condition of such primary obligor; and
(c) payment obligations, whether contingent or matured, of
the Company (or such specified Person) with respect to letters of
credit, bankers acceptances, surety bonds, other financial guarantees
and Interest Rate Protection Agreements,
in each case whether or not any of the foregoing are reflected on the balance
sheet of the Company (or such specified Person) or in a footnote thereto;
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee shall be
the maximum amount that the guarantor may become obligated to pay in respect of
the obligations (whether or not such obligations are outstanding at the time of
computation).
1.74. "Hazardous Material" means any pollutant, toxic or hazardous material
or waste, including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of CERCLA or any other Environmental Law or regulated
as toxic or hazardous under RCRA or any other Environmental Law.
1.75. "Indebtedness" means all obligations, contingent or otherwise, of the
Company (or other specified Person) for:
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) liabilities classified upon the balance sheet in
accordance with GAAP representing the deferred purchase price of assets
(other than ordinary trade accounts payable within six months after the
incurrence thereof in the ordinary course of business);
(e) payment obligations, whether contingent or matured, with
respect to standby letters of credit, bankers acceptances, surety
bonds, other financial guarantees and Interest Rate Protection
Agreements, in each case supporting Indebtedness under clauses (a)
through (d) above (without duplication of other Indebtedness supported
or guaranteed thereby); and
(f) all Guarantees in respect of Indebtedness of others.
1.76. "Indemnified Party" is defined in Section 9.2.
1.77. "Initial Closing Date" means December 15, 1998 or such other date
agreed to by the Company and the Managing Agents.
1.78. "Interest Rate Protection Agreement" means any interest rate swap,
interest rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed interest rates, fixed interest rates
into variable interest rates or other similar arrangements with respect to
interest obligations.
1.79. "Investment" means, with respect to the Company (or other specified
Person):
(a) any share of capital stock, partnership or other equity
interest, evidence of Indebtedness or other security issued by any
other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other Person;
(d) any acquisition of all, or any division or similar
operating unit of, the business of any other Person or the assets
comprising such business, division or unit; and
(e) any other similar investment.
The investments described in the foregoing clauses (a) through (e)
shall be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) current trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) deposits, advances or prepayments to suppliers for property leased
or licensed, goods furnished and services rendered in the ordinary course of
business, (iii) advances to employees for relocation and travel expenses,
drawing accounts and similar expenditures, (iv) stock or other securities
acquired in connection with the satisfaction or enforcement of Indebtedness or
claims due to the Company (or such specified Person) or as security for any such
Indebtedness or claim or (v) demand deposits in banks or similar financial
institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost thereof
minus any returns of capital in cash on such Investment (determined in
accordance with GAAP without regard to amounts realized as income on
such Investment);
(B) the amount of any Investment in respect of a purchase
described in clause (d) above shall include the amount of any Financing
Debt assumed in connection with such purchase or secured by any asset
acquired in such purchase (whether or not any Financing Debt is
assumed) or for which any Person that becomes a Subsidiary is liable on
the date on which the securities of such Person are acquired; and
(C) no Investment shall be increased as the result of an
increase in the undistributed retained earnings of the Person in which
the Investment was made or decreased as a result of an equity interest
in the losses of such Person.
1.80. "Legal Requirement" means any present or future requirement imposed
upon any of the Lenders or the Company and its Subsidiaries by any law, statute,
rule, regulation, directive, order or decree (or any interpretation thereof by
courts or of administrative bodies) of the United States of America, or each
jurisdiction in which the Eurodollar Office is located or any state or political
subdivision of any of the foregoing, or by any board, governmental or
administrative agency, central bank or monetary authority of the United States
of America, each jurisdiction in which the Eurodollar Office is located, or any
political subdivision of any of the foregoing. Any such law, statute, rule,
regulation, directive, order, decree or interpretation imposed on any of the
Lenders not having the force of law shall be deemed to be a Legal Requirement
for purposes of Section 3 if such Lender reasonably believes that compliance
therewith is customary commercial practice.
1.81. "Lender" means each of the Persons listed as lenders on the signature
page hereto, including BankBoston and Bank of New York, each in its capacity as
a Lender, and such other Persons who may from time to time own a Percentage
Interest in the Credit Obligations, but the term "Lender" shall not include any
Credit Participant.
1.82. "Lien" means, with respect to the Company (or any other specified
Person):
(a) any lien, encumbrance, mortgage, pledge, charge or
security interest of any kind upon any property or assets of the
Company (or such specified Person), whether now owned or hereafter
acquired, or upon the income or profits therefrom;
(b) the acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease); and
(c) the transfer of any tangible property or assets, other
than in the ordinary course of business, for the purpose of creating
collateral for the payment of previously outstanding Indebtedness in
priority to payment of the general creditors of the Company (or such
specified Person).
1.83. "Loan" means, collectively, the Revolving Loan and the Competitive
Auction Facility Loans.
1.84. "Managing Agents" means BankBoston and Bank of New York in their
capacity as managing agents for the Lenders hereunder, as well as their
successors and assigns in such capacity pursuant to Section 10.8.
1.85. "Margin Stock" means "margin stock" within the meaning of Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System.
1.86. "Material Adverse Change" means, since any specified date or from the
circumstances existing immediately prior to the happening of any specified
event, a material adverse change in (a) the financial condition, operations,
properties or financial or business prospects of the Company (on an individual
basis) or the Company and its Subsidiaries (on a Consolidated basis), whether as
a result of (i) general economic conditions affecting the electric power
industry, (ii) difficulties in obtaining supplies and raw materials, (iii) fire,
flood or other natural calamities, (iv) environmental pollution, (v) regulatory
changes, judicial decisions, war or other governmental action or (vi) any other
event or development, whether or not related to those enumerated above or (b)
the ability of the Company to perform its obligations under the Credit Documents
or (c) the rights and remedies of the Managing Agents and the Lenders under the
Credit Documents.
1.87. "Material Agreements" means the General and Refunding Mortgage
Indenture, the FAME Loan Agreement and other financing documents evidencing
Indebtedness permitted under Section 6.6.
1.88. "Maximum Amount of 364-Day Revolving Credit" is defined in Section
2.2.2.
1.89. [Reserved]
1.90. "Moody's" means Moody's Investors Service, Inc.
1.91. "More Favorable Provision" is defined in Section 6.2.4.
1.92. "Multiemployer Plan" means, at any date, a "multiemployer plan" as
defined in section 4001(a)(3) of ERISA, to which contributions have been made or
are or were required to be made, by any ERISA Group Person within six years
prior to such date.
1.93. "New York Managing Agent" means Bank of New York, in its capacity as
a Managing Agent hereunder.
1.94. "New York Office" means the principal banking office of Bank of New
York in New York, New York.
1.95. "1997 10-K" is defined in Section 7.2.1.
1.96. "Nonperforming Lender" is defined in Section 10.5.3.
1.97. "Notes" means collectively, the Revolving Notes and the Competitive
Auction Facility Notes.
1.98. "OSHA" means the federal Occupational Safety and Health Act.
1.99. "Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.
1.100. "Payment Date" means (a) the last Banking Day of each March, June,
September and December occurring after the Initial Closing Date and (b) the
Final Maturity Date.
1.101. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
1.102. "Percentage Interest" means (a) at all times when no Event of
Default under Section 8.1.1 and no Bankruptcy Default exists, the ratio that the
respective Commitments of the Lenders bear to the total Commitments of all
Lenders as from time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the outstanding Credit
Obligations owing to the Lenders in respect of extensions of credit under
Section 2 bear to the total outstanding Credit Obligations owing to all Lenders.
1.103. "Performing Lender" is defined in Section 10.5.3.
1.104. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
1.105. "Plan" means, at any date, any pension benefit plan subject to Title
IV of ERISA, other than a Multiemployer Plan, maintained, or to which
contributions have been made or are required to be made, by any ERISA Group
Person within six years prior to such date.
1.106. "Pre-Closing 1934 Act Reports" means the 1997 10-K, the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1998 and its Reports on Form 8-K dated January 6, January 14,
January 30, September 1 and November 17, 1998, each as furnished to the Lenders
prior to the date hereof.
1.107. [Reserved]
1.108. [Reserved]
1.109. [Reserved]
1.110. "RCRA" means the federal Resource Conservation and Recovery Act, 42
U.S.C. ss. 6901, et seq.
1.111. "Reference Lender" means Bank of New York.
1.112. "Register" is defined in Section 11.1.3.
1.113. "Reorganization Date" means September 1, 1998.
1.114. "Replacement Lender" is defined in Section 11.3.
1.115. "Request Date" is defined in Section 2.3.1.
1.116. "Required Lenders" means, with respect to any approval, consent,
modification, waiver or other action to be taken by the Managing Agents or the
Lenders under the Credit Documents which requires action by the Required
Lenders, such Lenders as own at least a majority of the Percentage Interests;
provided, however, that with respect to any matters referred to in the proviso
to Section 10.7, Required Lenders means such Lenders as own at least the
respective portions of the Percentage Interests required by Section 10.7.
1.117. "Revolving Loan" means the 364-Day Revolving Loan.
1.118. "Revolving Notes" means the 364-Day Revolving Notes.
1.119. "S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill Corporation.
1.120. "Securities Act" means the federal Securities Act of 1933, as
amended.
1.121. "Significant Subsidiary" means, at the time any determination
thereof is to be made, any Subsidiary which (i) as of the end of the next
preceding fiscal quarter had assets which comprised not less than 5% of the
aggregate book value of the Consolidated assets of the Company and its
Subsidiaries, determined in accordance with GAAP, as of the end of such quarter
or (ii) for the period of four consecutive fiscal quarters most recently ended
had operating income which comprised not less than 5% of the Consolidated
Operating Income of the Company and its Subsidiaries for such period.
1.122. "Subsidiary" means any corporation of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, own more than 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally and any other
Person whose financial statements are required to be included in the
Consolidated financial statements of the Company in accordance with GAAP.
1.123. "Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any time required
by any Legal Requirement (a) to be paid by any Lender or (b) to be withheld or
deducted from any payment otherwise required hereby to be made to any Lender, in
each case on or with respect to its obligations hereunder, the Loan, any payment
in respect of the Credit Obligations or any Funding Liability not included in
the foregoing; provided, however, that the term "Tax" shall not include taxes
imposed upon or measured by the net income of such Lender (other than
withholding taxes) or franchise taxes.
1.124. "$10,000,000 Financing Debt" is defined in Section 8.1.5.
1.125. "364-Day Competitive Auction Facility Loan" means a Competitive
Auction Facility Loan, the amount of which is to be applied against the Maximum
Amount of 364-Day Revolving Credit.
1.126. "364-Day Final Maturity Date" means October 23, 1999 or such date to
which this date is extended pursuant to Section 2.6.2.
1.127. "364-Day Revolving Loan" is defined in Section 2.2.4.
1.128. "364-Day Revolving Notes" is defined in Section 2.2.4.
1.129. "Three-Year Revolving Credit Agreement" means the Credit Agreement
dated as of October 23, 1996, as from time to time amended, among the Company,
BankBoston and Bank of New York, as managing agents, and the lenders party
thereto.
1.130. [Reserved]
1.131. [Reserved]
1.132. [Reserved]
1.133. "United States Funds" means such coin or currency of the United
States of America as at the time shall be legal tender therein for the payment
of public and private debts.
1.134. "Unsecured Medium Term Notes" means unsecured Indebtedness of the
Company denominated "Medium Term Notes" and issued or to be issued pursuant to
the Company's Indenture, dated as of August 1, 1989, as amended.
1.135. "Wholly Owned Subsidiary" means any Subsidiary of which all of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares and, in the case of
Foreign Subsidiaries, shares required by Legal Requirements to be held by
foreign nationals) is owned by the Company (or other specified Person) directly,
or indirectly through one or more Wholly Owned Subsidiaries.
.. The Credits
[Reserved]
..2. 364-Day Revolving Credit
. Subject to all the terms and conditions of this Agreement
and so long as no Default exists, from time to time on and after the
Initial Closing Date and prior to the 364-Day Final Maturity Date the
Lenders will, severally in accordance with their respective Commitments
in the 364-Day Revolving Loan, make loans to the Company in such
amounts as may be requested by the Company in accordance with Section
2.2.3. The sum of the aggregate principal amount of loans made under
this Section 2.2.1 at any one time outstanding plus the 364-Day
Competitive Auction Facility Loans shall in no event exceed the Maximum
Amount of 364-Day Revolving Credit. In no event will the principal
amount of loans at any one time outstanding made by any Lender pursuant
to this Section 2.2 exceed such Lender's Commitment with respect to the
364-Day Revolving Loan.
. The term "Maximum Amount of 364-Day Revolving Credit"
means $25,000,000 minus the amount (in a minimum of $2,500,000 and in
an integral multiple of $1,000,000 that is in excess of $2,500,000) by
which $25,000,000 shall have been irrevocably reduced from time to time
upon three business days' prior notice from the Company to the New York
Managing Agent. Upon termination or reduction of the Maximum Amount of
364-Day Revolving Credit, the Company shall pay to the New York
Managing Agent, for the account of the Lenders according to each's
Percentage Interest, accrued Facility Fees (to the date of termination
or reduction) on the terminated or reduced portion of the Maximum
Amount of 364-Day Revolving Credit.
. The Company may from time to time request a loan under
Section 2.2.1 by providing to the New York Managing Agent a notice
(which may be given by a telephone call if promptly confirmed in
writing). Such notice must be not later than 10:30 a.m. (New York time)
on the same Banking Day as the requested Closing Date for such loan (or
on the third Banking Day prior to the requested Closing Date if any
portion of such loan will be subject to a Eurodollar Pricing Option on
the requested Closing Date). The notice must specify (a) the amount of
the requested loan (which shall be not less than $1,000,000 and shall
otherwise be an integral multiple of $500,000) and (b) the requested
Closing Date therefor (which shall be a Banking Day). Upon receipt of
such notice, the New York Managing Agent will promptly inform each
other Lender (by telephone or otherwise). Each such loan will be made
at the New York Office by depositing the amount thereof to the general
account of the Company with the New York Managing Agent.
. The aggregate principal amount of the loans outstanding
from time to time under this Section 2.2 is referred to as the "364-Day
Revolving Loan". The 364-Day Revolving Loan shall be deemed owed to
each Lender having a Commitment therein severally in accordance with
such Lender's Percentage Interest therein, and all payments thereon
shall be for the account of each Lender in accordance with its
Percentage Interest therein. The Company's obligations to pay each
Lender's Percentage Interest in the 364-Day Revolving Loan shall be
evidenced by a separate note of the Company in substantially the form
of Exhibit 2.2.4 (the "364-Day Revolving Notes"), payable to each
Lender in accordance with such Lender's Percentage Interest in the
364-Day Revolving Loan.
. As provided in this Section 2.3, the Company may request, and
one or more Lenders, each acting in its sole and absolute discretion,
may offer to make, loans on a competitive auction facility basis (each
such loan made by any of the Lenders pursuant to this Section 2.3
being referred to as a "Competitive Auction Facility Loan"), which the
Company may, in its sole and absolute discretion, agree to accept;
provided, however, that in no event shall the sum of the aggregate
364-Day Competitive Auction Facility Loans at any one time outstanding
plus the 364-Day Revolving Loan exceed the Maximum Amount of 364-Day
Revolving Credit.
. Subject to all the terms and conditions of this Agreement
and so long as no Default exists, the Company may, at any time prior to
the Final Maturity Date, by telex or telecopy notice to the New York
Managing Agent substantially in the form of Exhibit 2.3.1 received not
later than 10:00 a.m. (New York time) on any Banking Day (the "Request
Date"), request bids for loans pursuant to this Section 2.3 to be made
on the following Banking Day (the "Competitive Auction Facility Loan
Closing Date"), such request to specify:
(a) the aggregate amount of the proposed loans, which shall
not be less than $1,000,000 and which shall otherwise be in integral
multiples of $500,000,
(b) the proposed maturity dates (each such date a
"Competitive Auction Facility Loan Maturity Date") for such proposed
loans (which maturity dates shall be not earlier than seven days
following the applicable Competitive Auction Facility Loan Closing Date
and not later than the earlier of (i) the 180th day following the
applicable Competitive Auction Facility Loan Closing Date and (ii) the
applicable Final Maturity Date) and,
(c) the proposed dates (each such date a "Competitive
Auction Facility Loan Interest Payment Date"), if any, prior to the
applicable Competitive Auction Facility Loan Maturity Date on which
accrued but unpaid interest shall be due and payable on the principal
amount of such proposed loans; provided, however, that in the event the
proposed Competitive Auction Facility Loan Maturity Date is more than
90 days after the proposed Competitive Auction Facility Loan Closing
Date, the Company shall also pay accrued and unpaid interest on the
proposed loans on the 90th day after the proposed Competitive Auction
Facility Loan Closing Date. No more than six Eurodollar Pricing Options
and Competitive Auction Facility Loans in the aggregate may be
outstanding at any one time.
. Promptly upon receipt of each request submitted by the
Company pursuant to Section 2.3.1, and in any event not later than 2:00
p.m. (New York time) on the applicable Request Date, the New York
Managing Agent shall, by telex or telecopy notice (or by telephonic
notice on a reasonable efforts basis, promptly confirmed by telex or
telecopy) to each Lender in substantially the form of Exhibit 2.3.2,
notify each Lender of such request, which notice shall constitute an
invitation on behalf of the Company for each Lender to submit bids
pertaining to the proposed Competitive Auction Facility Loans in
accordance with Section 2.3.3.
. Each Lender may, in its sole and absolute discretion,
respond to such invitation by submitting a bid by telex or telecopy
notice to the New York Managing Agent no later than 10:00 a.m. (New
York time) on the proposed Competitive Auction Facility Loan Closing
Date. Such notice shall be in substantially the form of Exhibit 2.3.3A,
which notice shall constitute an offer by such Lender to the Company to
make Competitive Auction Facility Loans on the proposed Competitive
Auction Facility Loan Closing Date in the principal amounts specified
in the notice from such Lender, which principal amounts (a) may be for
all or any portion of the proposed Competitive Auction Facility Loans,
notwithstanding the Percentage Interest of such Lender in the Revolving
Loan, (b) may be different principal amounts for different Competitive
Auction Facility Loan Maturity Dates (subject to an over-all maximum)
and (c) shall be an integral multiple of $500,000 maturing on the
Competitive Auction Facility Loan Maturity Dates requested by the
Company, with accrued and unpaid interest on the principal amount
thereof to be due and payable on the Competitive Auction Facility Loan
Interest Payment Dates, if any, requested by the Company, and on such
Competitive Auction Facility Loan Maturity Dates, such interest to
accrue at the rates per annum (which shall be in integral multiples of
1/100%) specified in such notice (the "Competitive Auction Facility
Rates"). The New York Managing Agent shall disregard any bid (i) not
submitted by 10:00 a.m. (New York time) on the proposed Competitive
Auction Facility Loan Closing Date or (ii) not substantially in the
form of Exhibit 2.3.3A, or not complete, or containing qualifying,
conditional or similar language, or terms different from or in addition
to those set forth in the pertinent request, and any late or
non-conforming bid shall be deemed not to have been given for any
purpose of this Agreement. The New York Managing Agent shall promptly,
and in any event not later than 11:00 a.m. (New York time) on the
proposed Competitive Auction Facility Loan Closing Date, by telephonic
notice to the Company, confirmed in writing, forward to the Company in
substantially the form of Exhibit 2.3.3B, all bids submitted in
compliance with this Section 2.3.3. Notwithstanding the foregoing
provisions of this Section 2.3.3, each of the Lenders constituting the
Managing Agents shall submit its own bid, if any, to the Company by
telex or telecopy not later than 9:45 a.m. (New York time) on the
proposed Competitive Auction Facility Loan Closing Date.
. Not later than Noon (New York time) on the applicable
Competitive Auction Facility Loan Closing Date, the Company shall by
telex or telecopy notice to the New York Managing Agent in
substantially the form of Exhibit 2.3.4A, indicate its acceptance or
non-acceptance of each offer submitted pursuant to Section 2.3.3. In
the case of acceptance, such notice shall be irrevocable and shall
specify the aggregate principal amount of each offered Competitive
Auction Facility Loan that is accepted. Such notice shall be deemed to
constitute the certification of the Company that the closing conditions
for such Competitive Auction Facility Loans contained in Section 5.2
(other than the delivery of an officer's certificate) have been
satisfied. The Company may accept each such offer in whole or in part;
provided, however, that (a) the aggregate principal amount of all
Competitive Auction Facility Loans accepted and made on any Competitive
Auction Facility Loan Closing Date may not exceed the applicable amount
set forth in the applicable request, (b) the principal amount of each
Competitive Auction Facility Loan shall be an integral multiple of
$500,000, and (c) acceptance of offers for Competitive Auction Facility
Loans with the same Competitive Auction Facility Loan Maturity Date may
be made only on the basis of ascending quoted Competitive Auction
Facility Rates; and provided, further, that if offers are made by two
or more Lenders having the same Competitive Auction Facility Rate for a
greater aggregate principal amount than the amount in respect of which
offers at such rate are accepted, the principal amount of such
Competitive Auction Facility Loans in respect of which such offers are
accepted at such rate shall be allocated by the New York Managing Agent
among such Lenders as nearly as possible (in integral multiples of
$500,000) in proportion to the aggregate principal amount of such
offers. Determinations by the New York Managing Agent of the amounts of
Competitive Auction Facility Loans pursuant to the immediately
preceding sentence shall be conclusive in the absence of manifest
error. The New York Managing Agent shall, not later than 1:00 p.m. (New
York time) on the Competitive Auction Facility Loan Closing Date,
notify each Lender who submitted an offer for the particular loans
requested pursuant to Section 2.3.1 whether any offer has been accepted
(substantially in the form of Exhibit 2.3.4B) or rejected
(substantially in the form of Exhibit 2.3.4C) and, if accepted, in what
principal amount and maturity. In the event the Company fails to
provide such notice to the New York Managing Agent by Noon (New York
time) on the Competitive Auction Facility Loan Closing Date, the New
York Managing Agent may conclusively presume that all such offers have
been rejected by the Company and, in such event, the New York Managing
Agent shall, not later than 1:00 p.m. (New York time), so notify each
Lender which submitted an offer. Each time a Competitive Auction
Facility Loan is made, the New York Managing Agent shall send a notice
to the Company and each Lender in substantially the form of Exhibit
2.3.4D specifying the principal amount and maturity date of such
Competitive Auction Facility Loan.
2.3.5. Funding by the New York Managing Agent; Competitive
Auction Facility Loan Account, etc . Each Competitive Auction Facility
Loan by any Lender will be made on the terms offered by such Lender and
accepted by the Company in accordance with this Section 2.3 at the New
York Office on the applicable Competitive Auction Facility Loan Closing
Date by adding the amount thereof to the applicable Competitive Auction
Facility Loan Accounts and either (a) by crediting the amount thereof
to the 364-Day Revolving Loan of the Company, as the Company specifies
in its request under Section 2.3.1, for the account of the Lenders in
accordance with their respective Percentage Interests therein or (b) if
the Company shall have specified by written notice to the New York
Managing Agent, by crediting the amount thereof to the general account
of the Company with the New York Managing Agent at the New York Office.
(a) Competitive Auction Facility Loan Account. The New York
Managing Agent will establish on its books separate loan accounts (the
"Competitive Auction Facility Loan Accounts") for each Lender extending
a Competitive Auction Facility Loan to the Company which the New York
Managing Agent shall administer as follows: (i) the New York Managing
Agent shall debit to the pertinent Competitive Auction Facility Loan
Account the principal amount of all Competitive Auction Facility Loans
from time to time made by such Lender to the Company and (ii) the New
York Managing Agent shall credit to the pertinent Competitive Auction
Facility Loan Account of the Lender for whose benefit payment is made,
all payments made on account of the principal amount of Indebtedness
evidenced by the pertinent Competitive Auction Facility Loan Account.
Upon the request of any Lender, the Company shall issue a note in
substantially the form of Exhibit 2.3.5 (a "Competitive Auction
Facility Note") evidencing the Indebtedness evidenced by such Lender's
Competitive Auction Facility Loan Account.
(b) Maturity Date; Interest; Repayment. The stated maturity
date of each Competitive Auction Facility Loan shall be the applicable
Competitive Auction Facility Loan Maturity Date for such Competitive
Auction Facility Loan. The Company will pay interest on the principal
amount of each Competitive Auction Facility Loan at the applicable
Competitive Auction Facility Rate (plus an additional 2% per annum
effective on the day either Managing Agent notifies the Company that
the interest rates hereunder are increasing as a result of the
occurrence and continuation of an Event of Default under Section 8.1.1
until the earlier of such time as (x) such Event of Default is no
longer continuing or (y) such Event of Default is deemed pursuant to
Section 8.3 no longer to exist) for such Competitive Auction Facility
Loan on each applicable Competitive Auction Facility Loan Interest
Payment Date, if any, and on the applicable Competitive Auction
Facility Loan Maturity Date for such Competitive Auction Facility Loan.
Upon the maturity of any Competitive Auction Facility Loan, so long as
either (i) no Event of Default then exists or (ii) the New York
Managing Agent shall have received the consent of all the Lenders if an
Event of Default then exists, the New York Managing Agent shall debit
the 364-Day Revolving Loan of the Company in the principal amount of
such Competitive Auction Facility Loan for the account of the Lenders
in accordance with their respective Percentage Interests and shall
credit the same amount to the pertinent Competitive Auction Facility
Loan Account.
. No Competitive Auction Facility Loan may be prepaid by the
Company.
..4. Application of Proceeds
2.4.1. [Reserved]
. Subject to Section 2.4.4, the Company will apply the
proceeds of the 364-Day Revolving Loan for working capital and other
lawful corporate purposes of the Company and its Subsidiaries.
