As filed with the Securities and Exchange Commission on May 8, 1998.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF
THE SECURITIES EXCHANGE ACT OF 1934)
CENTRAL MAINE POWER COMPANY
(Name of Issuer and Person Filing Statement)
FLEXIBLE MONEY MARKET PREFERRED STOCK(TM), SERIES A, 7.999%
(Title of Class of Securities)
154051-87-4
(CUSIP Number of Class of Securities)
David E. Marsh
c/o Central Maine Power Company
83 Edison Drive
Augusta, ME 04336
(207) 623-3521
(Name, Address, and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person Filing Statement)
Copies to:
E. Ellsworth McMeen, III, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
(212) 424-8000
May 8, 1998
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
Transaction Amount of
Valuation1 Filing Fee
$21,600,000 $4,320
===============================================================================
1Estimated solely for purposes of calculating the filing fee and computed
pursuant to Rule 0-11(b)(1) of the Securities Exchange Act of 1934, as
amended.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration number, or the form or
schedule and the date of its filing.
Amount previously paid: __________ Filing party: __________
Form or registration no.: __________ Date filed: __________
This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement")
relates to the tender offer by Central Maine Power Company (the "Company") to
purchase up to 200,000 shares of its Flexible Money Market Preferred Stock(TM),
Series A, 7.999%, par value $100 per share (the "Shares"), at a cash price of
$108.00 per share, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated May 8, 1998 (the "Offer to Purchase") and the related
Letter of Transmittal (the "Letter of Transmittal") (which Offer to Purchase and
Letter of Transmittal, as they may be amended from time to time, are herein
collectively referred to as the "Offer"). Copies of the forms of the Offer to
Purchase and Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2),
respectively, to this Statement.
Item 1. Security and Issuer.
(a) The name of the issuer is Central Maine Power Company. The address of
its principal executive offices is 83 Edison Drive, Augusta, Maine 04336.
(b) The information set forth in the "Introduction" to the Offer to
Purchase, "Number of Shares; Proration" in Section 1 of the Offer to Purchase,
and "Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares" in Section 8 of the Offer to Purchase is
hereby incorporated by reference.
(c) The information set forth in the "Introduction" to the Offer to
Purchase, "Price Range of Shares; Dividends" in Section 6 of the Offer to
Purchase, and "Effects of the Offer on the Market for the Shares; Registration
Under the Exchange Act" in Section 11 of the Offer to Purchase is incorporated
herein by reference.
(d) This Statement is being filed by the issuer.
Item 2. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth in "Source and Amount of Funds" in
Section 9 of the Offer to Purchase is incorporated herein by reference.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the "Introduction" to the Offer to Purchase
and "Background and Purpose of the Offer; Certain Effects of the Offer" in
Section 7 of the Offer to Purchase is incorporated herein by reference.
(a)-(j) 1. Holding Company. In an attempt to provide increased
organizational, managerial and financial flexibility to better position the
Company in the changing electric utility industry, the Company is presently
contemplating a significant corporate restructuring through establishment of a
holding company structure.
To carry out the restructuring, the Company has formed a new Maine
corporation, temporarily named HoldCo, Inc. ("HoldCo"). The Board of Directors
of the Company has authorized and approved a merger agreement between the
Company and HoldCo, subject, among other things, to approval by the shareholders
of the Company entitled to vote on the transaction and by the Company's
regulators.
If approved, the restructuring would be effected through a reverse
triangular merger (the "Merger"), which is widely used in corporate
restructurings. Shortly before the restructuring is effected, it is envisioned
that HoldCo would form a new Maine corporation ("MergeCo"). MergeCo would be a
transitory corporation, formed solely to effectuate the Merger, and would cease
to exist upon the Merger. It is presently contemplated that the following events
would occur upon the effectiveness of the Merger: (a) MergeCo would merge into
the Company, with the Company being the surviving corporation; on the filing of
the Articles of Merger with the Maine Secretary of State or on a later date
specified in the Articles of Merger (the "Merger Date"), MergeCo would cease to
exist; (b) on the Merger Date, each outstanding share of common stock of the
Company (excluding shares held by shareholders who have a right to dissent and
who have dissented in compliance with the requirements of Maine corporate law)
would be converted by operation of law into one share of HoldCo common stock;
holders of common stock of the Company before the Merger would automatically
become holders of HoldCo common stock, holding the same number of shares, and
would cease to be owners of common stock of the Company; (c) also on the Merger
Date, the outstanding shares of MergeCo common stock (that is, shares issued to
HoldCo at the time MergeCo was formed) would, as a result of the merger of
MergeCo into the Company, be converted by operation of law into a number of
shares of common stock of the Company equal to the number of shares of common
stock of the Company outstanding immediately prior to the share conversion; and
(d) each share of HoldCo common stock issued to the Company when HoldCo was
formed would be cancelled.
As a result of the merger of MergeCo into the Company, the Company would
become a subsidiary of HoldCo, with HoldCo owning all outstanding shares of
common stock of the Company. The Merger and restructuring would not result in
any change in the terms of the outstanding preferred stock of the Company, which
would remain outstanding at the Company level and would not be converted into,
or otherwise become, a security of HoldCo. Prior to the Merger, it is presently
planned that the Company would own all the outstanding stock of HoldCo and
HoldCo would own all the outstanding stock of MergeCo. HoldCo currently does not
have and, prior to the Merger, MergeCo would not have, any business or
properties of its own, other than a nominal capitalization.