. Subject to Section 2.4.4, the Company will apply the
proceeds of the Competitive Auction Facility Loan for working capital
and other lawful corporate purposes of the Company and its
Subsidiaries.
. The Company will not, directly or indirectly, apply any
part of the proceeds of any extension of credit made pursuant to the
Credit Documents to purchase or to carry Margin Stock, or to any
transaction prohibited by the Foreign Trade Regulations or by the
Credit Documents or to any transaction prohibited by other Legal
Requirements applicable to the Lenders of which notice has been given
by any Lender to the Company.
2.5. Nature of Obligations of Lenders to Make Extensions of Credit
The Lenders' obligations to make Revolving Loans under
this Agreement are several and are not joint or joint and several. If
on any Closing Date any Lender shall fail to perform its obligations
under this Agreement, the aggregate amount of Commitments to make the
extensions of credit under this Agreement shall be reduced by the
amount of unborrowed Commitment of the Lender so failing to perform and
the Percentage Interests shall be appropriately adjusted. Lenders that
have not failed to perform their obligations to make the extensions of
credit contemplated by Section 2 may, if any such Lender so desires,
assume, in such proportions as such Lenders may agree, the obligations
of any Lender who has so failed and the Percentage Interests shall be
appropriately adjusted. The provisions of this Section 2.5 shall not
affect the rights of the Company against any Lender failing to perform
its obligations hereunder.
. The obligation to make a Competitive Auction Facility Loan
shall be an obligation solely of the Lenders which offered to make such
loan in accordance with Section 2.3 and whose offers were accepted
thereunder.
..6. Extension of Final Maturity Date of the Revolving Loan
2.6.1. [Reserved]
. At the request of the Company and with the approval of all
the Lenders, the 364-Day Final Maturity Date may be extended, each such
succeeding 364-Day Final Maturity Date to be no later than the date
which is 364 days after the preceding 364-Day Final Maturity Date.
.. Interest; Eurodollar Pricing Options; Fees
. The Revolving Loan shall accrue and bear interest at a rate per annum
which shall at all times equal the Applicable Rate. Prior to any stated or
accelerated maturity of the Revolving Loan, the Company will, on each Payment
Date, pay the accrued and unpaid interest on the portion of the Revolving Loan
which was not subject to a Eurodollar Pricing Option. On the last day of each
Eurodollar Interest Period or on any earlier termination of any Eurodollar
Pricing Option, the Company will pay the accrued and unpaid interest on the
portion of the Revolving Loan which was subject to the Eurodollar Pricing Option
which expired or terminated on such date. In the case of any Eurodollar Interest
Period longer than three months, the Company will also pay the accrued and
unpaid interest on the portion of the Revolving Loan subject to the Eurodollar
Pricing Option having such Eurodollar Interest Period at three-month intervals,
the first such payment to be made on the last Banking Day of the three-month
period which begins on the first day of such Eurodollar Interest Period. On the
stated or any accelerated maturity of the Revolving Loan, the Company will pay
all accrued and unpaid interest on the Revolving Loan, including any accrued and
unpaid interest on any portion of the Revolving Loan which is subject to a
Eurodollar Pricing Option. Upon the occurrence and during the continuance of an
Event of Default, the Lenders may require accrued interest to be payable on
demand or at regular intervals more frequent than each Payment Date. All
payments of interest with respect to the Revolving Loan shall be made to the New
York Managing Agent for the account of each Lender in accordance with such
Lender's Percentage Interest.
. The Company will pay interest on each Competitive Auction Facility
Loan to the New York Managing Agent for the benefit of the applicable Lender at
the rate and on the dates specified in Section 2.3.5(b).
..3. Eurodollar Pricing Options
. Subject to all of the terms and conditions hereof and so
long as no Default exists, the Company may from time to time, by
irrevocable notice to the New York Managing Agent actually received not
less than three Banking Days prior to the commencement of the
Eurodollar Interest Period selected in such notice, elect to have such
portion of the Revolving Loan as the Company may specify in such notice
accrue and bear interest during the Eurodollar Interest Period so
selected at the Applicable Rate computed on the basis of the Eurodollar
Rate. In the event the Company at any time fails to elect a Eurodollar
Pricing Option under this Section 3.3.1 for any portion of the
Revolving Loan, then such portion of the Revolving Loan will accrue and
bear interest at the Applicable Rate based on the Base Rate. No
election of a Eurodollar Pricing Option shall become effective:
(a) if, prior to the commencement of any such Eurodollar
Interest Period, the New York Managing Agent determines that (i) the
electing or granting of the Eurodollar Pricing Option in question would
violate a Legal Requirement, (ii) Eurodollar deposits in an amount
comparable to the principal amount of the Revolving Loan as to which
such Eurodollar Pricing Option has been elected and which have a term
corresponding to the proposed Eurodollar Interest Period are not
readily available in the inter-bank Eurodollar market, or (iii) by
reason of circumstances affecting the inter-bank Eurodollar market,
adequate and reasonable methods do not exist for ascertaining the
interest rate applicable to such deposits for the proposed Eurodollar
Interest Period; or
(b) if any Lender shall have advised the New York Managing
Agent by telephone or otherwise at or prior to noon (New York time) on
the second Banking Day prior to the commencement of such proposed
Eurodollar Interest Period (and shall have subsequently confirmed in
writing) that, after reasonable efforts to determine the availability
of such deposits, such Lender reasonably anticipates that deposits in
an amount equal to the Percentage Interest of such Lender in the
portion of the Revolving Loan as to which such Eurodollar Pricing
Option has been elected and which have a term corresponding to the
Eurodollar Interest Period in question will not be offered in the
inter-bank Eurodollar market to such Lender.
. The New York Managing Agent will promptly inform each
Lender (by telephone or otherwise) of each notice received by it from
the Company pursuant to Section 3.3.1 and of the Eurodollar Interest
Period specified in such notice. Upon determination by the New York
Managing Agent of the Eurodollar Rate for such Eurodollar Interest
Period or in the event such election shall not become effective, the
New York Managing Agent will promptly notify the Company and each
Lender (by telephone or otherwise) of the Eurodollar Rate so determined
or why such election did not become effective, as the case may be.
. Eurodollar Interest Periods shall be selected so that:
(a) the portion of the Revolving Loan subject to any Eurodollar
Pricing Option shall be at least $2,500,000 and otherwise an integral
multiple of $500,000;
(b) no more than ten Eurodollar Pricing Options shall be
outstanding at any one time; and
(c) no Eurodollar Interest Period with respect to any part of the
Revolving Loan subject to a Eurodollar Pricing Option shall expire
later than the Final Maturity Date.
. If any portion of the Revolving Loan subject to a
Eurodollar Pricing Option is repaid, or any Eurodollar Pricing Option
is terminated for any reason (including acceleration of maturity), on a
date which is prior to the last Banking Day of the Eurodollar Interest
Period applicable to such Eurodollar Pricing Option, the Company will
pay to the New York Managing Agent for the account of each Lender in
accordance with such Lender's Percentage Interest, in addition to any
amounts of interest otherwise payable hereunder, an amount equal to the
present value (calculated in accordance with this Section 3.3.4) of
interest for the unexpired portion of such Eurodollar Interest Period
on the portion of the Revolving Loan so repaid, or as to which a
Eurodollar Pricing Option was so terminated, at a per annum rate equal
to the excess, if any, of (a) the rate applicable to such Eurodollar
Pricing Option minus (b) the rate of interest obtainable by the New
York Managing Agent upon the purchase of debt securities customarily
issued by the Treasury of the United States of America which have a
maturity date approximating the last Banking Day of such Eurodollar
Interest Period. The present value of such additional interest shall be
calculated by discounting the amount of such interest for each day in
the unexpired portion of such Eurodollar Interest Period from such day
to the date of such repayment or termination at a per annum interest
rate equal to the interest rate determined pursuant to clause (b) of
the preceding sentence, and by adding all such amounts for all such
days during such period. The determination by the New York Managing
Agent of such amount of interest shall, in the absence of manifest
error, be conclusive. For purposes of this Section 3.3.4, if any
portion of the Revolving Loan which was to have been subject to a
Eurodollar Pricing Option is not outstanding on the first day of the
Eurodollar Interest Period applicable to such Eurodollar Pricing Option
other than for reasons described in Section 3.3.1, the Company shall be
deemed to have terminated such Eurodollar Pricing Option.
. If any Legal Requirement shall prevent any Lender from
funding or maintaining through the purchase of deposits in the
inter-bank Eurodollar market any portion of the Revolving Loan subject
to a Eurodollar Pricing Option or otherwise from giving effect to such
Lender's obligations as contemplated by Section 3.3, (a) the New York
Managing Agent may by notice to the Company terminate all of the
affected Eurodollar Pricing Options, (b) the portion of the Revolving
Loan subject to such terminated Eurodollar Pricing Options shall
immediately bear interest thereafter at the Applicable Rate computed on
the basis of the Base Rate and (c) the Company shall make any payment
required by Section 3.3.4.
. The Lenders may fund any portion of the Revolving Loan
subject to a Eurodollar Pricing Option out of any funds available to
the Lenders. Regardless of the source of the funds actually used by any
of the Lenders to fund any portion of the Revolving Loan subject to a
Eurodollar Pricing Option, however, all amounts payable hereunder,
including the interest rate applicable to any such portion of the
Revolving Loan and the amounts payable under Section 3.3.4 and 3.5,
shall be computed as if each Lender had actually funded such Lender's
Percentage Interest in such portion of the Revolving Loan through the
purchase of deposits in such amount of the type by which the Eurodollar
Basic Reference Rate was determined with a maturity the same as the
applicable Eurodollar Interest Period relating thereto and through the
transfer of such deposits from an office of the Lender having the same
location as the Eurodollar Office to one of such Lender's offices in
the United States of America.
. In consideration of the Lenders' commitments to make the extensions
of credit provided for in Section 2.2, the Company will pay to the New York
Managing Agent for the account of the Lenders in accordance with the Lenders'
respective commitments in the 364-Day Revolving Loan, on each Payment Date and
on the 364-Day Final Maturity Date, the applicable Facility Fees.
..5. Changes in Circumstances; Yield Protection
. If any Legal Requirement shall (a) impose, modify,
increase or deem applicable any insurance assessment, reserve, special
deposit or similar requirement against any Funding Liability, (b)
impose, modify, increase or deem applicable any other requirement or
condition with respect to any Funding Liability, or (c) change the
basis of taxation of Funding Liabilities (other than changes in the
rate of taxes measured by the overall net income of such Lender) and
the effect of any of the foregoing shall be to increase the cost to any
Lender of issuing, making, funding or maintaining its respective
Percentage Interest in any portion of the Revolving Loan subject to a
Eurodollar Pricing Option, to reduce the amounts received or receivable
by such Lender under this Agreement or to require such Lender to make
any payment or forego any amounts otherwise payable to such Lender
under this Agreement (other than any Tax or any reserves that are
included in computing the Eurodollar Reserve Rate), then such Lender
may claim compensation from the Company under Section 3.5.5.
. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions,
including deductions for Taxes, unless the Company is required by law
to make such deductions. If (a) any Lender shall be subject to any Tax
with respect to any payment of the Credit Obligations or its
obligations hereunder or (b) the Company shall be required to withhold
or deduct any Tax on any payment on the Credit Obligations, then such
Lender may claim compensation from the Company under Section 3.5.5.
Whenever Taxes must be withheld by the Company with respect to any
payments of the Credit Obligations, the Company shall promptly furnish
to the New York Managing Agent for the account of the applicable Lender
official receipts (to the extent that the relevant governmental
authority delivers such receipts) evidencing payment of any such Taxes
so withheld. If the Company fails to pay any such Taxes when due or
fails to remit to the New York Managing Agent for the account of the
applicable Lender the required receipts evidencing payment of any such
Taxes so withheld or deducted, the Company shall indemnify the affected
Lender for any incremental Taxes and interest or penalties that may
become payable by such Lender as a result of any such failure. In the
event any Lender receives a refund of any Taxes for which it has
received payment from the Company under this Section 3.5.2, such Lender
shall promptly pay the amount of such refund to the Company, together
with any interest thereon actually earned by such Lender.
. If any Lender shall determine that compliance by such
Lender with any Legal Requirement regarding capital adequacy of banks
or bank holding companies has or would have the effect of reducing the
rate of return on the capital of such Lender and its Affiliates as a
consequence of such Lender's Commitment to make the extensions of
credit contemplated hereby, or such Lender's maintenance of the
extensions of credit contemplated hereby, to a level below that which
such Lender could have achieved but for such compliance (taking into
consideration the policies of such Lender and its Affiliates with
respect to capital adequacy immediately before such compliance and
assuming that the capital of such Lender and its Affiliates was fully
utilized prior to such compliance) by an amount deemed by such Lender
to be material, then such Lender may claim compensation from the
Company under Section 3.5.5.
. If any Lender shall determine that (a) any change in any
Legal Requirement (including any new Legal Requirement) after the date
hereof shall directly or indirectly (i) reduce the amount of any sum
received or receivable by such Lender with respect to the Revolving
Loan or the return to be earned by such Lender on the Revolving Loan,
(ii) impose a cost on such Lender or any Affiliate of such Lender that
is attributable to the making or maintaining of, or such Lender's
Commitment to make, its portion of the Revolving Loan, or (iii) require
such Lender or any Affiliate of such Lender to make any payment on, or
calculated by reference to, the gross amount of any amount received by
such Lender under any Credit Document (other than Taxes or income or
franchise taxes), and (b) such reduction, increased cost or payment
shall not be fully compensated for by an adjustment in the Applicable
Rate, then such Lender may claim compensation from the Company under
Section 3.5.5.
. Within 15 days after the receipt by the Company of a
certificate from any Lender setting forth why it is claiming
compensation under this Section 3.5 and computations (in reasonable
detail) of the amount thereof, the Company shall pay to such Lender
such additional amounts as such Lender sets forth in such certificate
as sufficient fully to compensate it on account of the foregoing
provisions of this Section 3.5, together with interest on such amount
from the 15th day after receipt of such certificate until payment in
full thereof at the Overdue Reimbursement Rate. The determination by
such Lender of the amount to be paid to it and the basis for
computation thereof hereunder shall, in the absence of manifest error,
be conclusive. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. The Company shall be
entitled to replace any such Lender in accordance with Section 11.3.
. Each Lender shall take such commercially reasonable steps
as it may determine are not disadvantageous to it, including changing
lending offices to the extent feasible, in order to reduce amounts
otherwise payable by the Company to such Lender pursuant to Sections
3.3.4 and 3.5 or to make Eurodollar Pricing Options available under
Sections 3.3.1 and 3.3.5. In addition, the Company shall not be
responsible for costs (a) under Section 3.5 arising more than 90 days
prior to receipt by the Company of the certificate from the affected
Lender pursuant to such Section 3.5 or (b) under Section 3.3.4 arising
from the termination of Eurodollar Pricing Options more than 90 days
prior to the demand by the New York Managing Agent for payment under
Section 3.3.4.
. For purposes of this Agreement, interest and Facility Fees (and any
other amount expressed as interest or such fees) shall be computed on the basis
of a 360-day year for actual days elapsed, except for interest on Base Rate
Advances for so long as the Base Rate is applicable, which shall be computed on
the basis of a 365- or 366-day year for actual days elapsed. If any payment
required by this Agreement becomes due on any day that is not a Banking Day,
such payment shall, except as otherwise provided in the Eurodollar Interest
Period, be made on the next succeeding Banking Day. If the due date for any
payment of principal is extended as a result of the immediately preceding
sentence, interest shall be payable for the time during which payment is
extended at the Applicable Rate.
.. Payment
. Except as set forth in Section 2.3.5, on each Competitive Auction
Facility Loan Maturity Date, the Company will pay to the New York Managing Agent
for credit to the applicable Competitive Auction Facility Loan Account the
outstanding principal amount of its Competitive Auction Facility Loan maturing
on such date, together with all accrued and unpaid interest with respect
thereto. On the 364-Day Final Maturity Date or any accelerated maturity of the
364-Day Revolving Loan, the Company will pay to the New York Managing Agent for
the account of the Lenders an amount equal to the 364-Day Revolving Loan then
due, together with all accrued and unpaid interest and fees with respect
thereto.
. If at any time the 364-Day Revolving Loan exceeds the limits set
forth in Section 2.2, the Company shall within one Banking Day pay the amount of
such excess to the New York Managing Agent for the account of the Lenders.
. In addition to the prepayments required by Section 4.2, the Company
may from time to time prepay all or any portion of the 364-Day Revolving Loan
(in an amount of at least $2,500,000 and otherwise any integral multiple of
$1,000,000 that is in excess of $2,000,000, or such lesser amount as is then
outstanding), without premium or penalty of any type (except as provided in
Section 3.3.4 with respect to the early termination of Eurodollar Pricing
Options). The Company shall give each Managing Agent in the case of prepayments
of portions of the Revolving Loan bearing interest at the Base Rate, notice on
or prior to 11:00 a.m., New York City time, on the Banking Day of such
prepayment, and in the case of prepayments of portions of the Revolving Loan
bearing interest at a rate determined by reference to the Eurodollar Rate, at
least three Banking Days prior notice of its intention to prepay, specifying the
date of prepayment, the total amount of the 364-Day Revolving Loan to be prepaid
on such date and the amount of interest to be paid with such prepayment, which
interest shall be all accrued interest on the amount prepaid up to the date of
prepayment and shall include any payments required by Section 3.3.4. Competitive
Auction Facility Loans may not be prepaid under this Section 4.3.
4.4. Reborrowing; Application of Payments, etc.
. The amounts of the 364-Day Revolving Loan prepaid pursuant
to Section 4.2 or 4.3 may be reborrowed from time to time prior to the
364-Day Final Maturity Date in accordance with Section 2.2, subject to
the limits and conditions set forth therein.
. Any prepayment of the 364-Day Revolving Loan pursuant to
Section 4.2 or 4.3 shall be applied first to the portion of the 364-Day
Revolving Loan not then subject to Eurodollar Pricing Options, then the
balance of any such prepayment shall be applied to the portion of the
364-Day Revolving Loan then subject to Eurodollar Pricing Options, in
the chronological order of the respective maturities thereof (or as the
Company may otherwise specify in writing), together with any payments
required by Section 3.3.4.
. All payments of principal under the Revolving Loan shall
be made to the New York Managing Agent for the account of the Lenders
in accordance with the Lenders' respective Percentage Interests.
.. Conditions to Extending Credit
. The obligations of the Lenders to make any extension of credit
pursuant to Section 2 shall be subject to the satisfaction, on or before the
Initial Closing Date, of the conditions set forth in this Section 5.1 as well as
the further conditions in Section 5.2. If the conditions set forth in this
Section 5.1 are not met on or prior to the Initial Closing Date, the Lenders
shall have no obligation to make any extensions of credit hereunder.
. The representations and warranties contained in Section 7
shall be true and correct on and as of the Initial Closing Date with
the same force and effect as though made on and as of such date (except
as to any representation or warranty which is limited to a specific
earlier date); no Default shall exist on the Initial Closing Date; and
the Company shall have furnished to the Managing Agents a certificate
to these effects in substantially the form of Exhibit 5.1.1, signed by
a Financial Officer.
. The Company shall have duly executed and delivered to the
New York Managing Agent a 364-Day Revolving Note for each Lender.
. The Company shall have paid to the New York Managing Agent
for the accounts of the Lenders in accordance with their respective
Percentage Interest the sum of $12,500.
. On the Initial Closing Date, the Lenders shall have
received from the following counsel their respective opinions with
respect to the transactions contemplated by the Credit Documents, which
opinions shall be in form and substance satisfactory to the Required
Lenders:
(a) Corporate counsel of the Company, as to matters the
Lenders may reasonably request.
(b) Ropes & Gray, special counsel for the Managing Agents,
as to matters the Managing Agents may reasonably request.
The Company consents to the furnishing by its counsel of the
foregoing opinions.
5.1.5. [Reserved]
. The Boston Managing Agent shall have received certified or
attested copies of the Orders of the State of Maine Public Utilities
Commission and any other regulatory authorities having jurisdiction,
authorizing all borrowings hereunder (but only to the extent that such
Orders are required by law), which shall be in full force and effect
and not subject to appeal or rehearing.
. This Agreement, each other Credit Document and the
transactions contemplated hereby and thereby shall have been authorized
by all necessary corporate or other proceedings. All necessary
consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect; provided, however, that
a waiver of jurisdiction by the Connecticut Department of Public
Utility Control need not have been obtained on or prior to the Initial
Closing Date.
. All legal and corporate proceedings in connection with the
transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Managing Agents and the Managing Agents shall
have received copies of all documents, including certified copies of
the Charter (Capital Stock Provisions) and By-Laws of the Company,
records of corporate proceedings (including certified copies of the
resolutions of the Board of Directors, or the Executive and Finance
Committee thereof, authorizing the execution, delivery and performance
of this Agreement and the Notes), certificates as to signatures and
incumbency of officers and opinions of counsel, which either Managing
Agent may have reasonably requested in connection therewith, such
documents where appropriate to be certified by proper corporate or
governmental authorities.
. In addition to the conditions set forth in Section 5.1 being met on
the Initial Closing Date, the obligations of the Lenders to make any extension
of credit pursuant to Section 2 shall be subject to the satisfaction, on or
before the Closing Date for such extension of credit, of the following
conditions:
. The representations and warranties contained in Section 7
(excluding Sections 7.4(a) and 7.7) shall be true and correct on and as
of such Closing Date with the same force and effect as though made on
and as of such date (except as to any representation or warranty which
is limited to a specific earlier date); no Default shall exist on such
Closing Date prior to or immediately after giving effect to the
requested extension of credit; and the Company's making of a borrowing
request shall be deemed to constitute a representation on which the
Managing Agents and the Lenders may rely that no Default exists on such
Closing Date and that such representations and warranties are true and
correct on and as of such Closing Date.
. On any Closing Date on which the aggregate principal
amount outstanding under either Revolving Loan is to be increased, no
Material Adverse Change shall have occurred since the Initial Closing
Date and the representations and warranties contained in Section 7.7
shall be true and correct on and as of such Closing Date; and the
Company's making of a borrowing request shall be deemed to constitute a
representation on which the Managing Agents and the Lenders may rely
that no Material Adverse Change shall have occurred since the Initial
Closing Date and that the representations and warranties contained in
Section 7.7 are true and correct on as of such Closing Date.
. The making of the requested extension of credit shall not
(a) subject any Lender to any penalty or special tax (other than a Tax
for which the Company is required to reimburse the Lenders under
Section 3.5), (b) be prohibited by any Legal Requirement or (c) violate
any credit restraint program of the executive branch of the government
of the United States of America, the Board of Governors of the Federal
Reserve System or any other governmental or administrative agency so
long as any Lender reasonably believes that compliance therewith is in
the best interests of such Lender.
. The Company covenants that, until all of the Credit Obligations (other than
indemnities, expense and similar obligations that survive the termination of
this Agreement) shall have been paid in full and until the Lenders' commitments
to extend credit under this Agreement and any other Credit Document shall have
been irrevocably terminated, the Company and its Subsidiaries will comply with
the following provisions:
..1. Taxes and Other Charges; Accounts Payable
. Each of the Company and its Significant Subsidiaries shall
duly pay and discharge, or cause to be paid and discharged, before the
same become in arrears, all taxes, assessments and other governmental
charges imposed upon such Person and its properties, sales or
activities, or upon the income or profits therefrom, as well as all
claims for labor, materials or supplies which if unpaid might by law
become a Lien upon any of its property; provided, however, that any
such tax, assessment, charge or claim need not be paid if (a) the
validity or amount thereof shall at the time be contested in good faith
by appropriate proceedings or actions and if such Person shall, if
required by GAAP, have set aside on its books adequate reserves with
respect thereto, it being understood that each of the Company and its
Subsidiaries shall pay or bond, or cause to be paid or bonded, all such
taxes, assessments, charges or other governmental claims promptly upon
the commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings
have been dismissed or stayed) or (b) failure to comply has not
resulted, and is not likely to result, in any Material Adverse Change.
. Each of the Company and its Significant Subsidiaries shall
promptly pay when due, or in conformity with customary trade terms, all
accounts payable incident to the operations of such Person not referred
to in Section 6.1.1; provided, however, that any such accounts payable
need not be paid if (a) the validity or amount thereof shall at the
time be contested in good faith and if such Person shall, if required
by GAAP, have set aside on its books adequate reserves with respect
thereto or (b) failure to comply has not resulted, and is not likely to
result, in any Material Adverse Change.
6.2. Conduct of Business, etc.
. The Company shall engage only in the businesses of (a)
electric power generation, transmission and/or distribution and (b)
other businesses related to those set forth in the foregoing clause (a)
that are immaterial in relation to the foregoing businesses. The
Subsidiaries of the Company shall engage only in the businesses
described in the preceding sentence, other energy-related activities
and other businesses that are immaterial in relation to the foregoing
businesses.
Each of the Company and its Significant Subsidiaries:
(a) shall keep its properties in such repair, working order
and condition, and shall from time to time make such repairs,
replacements, additions and improvements thereto, as are necessary for
the efficient operation of its businesses and shall comply at all times
in all material respects with all material franchises, licenses and
leases to which it is party so as to prevent any loss or forfeiture
thereof or thereunder, except where (i) compliance is at the time being
contested in good faith by appropriate proceedings or actions or (ii)
failure to comply has not resulted, and is not likely to result, in the
aggregate in any Material Adverse Change; and
(b) shall do all things necessary to preserve, renew and
keep in full force and effect its legal existence; provided, however,
that this Section 6.2.2(b) shall not prevent the merger, consolidation
or liquidation of Significant Subsidiaries permitted by Section 6.10.
. Each of the Company and its Significant Subsidiaries shall
comply in all material respects with all valid and applicable statutes,
laws, ordinances, zoning and building codes and other rules and
regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions
applicable to such Person, except where (a) compliance therewith shall
at the time be contested in good faith by appropriate proceedings or
actions or (b) failure so to comply has not resulted, and is not likely
to result, in the aggregate in any Material Adverse Change.
. The General and Refunding Mortgage Indenture shall not be
amended so as to increase the aggregate principal amount of bonds which
may be outstanding thereunder at any one time or so as to include
financial covenants or events of default that are more restrictive than
those included in the Credit Documents. In addition, the Company may
enter into a new mortgage indenture in addition to or in substitution
for the General and Refunding Mortgage Indenture in effect on September
1, 1998 so long as (1) the aggregate principal amount of Indebtedness
which may be outstanding at any one time under the General and
Refunding Mortgage Indenture and such additional or substitute mortgage
indenture shall not exceed 70% of the aggregate book value for the
Distribution Plant of the Company (including additions thereto), (2)
the security for the Indebtedness issued under such additional or
substitute mortgage indenture shall be limited to the Distribution
Plant of the Company (including additions thereto), (3) the financial
covenants and events of default included in such additional or
substitute mortgage indenture shall not be more restrictive than those
included in the Credit Documents and (4) no Default shall have occurred
and be continuing or shall exist immediately upon the effectiveness of
such additional or substitute mortgage indenture.
. In any transaction providing for Indebtedness in excess of
$1,000,000, the Company shall not enter into or become bound by any
credit agreement or other document or instrument which (i) contains
financial covenants or events of default that are more restrictive or
onerous on the Company than those covenants or events of default
contained in this Agreement or (ii) provides for, or permits the
exercise of, remedies upon the occurrence of an event of default
thereunder which are not provided for in, or permitted to be exercised
under or in respect of, this Agreement (each such covenant, event of
default and provision described in the preceding clauses (i) and (ii)
being herein called a "More Favorable Provision"), unless, prior to or
simultaneously with the Company entering into or becoming bound by such
credit agreement or other document or instrument, (x) the Company
executes and delivers to the Lenders an amendment to this Agreement and
such other documents and instruments as the Managing Agents shall
reasonably request, in each case reasonably satisfactory in form and
substance to the Managing Agents, which modify the provisions of this
Agreement and the terms of the transactions contemplated hereby and by
the Credit Documents so as to give the Lenders the benefit of each More
Favorable Provision, and (y) the Company furnishes to the Lenders a
copy of such credit agreement, or other document or instrument.
. Each of the Company and its Significant Subsidiaries shall maintain
with financially sound and reputable insurance companies insurance on its
property in at least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in the same or a
similar business; and furnish to each Lender, upon written request, full
information as to the insurance carried.
. Each of the Company and its Subsidiaries shall maintain a system of
accounting in which correct entries shall be made of all transactions in
relation to their business and affairs in accordance with generally accepted
accounting practice. The fiscal year of the Company and its Subsidiaries shall
end on December 31 in each year and the fiscal quarters of the Company and its
Subsidiaries shall end on March 31, June 30, September 30 and December 31 in
each year.
. The Company shall furnish to the Lenders as soon as
available, and in any event within 100 days after the end of each
fiscal year, the Consolidated balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year, the Consolidated
statements of income and Consolidated statements of changes in
shareholders' equity and of cash flows of the Company and its
Subsidiaries for such fiscal year (all in reasonable detail) and
together, in the case of Consolidated financial statements, with
comparative figures for the immediately preceding fiscal year, all
accompanied by:
(a) Reports of Pricewaterhouse Coopers LLP (or, if they
cease to be auditors of the Company and its Subsidiaries, other
independent certified public accountants of recognized national
standing selected by the Company), containing no material
qualification, to the effect that they have audited the foregoing
Consolidated financial statements in accordance with generally accepted
auditing standards and that such Consolidated financial statements
present fairly, in all material respects, the financial position of the
Company and its Subsidiaries covered thereby at the dates thereof and
the results of their operations for the periods covered thereby in
conformity with GAAP.
(b) The statement of such accountants that they have caused
this Agreement to be reviewed and that in the course of their audit of
the Company and its Subsidiaries no facts have come to their attention
that cause them to believe that any Default exists and in particular
that they have no knowledge of any Default under Sections 6.5 through
6.13 or, if such is not the case, specifying such Default and the
nature thereof. This statement is furnished by such accountants with
the understanding that the examination of such accountants cannot be
relied upon to give such accountants knowledge of any such Default
except as it relates to accounting or auditing matters within the scope
of their audit.
(c) A certificate of the Company signed by a Financial
Officer to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof, and
what action the Company has taken, is taking or proposes to take with
respect thereto and including computations showing compliance by the
Company for and as of the end of such year with the requirements of
Section 6.5.
(d) Supplements to Exhibit 7.3 showing any material changes
in the information set forth in such exhibit not previously furnished
to the Lenders in writing, as well as any material changes in the
Charter, Bylaws or incumbency of officers of the Company from those
previously certified to the Managing Agents.
. The Company shall furnish to the Lenders as soon as
available and, in any event, within 55 days after the end of each of
the first three fiscal quarters of the Company, the internally prepared
Consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal quarter, the Consolidated statements of income
and Consolidated statements of cash flows of the Company and its
Subsidiaries for such fiscal quarter and for the portion of the fiscal
year then ended (all in reasonable detail) and together, in the case of
Consolidated statements, with comparative figures for the same period
in the preceding fiscal year, all accompanied by:
(a) A certificate of the Company signed by a Financial
Officer to the effect that such financial statements have been prepared
in accordance with GAAP and present fairly, in all material respects,
the financial position of the Company and its Subsidiaries covered
thereby at the dates thereof and the results of their operations for
the periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(b) A certificate of the Company signed by a Financial
Officer to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof and what
action the Company has taken, is taking or proposes to take with
respect thereto and including computations showing compliance by the
Company for and as of the end of such quarter with the requirements of
Section 6.5.
(c) Supplements to Exhibit 7.3 showing any material changes
in the information set forth in such exhibit not previously furnished
to the Lenders in writing, as well as any material changes in the
Charter, Bylaws or incumbency of officers of the Company from those
previously certified to the Managing Agents.
. The Company shall promptly furnish to the Lenders:
(a) As soon as prepared and released, the Company's "Financial
Perspective".
(b) All reports furnished generally to the shareholders of the
Company.
(c) From and after the Reorganization Date, such effective
registration statements, definitive proxy statements and regular or
periodic reports, including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and
8-K, as may be filed by the parent corporation of the Company or by
the Company or any of its Subsidiaries with the Securities and
Exchange Commission (other than filings and reports with respect to
dividend reinvestment, employee benefits or other similar plans, and
filings and reports pertaining to sales of or other transactions in
securities of such parent or the Company or any Subsidiary by Persons
other than such parent or the Company or such Subsidiary).
(d) Any 90-day letter or 30-day letter from the federal Internal
Revenue Service (or the equivalent notice received from state or other
taxing authorities) asserting material tax deficiencies against the
Company or any of its Subsidiaries.
. The Company shall promptly furnish to the Lenders notice
(which may be in the form of information in a document provided by the
Company under Section 6.4.3 or other provisions hereof) of any
litigation or any administrative or arbitration proceeding (a) which
creates a material risk of resulting, after giving effect to any
applicable insurance, in the payment by the Company and its
Subsidiaries of more than $10,000,000 or (b) which results, or is
likely to result, in a Material Adverse Change. Promptly upon acquiring
knowledge thereof, the Company shall notify the Lenders of the
existence of any Default, specifying the nature thereof and what action
the Company or any Subsidiary has taken, is taking or proposes to take
with respect thereto. Promptly upon acquiring knowledge thereof, the
Company shall notify the Lenders of the existence of any Material
Adverse Change, specifying the nature thereof and what action the
Company or any Subsidiary has taken, is taking or proposes to take with
respect thereto.
. The Company shall furnish to the Managing Agents within 30
days of the Company's preparation of, or receipt of, as applicable, the
following items with respect to any Plan:
(a) any request for a waiver of the minimum funding standards or
an extension of an amortization period, in each case under section 412
of the Code or section 302 of ERISA,
(b) any notice to the PBGC of a reportable event (as defined in
section 4043 of ERISA), unless the notice requirement with respect
thereto has been waived by regulation,
(c) any notice received by any ERISA Group Person that the PBGC
has instituted or intends to institute proceedings to terminate any
Plan pursuant to section 4042 of ERISA, or that any Multiemployer Plan
is insolvent or in reorganization and, in either or both cases, in
connection therewith, an ERISA Group Person has incurred or could
reasonably be expected to incur material liability,
(d) notice of the intent to terminate any Plan other than
pursuant to section 4041(b) of ERISA, and
(e) notice of the intention of any ERISA Group Person to
withdraw, in whole or in part, from any Multiemployer Plan and, in
connection therewith, that such ERISA Group Person could reasonably be
expected to incur material liability.
. From time to time at reasonable intervals upon request of
any authorized officer of any Lender, each of the Company and its
Subsidiaries shall furnish to the Lenders such other information
regarding the business, assets, financial condition, income or
prospects of the Company and its Subsidiaries as such officer may
reasonably request, including copies of requested tax returns,
licenses, agreements, leases and instruments to which any of the
Company or its Subsidiaries is party. The Lenders' authorized officers
and representatives shall have the right during normal business hours
upon reasonable notice and at reasonable intervals to examine the books
and records of the Company and its Subsidiaries, to make copies and
notes therefrom for the purpose of ascertaining compliance with or
obtaining enforcement of this Agreement or any other Credit Document.
..5. Certain Financial Tests
. Consolidated Net Worth shall at all times prior to the
Generating Assets Sale Date equal or exceed the sum of (a) $450,000,000
plus (b) the amount by which (i) 100% of the proceeds to the Company
(net of issuance costs) realized after October 23, 1996 resulting from
any Equity Transaction of the Company and its Subsidiaries as
determined in accordance with GAAP by PricewaterhouseCoopers LLP (or,
if they cease to be auditors of the Company and its Subsidiaries, other
independent certified public accountants of recognized national
standing selected by the Company) exceeds (ii) $5,000,000 plus (c) the
amount by which (i) 100% of the Consolidated after-tax gain on sales of
assets by the Company and its Subsidiaries after October 23, 1996 as
determined quarterly in accordance with GAAP by PricewaterhouseCoopers
LLP (or, if they cease to be auditors of the Company and its
Subsidiaries, other independent certified public accountants of
recognized national standing selected by the Company) exceeds (ii)
$5,000,000.
6.5.1A. Consolidated Net Worth. Consolidated Net Worth shall
at all times on and after the Generating Assets Sale Date equal or
exceed the sum of (a) $275,000,000 plus (b) the amount by which (i)
100% of the proceeds to the Company (net of issuance costs) realized
after the Generating Assets Sale Date resulting from any Equity
Transaction of the Company and its Subsidiaries as determined in
accordance with GAAP by PricewaterhouseCoopers LLP (or, if they cease
to be auditors of the Company and its Subsidiaries, other independent
certified public accountants of recognized national standing selected
by the Company) exceeds (ii) $5,000,000 plus (c) the amount by which
(i) 100% of the Consolidated after-tax gain on sale of assets by the
Company and its Subsidiaries which take place after the Generating
Assets Sale Date as determined quarterly in accordance with GAAP by
PricewaterhouseCoopers LLP (or, if they cease to be auditors of the
Company and its Subsidiaries, other independent certified public
accountants of recognized national standing selected by the Company)
exceeds (ii) $5,000,000.
. The "Common Stock Investment" of the Company and its
Subsidiaries determined on a Consolidated basis in accordance with
GAAP, and as shown on the Company's Consolidated balance sheet, shall
at all times equal or exceed 35% of "Total Capitalization" of the
Company and its Subsidiaries determined on a Consolidated basis in
accordance with GAAP, as shown on the same balance sheet.
. Consolidated EBIT for each period of four consecutive
fiscal quarters of the Company shall equal or exceed 175% of
Consolidated Interest Expense for such period.
. Neither the Company nor any of its Significant Subsidiaries shall
create, incur, assume or otherwise become or remain liable with respect to any
Indebtedness (or become contractually committed do so), except the following:
6.6.1. Indebtedness in respect of the Credit Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Indebtedness secured by purchase money mortgages
permitted by Section 6.8.8.
6.6.4. Indebtedness in respect of Capitalized Lease
Obligations or secured by purchase money security interests permitted
by Section 6.8.9; provided, however, that the aggregate principal
amount of all Indebtedness permitted by this Section 6.6.4 at any one
time outstanding shall not exceed $40,000,000.
6.6.5. Indebtedness of the Company consisting of debt
subordinated to the prior payment of the Credit Obligations on terms
approved by the holders of 66 _% of the principal amount of the
Revolving Loan at the time outstanding.
6.6.6. Indebtedness outstanding on the date hereof and
described in Exhibit 7.3 and all renewals and extensions thereof in an
aggregate principal amount not in excess of the aggregate principal
amount thereof outstanding immediately prior to such renewal or
extension.
6.6.7. Indebtedness of the Company evidenced by General and
Refunding Mortgage Bonds of the Company issued under the General and
Refunding Mortgage Indenture, but only so long as the Company is in
compliance with Section 6.2.4.
6.6.8. Indebtedness of the Company in respect of its
Unsecured Medium Term Notes, provided that the aggregate principal
amount of all Indebtedness permitted by this Section 6.6.8 at any one
time outstanding shall not exceed $500,000,000.
6.6.9. Indebtedness in respect of unsecured debt to banks
other than the Credit Obligations and the Indebtedness permitted by
Section 6.6.12; provided that the aggregate principal amount of all
Indebtedness permitted by this Section 6.6.9 at any one time
outstanding shall not exceed $10,000,000.
6.6.10. Indebtedness of the Company in respect of commercial
paper, provided that the sum of the aggregate principal amount of all
Indebtedness permitted by this Section 6.6.10 and by Sections 6.6.9 and
6.6.12 and the principal amount of the Credit Obligations at any one
time outstanding shall not exceed $85,000,000.
6.6.11. Unsecured long-term Indebtedness issued for the sole
purpose of refunding permitted Indebtedness, provided that such
long-term Indebtedness shall be supported by financial covenants no
more restrictive than those contained in the General and Refunding
Mortgage Indenture and shall not begin to amortize prior to 91 days
following the latest Final Maturity Date in effect at the time of the
issuance of such Indebtedness.
6.6.12. Unsecured Indebtedness of the Company outstanding
under the Three-Year Revolving Credit Agreement.
. Neither the Company nor any of its Significant Subsidiaries shall
become or remain liable with respect to any Guarantee, including reimbursement
obligations, whether contingent or matured, under letters of credit or other
financial guarantees by third parties (or become contractually committed do to
so), except the following:
6.7.1. Guarantees of the Credit Obligations.
6.7.2. Guarantees of Indebtedness permitted by Section 6.6.
6.7.3. Any Guarantee that is given, entered into or created
in connection with or as an inducement to (i) the purchase or sale of
capacity or energy (including support arrangements with respect to
generating plants and transmission and distribution facilities, and
contracts for the purchase of capacity and/or energy) or of fuel, (ii)
the installation of energy-saving devices and taking of other
energy-saving measures, and (iii) other operational matters in the
ordinary course of business; provided, however, that no individual
Guarantee permitted under this clause (iii) may present a liability or
exposure to the Company or a Significant Subsidiary in an amount
greater than $10,000,000; and provided, further, that this Section
6.7.3 shall not permit the giving, entering into or creation, after the
date hereof, of any Guarantee (other than as required under contracts
existing on the date hereof) providing support for the acquisition by
the Company or a Significant Subsidiary of generating capacity or a
generating plant (other than in connection with buyouts by the Company
of non-utility generating operations, in connection with power
purchases required by law or in connection with exchanges of capacity
or plant entitlements within the ordinary course of ensuring an
adequate power supply to mitigate the Company's risk, provided that no
such exchange shall exceed three years in duration) which individually
presents a liability or exposure to the Company or a Significant
Subsidiary in an amount greater than $10,000,000.
. Neither the Company nor any of its Significant Subsidiaries shall
create, incur or enter into, or suffer to be created or incurred or to exist,
any Lien (or become contractually committed to do so), except the following:
6.8.1. Liens to secure taxes, assessments and other governmental charges, to
the extent that payment thereof shall not at the time be required by
Section 6.1.
6.8.2. Liens made (a) in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age
pensions or other social security, (b) in connection with casualty
insurance maintained in accordance with Section 6.3, (c) to secure the
performance of bids, tenders, contracts (other than contracts relating
to Financing Debt) or leases, (d) to secure public or statutory
obligations or surety or appeal bonds, (e) to secure indemnity,
performance or other similar bonds in the ordinary course of business
or (f) in connection with contested amounts to the extent that payment
thereof shall not at that time be required by Section 6.1.
6.8.3. Liens in respect of judgments or awards, to the
extent that such judgments or awards (a) have been in force for less
than the applicable appeal period or (b) in respect of which the
Company or any Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and, in the case of
each of clauses (a) and (b), the Company or each Subsidiary shall have
taken appropriate reserves therefor in accordance with GAAP and
execution of such judgment or award shall not be levied.
6.8.4. Liens of carriers, warehouses, mechanics and similar
Liens, which, in the case of any Lien material to the Company or a
Significant Subsidiary, (a) are in existence fewer than 90 days from
the date of creation thereof or (b) if in existence for 90 days or
longer either (i) are not delinquent or (ii) are being contested in
good faith by the Company or any Subsidiary in appropriate proceedings
or actions (so long as, in the case of this clause (ii), the Company or
such Significant Subsidiary shall, if required by GAAP, have set aside
on its books adequate reserves with respect thereto); and deposits to
obtain the release of such Liens.
6.8.5. Encumbrances consisting of or in the nature of (a)
zoning restrictions, (b) easements, (c) reservations or restrictions on
the use of tangible property, (d) landlords' and lessors' Liens on
rented premises, (e) leases (other than Capitalized Leases) and
restrictions on transfers or assignment of leases and (f) defects or
irregularities (including any terms, conditions, agreements, covenants,
exceptions and reservations expressed or provided in deeds or other
agreements) in title thereto, which in each case do not materially
impair the conduct of the business of the Company or any Significant
Subsidiary.
6.8.6. Restrictions under federal and state securities laws
on the transfer of securities.
6.8.7. Restrictions under Foreign Trade Regulations on the
transfer or licensing of certain assets of the Company and its
Significant Subsidiaries.
6.8.8. Liens constituting (a) purchase money Liens on
electric property acquired in the ordinary course of business after the
October 23, 1996, and (b) the renewal, extension or refunding of any
purchase money Lien referred to in the foregoing clause (a) in a
principal amount not to exceed the principal amount thereof remaining
unpaid immediately prior to such renewal, extension or refunding;
provided, however, that each such purchase money Lien shall attach
solely to the particular item of property so acquired (and any
improvements thereon and, in case such item is affixed to land, such
Lien may attach to such land and other land necessary for access to
such property), and the principal amount of Indebtedness secured
thereby shall not exceed the cost (including all such Indebtedness
secured thereby, whether or not assumed) of such item of property to
the Company or a Significant Subsidiary.
6.8.9. Liens constituting (a) purchase money Liens
(including mortgages, conditional sales, Capitalized Leases and any
other title retention or deferred purchase devices) in real property,
interests in leases or tangible personal property (other than
inventory) existing or created on or within 60 days after the date on
which such property is acquired, and (b) the renewal, extension or
refunding of any security interest referred to in the foregoing clause
(a) in a principal amount not to exceed the principal amount thereof
remaining unpaid immediately prior to such renewal, extension or
refunding; provided, however, that (i) each such security interest
shall attach solely to the particular item of property so acquired (and
any improvements thereon and, in case such item is affixed to land,
such Lien may attach to such land and other land necessary for access
to such property), and the principal amount of Indebtedness (including
Indebtedness in respect of Capitalized Lease Obligations) secured
thereby shall not exceed the cost (including all such Indebtedness
secured thereby, whether or not assumed) of such item of property to
the Company or a Significant Subsidiary; and (ii) the aggregate
principal amount of all Indebtedness secured by Liens permitted by this
Section 6.8.9 shall not exceed the amount permitted by Section 6.6.4.
6.8.10. Liens securing obligations neither assumed by the
Company or any Significant Subsidiary nor on account of which any of
them customarily pays interest directly or indirectly, existing, either
at the date hereof, or, as to property hereafter acquired, constructed
or improved, at the time of acquisition, construction or improvement by
the Company or a Significant Subsidiary.
6.8.11. Any right which any municipal or governmental body
or agency may have by virtue of any franchise, license, contract or
statute to purchase, or designate a purchaser of or order the sale of,
any property of the Company or any Significant Subsidiary upon payment
of reasonable compensation therefor, or to terminate any franchise,
license or other rights or to regulate the property and business of the
Company or any Significant Subsidiary.
6.8.12. The Lien of judgments covered by insurance, or upon
appeal and covered, if necessary, by the filing of an appeal bond, or
if not so covered, not exceeding at any one time $10,000,000 in
aggregate amount.
6.8.13. Any Lien, moneys sufficient for the discharge of
which have been deposited in trust with the trustee or mortgagee under
the instrument evidencing such Lien, with irrevocable authority to such
trustee or mortgagee to apply such moneys to the discharge of such Lien
to the extent required for such purpose.
6.8.14. Rights reserved to or vested in others to take or
receive any part of the gas, by-products of gas or steam or electricity
generated or produced by or from any properties of the Company or any
Significant Subsidiary or with respect to any other rights concerning
supply, transportation or storage of a commodity which is used in the
ordinary course of business.
6.8.15. The Lien of the General and Refunding Mortgage
Indenture, Liens in effect on the date hereof imposed by the Finance
Authority of Maine, and other Liens in effect on the date hereof, all
as described on Exhibit 7.3.
. Neither the Company nor any of its Subsidiaries shall (a) at any
time, permit the aggregate book value of the assets of the Subsidiaries of the
Company to exceed 10% of the aggregate book value of the Consolidated assets
determined in accordance with GAAP or (b) acquire any ownership interest in any
nuclear energy generating plants other than Investments in such plants
outstanding, or required under contracts existing, on the date hereof.
. The Company shall not merge with or enter into a consolidation with
another Person, except that CMP Merger Co., a Maine corporation, may merge into
the Company on terms substantially identical to those provided in the form of
Agreement and Plan of Merger set forth in Appendix B to the Proxy Statement of
the Company dated April 15, 1998. The Company shall not sell, transfer or
otherwise dispose of (or pledge or assign) any accounts receivable (except for
collection or enforcement in the ordinary course of business). The Company shall
not sell, transfer, sell and lease back or otherwise dispose of other assets for
an aggregate cumulative consideration in excess of $200,000,000 (or become
contractually committed to do so), except the following:
6.10.1. The Company may sell, transfer or otherwise dispose
of (a) inventory and Cash Equivalents in the ordinary course of
business and (b) tangible assets no longer used or useful which are to
be replaced in the ordinary course of business to the extent necessary
by other tangible assets of equal or greater value.
6.10.2. Licensing of products and intangible assets for fair
value in the ordinary course of business.
6.10.3. The Company may grant easements and other similar
rights to use its real estate and properties.
6.10.4. Upon obtaining final approvals of such sale from the
Maine Public Utilities Commission and the Federal Energy Regulatory
Commission, the Company may sell to an affiliate of FPL Group pursuant
to the bid submitted by such buyer on December 10, 1997 all of the
Company's hydro, fossil and biomass generating assets, including its
interest in certain Subsidiaries which operate or participate in such
assets, with a combined generating capacity of 1,185 megawatts.
. Neither the Company nor any of its Significant Subsidiaries shall
enter into any agreement, instrument, deed or lease which prohibits or limits
the ability of the Company or any of its Significant Subsidiaries to create,
incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter acquired, or
which requires the grant of any collateral for such obligation if collateral is
granted for another obligation, except the following:
(a) This Agreement, the other Credit Documents, the General
and Refunding Mortgage Indenture and the FAME Loan Agreement.
(b) Covenants in documents creating Liens permitted by
Sections 6.8.8 and 6.8.9 prohibiting further Liens on the assets
encumbered thereby.
(c) Immaterial agreements, instruments, deeds and leases.
(d) The Three-Year Revolving Credit Agreement.
Except to the extent that a failure to do so does not result, and is
not likely to result, in the Company or an ERISA Group Person incurring material
liability, the Company and its Subsidiaries shall, and the Company shall use its
best efforts to cause all ERISA Group Persons to, (a) comply, in all material
respects, with the provisions of ERISA and the Code applicable to each Plan, and
(b) meet all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code.
..13. Environmental Laws
. Each of the Company and its Significant Subsidiaries shall
use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance
with all applicable Environmental Laws, except where (a) compliance
shall at the time be contested in good faith by appropriate proceedings
or actions or (b) failure so to comply has not resulted, or is not
likely to result, in any Material Adverse Change.
Each of the Company and its Significant Subsidiaries shall
as promptly as practicable notify each Managing Agent, and provide
copies upon receipt, of all written claims, complaints, notices or
inquiries from governmental authorities relating to the condition of
its material facilities and properties or compliance with Environmental
Laws with respect to such material facilities and properties.
. The Company shall make no Distribution (or become contractually
committed to do so) if after giving effect to such Distribution any Default
shall exist under Section 6.5.1, 6.5.1A or 6.5.2.
. In order to induce the Lenders to extend credit to the Company hereunder,
the Company represents and warrants as follows:
..1. Organization and Business
. The Company is a duly organized and validly existing
corporation, in good standing under the laws of Maine, with all power
and authority, corporate or otherwise, necessary to (a) enter into and
perform this Agreement and each other Credit Document to which it is
party and (b) own its properties and carry on the business in all
material respects as now conducted by it. Certified copies of the
Charter (Capital Stock Provisions) and By-laws of the Company have been
previously delivered to the Managing Agents and are correct and
complete.
. Each Significant Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to own its properties and carry on
the business in all material respects as now conducted by it. Certified
copies of the Charter and By-laws of each Significant Subsidiary of the
Company have been previously delivered to the Managing Agents and are
correct and complete.
. Each of the Company and its Significant Subsidiaries is
duly and legally qualified to do business as a foreign corporation or
other entity and is in good standing in each state or jurisdiction in
which such qualification is required and is duly authorized, qualified
and licensed under all laws, regulations, ordinances or orders of
public authorities, or otherwise, to carry on its business in the
places and in the manner in which it is conducted, except for failures
to be so qualified, in good standing, authorized or licensed which
would not in the aggregate result, or be likely to result, in any
Material Adverse Change.
. No options, warrants, conversion rights, preemptive rights
or other statutory or contractual rights to purchase shares of common
stock of any Significant Subsidiary now exist, nor has any Subsidiary
authorized any such right, nor is any Significant Subsidiary obligated
in any other manner to issue shares of its common stock.
..2. Financial Statements and Other Information; Material Agreements
. The Company has previously furnished to the Lenders copies of
the following:
(a) The audited Consolidated balance sheets of the Company
and its Subsidiaries as at December 31 in each of 1997, 1996 and 1995
and the audited Consolidated statements of income and the audited
Consolidated statements of changes in shareholders' equity and of cash
flows of the Company and its Subsidiaries for the fiscal years of the
Company then ended.
(b) The unaudited Consolidated balance sheet of the Company
and its Subsidiaries as at June 30, 1998 and the unaudited Consolidated
statements of income and of cash flows of the Company and its
Subsidiaries for the portion of the fiscal year then ended.
(c) The Company's report on 10-K for its fiscal year ended
December 31, 1997, as filed with the Securities and Exchange Commission
("1997 10-K").
(d) [Reserved]
The audited Consolidated financial statements (including the
notes thereto) referred to in clause (a) above were prepared in
accordance with GAAP and fairly present in all material respects the
financial position of the Company and its Subsidiaries on a
Consolidated basis at the respective dates thereof and the results of
their operations for the periods covered thereby. The unaudited
Consolidated financial statements referred to in clause (b) above were
prepared in accordance with GAAP and fairly present in all material
respects the financial position of the Company and its Subsidiaries at
the respective dates thereof and the results of their operations for
the periods covered thereby, subject to normal year-end audit
adjustment and the addition of footnotes in the case of interim
financial statements. Neither the Company nor any of its Subsidiaries
has any known contingent liability material to the Company and its
Subsidiaries on a Consolidated basis which is required to be, but is
not, reflected in the balance sheets referred to in clauses (a) or (b)
above (or delivered pursuant to Section 6.4.1 or 6.4.2) or in the notes
thereto.
The 1997 10-K contained all information required to be
contained therein and otherwise complied in all material respects with
the Exchange Act and the rules and regulations thereunder. Such 1997
10-K did not contain any untrue statement of material fact or omit to
state a material fact necessary in order to make the statements
contained therein not misleading in the light of the circumstances
under which they were made.
The Company has previously furnished to the Lenders
correct and complete copies, including all exhibits, schedules and
amendments thereto, of the Material Agreements, each as in effect on
the date hereof, listed in Exhibit 7.2.2.
Exhibit 7.3, as from time to time hereafter supplemented in
accordance with Sections 6.4.1 and 6.4.2, sets forth (a) the amounts (as of the
dates indicated in Exhibit 7.3, as so supplemented) of all Financing Debt of the
Company and its Significant Subsidiaries and (b) all Liens and Guarantees with
respect to such Financing Debt. The Company has furnished the Lenders with
correct and complete copies of any agreements described in clauses (a) and (b)
above requested by the Required Lenders.
. Since December 31, 1997, (a) no Material Adverse Change not disclosed
in the Pre-Closing 1934 Act Reports has occurred and (b) neither the Company nor
any Significant Subsidiary has entered into any material transaction outside the
ordinary course of business that is not disclosed in the Pre-Closing 1934 Act
Reports or otherwise disclosed to the Lenders.
. The Company and its Significant Subsidiaries have such title to, or
interest in, all assets as is necessary for the operations of their business as
now conducted by them, subject to no Liens except for Liens permitted by Section
6.8.
. The operations of the Company and its Subsidiaries as now conducted
are not in violation of, nor is the Company or its Subsidiaries in default
under, any Legal Requirement presently in effect, except for such violations and
defaults as do not and will not, in the aggregate, result, or be likely to
result, in any Material Adverse Change. The Company has received no notice of
any such violation or default and has no knowledge of any basis on which the
operations of the Company or its Subsidiaries, as now conducted, would be held
so as to violate or to give rise to any such violation or default.
. No litigation, at law or in equity, or any proceeding before any
court, board or other governmental or administrative agency or any arbitrator is
pending or overtly threatened which would affect the Credit Obligations, and,
except as disclosed in the Pre-Closing 1934 Act Reports, no litigation, at law
or in equity, or any proceeding before any court, board or other governmental or
administrative agency or any arbitrator is pending, or overtly threatened which,
after giving effect to any applicable insurance, has resulted or is likely to
result in a material adverse effect on the financial condition, operations or
properties or financial or business prospects of the Company and its
Subsidiaries or which seeks to enjoin the consummation, or which questions the
validity, of any of the transactions contemplated by this Agreement or any other
Credit Document. Except as disclosed in the Pre-Closing 1934 Act Reports, no
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds the
Company or any of its Subsidiaries which has resulted, or is likely to result,
in any Material Adverse Change.
. The Company has taken all corporate action required to execute,
deliver and perform this Agreement and each other Credit Document to which it is
party. No consent of stockholders of the Company is necessary in order to
authorize the execution, delivery or performance of this Agreement or any other
Credit Document to which the Company is party. Each of this Agreement and each
other Credit Document constitutes the legal, valid and binding obligation of the
Company and is enforceable against the Company in accordance with its terms.
. Neither the execution and delivery of this Agreement or any other
Credit Document, nor the making of any borrowings hereunder, nor the
consummation of any transaction referred to in or contemplated by this Agreement
or any other Credit Document, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in (it
being understood that the Prior Credit Agreements will be concurrently
terminated pursuant to Section 5.1.5):
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any of its
Subsidiaries is a party or by which it is bound, or of the Charter or
By-laws of the Company or any of its Subsidiaries (including without
limitation any provision of the Charter of the Company restricting the
issuance of unsecured debt securities);
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
of its Subsidiaries;
(c) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any of its
Subsidiaries; or
(d) any redemption, retirement or other repurchase
obligation of the Company or any of its Subsidiaries under any Charter,
By-law, agreement, instrument, deed or lease.
All approvals, authorizations or other actions by, or declarations to or filings
with, any governmental or administrative authority or any other Person, required
to be obtained or made by the Company or any of its Subsidiaries as a condition
to the execution, delivery and performance of this Agreement, the Notes or any
other Credit Document, the transactions contemplated hereby or thereby or the
making of any borrowing hereunder, have been obtained or made.
. Neither the Company nor any of its Significant Subsidiaries is in
default under any provision of its Charter or By-laws or of this Agreement or
any other Credit Document. Neither the Company nor any of its Subsidiaries is in
default under any provision of any agreement, instrument, deed or lease to which
it is party or by which it or its property is bound so as to result, or be
likely to result, in any Material Adverse Change. Neither the Company nor any of
its Subsidiaries has violated any law, judgment, decree or governmental order,
rule or regulation, in each case so as to result, or be likely to result, in any
Material Adverse Change.
The Company and its Significant Subsidiaries have all patents, patent
applications, patent licenses, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, franchises, permits,
authorizations and other rights as are necessary for the conduct in all material
respects of the business of the Company and its Significant Subsidiaries as now
conducted by them. All of the foregoing are in full force and effect in all
material respects, and each of the Company and its Significant Subsidiaries is
in substantial compliance with the foregoing without any known conflict with the
valid rights of others which has resulted, or is likely to result, in any
Material Adverse Change. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination of any such
license, franchise or other right or which affects the rights of any of the
Company and its Significant Subsidiaries thereunder so as to result, or be
likely to result, in any Material Adverse Change.
. Each of the Company and its Significant Subsidiaries has filed all
material tax and information returns which are required to be filed by it and
has paid, or made adequate provision for the payment of, all taxes which have or
may become due pursuant to such returns or to any assessment received by it,
other than taxes and assessments being contested by the Company and its
Significant Subsidiaries in good faith by appropriate proceedings or actions and
for which adequate reserves have been taken if required by GAAP. Neither the
Company nor any of its Significant Subsidiaries knows of any material additional
assessments or any basis therefor. The Company reasonably believes that the
charges, accruals and reserves on the books of the Company and its Significant
Subsidiaries in respect of taxes or other governmental charges are adequate.
..13. Certain Business Representations
. No dispute or controversy between the Company or any of
its Subsidiaries and any of their respective employees has resulted, or
is likely to result, in any Material Adverse Change.
. Except as disclosed in the Pre-Closing 1934 Act Reports,
neither the Company nor any of its Subsidiaries is party to or bound by
any agreement, instrument, deed or lease or is subject to any Charter,
By-law or other restriction, commitment or requirement which, in the
opinion of the management of such Person, is so unusual or burdensome
as in the foreseeable future to result, or be likely to result, in a
Material Adverse Change.
..14. Environmental Regulations
. Except as disclosed in the Pre-Closing 1934 Act Reports,
each of the Company and its Subsidiaries is in compliance in all
material respects with the Clean Air Act, the Federal Water Pollution
Control Act, the Marine Protection Research and Sanctuaries Act, RCRA,
CERCLA and any other Environmental Law in effect in any jurisdiction in
which any properties of the Company or any of its Subsidiaries are
located or where any of them conducts its business, and with all
applicable published rules and regulations of the federal Environmental
Protection Agency and of any similar agencies in states or foreign
countries in which the Company or its Subsidiaries conducts its
business, except instances of non-compliance which in the aggregate
have not resulted, and are not likely to result, in a Material Adverse
Change.
. Except as disclosed in the Pre-Closing 1934 Act Reports,
no suit, claim, action or proceeding of which the Company or any of its
Subsidiaries has been given notice or otherwise has knowledge is now
pending before any court, governmental agency or board or other forum,
or to the Company's or any of its Subsidiaries knowledge, threatened by
any Person (nor to the Company's or any of its Subsidiaries' knowledge,
does any factual basis exist therefor) for, and neither the Company nor
any of its Subsidiaries have received written correspondence from any
federal, state or local governmental authority with respect to:
(a) noncompliance by the Company or any of its Subsidiaries
with any Environmental Law;
(b) personal injury, wrongful death or other tortious
conduct relating to materials, commodities or products used, generated,
sold, transferred or manufactured by the Company or any of its
Subsidiaries (including products made of, containing or incorporating
asbestos, lead or other hazardous materials, commodities or toxic
substances); or
(c) the release into the environment by the Company or any
of its Subsidiaries of any Hazardous Material generated by the Company
or any of its Subsidiaries whether or not occurring at or on a site
owned, leased or operated by the Company or any of its Subsidiaries;
and which in the aggregate for clauses (a) and (b) and this clause (c)
have not resulted, and are not likely to result, in a Material Adverse
Change.
. Except as disclosed in the Pre-Closing 1934 Act Reports,
any waste disposal or dump sites at which Hazardous Material generated
by either the Company or any of its Subsidiaries has been disposed of
directly by the Company or any of its Subsidiaries and all independent
contractors to whom the Company or any of its Subsidiaries have
delivered Hazardous Material, or to the Company's or any of its
Subsidiaries' knowledge, where Hazardous Material finally came to be
located, have not resulted, and are not likely to result, in a Material
Adverse Change.
. Each Plan and, without special inquiry to the knowledge of the
Company, each Multiemployer Plan, is in material compliance with the applicable
provisions of ERISA and the Code. Except to the extent that a failure to do so
has resulted or could reasonably be expected to result in material liability of
the Company, the minimum funding standards of section 412 of the Code and
section 302 of ERISA have been met in connection with all Plans and, to the
knowledge of the Company, no condition exists with respect to which the
institution of proceedings to terminate any Plan under section 4042 of ERISA
could reasonably be expected. To the knowledge of the Company without special
inquiry, no Multiemployer Plan is currently insolvent or in reorganization or
has been terminated within the meaning of ERISA, pursuant to which the Company
has incurred or could reasonably be expected to incur material liability.
..16. Foreign Trade Regulations; Government Regulation; Margin Stock
. Neither the execution and delivery of this Agreement or
any other Credit Document, nor the making by the Company of any
borrowings hereunder has constituted or resulted in or will constitute
or result in the violation of any Foreign Trade Regulation.
. The Company is not subject to regulation as a registered
holding company under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Investment Company Act of 1940, as amended,
the Interstate Commerce Act or any statute or regulation which
regulates the incurring by the Company of the Credit Obligations except
for regulation by the State of Maine Public Utilities Commission and
the Federal Energy Regulatory Commission, which on or before the
Initial Closing Date shall have authorized the execution and delivery
of this Agreement and the Notes and shall, together with any necessary
renewals, have authorized all borrowing hereunder.
. Neither this Agreement nor any other Credit Document to be furnished
to the Lenders by or on behalf of the Company or any of its Subsidiaries in
connection with the transactions contemplated hereby or by such Credit Document
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
.. Defaults
. The following events are referred to as "Events of Default":
. The Company shall fail to make any payment in respect of:
(a) interest or any fee on or in respect of any of the
Credit Obligations owed by it as the same shall become due and payable,
and such failure shall continue for a period of two Banking Days; or
(b) principal of any of the Credit Obligations owed by it as
the same shall become due, whether at maturity or by acceleration or
otherwise.
. The Company or any of its Subsidiaries shall fail to
perform or observe any of the provisions of Section 6.2.2(b), the
second sentence of Section 6.4.4 or Sections 6.5 through 6.11.
. The Company or any of its Subsidiaries shall fail to
perform or observe any other covenant, agreement or provision to be
performed or observed by it under this Agreement or any other Credit
Document, and such failure shall not be cured to the written
satisfaction of the Required Lenders within 30 days after notice
thereof by either Managing Agent or any Lender to the Company.
. Any representation or warranty of or with respect to the
Company or any of its Subsidiaries made to the Lenders or either
Managing Agent in, pursuant to or in connection with this Agreement or
any other Credit Document shall be materially false on the date as of
which it was made.
8.1.5. Cross Default, etc.
(a) The Company or any of its Subsidiaries shall fail to
make any payment when due (after giving effect to any applicable grace
periods) in respect of any Financing Debt (other than the Credit
Obligations) outstanding in an aggregate amount of principal (whether
or not due) exceeding $10,000,000 ("$10,000,000 Financing Debt");
(b) the Company or any of its Subsidiaries shall fail to
perform or observe the terms of any agreement or instrument relating to
such Financing Debt, and such failure shall continue, without having
been duly cured, waived or consented to, beyond the period of grace, if
any, specified in such agreement or instrument, and such failure shall
permit the acceleration of $10,000,000 Financing Debt;
(c) $10,000,000 Financing Debt of the Company or any of its
Subsidiaries shall be accelerated prior to its stated maturity; or
(d) any Lien on any property of the Company or any of its
Subsidiaries securing $10,000,000 Financing Debt shall be enforced by
foreclosure or similar action.
Any material provision of any Credit Document shall cease
for any reason (other than the scheduled termination thereof in
accordance with its terms) to be enforceable in accordance with its
terms or in full force and effect, and such event shall not be
rectified or cured to the written satisfaction of the Required Lenders
within 30 days after notice thereof by either Managing Agent or any
Lender to the Company.
. A final judgment (a) which, with other outstanding final
judgments against the Company and its Subsidiaries, exceeds an
aggregate of $10,000,000 in excess of applicable insurance coverage
shall be rendered against the Company or any of its Subsidiaries, or
(b) which grants injunctive relief that results, or is likely to
result, in a Material Adverse Change and in either case if, (i) within
30 days after entry thereof, such judgment shall not have been
discharged or execution thereof stayed pending appeal or (ii) within 30
days after the expiration of any such stay, such judgment shall not
have been discharged.
. 1.8. ERISA
(a) (i) a "reportable event" (as defined in section 4043 of
ERISA) shall have occurred that reasonably could be expected to result
in termination of a Plan or the appointment by the appropriate United
States District Court of a trustee to administer any Plan or the
imposition of a Lien in favor of a Plan; (ii) any ERISA Group Person
shall fail to pay when due any amounts which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; (iii) a
notice of intent to terminate a Plan shall be filed under Title IV of
ERISA by any ERISA Group Person or administrator other than pursuant to
section 4041(b) of ERISA; or (iv) the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Plan or a proceeding shall be instituted by
a fiduciary of any Plan against the Company to enforce section 515 or
4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within 30 days thereafter; and
(b) any one or more of the events or conditions specified in
clauses (i) through (iv) of paragraph (a) of this Section 8.1.8 shall
occur and result in, or be likely to result in, a Material Adverse
Change.
The Company or any of its Significant Subsidiaries shall:
(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(b) (i) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code that shall not have been
dismissed within 60 days after the date on which such petition is
filed, or (ii) file an answer or other pleading within such 60-day
period admitting or failing to deny the material allegations of such a
petition or seeking, consenting to or acquiescing in the relief therein
provided, or (iii) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(c) seek relief as a debtor under any applicable law, other
than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(d) have entered against it under any law referred to in
clause (c) above an order by a court of competent jurisdiction (i)
finding it to be bankrupt or insolvent, (ii) ordering or approving its
liquidation or reorganization as a debtor or any modification or
alteration of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
portion of its property; or
(e) under any law referred to in clause (c) above, make an
assignment for the benefit of, or enter into a composition with, its
creditors, or appoint, or consent to the appointment of, or suffer to
exist a receiver or other custodian for, all or a substantial portion
of its property.
. If any one or more Events of Default shall occur and be
continuing, then in each and every such case:
. The Managing Agents on behalf of the Lenders may (and upon
written request of the Required Lenders the Managing Agents shall)
terminate the obligations of the Lenders to make any further extensions
of credit under the Credit Documents by furnishing notice of such
termination to the Company.
. The Managing Agents on behalf of the Lenders may (and upon
written request of the Required Lenders the Managing Agents shall)
proceed to protect and enforce the Lenders' rights by suit in equity,
action at law and/or other appropriate proceeding, either for specific
performance of any covenant or condition contained in this Agreement or
any other Credit Document or in any instrument or assignment delivered
to the Lenders pursuant to this Agreement or any other Credit Document,
or in aid of the exercise of any power granted in this Agreement or any
other Credit Document or any such instrument or assignment.
. The Managing Agents on behalf of the Lenders may (and upon
written request of the Required Lenders the Managing Agents shall) by
notice in writing to the Company declare all or any part of the unpaid
balance of the Credit Obligations then outstanding to be immediately
due and payable, and thereupon such unpaid balance or part thereof
shall become so due and payable without presentation, protest or
further demand or notice of any kind, all of which are hereby expressly
waived; provided, however, that if a Bankruptcy Default shall have
occurred, the unpaid balance of the Credit Obligations shall
automatically become immediately due and payable.
. The Managing Agents on behalf of the Lenders may (and upon
written request of the Required Lenders the Managing Agents shall)
proceed to enforce payment of the Credit Obligations in such manner as
they may elect. The Lenders may offset and apply toward the payment of
the Credit Obligations (and/or toward the curing of any Event of
Default) any Indebtedness from the Lenders to the Company, including
any Indebtedness represented by deposits in any account maintained with
the Lenders.
. To the extent not prohibited by applicable law which
cannot be waived, all of the Lenders' rights hereunder and under each
other Credit Document shall be cumulative.
. Once an Event of Default has occurred, such Event of Default shall be
deemed to exist and be continuing for all purposes of the Credit Documents until
the Required Lenders or the Managing Agents (with the consent of the Required
Lenders) shall have waived such Event of Default in writing, stated in writing
that the same has been cured to such Lenders' reasonable satisfaction or entered
into an amendment to this Agreement which by its express terms cures such Event
of Default, at which time such Event of Default shall no longer be deemed to
exist or to have continued. No such action by the Lenders or the Managing Agents
shall extend to or affect any subsequent Event of Default or impair any rights
of the Lenders upon the occurrence thereof. The making of any extension of
credit during the existence of any Default or Event of Default shall not
constitute a waiver thereof.
. To the extent that such waiver is not prohibited by the provisions of
applicable law that cannot be waived, the Company waives:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any
other Credit Document), protests, notices of protest and notices of
dishonor;
(b) any requirement of diligence or promptness on the part
of any Lender in the enforcement of its rights under this Agreement,
the Notes or any other Credit Document;
(c) any and all notices of every kind and description which
may be required to be given by any statute or rule of law; and
(d) any defense (other than indefeasible payment in full)
which it may now or hereafter have with respect to its liability under
this Agreement, the Notes or any other Credit Document or with respect
to the Credit Obligations.
.. Expenses; Indemnity
. Whether or not the transactions contemplated hereby shall be consummated,
the Company will pay:
(a) all reasonable expenses of the Managing Agents
(including the out-of-pocket expenses related to forming the group of
Lenders and reasonable fees and disbursements of the counsel to the
Managing Agents) in connection with the preparation and duplication of
this Agreement and each other Credit Document, the transactions
contemplated hereby and thereby and amendments, waivers, consents and
other operations hereunder and thereunder;
(b) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in respect of
this Agreement, any other Credit Document or the incurrence of the
Credit Obligations; and
(c) all other reasonable expenses incurred by the Lenders or
the holder of any Credit Obligation in connection with the enforcement
of any rights hereunder or under any other Credit Document, including
costs of collection and reasonable attorneys' fees (including a
reasonable allowance for the hourly cost of attorneys employed by the
Lenders on a salaried basis) and expenses.
. The Company shall indemnify the Lenders and the Managing Agents and
hold them harmless from any liability, loss or damage resulting from the
violation by the Company of Section 2.4. In addition, the Company shall
indemnify each Lender, each Managing Agent, each of the Lenders' or the Managing
Agents' directors, officers and employees, and each Person, if any, who controls
any Lender or either Managing Agent (each Lender, each Managing Agent and each
of such directors, officers, employees and control Persons is referred to as an
"Indemnified Party") and hold each of them harmless from and against any and all
claims, damages, liabilities and reasonable expenses (including reasonable fees
and disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with the Indemnified Party's compliance with
or contest of any subpoena or other process issued against it or any litigation
or investigation, in each case involving this Agreement (but including any
subpoenas or other process demanding disclosure of information provided to the
Lenders in connection with this Agreement, even if such subpoena or other
process arises in a context unrelated to this Agreement), any other Credit
Document or any transaction contemplated hereby or thereby; provided, however,
that the foregoing indemnity shall not apply to litigation commenced by the
Company against the Lenders or the Managing Agents which seeks enforcement of
any of the rights of the Company hereunder or under any other Credit Document
and is determined adversely to the Lenders or the Managing Agents in a final
nonappealable judgment or to the extent such claims, damages, liabilities and
expenses result from a Lender's or either Managing Agent's gross negligence or
willful misconduct.
.0. Operations; Managing Agents
. The Percentage Interest of each Lender in the Revolving Loan and the
related Commitments shall be computed based on the maximum principal amount for
each Lender as set forth in the Register, as from time to time in effect. The
current Percentage Interests are set forth in Exhibit 10.1, which may be updated
by the Boston Managing Agent from time to time to conform to the Register.
. The Boston Managing Agent shall be responsible for documentation of
the Loans and any amendments, waivers or modifications to this Agreement or the
Notes and any documents and instruments in connection therewith. The New York
Managing Agent shall be responsible for all disbursements and payments (subject
to the obligations of the other Lenders hereunder), including arranging, pricing
and making Loans, receiving payments of principal, interest, fees and other
amounts payable from the Company. Except as expressly otherwise provided herein,
both Managing Agents shall be entitled to receive all notices required to be
provided hereunder by the Company and the Lenders.
. Each of the Lenders appoints and authorizes BankBoston and Bank of
New York to act for the Lenders as the Lenders' Managing Agents in connection
with the transactions contemplated by this Agreement and the other Credit
Documents on the terms set forth herein. In acting hereunder, the Boston
Managing Agent is acting for the account of BankBoston to the extent of its
Percentage Interest and for the account of each other Lender to the extent of
the Lenders' respective Percentage Interests, the New York Managing Agent is
acting for the account of Bank of New York to the extent of its Percentage
Interest and for the account of each other Lender to the extent of the Lenders'
respective Percentage Interests, and all action in connection with the
enforcement of, or the exercise of any remedies (other than the Lenders' rights
of set-off as provided in Section 8.2.4 or in any Credit Document) in respect of
the Credit Obligations and Credit Documents shall be taken by the Managing
Agents.
. The Company shall be fully protected in making all payments in
respect of the Credit Obligations to the New York Managing Agent, in relying
upon consents, modifications and amendments executed by the Managing Agents
purportedly on the Lenders' behalf, and in dealing with the Managing Agents as
herein provided. The New York Managing Agent may charge the accounts of the
Company, on the dates when the amounts thereof become due and payable, with the
amounts of the principal of and interest on the Loan, Facility Fees and all
other fees and amounts owing under any Credit Document.
.0.5. Lender Operations for Advances, etc
. Prior to 12:00 noon (New York time) on each Closing Date,
each Lender shall advance to the New York Managing Agent in immediately
available funds such Lender's Percentage Interest in the portion of the
Revolving Loan advanced on such Closing Date (and in the case of
Competitive Auction Facility Loans, each Lender making a Competitive
Auction Facility Loan shall advance to the New York Managing Agent in
immediately available funds the amount of such Competitive Auction
Facility Loan advanced on such Closing Date). If such funds are not
received at such time, but all applicable conditions set forth in
Section 5 have been satisfied, each Lender authorizes and requests the
New York Managing Agent to advance for the Lender's account, pursuant
to the terms hereof, the Lender's respective Percentage Interest in
such portion of the Revolving Loan (or, in the case of a Competitive
Auction Facility Loan, the amount of such Competitive Auction Facility
Loan) and agrees to reimburse the New York Managing Agent in
immediately available funds for the amount thereof prior to 2:00 p.m.
(New York time) on the day any portion of the Revolving Loan (or a
Competitive Auction Facility Loan) is advanced hereunder; provided,
however, that the New York Managing Agent is not authorized to make any
such advance for the account of any Lender who has previously notified
the New York Managing Agent in writing that such Lender will not be
performing its obligations to make further advances hereunder; and
provided, further, that the New York Managing Agent shall be under no
obligation to make any such advance.
All payments of principal and interest in respect of the
extensions of credit made pursuant to this Agreement, Facility Fees and
other fees under this Agreement shall, as a matter of convenience, be
made by the Company to the New York Managing Agent in immediately
available funds. The share of each Lender shall be credited to such
Lender by the New York Managing Agent in immediately available funds in
such manner that the principal amount of the Credit Obligations to be
paid shall be paid proportionately in accordance with the Lenders'
respective Percentage Interests in such Credit Obligations, except as
otherwise provided in this Agreement (including with respect to
Competitive Auction Facility Loans). Under no circumstances shall any
Lender be required to produce or present its Notes as evidence of its
interests in the Credit Obligations in any action or proceeding
relating to the Credit Obligations.
. In the event that any Lender fails to reimburse the New
York Managing Agent pursuant to Section 10.5.1 for the Percentage
Interest (or Competitive Auction Facility Loan) of such Lender (a
"Delinquent Lender") in any credit advanced by the New York Managing
Agent pursuant hereto, overdue amounts (the "Delinquent Payment") due
from the Delinquent Lender to the New York Managing Agent shall bear
interest, payable by the Delinquent Lender on demand, at a per annum
rate equal to (a) the Federal Funds Rate for the first three days
overdue and (b) the sum of 2% plus the Federal Funds Rate for any
longer period. Such interest shall be payable to the New York Managing
Agent for its own account for the period commencing on the date of the
Delinquent Payment and ending on the date the Delinquent Lender
reimburses the New York Managing Agent on account of the Delinquent
Payment and the accrued interest thereon (the "Delinquency Period"),
whether pursuant to the assignments referred to below or otherwise.
Upon notice by the New York Managing Agent, the Company will pay to the
New York Managing Agent the principal (but not the interest) portion of
the Delinquent Payment. During the Delinquency Period, in order to make
reimbursements for the Delinquent Payment and accrued interest thereon,
the Delinquent Lender shall be deemed to have assigned to the New York
Managing Agent all interest, Facility Fees and other payments made by
the Company under Section 3 that would have thereafter otherwise been
payable under the Credit Documents to the Delinquent Lender. During any
other period in which any Lender is not performing its obligations to
extend credit under Section 2 (a "Nonperforming Lender"), the
Nonperforming Lender shall be deemed to have assigned to each Lender
that is not a Nonperforming Lender (a "Performing Lender") all
principal and other payments made by the Company under Section 4 that
would have thereafter otherwise been payable under the Credit Documents
to the Nonperforming Lender. The New York Managing Agent shall credit a
portion of such payments to each Performing Lender in an amount equal
to the Percentage Interest of such Performing Lender divided by one
minus the Percentage Interest of the Nonperforming Lender until the
respective portions of the Revolving Loan owed to all the Lenders are
the same as the Percentage Interests of the Lenders immediately prior
to the failure of the Nonperforming Lender to perform its obligations
under Section 2. The foregoing provisions shall be in addition to any
other remedies the New York Managing Agent, the Performing Lenders or
the Company may have under law or equity against the Delinquent Lender
as a result of the Delinquent Payment or against the Nonperforming
Lender as a result of its failure to perform its obligations under
Section 2.
Each Lender agrees that (a) if by exercising any right of set-off or
counterclaim or otherwise, it shall receive payment of (i) a proportion of the
aggregate amount due with respect to its Percentage Interest in the Revolving
Loan which is greater than (ii) the proportion received by any other Lender in
respect of the aggregate amount due with respect to such other Lender's
Percentage Interest in the Revolving Loan and (b) if such inequality shall
continue for more than 10 days, the Lender receiving such proportionately
greater payment shall purchase participations in the Percentage Interests in the
Revolving Loan held by the other Lenders, and such other adjustments shall be
made from time to time (including rescission of such purchases of participations
in the event the unequal payment originally received is recovered from such
Lender through bankruptcy proceedings or otherwise), as may be required so that
all such payments of principal and interest with respect to the Revolving Loan
held by the Lenders shall be shared by the Lenders pro rata in accordance with
their respective Percentage Interests; provided, however, that this Section 10.6
shall not impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of Indebtedness of the Company other than the Company's Indebtedness
with respect to the Revolving Loan. Each Lender that grants a participation in
the Credit Obligations to a Credit Participant shall require as a condition to
the granting of such participation that such Credit Participant agree to share
payments received in respect of the Credit Obligations as provided in this
Section 10.6. The provisions of this Section 10.6 are for the sole and exclusive
benefit of the Lenders and no failure of any Lender to comply with the terms
hereof shall be available to the Company as a defense to the payment of the
Credit Obligations.
. Except as otherwise set forth herein, the Managing Agents may (and
upon the written request of the Required Lenders the Managing Agents shall) take
or refrain from taking any action under this Agreement or any other Credit
Document, including giving their written consent to any modification of or
amendment to and waiving in writing compliance with any covenant or condition in
this Agreement or any other Credit Document (other than an Interest Rate
Protection Agreement) or any Default or Event of Default, all of which actions
shall be binding upon all of the Lenders; provided, however, that:
(a) Except as provided below, without the written consent of
the Lenders owning at least a majority of the Percentage Interests
(other than Delinquent Lenders during the existence of a Delinquency
Period so long as such Delinquent Lender is treated the same as the
other Lenders with respect to any actions enumerated below), no written
modification of, amendment to, consent with respect to, waiver of
compliance with or waiver of a Default under, any of the Credit
Documents (other than an Interest Rate Protection Agreement) shall be
made.
(b) Without the written consent of the Managing Agents, no
written modification of or amendment to any of the Credit Documents
shall be made which changes the duties of or the benefits to the
Managing Agents or any other provision affecting the Managing Agents in
such capacities.
(c) Without the written consent of such Lenders as own 100%
of the Percentage Interests (other than Delinquent Lenders during the
existence of a Delinquency Period so long as such Delinquent Lender is
treated the same as the other Lenders with respect to any actions
enumerated below):
(i) No reduction shall be made in (A) the amount of
principal of the Loan or (B) the interest rate on the Loan.
(ii) No change shall be made in the stated, scheduled
time of payment of all or any portion of the Loan or
interest thereon or fees relating to any of the foregoing
payable to all of the Lenders and no waiver shall be made of
any Default under Section 8.1.1.
(iii) No increase shall be made in the amount, or
extension of the term, of the stated Commitments beyond that
provided for under Section 2.
(iv) No alteration shall be made of the Lenders'
rights of set-off contained in Section 8.2.4.
(v) No change shall be made in the definition of
"Required Lenders" in this Agreement.
(vi) No amendment to or modification of this Section
10.7(c) shall be made.
. Either Managing Agent may resign at any time by giving at least 60
days' prior written notice of its intention to do so to each other of the
Lenders and the Company. Upon any such resignation, the remaining Managing Agent
shall automatically become agent with all the rights and responsibilities
formerly held by both Managing Agents; provided, that if at such time there
shall be only one Managing Agent or both Managing Agents shall be resigning
simultaneously, the Required Lenders shall appoint a successor Managing Agent
satisfactory to the Company and the resignation of the retiring Managing Agent
shall take effect upon such appointment. If in a case to which the proviso to
the preceding sentence shall apply, no successor Managing Agent shall have been
so appointed and shall have accepted such appointment within 30 days after the
retiring Managing Agent's notice of resignation, then the retiring Managing
Agent may with the consent of the Company, which shall not unreasonably be
withheld, appoint a successor Managing Agent which shall be a bank or trust
company organized under the laws of the United States of America or any state
thereof and having a combined capital surplus and undivided profit of not less
than $100,000,000; provided, that any successor Managing Agent appointed under
this sentence may be removed upon the written request of the Required Lenders,
which request shall also appoint a successor Managing Agent satisfactory to the
Company. Upon the acceptance of any appointment as agent hereunder by a
remaining Managing Agent, such successor agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Managing Agent, and the retiring Managing Agent shall be discharged from all
further duties and obligations under this Agreement. After any retiring Managing
Agent's resignation hereunder as Managing Agent, the provisions of this
Agreement shall continue to inure to the benefit of such Managing Agent as to
any actions taken or omitted to be taken by it while it was Managing Agent under
this Agreement.
.0.9. Concerning the Managing Agents
. The Managing Agents and their officers, directors,
employees and agents shall be under no liability to any of the Lenders
or to any future holder of any interest in the Credit Obligations for
any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel
shall conclusively be deemed to be in good faith. The Managing Agents
shall in all cases be entitled to rely, and shall be fully protected in
relying, on instructions given to the Managing Agents by the required
holders of Credit Obligations as provided in this Agreement.
The Managing Agents shall have and may exercise such
powers as are specifically delegated to the Managing Agents under this
Agreement or any other Credit Document together with all other powers
incidental thereto. The Managing Agents shall have no implied duties to
any Person or any obligation to take any action under this Agreement or
any other Credit Document except for action specifically provided for
in this Agreement or any other Credit Document to be taken by the
Managing Agents. Before taking any action under this Agreement or any
other Credit Document, each Managing Agent may request an appropriate
specific indemnity satisfactory to it from each Lender in addition to
the general indemnity provided for in Section 10.12. Until such
Managing Agent has received such specific indemnity, such Managing
Agent shall not be obligated to take (although it may in its sole
discretion take) any such action under this Agreement or any other
Credit Document. Each Lender confirms that the Managing Agents do not
have a fiduciary relationship to it under the Credit Documents. Each of
the Company and its Subsidiaries party hereto confirms that neither the
Managing Agents nor any other Lender has a fiduciary relationship to it
under the Credit Documents.
Neither Managing Agent shall be responsible to any Lender
or any future holder of any interest in the Credit Obligations (a) for
the legality, validity, enforceability or effectiveness of this
Agreement or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or made in
connection with this Agreement or any other Credit Document, (c) for
the existence or value of any assets included in any security for the
Credit Obligations, or (d) unless such Managing Agent shall have failed
to comply with Section 10.9.1, for the perfection of any security for
the Credit Obligations.
. Neither Managing Agent shall be obligated to ascertain or
inquire as to the performance or observance of any of the terms of this
Agreement or any other Credit Document; and in connection with any
extension of credit under this Agreement or any other Credit Document,
the Managing Agents shall be fully protected in relying on a
certificate of the Company as to the fulfillment by the Company of any
conditions to such extension of credit.
. Each Managing Agent may execute any of its duties as
Managing Agent under this Agreement or any other Credit Document by or
through employees, agents and attorneys-in-fact and shall not be
responsible to any of the Lenders or the Company for the default or
misconduct of any such agents or attorneys-in-fact selected by such
Managing Agent acting in good faith. Such Managing Agent shall be
entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder or under any other
Credit Document.
. Each Managing Agent shall be entitled to rely, and shall
be fully protected in relying, upon any affidavit, certificate,
cablegram, consent, instrument, letter, notice, order, document,
statement, telecopy, telegram, telex or teletype message or writing
reasonably believed in good faith by such Managing Agent to be genuine
and correct and to have been signed, sent or made by the Person in
question, including any telephonic or oral statement made by such
Person, and, with respect to legal matters, upon an opinion or the
advice of counsel selected by such Managing Agent.
. Each of the Lenders severally agrees to reimburse the
Managing Agents, in the amount of such Lender's Percentage Interest,
for any reasonable expenses not reimbursed by the Company (without
limiting the obligation of the Company to make such reimbursement): (a)
for which the Managing Agents are entitled to reimbursement by the
Company under this Agreement or any other Credit Document, and (b)
after the occurrence of a Default, for any other reasonable expenses
incurred by the Managing Agents on the Lenders' behalf in connection
with the enforcement of the Lenders' rights under this Agreement or any
other Credit Document; provided, however, that a Managing Agent shall
not be reimbursed for any such expenses arising as a result of its
gross negligence or willful misconduct.
. With respect to any credit extended by them hereunder, BankBoston and
Bank of New York each shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
each were not a Managing Agent, and unless the context otherwise specifies,
BankBoston and Bank of New York shall each be treated in its individual capacity
as though it were not a Managing Agent hereunder. Without limiting the
generality of the foregoing, the Percentage Interests of BankBoston and Bank of
New York shall be included in any computations of Percentage Interests.
BankBoston and Bank of New York and their Affiliates may accept deposits from,
lend money to, act as trustee for and generally engage in any kind of banking or
trust business with the Company, any of its Subsidiaries or any Affiliate of any
of them and any Person who may do business with or own an equity interest in the
Company, any of its Subsidiaries or any Affiliate of any of them, all as if
BankBoston and Bank of New York were not the Managing Agents and without any
duty to account therefor to the other Lenders.
. Each of the Lenders acknowledges that it has independently and
without reliance upon the Managing Agents, based on the financial statements and
other documents referred to in Section 7.2, on the other representations and
warranties contained herein and on such other information with respect to the
Company and its Subsidiaries as such Lender deemed appropriate, made such
Lender's own credit analysis and decision to enter into this Agreement and to
make the extensions of credit provided for hereunder. Each Lender represents to
the Managing Agents that such Lender will continue to make its own independent
credit and other decisions in taking or not taking action under this Agreement
or any other Credit Document. Each Lender expressly acknowledges that neither
the Managing Agents nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by any Managing Agent taken under this Agreement or any
other Credit Document, including any review of the affairs of the Company and
its Subsidiaries, shall be deemed to constitute any representation or warranty
by the Managing Agents. Except for notices, reports and other documents
expressly required to be furnished to each Lender by the Managing Agents under
this Agreement or any other Credit Document, the Managing Agents shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition, financial
or otherwise, or creditworthiness of the Company or any Subsidiary which may
come into the possession of the Managing Agents or any of their officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
. The holders of the Credit Obligations shall indemnify each Managing
Agent and its officers, directors, employees and agents (to the extent not
reimbursed by the Company and without limiting the obligation of the Company to
do so), pro rata in accordance with their respective Percentage Interests, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time be imposed on, incurred by or asserted against
either Managing Agent or such Persons relating to or arising out of this
Agreement, any other Credit Document, the transactions contemplated hereby or
thereby, or any action taken or omitted by either Managing Agent in connection
with any of the foregoing; provided, however, that the foregoing shall not
extend to actions or omissions which are taken by either Managing Agent with
gross negligence or willful misconduct.
. Any reference in this Agreement or any other Credit Document to any of the
parties hereto shall be deemed to include the successors and assigns of such
party, and all covenants and agreements by or on behalf of the Company, the
Managing Agents or the Lenders that are contained in this Agreement or any other
Credit Document shall bind and inure to the benefit of their respective
successors and assigns; provided, however, that (a) the Company and its
Subsidiaries may not assign their rights or obligations under this Agreement or
any other Credit Document except for mergers or liquidations permitted by
Section 6.10, and (b) the Lenders shall be not entitled to assign their
respective Percentage Interests in the credits extended hereunder or their
Commitments except as set forth below in this Section 11.
.1.1. Assignments by Lenders
. Each Lender may (a) without the consent of the Managing
Agents or the Company if the proposed assignee is a Federal Reserve
Bank or is an Affiliate of any Lender or (b) otherwise with the
consents of the Managing Agents and (so long as no Event of Default
exists) the Company (which consents will not be unreasonably withheld),
in compliance with applicable laws in connection with such assignment,
assign to one or more commercial banks or other financial institutions
(each, an "Assignee") all or a portion of its interests, rights and
obligations under this Agreement and the other Credit Documents,
including all or a portion of its Commitment, the portion of the Loan
at the time owing to it and the Notes held by it ; provided, however,
that:
(i) the aggregate amount of the portion of the Loan
owing to the assigning Lender subject to each such
assignment to any Assignee other than another Lender
(determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the New York
Managing Agent) shall be not less than $5,000,000 and in
integral multiples of $1,000,000 in excess thereof; and
(ii) the parties to each such assignment shall
execute and deliver to the New York Managing Agent an
Assignment and Acceptance (the "Assignment and Acceptance")
substantially in the form of Exhibit 11.1.1, together with
the Note subject to such assignment and a processing and
recordation fee of $2,500 payable on a pro rata basis to the
Managing Agents by the assigning Lender and the Assignee.
Upon acceptance and recording pursuant to Section 11.1.4, from and
after the effective date specified in each Assignment and Acceptance
(which effective date shall be at least five Banking Days after the
execution thereof unless waived by the Managing Agents):
(A) the Assignee shall be a party hereto and, to the
extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender under
this Agreement and
(B) the assigning Lender shall, to the extent provided in
such assignment, be released from its obligations
under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall
cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 3.3.4, 3.5 and
9, as well as to any fees accrued for its account
hereunder and not yet paid).
. By executing and delivering an Assignment and Acceptance,
the assigning Lender and Assignee shall be deemed to confirm to and
agree with each other and the other parties hereto as follows:
(a) other than the representation and warranty that it is
the legal and beneficial owner of the interest being assigned thereby
free and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement,
any other Credit Document or any other instrument or document furnished
pursuant hereto;
(b) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Company and its Subsidiaries or the performance or
observance by the Company or any of its Subsidiaries of any of its
obligations under this Agreement, any other Credit Document or any
other instrument or document furnished pursuant hereto;
(c) such Assignee confirms that it has received a copy of
this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 7.2 or Section 6.4 and such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance;
(d) such Assignee will independently and without reliance
upon the Managing Agents, such assigning Lender or any other Lender,
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement;
(e) such Assignee appoints and authorizes the Managing
Agents to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Managing Agents by
the terms hereof, together with such powers as are reasonably
incidental thereto; and
(f) such Assignee agrees that it will perform in accordance
with the terms of this Agreement all the obligations which are required
to be performed by it as a Lender.
. The New York Managing Agent shall maintain at the New York
Office a register (the "Register") for the recordation of (a) the names
and addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in Exhibit 10.1
and (c) the amount of the Loan owing to each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Managing Agents and the Lenders
may treat each Person whose name is registered therein for all purposes
as a party to this Agreement. The Register shall be available for
inspection by the Company or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
. Upon its receipt of a completed Assignment and Acceptance
executed by an assigning Lender and an Assignee together with the Note
subject to such assignment, the processing and recordation fee referred
to in Section 11.1.1 and (if required under clause (b) of Section
11.1.1) the written consent of the Company, the New York Managing Agent
shall (a) accept such Assignment and Acceptance, (b) record the
information contained therein in the Register and (c) give prompt
notice thereof to the Company. Within five Banking Days after receipt
of notice, the Company, at its own expense, shall execute and deliver
to the New York Managing Agent, in exchange for the surrendered Note, a
new Note to the order of such Assignee in a principal amount equal to
the applicable Commitment and Loan assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a
Commitment and Loan, a new Note to the order of such assigning Lender
in a principal amount equal to the applicable Commitment and Loan
retained by it. Such new Note shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note, and
shall be dated the date of the surrendered Note which it replaces.
. Notwithstanding the foregoing provisions of this Section
11, any Lender may at any time pledge or assign all or any portion of
such Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank; provided, however, that no such
pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Credit Document.
. The Company and its Subsidiaries shall sign such documents
and take such other actions from time to time reasonably requested by
an Assignee to enable it to share in the benefits of the rights created
by the Credit Documents.
. Each Lender may, without the consent of the Company or the Managing
Agents, in compliance with applicable laws in connection with such
participation, sell to one or more commercial banks or other financial
institutions (each a "Credit Participant") participations in all or a portion of
its interests, rights and obligations under this Agreement and the other Credit
Documents (including all or a portion of its Commitment, the Loan and the Notes
held by it); provided, however, that:
(a) such Lender's obligations under this Agreement shall
remain unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit
of the cost protection provisions contained in Sections 3.3.4, 3.5 and
9, but shall not be entitled to receive any greater payment thereunder
than the selling Lender would have been entitled to receive with
respect to the interest so sold if such interest had not been sold; and
(d) the Company, the Managing Agents and the other Lenders
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right as one of the
Lenders to vote with respect to the enforcement of the obligations of
the Company relating to the Loan and the approval of any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications, consents or waivers described in clause (c)
of the proviso to Section 10.7).
The Company agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to Section 11.2 may exercise all rights of payment (including the right
of set-off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Company and a Lender
hereunder in the amount of such participation.
. In the event that any Lender or to the extent applicable, any Credit
Participant (in each case, an "Affected Lender"):
(a) fails to perform its obligations to fund any portion of
the Revolving Loan on any Closing Date when required to do so by the
terms of the Credit Documents, or fails to provide its portion of any
Eurodollar Pricing Option pursuant to Section 3.3.1 or on account of a
Legal Requirement as contemplated by Section 3.3.5;
(b) demands payment under the provisions of Section 3.5 in
an amount the Company deems materially in excess of the amounts with
respect thereto demanded by the other Lenders;
(c) is required to but fails to deliver on a timely basis to
the Company and the New York Managing Agent the forms required of
foreign Lenders under Section 13 hereof;
(d) refuses to consent to a proposed extension of a Final
Maturity Date or a Competitive Auction Facility Loan Maturity Date that
is consented to by the other Lenders; or
(e) refuses to consent to a proposed amendment,
modification, waiver or other action requiring consent of the holders
of 100% of the Percentage Interests under Section 10.7(b) that is
consented to by the other Lenders;
then, so long as no Event of Default exists, the Company shall have the right to
seek a replacement lender which is reasonably satisfactory to the Managing
Agents (the "Replacement Lender"). The Replacement Lender shall purchase the
interests of the Affected Lender in the Loan and its Commitment and shall assume
the obligations of the Affected Lender hereunder and under the other Credit
Documents upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage Interest in the
Revolving Loan or appropriate credit support for contingent amounts included
therein, and all other outstanding Credit Obligations then owed to the Affected
Lender). No assignment fee pursuant to Section 11.1.1(ii) shall be required in
connection with such assignment. Such assignment by the Affected Lender shall be
deemed an early termination of any Eurodollar Pricing Option to the extent of
the Affected Lender's portion thereof, and the Company will pay to the Affected
Lender any resulting amounts due under Section 3.3.4. Upon consummation of such
assignment, the Replacement Lender shall become party to this Agreement as a
signatory hereto and shall have all the rights and obligations of the Affected
Lender under this Agreement and the other Credit Documents with a Percentage
Interest equal to the Percentage Interest of the Affected Lender, the Affected
Lender shall be released from its obligations hereunder and under the other
Credit Documents, and no further consent or action by any party shall be
required. Upon the consummation of such assignment, the Company, the Managing
Agents and the Affected Lender shall make appropriate arrangements so that a new
Revolving Note is issued to the Replacement Lender if it has acquired a portion
of the Revolving Loan and, if the Replacement Lender so requests, a new
Competitive Auction Facility Note is issued to the Replacement Lender if it has
acquired a portion of the Competitive Auction Facility Loan. The Company shall
sign such documents and take such other actions reasonably requested by the
Replacement Lender to enable it to share in the benefits of the rights created
by the Credit Documents. Until the consummation of an assignment in accordance
with the foregoing provisions of this Section 11.3, the Company shall continue
to pay to the Affected Lender any Credit Obligations as they become due and
payable.
. Each Lender will make no disclosure of confidential information furnished to
it by the Company or any of its Subsidiaries unless such information shall have
become public through no breach of such Lender's confidentiality obligation
under this Section 12, except:
(a) in connection with operations under or the enforcement
of this Agreement or any other Credit Document to Persons who have a
reasonable need to be furnished such confidential information and who
agree to comply with the restrictions contained in this Section 12 with
respect to such information;
(b) pursuant to any statutory or regulatory requirement or
any mandatory court order, subpoena or other legal process;
(c) to any parent or corporate Affiliate of such Lender or
to any Credit Participant, proposed Credit Participant or proposed
Assignee; provided, however, that any such Person shall agree to comply
with the restrictions set forth in this Section 12 with respect to such
information;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to keep such
information confidential; and
(e) with the prior written consent of the Company, to any
other Person.
. If any Lender is not incorporated or organized under the laws of the United
States of America or a state thereof, such Lender shall deliver to the Company
and the New York Managing Agent the following:
(a) Two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor form, as the case may
be, certifying in each case that such Person is entitled to receive
payments under this Agreement and the Notes without deduction or
withholding of any United States federal income taxes; and
(b) A duly completed Internal Revenue Service Form W-8 or
W-9 or successor form, as the case may be, to establish an exemption
from United States backup withholding tax.
Each such Lender that delivers to the Company and the New York Managing
Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to this Section 13
further undertakes to deliver to the Company and the New York Managing Agent two
further copies of Form 1001 or 4224 and Form W-8 or W-9, or successor applicable
form, or other manner of certification, as the case may be, on or before the
date that any such form expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent form previously delivered by it
to the Company and the New York Managing Agent. Such Forms 1001 or 4224 shall
certify that such Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes. The
foregoing documents need not be delivered in the event any change in treaty, law
or regulation or official interpretation thereof has occurred which renders all
such forms inapplicable or which would prevent such Lender from delivering any
such form with respect to it, or such Lender advises the Company that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax and, in the case of a Form W-8 or W-9, establishing an
exemption from United States backup withholding tax. Until such time as the
Company and the New York Managing Agent have received such forms indicating that
payments hereunder are not subject to United States withholding tax or are
subject to such tax at a rate reduced by an applicable tax treaty, the Company
shall withhold taxes from such payments at the applicable statutory rate without
regard to Section 3.5.
. Except as otherwise specified in this Agreement or any other Credit Document,
any notice required to be given pursuant to this Agreement or any other Credit
Document shall be given in writing. Any notice, consent, approval, demand or
other communication in connection with this Agreement or any other Credit
Document shall be deemed to be given if given in writing (including telex,
telecopy or similar teletransmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have specified by notice
actually received by the addressor), and if either (a) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt
of the correct answer back) or (b) in the case of a letter, unless actual
receipt of the notice is required by any Credit Document five days shall have
elapsed after the same shall have been deposited in the United States mails,
with first-class postage prepaid and registered or certified.
If to the Company or any of its Subsidiaries, to it at its address set
forth on the signature page of this Agreement, to the attention of the chief
financial officer.
If to any Lender or either Managing Agent, to it at its address set
forth on the signature pages of this Agreement or in the Register, with a copy
to each Managing Agent.
. No course of dealing between any Lender or either Managing Agent, on one hand,
and the Company, on the other hand, shall operate as a waiver of any of the
Lenders' or Managing Agents' rights under this Agreement or any other Credit
Document or with respect to the Credit Obligations. The Company acknowledges
that if the Lenders or the Managing Agents, without being required to do so by
this Agreement or any other Credit Document, give any notice or information to,
or obtain any consent from the Company, the Lenders and the Managing Agents
shall not by implication have amended, waived or modified any provision of this
Agreement or any other Credit Document, or created any duty to give any such
notice or information or to obtain any such consent on any future occasion. No
delay or omission on the part of any Lender or any Managing Agent in exercising
any right under this Agreement or any other Credit Document or with respect to
the Credit Obligations shall operate as a waiver of such right or any other
right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver, consent or amendment with respect to this Agreement or any other
Credit Document shall be binding unless it is in writing and signed by the
Managing Agents or the Required Lenders.
. The parties have participated jointly in the negotiation and in the
determination of the wording of this Agreement and the other Credit Documents
with counsel sophisticated in financing transactions. In the event an ambiguity
or question of intent or interpretation arises, this Agreement and the other
Credit Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.
. When all Credit Obligations have been paid, performed and reasonably
determined by the Lenders to have been indefeasibly paid in full, and if at that
time no Lender continues to be committed to extend any credit to the Company
hereunder or under any other Credit Document, this Agreement and the other
Credit Documents shall terminate. Thereupon, on the Company's demand and at its
cost and expense, the Managing Agents shall execute proper instruments,
acknowledging satisfaction of and discharging this Agreement and the other
Credit Documents; provided, however, that Sections 3.3.4, 3.5, 9, 10.9.7, 10.12,
12, 18 and 19 shall survive the termination of this Agreement.
. The Company: Service of Process
(a) Irrevocably submits to the nonexclusive jurisdiction of
the state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts (to the extent such District Court has
subject-matter jurisdiction) for the purpose of any suit, action or
other proceeding arising out of or based upon this Agreement or any
other Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by applicable law
that cannot be waived, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court.
The Company consents to service of process in any such proceeding in any manner
at the time permitted by Chapter 223A of the General Laws of The Commonwealth of
Massachusetts and agrees that service of process by registered or certified
mail, return receipt requested, at its address specified in or pursuant to
Section 14 is reasonably calculated to give actual notice.
. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF
THE COMPANY, THE MANAGING AGENTS AND THE LENDERS WAIVES, AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF
OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF
THE LENDERS, THE MANAGING AGENTS, OR THE COMPANY IN CONNECTION WITH ANY OF THE
ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN
CONTRACT, TORT OR OTHERWISE. The Company acknowledges that it has been informed
by the Managing Agents that the provisions of this Section 19 constitute a
material inducement upon which each of the Lenders has relied and will rely in
entering into this Agreement and any other Credit Document, and that it has
reviewed the provisions of this Section 19 with its counsel. Any Lender, any
Managing Agent, or the Company may file an original counterpart or a copy of
this Section 19 with any court as written evidence of the consent of the
Company, the Managing Agents and the Lenders to the waiver of their rights to
trial by jury.
. All covenants, agreements, representations and warranties made in this
Agreement or any other Credit Document or in certificates delivered pursuant
hereto or thereto shall be deemed to have been relied on by each Lender,
notwithstanding any investigation made by any Lender on its behalf, and shall
survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Credit Documents
(including any related fee agreements with the Managing Agents or the Lenders)
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and with respect to such subject matter supersede all
prior and contemporaneous understandings and agreements, whether written or
oral. This Agreement may be executed in any number of counterparts which
together shall constitute one instrument. This Agreement shall be governed by
and construed in accordance with the laws of The Commonwealth of Massachusetts
applicable to contracts made and to be performed entirely within The
Commonwealth of Massachusetts.
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
CENTRAL MAINE POWER COMPANY
By ______________________________________
Title:
83 Edison Drive
Augusta, Maine 04336
Telecopy: (207) 626-9588
BANKBOSTON, N.A.,
By ______________________________________
Authorized Officer
BankBoston, N.A.
Energy & Utilities Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-3652
Telex: 940581
THE BANK OF NEW YORK
By _____________________________________
Authorized Officer
The Bank of New York
One Wall Street
New York, New York 10286
Telecopy: (212) 635-7923
FLEET BANK OF MAINE
By _____________________________________
Authorized Officer
Fleet Bank of Maine
Two Portland Square
Portland, Maine 04101
Telecopy: (207) 874-5167
UNION BANK OF CALIFORNIA, N.A.,
By ______________________________________
Authorized Officer
Union Bank of California, N.A.,
445 South Figueroa Street, 15th Floor
Los Angeles, California 90071
Telecopy: (213) 236-4096
EXHIBIT 2.2.4
FORM OF 364-DAY REVOLVING NOTE
$_________________ __________________, 1998
FOR VALUE RECEIVED, the undersigned Central Maine Power Company, a
Maine corporation (the "Company"), hereby promises to pay to
___________________________ (the "Lender") or order, in accordance with the
terms of the Credit Agreement hereinafter referred to, to the extent not sooner
paid, on the 364-Day Final Maturity Date, ____________________________ DOLLARS
($_____________) or such amount as may be advanced by the payee hereof under the
364-Day Revolving Loan with daily interest from the date hereof, computed as
provided in such Credit Agreement, on the aggregate principal amount of such
advances from time to time unpaid at the per annum rate applicable to such
unpaid principal amount as provided in such Credit Agreement and to pay interest
on overdue principal and, to the extent not prohibited by applicable law, on
overdue installments of interest, fees and any other overdue amounts at the rate
specified in such Credit Agreement, all such interest being payable at the times
specified in such Credit Agreement, except that all accrued interest shall be
paid at the stated or accelerated maturity hereof or upon the prepayment in full
hereof.
Payments hereunder shall be made to The Bank of New York, as New York
Managing Agent for the payee hereof, One Wall Street, New York, New York 10286.
This Note evidences borrowings under and is entitled to the benefits of
and is subject to the provisions of the Credit Agreement dated as of December
15, 1998, as from time to time in effect, among the Company, The Bank of New
York, for itself and as New York Managing Agent, BankBoston, N.A., for itself
and as Boston Managing Agent, and certain other Lenders from time to time party
thereto (the "Credit Agreement"). The principal of this Note is prepayable in
the amounts and under the circumstances set forth in the Credit Agreement, and
may be prepaid in whole or from time to time in part, all as set forth in the
Credit Agreement. Terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the entire principal amount of this Note may become or be declared due
and payable in the manner and with the effect provided in the Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the The Commonwealth of Massachusetts applicable to contracts made and
to be performed entirely within The Commonwealth of Massachusetts.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically otherwise provided in the
Credit Agreement, and assent to extensions of time of payment, or forbearance or
other indulgence without notice.
CENTRAL MAINE POWER COMPANY
By__________________________________
Title:
EXHIBIT 2.3.1
COMPETITIVE AUCTION FACILITY LOAN BID REQUEST
Date:
To: The Bank of New York, as New York Managing Agent under the Credit Agreement
(as defined below)
Re: Credit Agreement dated as of December 15, 1998, as from time to time in
effect (the "Credit Agreement"), among Central Maine Power Company and
certain Lenders for which The Bank of New York and BankBoston, N.A., are
acting as Managing Agents.
The undersigned hereby gives notice pursuant to Section 2.3.1 of the
Credit Agreement that the undersigned requests bids from the Lenders with
respect to the following Competitive Auction Facility Loan(s):
Competitive Auction Facility Loan Closing
Date1 (Date of Borrowing): ____________________
Designation of Competitive Auction Facility Loan(s)
(either Three-Year or 364-Day): __________________
Principal Amount(s)2 Competitive Auction3 Competitive Auction4
of Requested Competitive Facility Loan Interest Facility Loan
Auction Facility Loan(s) Payment Dates (if any) Maturity Date(s)
Such Competitive Auction Facility Loan bids should offer a Competitive Auction
Facility Rate.
The sum of the aggregate principal amount of Three-Year Competitive
Auction Facility Loans outstanding, after giving effect to the Three-Year
Competitive Auction Facility Loans requested hereby, plus the Three-Year
Revolving Loan will be $________.5
The sum of the aggregate principal amount of 364-Day Competitive
Auction Facility Loans outstanding, after giving effect to the 364-Day
Competitive Auction Facility Loans requested hereby, plus the 364-Day Revolving
Loan will be $________.6
Aggregate number of Eurodollar Pricing Options and Competitive Auction
Facility Loans outstanding, after giving effect to the Competitive Auction
Facility Loans requested hereby.7 __________
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
Very truly yours,
CENTRAL MAINE POWER COMPANY
By_________________________________
Title:
EXHIBIT 2.3.2
INVITATION TO BID ON COMPETITIVE AUCTION FACILITY LOAN
Date:
To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction
under the Credit Agreement
Re: Invitation to Bid on Competitive Auction Facility Loan
Pursuant to Section 2.3.2 of the Credit Agreement dated as of December
15, 1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company and certain Lenders for which The Bank of New York and
BankBoston, N.A., are acting as Managing Agents, we are pleased on behalf of
Central Maine Power Company to invite you to submit bids with respect to the
following Competitive Auction Facility Loan(s):
Competitive Auction Facility Loan Closing
Date (Date of Borrowing): ____________________
Designation of Competitive Auction Facility Loan(s)
(either Three-Year or 364-Day): __________________
Principal Amount(s) Competitive Auction Competitive Auction
of Requested Competitive Facility Loan Interest Facility Loan
Auction Facility Loan(s) Payment Dates (if any) Maturity Date(s)
Such Competitive Auction Facility Loan bids should offer a Competitive Auction
Facility Rate.
Please respond to this invitation by no later than 10:00 a.m. (New York
time) on the Competitive Auction Facility Loan Closing Date.
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
Very truly yours,
THE BANK OF NEW YORK,
as New York Managing Agent
under the Credit Agreement
By____________________________________
Title:
EXHIBIT 2.3.3A
COMPETITIVE AUCTION FACILITY LOAN BID
Date:
The Bank of New York,
as New York Managing Agent
under the Credit Agreement
(as defined below)
One Wall Street
New York, New York 10286
Attention: [insert]
Re: Central Maine Power Company
In response to your invitation on behalf of Central Maine Power Company
(the "Borrower") dated ____________________, the undersigned (the "Bidding
Lender") hereby submits the following Competitive Auction Facility Loan bid(s)
with respect to the following Competitive Auction Facility Loan(s):
1. Bidding Lender: ____________________
2. Person to contact at Bidding Lender: ____________________
3. Competitive Auction Facility Loan Closing
Date (Date of Borrowing): ____________________
4. Designation of Competitive Auction Facility Loan(s)
(either Three-Year or 364-Day): ____________________
5. The undersigned hereby offers to make to the Borrower, on the
Competitive Auction Facility Loan Closing Date specified above, the
following Competitive Auction Facility Loan(s):
<PAGE>
<TABLE>
<S> <C>
Competitive Auction
Principal Amount(s)1 Facility Loan Competitive Auction
of Offered Competitive Interest Payment Facility Loan Competitive Auction2
Auction Facility Loan(s) Dates (if any) Maturity Date(s) Facility Rate(s)
</TABLE>
The undersigned understands and agrees that the offer(s) set
forth above, subject to the satisfaction of the applicable conditions set
forth in the Credit Agreement dated as of December 15, 1998 as from time
to time in effect (the "Credit Agreement"), among Central Maine Power
Company and certain Lenders for which The Bank of New York and BankBoston,
N.A., are acting as Managing Agents, obligates the undersigned to make the
Competitive Auction Facility Loan(s) for which any offer(s) are accepted
in whole or in part by the Borrower.
Terms defined in the Credit Agreement and not otherwise defined
herein are used herein with the meanings so defined.
Very truly yours,
[NAME OF LENDER]
By_________________________________
Title:
EXHIBIT 2.3.3B
LIST OF COMPETITIVE AUCTION FACILITY LOAN BIDS
Date:
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Attention: Manager of Treasury Operations
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of December 15,
1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company and certain Lenders for which The Bank of New York and
BankBoston, N.A., are acting as Managing Agents. Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
Notice is hereby given that pursuant to Section 2.3.3 of the Credit
Agreement, the following Lenders have offered to make to Central Maine Power
Company on ____________________, the following Competitive Auction Facility
Loan(s) in the amount(s) and at the rate(s) specified below:
Lender(s): ____________________
Designation of Competitive Auction
Facility Loan(s) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $___________________
Competitive Auction Facility Loan
Interest Payment Dates (if any) ____________________
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Rate(s): ____________________%
Very truly yours,
THE BANK OF NEW YORK,
as New York Managing Agent
under the Credit Agreement
By________________________________
Title:
EXHIBIT 2.3.4A
LIST OF ACCEPTANCES AND NON-ACCEPTANCES
OF COMPETITIVE AUCTION FACILITY LOAN BIDS
The Bank of New York,
as New York Managing Agent
under the Credit Agreement
(as defined below)
One Wall Street
New York, New York 10286
Attention: [insert]
Ladies and Gentlemen:
Reference is made to (a) the Credit Agreement dated as of December 15,
1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company (the "Company") and certain Lenders for which you are acting
as New York Managing Agent and (b) the bid notices (the "Bid Notices") received
from you on [insert applicable Competitive Auction Facility Loan Closing Date].
Terms defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings so defined.
[Pursuant to Section 2.3.4 of the Credit Agreement, the Company hereby
irrevocably accepts the offer(s) of the Lender(s) specified below to make the
following Competitive Auction Facility Loans:
Lender(s): ____________________
Competitive Auction Facility Loan
Closing Date: ____________________
Designation of Competitive Auction
Facility Loan(s) (either Three-Year
or 364-Day) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $____________________
Competitive Auction Facility Rate(s): ____________________%
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Loan
Interest Payment Dates (if any): ____________________]
[repeat for each accepted bid]
[Except as provided above,] all offers to make Competitive Auction
Facility Loans described in the Bid Notices are hereby rejected.
Very truly yours,
CENTRAL MAINE POWER COMPANY
By_________________________________
Title:
EXHIBIT 2.3.4B
ACCEPTANCE OF COMPETITIVE AUCTION FACILITY LOAN BIDS
Date:
To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction
under the Credit Agreement
Reference is made to the Credit Agreement dated as of December 15,
1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company and certain Lenders for which The Bank of New York and
BankBoston, N.A., are acting as Managing Agents.
Pursuant to Section 2.3.4 of the Credit Agreement, notification has
been received from Central Maine Power Company that it has accepted the
following bids:
Lender(s): ____________________
Designation of Competitive Auction
Facility Loan(s) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $____________________
Competitive Auction Facility Loan
Interest Payment Dates (if any): ____________________
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Rate(s): ____________________%
If your quote has been accepted, funds should be transferred to The
Bank of New York [insert transfer instructions] and should be immediately
available as of 2:30 p.m. (New York time) on _________________.
Following are the Competitive Auction Facility Loan bids which were submitted by
the Lenders in today's auction:
Lender(s): ____________________
Designation of Competitive Auction
Facility Loan(s) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $____________________
Competitive Auction Facility Loan
Interest Payment Dates (if any): ____________________
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Rate(s): ____________________%
Very truly yours,
THE BANK OF NEW YORK,
as New York Managing Agent
under the Credit Agreement
By________________________________
Title:
EXHIBIT 2.3.4C
NON-ACCEPTANCE OF COMPETITIVE AUCTION FACILITY LOAN BIDS
Date:
To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction
under the Credit Agreement
Reference is made to the Credit Agreement dated as of December 15,
1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company and certain Lenders for which The Bank of New York and
BankBoston, N.A., are acting as Managing Agents.
Pursuant to Section 2.3.4 of the Credit Agreement, notification has
been received from the Company that it has not accepted any of the following
bids:
Lender(s): ____________________
Designation of Competitive Auction
Facility Loan(s) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $____________________
Competitive Auction Facility Loan
Interest Payment Dates (if any): ____________________
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Rate(s): ____________________%
Following are the Competitive Auction Facility Loan bids which were
submitted by the Lenders in today's auction:
Lender(s): ____________________
Designation of Competitive Auction
Facility Loan(s) ____________________
Principal Amount(s) of Offered
Competitive Auction Facility Loan(s): $____________________
Competitive Auction Facility Loan
Interest Payment Dates (if any): ____________________
Competitive Auction Facility Loan
Maturity Date(s): ____________________
Competitive Auction Facility Rate(s): ____________________%
Very truly yours,
THE BANK OF NEW YORK,
as New York Managing Agent
under the Credit Agreement
By___________________________________
Title:
EXHIBIT 2.3.4D
NOTICE OF COMPETITIVE AUCTION FACILITY LOAN
Date:
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Attention: Manager of Treasury Operations
[Each Lender]
[Address]
Attention:
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of December 15,
1998, as from time to time in effect (the "Credit Agreement"), among Central
Maine Power Company and certain Lenders for which the undersigned is acting as
New York Managing Agent. Terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
Pursuant to Section 2.3.4 of the Credit Agreement, the undersigned
hereby notifies you that the following Competitive Auction Facility Loan(s)
became effective on the date hereof:
Designation of Principal Amount of Competitive Auction
Competitive Auction Competitive Auction Facility Loan
Facility Loans Facility Loan(s) Maturity Date(s)
Very truly yours,
THE BANK OF NEW YORK,
as New York Managing Agent
under the Credit Agreement
By__________________________________
Title:
EXHIBIT 2.3.5
COMPETITIVE AUCTION FACILITY NOTE
No. ___ _______________, 199_
$_______________ New York, New York
FOR VALUE RECEIVED, the undersigned Central Maine Power Company, a
Maine corporation (the "Borrower"), hereby promises to pay to
______________________ (the "Holder") or order, on [insert Competitive Auction
Facility Loan Maturity Date], ___________________________________ DOLLARS
($_______________) or, if less, the aggregate unpaid Competitive Auction
Facility Loan made to the Borrower by the Holder, with daily interest from the
date hereof, computed as provided in the Credit Agreement referred to below, on
the principal amount of such Competitive Auction Facility Loan from time to time
unpaid at a rate per annum of [insert Competitive Auction Facility Rate] plus an
additional rate per annum on the occurrence and continuation of an Event of
Default, as provided for in the Credit Agreement. Accrued interest shall be
payable on [insert Competitive Auction Facility Loan Interest Payment Date, if
any] [and on] [insert Competitive Auction Facility Loan Maturity Date] except
that all accrued interest shall be paid at the accelerated maturity hereof or
upon the prepayment in full hereof.
Payments hereunder shall be made to The Bank of New York, as New York
Managing Agent for the payee hereof, at One Wall Street, New York, New York
10286.
This Note evidences a Competitive Auction Facility Loan under and is
entitled to the benefits and subject to the provisions of the Credit Agreement
dated as of December 15, 1998, as from time to time in effect (the "Credit
Agreement"), among Central Maine Power Company and certain Lenders for which The
Bank of New York and BankBoston, N.A., are acting as Managing Agents. The
principal of this Note may be due and payable in whole or in part prior to the
maturity date stated above and is subject to required prepayment in the amounts
and under the circumstances set forth in the Credit Agreement. Other than in
circumstances under which the Company is required under the Credit Agreement to
prepay, the Company may not prepay any principal amount outstanding under this
Note. This Note may not be assigned or otherwise transferred except in
accordance with the Credit Agreement.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the entire principal amount of this Note may become or be declared due
and payable in the manner and with the effect provided in the Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the The Commonwealth of Massachusetts applicable to contracts made and
to be performed entirely within The Commonwealth of Massachusetts.
The undersigned maker, and all guarantors and endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note, except as specifically otherwise provided in the Credit Agreement, and
assent to extensions of time of payment or forbearance or other indulgence
without notice.
CENTRAL MAINE POWER COMPANY
By__________________________________
Title:
EXHIBIT 5.1.1
OFFICER'S CERTIFICATE
Pursuant to Section 5.1.1 of the Credit Agreement dated as of December
15, 1998 among Central Maine Power Company, a Maine corporation (the "Company"),
BankBoston, N.A., for itself and as Boston Managing Agent, The Bank of New York,
for itself and as New York Managing Agent, and certain other Lenders from time
to time party thereto (the "Credit Agreement"), the Company certifies that (i)
the representations and warranties contained in Section 7 of the Credit
Agreement are true and correct on and as of the date hereof with the same force
and effect as though originally made on and as of the date hereof (except as to
any representation or warranty which is limited to a specific earlier date) and
(ii) no Default exists on the date hereof.
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
This certificate has been executed by a duly authorized Financial
Officer this ______ day of _______________, 199__.
CENTRAL MAINE POWER COMPANY
By__________________________________
Title:
EXHIBIT 7.2.2
Agreements pertaining to or evidencing Indebtedness outstanding on
December 15, 1998 which is disclosed in the Pre-Closing 1934 Act Reports.
EXHIBIT 7.3
(a) Liens.
Liens in effect on December 15, 1998, either disclosed in the
Pre-Closing 1934 Act Reports or immaterial to the Company.
(b) Financing Debt and Guarantees.
Financing Debt and Guarantees in effect on December 15, 1998, disclosed
in the Pre-Closing 1934 Act Reports.
(c) Indebtedness under Section 6.6.6.
Indebtedness outstanding on December 15, 1998, which is not otherwise
described in Section 6.6 of the Agreement, but which is disclosed in the
Pre-Closing 1934 Act Reports.
EXHIBIT 10.1
REVOLVING LOAN PERCENTAGE INTERESTS
The Percentage Interest of each Lender in the 364-Day Revolving Loan,
and the related Commitments, shall be computed based on the maximum principal
amounts for each Lender as follows:
Maximum Principal
Amount in 364-Day Percentage
Lender Revolving Loan Interest
The Bank of New York $7,000,000 28%
BankBoston, N.A. $7,000,000 28%
Fleet Bank of Maine $6,000,000 24%
Union Bank of California, N.A. $5,000,000 20%
TOTAL $25,000,000 100%
EXHIBIT 11.1.1
ASSIGNMENT AND ACCEPTANCE
This Agreement, dated as of ____________, 199_, is between
_______________, a Lender under the Credit Agreement referred to below (the
"Assignor"), and _______________ (the "Assignee").
For valuable consideration, the receipt of which is hereby
acknowledged, the Assignor agrees with the Assignee as follows:
1. Reference to Credit Agreement and Definitions. Reference is made to
the Credit Agreement dated as of December 15, 1998, as from time to time in
effect, among Central Maine Power Company, a Maine corporation (the "Company"),
BankBoston, N.A., for itself and as Boston Managing Agent, The Bank of New York,
for itself and as New York Managing Agent, and certain other Lenders from time
to time party thereto (the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
2. Assignment and Assumption. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a
__% interest in and to all the Assignor's interests, rights and obligations
under the Credit Agreement and the other Credit Documents as of the Assignment
Date (as defined below), including without limitation such percentage interest
in the Commitment of the Assignor on the Assignment Date and such percentage
interest in the Revolving Loan outstanding on the Assignment Date, together with
such percentage interest in all unpaid interest with respect to the Revolving
Loan and all fees arising pursuant to the Credit Agreement accrued to the
Assignment Date (but excluding any Competitive Auction Facility Loan currently
outstanding advanced by the Assignor). [If an assignment of a Competitive
Auction Facility Loan or portion thereof is to be made, add appropriate
language.]
3. Representations, Warranties, etc.
3.1. Assignor's Representations and Warranties. The Assignor:
(a) represents that as of the date hereof, its Commitment is
$____________ and the outstanding principal balance of its portion of
the Revolving Loan is $___________ with respect to the 364-Day
Revolving Loan and $___________ with respect to the Three-Year
Revolving Loan;
(b) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or
the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or
document furnished pursuant thereto, other than that it is the legal
and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; and
(c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company
and its Subsidiaries or the performance of any of the obligations of
the Company under the Credit Agreement, any of the Credit Documents or
any other instrument or document furnished pursuant hereto or thereto.
3.2. Assignee's Representations, Warranties and Agreements. The
Assignee:
(a) represents and warrants that it is legally authorized to
enter into this Agreement;
(b) confirms that it has received a copy of the Credit
Agreement and certain other Credit Documents it has requested, together
with copies of the most recent financial statements delivered pursuant
to Section 6.4 or 7.2 of the Credit Agreement and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement;
(c) agrees that it will, independently and without reliance
upon the Managing Agents, Assignor or any other Person which has become
a Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement and the other
Credit Documents;
(d) agrees that it will be bound by the provisions of the
Credit Agreement and the other Credit Documents and will perform in
accordance with their terms all the obligations which are required to
be performed by it as a Lender; and
(e) agrees to appoint and authorize the Managing Agents to
take such action as agent on its behalf and to exercise such powers
under the Credit Agreement as are delegated to the Managing Agents by
the terms thereof, together with such powers as are reasonably
incidental thereto.
4. Assignment Date. The effective date of this Agreement shall be
____________, 199_ (the "Assignment Date").
5. Assignee Party to Credit Agreement; Assignor Release of Obligations.
From and after the Assignment Date, (a) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Agreement, have the rights
and obligations of a Lender thereunder and under the Credit Documents and (b)
the Assignor shall, to the extent provided in this Agreement, relinquish its
rights and be released from its obligations under the Credit Agreement and the
other Credit Documents.
6. Notices. All notices and other communications required to be given
or made to the Assignee under this Agreement, the Credit Agreement or any other
Credit Documents shall be given or made at the address of the Assignee set forth
on the signature page hereof or at such other address as the Assignee shall have
specified to the Assignor, the Managing Agents and the Company in writing.
7. Further Assurances. The parties hereto agree to execute and deliver
such other instruments and documents and to take such other actions as any party
hereto may reasonably request in connection with the transactions contemplated
by this Agreement.
8. General. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all current and prior agreements and
understandings, whether written or oral. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. This Agreement may be executed in any number of counterparts,
which together shall constitute one instrument, and shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including as such successors and assigns all holders of any Credit Obligation.
This Agreement shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the jurisdiction in which the
principal office of the Assignor is located.
Each of the Assignor and the Assignee has caused this Agreement to be
executed and delivered by its duly authorized officer under seal as of the date
first written above.
[ASSIGNOR]
By___________________________
Title:
[ASSIGNEE]
By_____________________________
Title:
[Street Address
City, State Zip Code]
Telecopy:
Telex:
The foregoing is hereby consented to:
BANKBOSTON, N.A., as Boston Managing Agent
By____________________________________
Title:
THE BANK OF NEW YORK, as New York Managing Agent
By____________________________________
Title:
CENTRAL MAINE POWER COMPANY
By____________________________________
Title:
- --------
1 Must be the Banking Day following the applicable Request Date.
2 Aggregate amount must be a minimum of $1,000,000, and if larger, in
integral multiples of $500,000.
3 Must pay accrued and unpaid interest on the 90th day after the
Competitive Auction Facility Loan Closing Date if the Competitive Auction
Facility Loan Maturity Date is more than 90 days after the Competitive Auction
Facility Loan Closing Date.
4 Not earlier than seven days following the applicable Competitive Auction
Facility Loan Closing Date and not later than the earlier of (i) the 180th day
following the applicable Competitive Auction Facility Loan Closing Date and (ii)
the applicable Final Maturity Date.
5 Must not exceed the Maximum Amount of Three-Year Revolving Credit as
determined by Section 2.1.2 of the Credit Agreement.
6 Must not exceed the Maximum Amount of 364-Day Revolving Credit as
determined by Section 2.2.2 of the Credit Agreement.
7 Must not exceed 10.
1 Principal amount of bids may not exceed principal amount requested.
Bids must be for a minimum of $1,000,000, and if larger, in integral
multiples of $500,000.
2 Specify rate of interest per annum (each rounded to the nearest
1/100%).
Exhibit 10-105
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 26th day of August, 1998, by and
between Central Maine Power Company, a Maine corporation with its principal
place of business in Augusta, Maine (hereinafter referred to as the "Company"),
and F. MICHAEL McCLAIN, JR. (hereinafter referred to as the "Executive").
WHEREAS, the Company desires to and has employed the Executive to
provide strategic services to the Company and to receive the advantage of his
business expertise during a period of transition and adjustment; and
WHEREAS, the Executive desires to serve in the employ of the Company on
a full-time basis for a period provided in this Employment Agreement
(hereinafter referred to as the "Agreement") on the terms and conditions
hereinafter set forth; and
WHEREAS, to these ends the Company desires to provide the Executive
with certain payments and benefits in the event of the termination of his
employment in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment
by the Company and the acceptance of employment by the Executive, and the mutual
promises and covenants contained herein, the Company and the Executive hereby
agree as follows:
1. Term of Agreement. a. Term. The term of this Agreement shall begin
on February 23, 1998 (hereinafter referred to as the "Effective Date") and shall
expire on December 31, 2000; provided, however, that on December 31, 2000 and on
each December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. Automatic Extension of Term. If a Change of Control occurs during
the original term of this Agreement or any extension, then the term of this
Agreement shall be automatically extended for a thirty-six (36) calendar month
period beginning on the first day of the month following the month in which such
Change of Control occurs.
c. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all obligations of the Company hereunder shall terminate
on the date of the Executive's death, or thirty (30) days after the Company
gives notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) Any act of material dishonesty taken by, or committed at the
request of, the Executive.
(ii) Any illegal or unethical conduct which, in the good faith
judgment of the Board, would impair the Executive's ability to
perform his duties under this Agreement or would impair the
business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform his
responsibilities and duties under this Agreement, after demand
for performance has been delivered in writing to the Executive
specifying the manner in which the Company believes that the
Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts (i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company or any Affiliate or any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any Affiliate), is or becomes the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding stock eligible to vote.
(ii) During any period of two (2) consecutive years after the
execution of this Agreement, individuals who at the beginning of
such period constitute the Board, and any new director whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute at least a majority thereof.
(iii)The stockholders of the Company approve a merger or consoli-
dation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting stock of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding
voting stock of the Company or such surviving entity immediately
after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than thirty percent (30%) of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change of Control of the
Company.
"Constructive Discharge" means, so long as no Change of Control has
occurred, any reduction in the Executive's annual base salary in effect as of
the Effective Date of this Agreement, or as the same may be increased from time
to time, other than any across-the-board base salary reduction for a group or
all of the executive officers of the Company, and also means, on or after a
Change of Control,
(i) any reduction in the Executive's annual base salary in effect as
of the Effective Date of this Agreement, or as the same may be
increased from time to time;
(ii) a failure to increase the Executive's annual base salary commen-
surate with any across-the-board percentage increases in the
compensation of other executive officers of the Company;
(iii)a substantial reduction in the nature or scope of the
Executive's responsibilities, duties or authority from those
described in Section 3.c of this Agreement; (iv) a material
adverse change in the Executive's title or position; or (v)
relocation of the Executive's place of employment from the
Company's principal executive offices to a place more than
twenty-five (25) miles from Augusta, Maine without the
Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined upon the
basis of such evidence, which may include independent medical reports and data,
as the Board deems appropriate or necessary.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Vice President, Corporate
Development, of the Company, and the Executive hereby agrees to accept
employment from the Company for the period beginning on the Effective Date and
ending on the date on which the Executive's employment is terminated in
accordance with this Agreement (the "Employment Period"). This Agreement shall
not restrict in any way the right of the Company to terminate the Executive's
employment at whatever time and for whatever reason it deems appropriate, nor
shall it limit the right of the Executive to terminate employment at any time
for whatever reason he deems appropriate.
b. Performance. The Executive agrees that, during the Employment
Period, he shall devote substantially all his business attention and time to the
business and affairs of the Company and its Affiliates , and use his best
efforts to perform faithfully and efficiently the duties and responsibilities of
the Executive under this Agreement. It is expressly understood that (i) the
Executive may devote a reasonable amount of time to such industry associations
and charitable and civic endeavors as shall not materially interfere with the
services that the Executive is required to render under this Agreement, and (ii)
the Executive may serve as a member of one or more boards of directors of
companies that are not affiliated with the Company and do not compete with the
Company or any of its Affiliates.
c. Job Duties. The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has occurred, may be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include, but not be limited to, overseeing investments in new subsidiaries and
affiliated businesses; development and implementation of business plans for new
subsidiaries; direction and oversight of regulatory approvals for such new
subsidiaries; and participation in operational decisions and strategic planning
for new subsidiaries and business ventures.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) Salary. He shall receive an annual base salary, the amount of
which shall be reviewed regularly and determined from time to
time by the Board, but which shall not be less than
$175,000.00. His salary shall be payable in accordance with
Company payroll practices.
(ii) Participation in Executive Plans. He shall be entitled to
participate in any and all plans and programs maintained by
the Company from time to time to provide benefits for its
executives, including without limitation any short-term or
long-term incentive, pension, or supplemental pension plan or
program, in accordance with the terms and conditions of any
such plan or program or the administrative guidelines relating
thereto, as may be amended from time to time.
(iii) Participation in Salaried Employee Plans. He shall be entitled
to participate in any and all plans and programs maintained by
the Company from time to time to provide benefits for its
salaried employees generally, including without limitation any
savings and investment, stock purchase or group medical,
dental, life, accident or disability insurance plan or
program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded
from participation therein under the terms thereof or under
the terms of any executive plan or program or any approval or
adoption thereof.
(iv) Other Fringe Benefits. He shall be entitled to all fringe
benefits generally provided by the Company at any time to its
full-time salaried employees, including without limitation
paid vacation, holidays and sick leave but excluding severance
pay, in accordance with generally applicable Company policies
with respect to such benefits.
b. Vested Benefits. Notwithstanding any contrary provision of this
Agreement, any compensation or benefits which are vested in the Executive or
which the Executive is otherwise entitled to receive under any plan or program
of the Company or any agreement between the Company and the Executive before, at
or subsequent to the Executive's termination of employment shall be furnished
and paid in accordance with the terms and provisions of such plan, program or
agreement.
c. Withholding. All compensation payable under this Section 4 shall be
subject to normal payroll deductions for withholding income taxes, Social
Security taxes and the like.
5. Severance Benefits. a. Change of Control. If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment Period by the Company and/or any successor for any reason other than
death, Total Disability or Cause, or by the Executive within twelve (12)
calendar months of a Constructive Discharge, Severance Benefits shall be
provided as follows:
(i) The Company shall pay the Executive, in one lump sum cash pay-
ment, within sixty (60) days following the date of termination
of employment as determined under Section 6 of this Agreement,
an amount equal to 2.99 times (a) the Executive's base salary
earned during the twelve (12) months immediately preceding the
Change of Control and (b) the three (3) year average of
amounts earned under the Company's 1987 Executive Incentive
Plan or any successor short-term executive incentive plan for
the three (3) years preceding the Change of Control.
(ii) Core coverage for the Executive and his dependents under the
Company's group medical, life, accident and disability plans
or programs shall continue for the Severance Period on the
same terms and conditions, as if the Executive's employment
had not terminated. In the event that the Executive's
participation in any such plan or program is barred, the
Company shall arrange at its expense to provide the Executive
and his dependents during the Severance Period with core
benefits substantially similar to those which he would
otherwise be entitled to receive under such plans and
programs; provided, however, that the obligation of the
Company to provide continuation of any insured long-term
disability benefits shall be limited to the conversion rights
available under such disability insurance products, and the
Company hereby agrees to pay the conversion premium due
thereon for the Severance Period.
(iii)To the extent allowed by law, but without violating any non-
discrimination or other applicable restrictions, the Severance
Period shall count as service for all purposes (including benefit
accrual and eligibility) under any welfare benefit or
non-qualified plan of the Company applicable to the Executive
immediately prior to the Executive's termination of employment,
for which service with the Company is taken into account,
including without limitation any supplemental pension plan, and
all benefits under such plans that are subject to vesting shall
vest as of the date of such termination of employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount
equal to the actual fee for such services up to a total of
$10,000.
b. Parachute Provision. Notwithstanding the provisions of Section 5.a
hereof, if, in the opinion of tax counsel selected by the Company's independent
auditors,
(i) the Severance Benefits set forth in said Section 5.a and any pay-
ments or benefits otherwise payable to the Executive would
constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") (said Severance Benefits and other payments or benefits
being hereinafter collectively referred to as "Total Payments"),
and
(ii) the aggregate present value of the Total Payments would exceed
2.99 times the Executive's base amount, as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance
Benefits described in Section 5.a hereof as, in the opinion of
said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present
value of the Total Payments is equal to 2.99 times the
Executive's base amount. The tax counsel selected pursuant to
this Section 5.b may consult with tax counsel for the Executive,
but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the
required reductions. For purposes of this Section 5.b, the
Executive's base amount and the value of the Total Payments shall
be determined by the Company's independent auditors in accordance
with the principles of Section 280G of the Code and based upon
the advice of tax counsel selected thereby.
c. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) by the Executive within six (6) calendar months of
a Constructive Discharge, the Company shall pay the Executive, in twelve (12)
equal monthly cash installments beginning not later than sixty (60) days
following the date of termination of employment as determined under Section 6 of
this Agreement, Severance Benefits equal to one (1) times the Executive's annual
base salary in effect on the date immediately preceding the date of termination,
or preceding the date of a Constructive Discharge attributable to a base salary
reduction if applicable; provided, however, that each of the last six (6)
monthly cash installments shall be reduced by an amount equal to any base salary
or other base pay or commissions earned through other employment or any fees
earned as a consultant for the particular month, such that an installment shall
not be paid or payable by the Company for any month for which such other base
salary, base pay, commission or fees equal or exceed the amount of the
installment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. Gross-Up Amount. In the event that any portion of the
Severance Benefits is subject to tax under Section 4999 of the Internal Revenue
Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"),
the Company shall pay to the Executive an additional amount (the "Gross-Up
Amount") which, after payment of all federal and State income taxes thereon
(assuming the Executive is at the highest marginal federal and applicable State
income tax rate in effect on the date of payment of the Gross-Up Amount) and
payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax
payable by the Executive on such portion of the Severance Benefits. Any Gross-Up
Amount payable hereunder shall be paid by the Company coincident with the
payment of the Severance Benefits described in Section 5.a(i) of this Agreement.
b. Tax Withholding. All amounts payable to the Executive under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that: (i) During the Employment Period and for one (1) year after the termi-
nation of the Executive's employment with the Company for any reason other than
a Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
a competitor of the Company, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) During and after the Executive's employment with the Company he
shall not divulge or appropriate to his own use or the use of
others any secret, proprietary or confidential information or
knowledge pertaining to the business of the Company, or any of
its Affiliates, obtained during his employment with the Company;
and
(iii)During the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial
or other proceedings affecting the Company and, after the
termination of his employment with the Company, he shall use best
efforts to comply with all reasonable requests of the Company
that he cooperate with the Company, whether by giving testimony
or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which
he may be in a position adverse to that of the Company. After the
termination of employment, the Company shall reimburse the
Executive for his reasonable expenses and his time, at a
reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
(iv) The term "Company" as used in this Section 8 shall include
Central Maine Power Company, any Affiliate of Central Maine Power
Company (determined as of the date of termination), any successor
to the business or operations of Central Maine Power and any
business entity spun-off, divested, or distributed to
shareholders which shall continue the operations of Central Maine
Power Company.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c. of
this Agreement. In the event of a failure to comply with part (i) or (ii)
hereof, the Executive agrees that he shall repay to the Company any such Section
5.c Severance Benefits paid to him. The Company shall have the right to offset
any amounts payable to the Executive under this Agreement or otherwise against
any Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Augusta, Maine, in accordance with the rules of the American Arbitration
Association then in effect. The pendency of any such dispute or controversy
shall not affect any rights or obligations under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any
delay in enforcing, any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving party. Waiver of any one breach shall not be deemed
to be a waiver of any other breach of the same or any other provision hereof.
This Agreement can be amended only by written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
17. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
- ----------------------------- ---------------------------------
F. Michael McClain, Jr.
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
Exhibit 10-106
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________day of June, 1997, by
and between Central Maine Power Company, a Maine corporation with its principal
place of business in Augusta, Maine (hereinafter referred to as the "Company"),
and MICHAEL R. CUTTER of Winthrop, Maine (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued employee
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on
a full-time basis for a period provided in this Employment Agreement
(hereinafter referred to as the "Agreement") on the terms and conditions
hereinafter set forth; and
WHEREAS, to these ends the Company desires to provide the Executive
with certain payments and benefits in the event of the termination of his
employment in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive, and
the mutual promises and covenants contained herein, the Company and the
Executive hereby agree as follows:
1. Term of Agreement. a. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on May 31, 2000; provided, however, that if a Change of Control occurs
during the period commencing June 1, 1999 and ending May 31, 2000, this
Agreement shall be extended and shall thereafter expire 365 days after the date
of said Change of Control (the "Extended Expiration Date").
b. Expiration. Notwithstanding anything to the contrary in this Section
1, except as to vested benefits, this Agreement and all obligations of the
Company hereunder shall terminate on the earliest to occur of (i) the date of
the Executive's death, (ii) thirty (30) days after the Company gives notice to
the Executive that the Company is terminating the Executive's employment for
reason of Total Disability or Cause; or (iii) May 31, 2000 (or the Extended
Expiration Date specified in Section 1.a above, if applicable, if a Change of
Control occurs during the year prior to May 31, 2000.)
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) Any act of material dishonesty taken by, or committed at the
request of, the Executive.
(ii) Any illegal or unethical conduct which would impair the
Executive's ability to perform his duties under this Agreement or
would impair the business reputation of the Company. (iii)
Conviction of a felony.
(iv) The continued failure of the Executive to perform his
responsibilities and duties under this Agreement in a
satisfactory manner, after demand for performance has been
delivered in writing to the Executive specifying the manner in
which the Company believes that the Executive is not performing.
"Change of Control" means the occurrence of any of the following
events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company or any Affiliate or any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any Affiliate), is or becomes the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding stock eligible to vote.
(ii) The stockholders of the Company approve a merger or consoli-
dation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting stock of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding
voting stock of the Company or such surviving entity immediately
after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than thirty percent (30%) of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change of Control of the
Company.
(iii)The stockholders of the Company approve a plan of complete
liqui- dation of the Company or an agreement for the sale, lease,
exchange or other disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect).
"Constructive Discharge" means, so long as no Change of Control has
occurred, any reduction in the Executive's annual base salary in effect as of
the Effective Date of this Agreement, or as the same may be increased from time
to time, other than any across-the-board base salary reduction for a group or
all of the executive officers of the Company, and also means, on or after a
Change of Control,
(i) any reduction in the Executive's annual base salary in effect as
of the Effective Date of this Agreement, or as the same may be
increased from time to time;
(ii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in
Section 3.c of this Agreement; (iii) a material adverse change in
the Executive's title or position; or (iv) relocation of the
Executive's place of employment from the Company's principal
executive offices to a place more than twenty-five (25) miles
from Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined upon the
basis of such evidence, which may include independent medical reports and data.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Vice President, Operations
Support, and the Executive hereby agrees to remain in the employ of the Company
for the period beginning on the Effective Date and ending on the date on which
the Executive's employment is terminated in accordance with this Agreement (the
"Employment Period"). This Agreement shall not restrict in any way the right of
the Company to terminate the Executive's employment at whatever time and for
whatever reason it deems appropriate, nor shall it limit the right of the
Executive to terminate employment at any time for whatever reason he deems
appropriate.
b. Performance. The Executive agrees that during the Employment Period
he shall devote substantially all his business attention and time to the
business and affairs of the Company, and use his best efforts to perform
faithfully and efficiently the duties and responsibilities of the Executive
under this Agreement. It is expressly understood that (i) the Executive may
devote a reasonable amount of time to such industry associations and charitable
and civic endeavors as shall not materially interfere with the services that the
Executive is required to render under this Agreement, and (ii) the Executive may
serve as a member of one or more boards of directors of companies that are not
affiliated with the Company and do not compete with the Company or any of its
Affiliates.
c. Job Duties. The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has occurred, may be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include, but not be limited to, leadership of the Operations Support functions
(Accounting, Treasury, Information Services, Corporate Communications,
Government Affairs, Rates and Revenue Requirements, Law and Regulatory Services
and Human Resources) in the areas of internal customer focus, management of
support services in competitive markets, and transitioning the Company's support
services, systems and processes to a competitive electric market, as well as
management of the Human Resources function.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) Salary. The Executive shall receive an annual base salary, the
amount of which shall be reviewed regularly and determined
from time to time, but which shall not be less than
$125,000.00. His salary shall be payable in accordance with
Company payroll practices.
(ii) Participation in Executive Plans. He shall be entitled to
participate in any and all plans and programs maintained by
the Company from time to time to provide benefits for its
executives, including without limitation any short-term or
long-term incentive plan or program, in accordance with the
terms and conditions of any such plan or program or the
administrative guidelines relating thereto, as may be amended
from time to time.
(iii) Participation in Salaried Employee Plans. The Executive shall
be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide
benefits for its salaried employees generally, including
without limitation any savings and investment, stock purchase
or group medical, dental, life, accident or disability
insurance plan or program, subject to all eligibility
requirements of general applicability, to the extent that
executives are not excluded from participation therein under
the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) Other Fringe Benefits. The Executive shall be entitled to all
fringe benefits generally provided by the Company at any time
to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but
excluding severance pay, in accordance with generally
applicable Company policies with respect to such benefits.
b. Retention Bonus. If the Executive is actively employed by the
Company on the earlier to occur of (i) the date of the sale of the Transmission
and Distribution Business Unit, or (ii) May 31, 2000, the Executive shall be
entitled to receive a lump sum cash payment of one-half (1/2) of the Executive's
annual base salary then in effect, which shall be paid within fifteen (15)
working days after the applicable date specified in subsection (i) or (ii)
above. If the Executive's employment is terminated for any reason whatsoever
prior to the earlier of such dates, he shall not be entitled to receive the
retention bonus described herein, although he may be entitled to receive
Severance Benefits as provided in Section 5 below.
c. Withholding. All compensation payable under this Section 4 shall be
subject to normal payroll deductions for withholding income taxes, social
security taxes and the like.
5. Severance Benefits. a. Change of Control. If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment Period by the Company and/or any successor for any reason other than
death, Total Disability or Cause, or by the Executive within twelve (12)
calendar months of a Constructive Discharge, Severance Benefits shall be
provided as follows:
(i) The Company shall pay the Executive, in one lump sum cash pay-
ment, within sixty (60) days following the date of termination of
employment as defined in Section 6 below, an amount equal to 2.0
times the Executive's then-current base salary.
(ii) The Company shall provide the Executive with so-called COBRA
medi- cal continuation coverage paid by the Company for a period
up to eighteen (18) months, or until the Executive obtains
coverage under another group medical plan with another employer,
whichever occurs first.
(iii)The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount
equal to the actual fee for such services up to a total of
$10,000.
b. Parachute Provision. Notwithstanding the provisions of Section 5.a
hereof, if, in the opinion of tax counsel selected by the Company's independent
auditors,
(i) the Severance Benefits set forth in said Section 5.a and any pay-
ments or benefits otherwise payable to the Executive would
constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") (said Severance Benefits and other payments or benefits
being hereinafter collectively referred to as "Total Payments"),
and
(ii) the aggregate present value of the Total Payments would exceed
2.99 times the Executive's base amount, as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance
Benefits described in Section 5.a hereof as, in the opinion of
said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present
value of the Total Payments is equal to 2.99 times the
Executive's base amount. The tax counsel selected pursuant to
this Section 5.b may consult with tax counsel for the Executive,
but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the
required reductions. For purposes of this Section 5.b, the
Executive's base amount and the value of the Total Payments shall
be determined by the Company's independent auditors in accordance
with the principles of Section 280G of the Code and based upon
the advice of tax counsel selected thereby.
c. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) by the Executive within six (6) calendar months of
a Constructive Discharge, the Company shall pay the Executive, in one lump sum
payment within sixty (60) days following the date of termination of employment
as defined in Section 6 below, an amount equal to one (1) times the Executive's
annual base salary in effect on the date immediately preceding the date of
termination, or preceding the date of a Constructive Discharge attributable to a
base salary reduction if applicable.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. Gross-Up Amount. In the event that any portion of the
Severance Benefits provided in Section 5 is subject to tax under Code ss.4999,
or any successor provision thereto (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Amount") which, after payment
of all federal and State income taxes thereon (assuming the Executive is at the
highest marginal federal and applicable State income tax rate in effect on the
date of payment of the Gross-Up Amount) and payment of any Excise Tax on the
Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such
portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall
be paid by the Company coincident with the payment of the Severance Benefits
described in Section 5.a of this Agreement.
b. Tax Withholding. All amounts payable to the Executive under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes.
8. Non-Competition, Confidentiality and Cooperation. a. The Executive
agrees that:
(i) During the Employment Period and for one (1) year after the
termination of the Executive's employment with the Company for
any reason other than a Change of Control, the Executive shall
not serve as a director, officer, employee, partner or consultant
or in any other capacity in any business that is a competitor of
the Company, or solicit Company employees for employment or other
participation in any such business, or take any other action
intended to advance the interests of such business; provided,
however, that this Section 8.a.(i) shall not apply after the
termination of the Executive's employment if the Executive
voluntarily terminates employment and is not eligible to receive
a Severance Benefit under Section 5.c. above.
(ii) During and after the Executive's employment with the Company, he
shall not divulge or appropriate to his own use or the use of
others any secret, proprietary or confidential information or
knowledge pertaining to the business of the Company, or any of
its Affiliates, obtained during his employment with the Company.
(iii)During the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial
or other proceedings affecting the Company and, after the
termination of his employment with the Company, he shall use best
efforts to comply with all reasonable requests of the Company
that he cooperate with the Company, whether by giving testimony
or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which
he may be in a position adverse to that of the Company. After the
termination of employment, the Company shall reimburse the
Executive for his reasonable expenses and his time, at a
reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
(iv) The term "Company" as used in this Section 8 shall include
Central Maine Power Company, any Affiliate of Central Maine Power
Company (determined as of the date of termination), any successor
to the business or operations of Central Maine Power and any
business entity spun-off, divested, or distributed to
shareholders which shall continue the operations of Central Maine
Power Company.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c. of
this Agreement.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Augusta, Maine, in accordance with the rules of the American Arbitration
Association then in effect. The pendency of any such dispute or controversy
shall not affect any rights or obligations under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any
delay in enforcing, any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving party. Waiver of any one breach shall not be deemed
to be a waiver of any other breach of the same or any other provision hereof.
This Agreement can be amended only by written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
17. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
- ----------------------------- ---------------------------------
Michael R. Cutter
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
Exhibit 10-107
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________day of June, 1997, by
and between Central Maine Power Company, a Maine corporation with its principal
place of business in Augusta, Maine (hereinafter referred to as the "Company"),
and CURTIS I. CALL of Augusta, Maine (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued employee
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on
a full-time basis for a period provided in this Employment Agreement
(hereinafter referred to as the "Agreement") on the terms and conditions
hereinafter set forth; and
WHEREAS, to these ends the Company desires to provide the Executive
with certain payments and benefits in the event of the termination of his
employment in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive, and
the mutual promises and covenants contained herein, the Company and the
Executive hereby agree as follows:
1. Term of Agreement. a. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on May 31, 2000; provided, however, that if a Change of Control occurs
during the period commencing June 1, 1999 and ending May 31, 2000, this
Agreement shall be extended and shall thereafter expire 365 days after the date
of said Change of Control (the "Extended Expiration Date").
b. Expiration. Notwithstanding anything to the contrary in this Section
1, except as to vested benefits, this Agreement and all obligations of the
Company hereunder shall terminate on the earliest to occur of (i) the date of
the Executive's death, (ii) thirty (30) days after the Company gives notice to
the Executive that the Company is terminating the Executive's employment for
reason of Total Disability or Cause; or (iii) May 31, 2000 (or the Extended
Expiration Date specified in Section 1.a above, if applicable, if a Change of
Control occurs during the year prior to May 31, 2000.)
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) Any act of material dishonesty taken by, or committed at the
request of, the Executive.
(ii) Any illegal or unethical conduct which would impair the
Executive's ability to perform his duties under this Agreement or
would impair the business reputation of the Company. (iii)
Conviction of a felony.
(iv) The continued failure of the Executive to perform his
responsibilities and duties under this Agreement in a
satisfactory manner, after demand for performance has been
delivered in writing to the Executive specifying the manner in
which the Company believes that the Executive is not performing.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company or any Affiliate or any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any Affiliate), is or becomes the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding stock eligible to vote.
(ii) The stockholders of the Company approve a merger or consoli-
dation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting stock of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding
voting stock of the Company or such surviving entity immediately
after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than thirty percent (30%) of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change of Control of the
Company.
(iii)The stockholders of the Company approve a plan of complete
liqui- dation of the Company or an agreement for the sale, lease,
exchange or other disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect).
"Constructive Discharge" means, so long as no Change of Control has
occurred, any reduction in the Executive's annual base salary in effect as of
the Effective Date of this Agreement, or as the same may be increased from time
to time, other than any across-the-board base salary reduction for a group or
all of the executive officers of the Company, and also means, on or after a
Change of Control,
(i) any reduction in the Executive's annual base salary in effect as
of the Effective Date of this Agreement, or as the same may be
increased from time to time;
(ii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in
Section 3.c of this Agreement;
(iii)a material adverse change in the Executive's title or position;
or
(iv) relocation of the Executive's place of employment from the
Company's principal executive offices to a place more than
twenty-five (25) miles from Augusta, Maine without the
Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined upon the
basis of such evidence, which may include independent medical reports and data.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Treasurer, and the Executive
hereby agrees to remain in the employ of the Company for the period beginning on
the Effective Date and ending on the date on which the Executive's employment is
terminated in accordance with this Agreement (the "Employment Period"). This
Agreement shall not restrict in any way the right of the Company to terminate
the Executive's employment at whatever time and for whatever reason it deems
appropriate, nor shall it limit the right of the Executive to terminate
employment at any time for whatever reason he deems appropriate.
b. Performance. The Executive agrees that during the Employment Period
he shall devote substantially all his business attention and time to the
business and affairs of the Company, and use his best efforts to perform
faithfully and efficiently the duties and responsibilities of the Executive
under this Agreement. It is expressly understood that (i) the Executive may
devote a reasonable amount of time to such industry associations and charitable
and civic endeavors as shall not materially interfere with the services that the
Executive is required to render under this Agreement, and (ii) the Executive may
serve as a member of one or more boards of directors of companies that are not
affiliated with the Company and do not compete with the Company or any of its
Affiliates.
c. Job Duties. The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has occurred may, be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include, but not be limited to, participation in and management of financial
planning, budgeting, cash management, investor relations, creditor relations,
and economic and load forecasting functions, and development of strategies to
recover and mitigate stranded costs.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) Salary. The Executive shall receive an annual base salary, the
amount of which shall be reviewed regularly and determined
from time to time, but which shall not be less than
$104,000.00. His salary shall be payable in accordance with
Company payroll practices.
(ii) Participation in Executive Plans. He shall be entitled to
participate in any and all plans and programs maintained by
the Company from time to time to provide benefits for its
executives, including without limitation any short-term or
long-term incentive plan or program, in accordance with the
terms and conditions of any such plan or program or the
administrative guidelines relating thereto, as may be amended
from time to time.
(iii) Participation in Salaried Employee Plans. The Executive shall
be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide
benefits for its salaried employees generally, including
without limitation any savings and investment, stock purchase
or group medical, dental, life, accident or disability
insurance plan or program, subject to all eligibility
requirements of general applicability, to the extent that
executives are not excluded from participation therein under
the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) Other Fringe Benefits. The Executive shall be entitled to all
fringe benefits generally provided by the Company at any time
to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but
excluding severance pay, in accordance with generally
applicable Company policies with respect to such benefits.
b. Retention Bonus. If the Executive is actively employed by the
Company on the earlier to occur of (i) the date of the sale of the Transmission
and Distribution Business Unit, or (ii) May 31, 2000, the Executive shall be
entitled to receive a lump sum cash payment of one-half (1/2) of the Executive's
annual base salary then in effect, which shall be paid within fifteen (15)
working days after the applicable date specified in subsection (i) or (ii)
above. If the Executive's employment is terminated for any reason whatsoever
prior to the earlier of such dates, he shall not be entitled to receive the
retention bonus described herein, although he may be entitled to receive
Severance Benefits as provided in Section 5 below.
c. Withholding. All compensation payable under this Section 4 shall be
subject to normal payroll deductions for withholding income taxes, social
security taxes and the like.
5. Severance Benefits. a. Change of Control. If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment Period by the Company and/or any successor for any reason other than
death, Total Disability or Cause, or by the Executive within twelve (12)
calendar months of a Constructive Discharge, Severance Benefits shall be
provided as follows:
(i) The Company shall pay the Executive, in one lump sum cash pay-
ment, within sixty (60) days following the date of termination
of employment as defined in Section 6 below, an amount equal
to 2.0 times the Executive's then-current base salary.
(ii) The Company shall provide the Executive with so-called COBRA medi-
cal continuation coverage paid by the Company for a period up
to eighteen (18) months, or until the Executive obtains
coverage under another group medical plan with another
employer, whichever occurs first.
(iii) The Company shall pay a fee to an independent outplacement
firm selected by the Executive for outplacement services in an
amount equal to the actual fee for such services up to a total
of $10,000.
b. Parachute Provision. Notwithstanding the provisions of Section 5.a
hereof, if, in the opinion of tax counsel selected by the Company's independent
auditors,
(i) the Severance Benefits set forth in said Section 5.a and any pay-
ments or benefits otherwise payable to the Executive would
constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") (said Severance Benefits and other payments or benefits
being hereinafter collectively referred to as "Total Payments"),
and
(ii) the aggregate present value of the Total Payments would exceed
2.99 times the Executive's base amount, as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance
Benefits described in Section 5.a hereof as, in the opinion of
said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present
value of the Total Payments is equal to 2.99 times the
Executive's base amount. The tax counsel selected pursuant to
this Section 5.b may consult with tax counsel for the Executive,
but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the
required reductions. For purposes of this Section 5.b, the
Executive's base amount and the value of the Total Payments shall
be determined by the Company's independent auditors in accordance
with the principles of Section 280G of the Code and based upon
the advice of tax counsel selected thereby.
c. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) by the Executive within six (6) calendar months of
a Constructive Discharge, the Company shall pay the Executive, in one lump sum
payment within sixty (60) days following the date of termination of employment
as defined in Section 6 below, an amount equal to one (1) times the Executive's
annual base salary in effect on the date immediately preceding the date of
termination, or preceding the date of a Constructive Discharge attributable to a
base salary reduction if applicable.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. Gross-Up Amount. In the event that any portion of the
Severance Benefits provided in Section 5 is subject to tax under Code ss.4999,
or any successor provision thereto (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Amount") which, after payment
of all federal and State income taxes thereon (assuming the Executive is at the
highest marginal federal and applicable State income tax rate in effect on the
date of payment of the Gross-Up Amount) and payment of any Excise Tax on the
Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such
portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall
be paid by the Company coincident with the payment of the Severance Benefits
described in Section 5.a of this Agreement.
b. Tax Withholding. All amounts payable to the Executive under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes.
8. Non-Competition, Confidentiality and Cooperation. a. The Executive
agrees that:
(i) During the Employment Period and for one (1) year after the
termination of the Executive's employment with the Company for
any reason other than a Change of Control, the Executive shall
not serve as a director, officer, employee, partner or consultant
or in any other capacity in any business that is a competitor of
the Company, or solicit Company employees for employment or other
participation in any such business, or take any other action
intended to advance the interests of such business; provided,
however, that this Section 8.a.(i) shall not apply after the
termination of the Executive's employment if the Executive
voluntarily terminates employment and is not eligible to receive
a Severance Benefit under Section 5.c. above.
(ii) During and after the Executive's employment with the Company, he
shall not divulge or appropriate to his own use or the use of
others any secret, proprietary or confidential information or
knowledge pertaining to the business of the Company, or any of
its Affiliates, obtained during his employment with the Company.
(iii)During the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial
or other proceedings affecting the Company and, after the
termination of his employment with the Company, he shall use best
efforts to comply with all reasonable requests of the Company
that he cooperate with the Company, whether by giving testimony
or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which
he may be in a position adverse to that of the Company. After the
termination of employment, the Company shall reimburse the
Executive for his reasonable expenses and his time, at a
reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
(iv) The term "Company" as used in this Section 8 shall include
Central Maine Power Company, any Affiliate of Central Maine Power
Company (determined as of the date of termination), any successor
to the business or operations of Central Maine Power and any
business entity spun-off, divested, or distributed to
shareholders which shall continue the operations of Central Maine
Power Company.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c. of
this Agreement.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Augusta, Maine, in accordance with the rules of the American Arbitration
Association then in effect. The pendency of any such dispute or controversy
shall not affect any rights or obligations under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any
delay in enforcing, any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving party. Waiver of any one breach shall not be deemed
to be a waiver of any other breach of the same or any other provision hereof.
This Agreement can be amended only by written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
17. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
- ----------------------------- ---------------------------------
Curtis I. Call
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
Exhibit 10-108
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________day of June, 1997, by
and between Central Maine Power Company, a Maine corporation with its principal
place of business in Augusta, Maine (hereinafter referred to as the "Company"),
and ANNE M. PARE of Augusta, Maine (hereinafter referred to as the "Executive").
WHEREAS, the Company recognizes that the Executive is a valued employee
because of her knowledge of the Company's affairs and her experience and
leadership capabilities, and desires to encourage her continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on
a full-time basis for a period provided in this Employment Agreement
(hereinafter referred to as the "Agreement") on the terms and conditions
hereinafter set forth; and
WHEREAS, to these ends the Company desires to provide the Executive
with certain payments and benefits in the event of the termination of her
employment in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive, and
the mutual promises and covenants contained herein, the Company and the
Executive hereby agree as follows:
1. Term of Agreement. a. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on May 31, 2000; provided, however, that if a Change of Control occurs
during the period commencing June 1, 1999 and ending May 31, 2000, this
Agreement shall be extended and shall thereafter expire 365 days after the date
of said Change of Control (the "Extended Expiration Date").
b. Expiration. Notwithstanding anything to the contrary in this Section
1, except as to vested benefits, this Agreement and all obligations of the
Company hereunder shall terminate on the earliest to occur of (i) the date of
the Executive's death, (ii) thirty (30) days after the Company gives notice to
the Executive that the Company is terminating the Executive's employment for
reason of Total Disability or Cause; or (iii) May 31, 2000 (or the Extended
Expiration Date specified in Section 1.a above, if applicable, if a Change of
Control occurs during the year prior to May 31, 2000.)
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with
the Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) Any act of material dishonesty taken by, or committed at the
request of, the Executive.
(ii) Any illegal or unethical conduct which would impair the
Executive's ability to perform his duties under this Agreement or
would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform her
responsibilities and duties under this Agreement in a
satisfactory manner, after demand for performance has been
delivered in writing to the Executive specifying the manner in
which the Company believes that the Executive is not performing.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company or any Affiliate or any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any Affiliate), is or becomes the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding stock eligible to vote.
(ii) The stockholders of the Company approve a merger or consoli-
dation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting stock of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding
voting stock of the Company or such surviving entity immediately
after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than thirty percent (30%) of
the combined voting power of the Company's then outstanding
securities shall not constitute a Change of Control of the
Company.
(iii)The stockholders of the Company approve a plan of complete
liqui- dation of the Company or an agreement for the sale, lease,
exchange or other disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect).
"Constructive Discharge" means, so long as no Change of Control has
occurred, any reduction in the Executive's annual base salary in effect as of
the Effective Date of this Agreement, or as the same may be increased from time
to time, other than any across-the-board base salary reduction for a group or
all of the executive officers of the Company, and also means, on or after a
Change of Control,
(i) any reduction in the Executive's annual base salary in effect as
of the Effective Date of this Agreement, or as the same may be
increased from time to time;
(ii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in
Section 3.c of this Agreement;
(iii)a material adverse change in the Executive's title or position;
or
(iv) relocation of the Executive's place of employment from the
Company's principal executive offices to a place more than
twenty-five (25) miles from Augusta, Maine without the
Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of her duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined upon the
basis of such evidence, which may include independent medical reports and data.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Corporate Counsel and Secretary,
and the Executive hereby agrees to remain in the employ of the Company for the
period beginning on the Effective Date and ending on the date on which the
Executive's employment is terminated in accordance with this Agreement (the
"Employment Period"). This Agreement shall not restrict in any way the right of
the Company to terminate the Executive's employment at whatever time and for
whatever reason it deems appropriate, nor shall it limit the right of the
Executive to terminate employment at any time for whatever reason she deems
appropriate.
b. Performance. The Executive agrees that during the Employment Period
she shall devote substantially all her business attention and time to the
business and affairs of the Company, and use her best efforts to perform
faithfully and efficiently the duties and responsibilities of the Executive
under this Agreement. It is expressly understood that (i) the Executive may
devote a reasonable amount of time to such industry associations and charitable
and civic endeavors as shall not materially interfere with the services that the
Executive is required to render under this Agreement, and (ii) the Executive may
serve as a member of one or more boards of directors of companies that are not
affiliated with the Company and do not compete with the Company or any of its
Affiliates.
c. Job Duties. The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has occurred, may be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include, but not be limited to, serving as Corporate Secretary for meetings of
the Board and of shareholders; providing other Corporate Secretary functions to
the Company; advising the Board and management on corporate and Board governance
issues; serving as liaison on corporate governance issues with shareholder
organizations; overseeing compliance with and advising on corporate and
securities laws and New York Stock Exchange rules; preparing Securities and
Exchange Commission disclosure documents; and providing legal advice and
representation on corporate financing matters.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) Salary. The Executive shall receive an annual base salary, the
amount of which shall be reviewed regularly and determined
from time to time, but which shall not be less than
$109,000.00. Her salary shall be payable in accordance with
Company payroll practices.
(ii) Participation in Executive Plans. She shall be entitled to
participate in any and all plans and programs maintained by
the Company from time to time to provide benefits for its
executives, including without limitation any short-term or
long-term incentive plan or program, in accordance with the
terms and conditions of any such plan or program or the
administrative guidelines relating thereto, as may be amended
from time to time.
(iii) Participation in Salaried Employee Plans. The Executive shall
be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide
benefits for its salaried employees generally, including
without limitation any savings and investment, stock purchase
or group medical, dental, life, accident or disability
insurance plan or program, subject to all eligibility
requirements of general applicability, to the extent that
executives are not excluded from participation therein under
the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) Other Fringe Benefits. The Executive shall be entitled to all
fringe benefits generally provided by the Company at any time
to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but
excluding severance pay, in accordance with generally
applicable Company policies with respect to such benefits.
b. Retention Bonus. If the Executive is actively employed by the
Company on the earlier to occur of (i) the date of the sale of the Transmission
and Distribution Business Unit, or (ii) May 31, 2000, the Executive shall be
entitled to receive a lump sum cash payment of one-half (1/2) of the Executive's
annual base salary then in effect, which shall be paid within fifteen (15)
working days after the applicable date specified in subsection (i) or (ii)
above. If the Executive's employment is terminated for any reason whatsoever
prior to the earlier of such dates, she shall not be entitled to receive the
retention bonus described herein, although she may be entitled to receive
Severance Benefits as provided in Section 5 below.
c. Withholding. All compensation payable under this Section 4 shall be
subject to normal payroll deductions for withholding income taxes, social
security taxes and the like.
5. Severance Benefits. a. Change of Control. If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment Period by the Company and/or any successor for any reason other than
death, Total Disability or Cause, or by the Executive within twelve (12)
calendar months of a Constructive Discharge, Severance Benefits shall be
provided as follows:
(i) The Company shall pay the Executive, in one lump sum cash pay-
ment, within sixty (60) days following the date of termination
of employment as defined in Section 6 below, an amount equal
to 2.0 times the Executive's then-current base salary.
(ii) The Company shall provide the Executive with so-called COBRA medi-
cal continuation coverage paid by the Company for a period up
to eighteen (18) months, or until the Executive obtains
coverage under another group medical plan with another
employer, whichever occurs first.
(iii) The Company shall pay a fee to an independent outplacement
firm selected by the Executive for outplacement services in an
amount equal to the actual fee for such services up to a total
of $10,000.
b. Parachute Provision. Notwithstanding the provisions of Section 5.a
hereof, if, in the opinion of tax counsel selected by the Company's independent
auditors,
(i) the Severance Benefits set forth in said Section 5.a and any pay-
ments or benefits otherwise payable to the Executive would
constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") (said Severance Benefits and other payments or benefits
being hereinafter collectively referred to as "Total Payments"),
and
(ii) the aggregate present value of the Total Payments would exceed
2.99 times the Executive's base amount, as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance
Benefits described in Section 5.a hereof as, in the opinion of
said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present
value of the Total Payments is equal to 2.99 times the
Executive's base amount. The tax counsel selected pursuant to
this Section 5.b may consult with tax counsel for the Executive,
but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the
required reductions. For purposes of this Section 5.b, the
Executive's base amount and the value of the Total Payments shall
be determined by the Company's independent auditors in accordance
with the principles of Section 280G of the Code and based upon
the advice of tax counsel selected thereby.
c. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) by the Executive within six (6) calendar months of
a Constructive Discharge, the Company shall pay the Executive, in one lump sum
payment within sixty (60) days following the date of termination of employment
as defined in Section 6 below, an amount equal to one (1) times the Executive's
annual base salary in effect on the date immediately preceding the date of
termination, or preceding the date of a Constructive Discharge attributable to a
base salary reduction if applicable.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. Gross-Up Amount. In the event that any portion of the
Severance Benefits provided in Section 5 is subject to tax under Code ss.4999,
or any successor provision thereto (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Amount") which, after payment
of all federal and State income taxes thereon (assuming the Executive is at the
highest marginal federal and applicable State income tax rate in effect on the
date of payment of the Gross-Up Amount) and payment of any Excise Tax on the
Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such
portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall
be paid by the Company coincident with the payment of the Severance Benefits
described in Section 5.a of this Agreement.
b. Tax Withholding. All amounts payable to the Executive under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes.
8. Non-Competition, Confidentiality and Cooperation. a. The Executive
agrees that:
(i) During the Employment Period and for one (1) year after the
termination of the Executive's employment with the Company for
any reason other than a Change of Control, the Executive shall
not serve as a director, officer, employee, partner or consultant
or in any other capacity in any business that is a competitor of
the Company, or solicit Company employees for employment or other
participation in any such business, or take any other action
intended to advance the interests of such business; provided,
however, that this Section 8.a.(i) shall not apply after the
termination of the Executive's employment if the Executive
voluntarily terminates employment and is not eligible to receive
a Severance Benefit under Section 5.c. above.
(ii) During and after the Executive's employment with the Company, she
shall not divulge or appropriate to her own use or the use of
others any secret, proprietary or confidential information or
knowledge pertaining to the business of the Company, or any of
its Affiliates, obtained during her employment with the Company.
(iii)During the Employment Period, she shall support the Company's
interests and efforts in all regulatory, administrative, judicial
or other proceedings affecting the Company and, after the
termination of her employment with the Company, she shall use
best efforts to comply with all reasonable requests of the
Company that she cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial
or other proceedings affecting the Company except any proceeding
in which she may be in a position adverse to that of the Company.
After the termination of employment, the Company shall reimburse
the Executive for her reasonable expenses and her time, at a
reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
(iv) The term "Company" as used in this Section 8 shall include
Central Maine Power Company, any Affiliate of Central Maine Power
Company (determined as of the date of termination), any successor
to the business or operations of Central Maine Power and any
business entity spun-off, divested, or distributed to
shareholders which shall continue the operations of Central Maine
Power Company.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c. of
this Agreement.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Augusta, Maine, in accordance with the rules of the American Arbitration
Association then in effect. The pendency of any such dispute or controversy
shall not affect any rights or obligations under this Agreement. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any
delay in enforcing, any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving party. Waiver of any one breach shall not be deemed
to be a waiver of any other breach of the same or any other provision hereof.
This Agreement can be amended only by written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address she has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
17. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
- ----------------------------- ---------------------------------
Anne M. Pare
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
Exhibit 21
SUBSIDIARIES OF THE REGISTRANTS
A. CMP Group, Inc.
Central Maine Power Company (Maine)
CNEX (Maine)
MaineCom Services (Maine)
MainePower (Maine)
New England Gas Development Corporation (Maine)
TeleSmart (Maine)
The Union Water-Power Company (Maine)
B. Central Maine Power Company
Maine Electric Power Company, Inc. (Maine)
Aroostook Valley Electric Company (Maine)
NORVARCO (Maine)
Kennebec Hydro Resources, Inc. (Maine)
Central Securities Corporation (Maine)
Cumberland Securities Corporation (Maine)
Exhibit 23-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
CMP Group, Inc. and Central Maine Power Company on Form S-3 (File Nos.
333-35235; 33-56939; 33-36679; 33-39826; and 33-51611) and Form S-8 (File Nos.
333-49643 and 33-44754) of our report dated January 26, 1999, on our audits of
the consolidated financial statements of CMP Group, Inc. and its subsidiaries as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, and the consolidated financial statements and financial
statement schedule of Central Maine power Company and its subsidiaries as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in this Annual Report on Form 10-K.
Portland, Maine
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from CMP
Group, Inc. Consolidated Statement of Earnings, Consolidated Balance
Sheet and Consolidated Statement of Cash Flows and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 2
<BOOK-VALUE> Per-Book
<TOTAL-NET-UTILITY-PLANT> $1,077,112
<OTHER-PROPERTY-AND-INVEST> $71,880
<TOTAL-CURRENT-ASSETS> $208,032
<TOTAL-DEFERRED-CHARGES> $879,806
<OTHER-ASSETS> $26,054
<TOTAL-ASSETS> $2,262,884
<COMMON> $161,386
<CAPITAL-SURPLUS-PAID-IN> $285,835
<RETAINED-EARNINGS> $71,668
<TOTAL-COMMON-STOCKHOLDERS-EQ> $518,889
$18,910
$35,528
<LONG-TERM-DEBT-NET> $313,508
<SHORT-TERM-NOTES> $15,000
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $284,066
$9,000
<CAPITAL-LEASE-OBLIGATIONS> $32,773
<LEASES-CURRENT> $1,745
<OTHER-ITEMS-CAPITAL-AND-LIAB> $1,033,465
<TOT-CAPITALIZATION-AND-LIAB> $2,262,884
<GROSS-OPERATING-REVENUE> $950,327
<INCOME-TAX-EXPENSE> $41,698
<OTHER-OPERATING-EXPENSES> $824,446
<TOTAL-OPERATING-EXPENSES> $824,446
<OPERATING-INCOME-LOSS> $125,881
<OTHER-INCOME-NET> $24,683
<INCOME-BEFORE-INTEREST-EXPEN> $108,866
<TOTAL-INTEREST-EXPENSE> $51,147
<NET-INCOME> $52,910
$4,809
<EARNINGS-AVAILABLE-FOR-COMM> $0
<COMMON-STOCK-DIVIDENDS> $28,943
<TOTAL-INTEREST-ON-BONDS> $21,338
<CASH-FLOW-OPERATIONS> $77,225
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
</TABLE>