It is contemplated that the directors of the Company would become the
directors of HoldCo upon the completion of the Merger. Subsequent to the Merger,
the composition of the Board of Directors of HoldCo and the Company may change
over time.
While similar in substance to the current Articles of Incorporation and
Bylaws of the Company, the HoldCo Articles of Incorporation and Bylaws upon the
consummation of the Merger will differ in that they (i) will not include certain
provisions that are unnecessary or that concern specific terms of the preferred
stock of the Company, and (ii) will contain provisions governing the advance
notice process for HoldCo shareholders to properly bring proposals before HoldCo
annual meetings and to nominate candidates for election to the HoldCo Board of
Directors.
In connection with the formation of a holding company structure, it is
contemplated that the Company would transfer its ownership interests in all or
certain of its unregulated subsidiaries to HoldCo, so that they would become
direct subsidiaries of HoldCo, including MaineCom Services, CMP International
Consultants, Central Securities Corporation, Cumberland Securities Corporation,
TeleSmart, and The Union Water-Power Company. To the extent that new businesses
are acquired or commenced that are not subject to public utility regulation,
such businesses would be held by HoldCo or be operated by unregulated
subsidiaries of HoldCo.
It is contemplated that after the restructuring, non-utility businesses in
the Company system would be conducted by subsidiaries of HoldCo rather than the
Company. If the proposed restructuring is consummated, it is intended that
advances to and other investments in non-utility businesses would be made by
HoldCo rather than the Company and that the proceeds of financings by the
Company would be used entirely in the conduct of its electric utility business.
If approval by the Company's voting shareholders is received, it is
contemplated that the Merger would become effective as soon as practicable
following receipt of all required regulatory approvals in respect of the Merger
and related restructuring. The Company must obtain certain authorizations from
the Maine Public Utilities Commission, the Securities and Exchange Commission,
the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission,
and authorization or waiver of jurisdiction from the Connecticut Department of
Public Utility Control to implement various aspects of the restructuring.
Application will be made to list HoldCo common stock on the New York Stock
Exchange ("NYSE"). The shares of common stock of the Company would not be listed
after the Merger.
Initially, the funds required by HoldCo to function as a holding company
and to enable it to pay dividends on HoldCo common stock following the Merger
are expected to be derived primarily from dividends paid by the Company on
common stock of the Company. It is anticipated that such cash dividends paid by
the Company to HoldCo would be sufficient, together with any amounts provided by
other subsidiaries of HoldCo, to enable HoldCo to pay cash dividends on HoldCo
common stock. However, the dividend policy of the Company would continue to be
established by the Board of Directors of the Company, and the amount of
dividends declared and paid by the Company would be subject to the availability
of earnings and other funds, and the needs of the utility business, as
determined by the Board. In addition, the ability of the Company to pay
dividends on common stock of the Company to HoldCo would be subject to the prior
dividend rights of preferred stock of the Company, to restrictions contained in
the Articles of Incorporation of the Company and in loan and other agreements to
which the Company is or may become a party, to other factors affecting the
Company, and to any applicable provisions of Maine law. Payment of dividends on
preferred stock of the Company is anticipated to continue at the specified rates
without interruption or change; however, the payment of these dividends also is
dependent upon the earnings and financial condition of the Company, upon other
factors affecting the Company, and any applicable provisions of Maine law. If
and when the restructuring takes effect, it is expected that the initial
dividend level on HoldCo common stock would be no less than the dividend level
on common stock of the Company at that time. It also is expected that HoldCo
would pay dividends on approximately the same dates as now followed by the
Company. Future dividend payments would depend primarily on the earnings of
HoldCo's subsidiaries, principally the Company, any dividend restrictions of
HoldCo and its subsidiaries, including the Company, other financial
considerations, and other factors as determined by HoldCo's Board of Directors
in its discretion.
After the Merger, the outstanding shares of preferred stock of the Company
would continue to be outstanding shares of the Company. Debt securities and
other indebtedness of the Company would continue to be obligations of the
Company, and, in the case of the Company's mortgage bonds, so long as they
remain outstanding, they would continue to be secured by a first mortgage lien
on all or a substantial portion of the properties of the Company, as provided in
the governing mortgage indenture.
2. Sale of Generation Assets and Other Matters. The information set forth
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, filed with the Commission, is incorporated
herein by reference, for a description of (i) the Company's plans to sell a
substantial portion of its generating assets and (ii) other matters related to
the Company's business in the context of the restructuring of the electric
utility industry.
Item 4. Interest in Securities of the Issuer.
The information set forth in "Interests of Directors and Executive
Officers; Transactions and Arrangements Concerning the Shares" in Section 8 of
the Offer to Purchase is incorporated herein by reference.
Item 5. Contracts, Arrangements, Understandings or Relationships With
Respect to the Issuer's Securities.
The information set forth in "Interests of Directors and Executive
Officers; Transactions and Arrangements Concerning the Shares" in Section 8 of
the Offer to Purchase is incorporated herein by reference.
Item 6. Persons Retained, Employed or to be Compensated.
The information set forth in "Background and Purpose of the Offer; Certain
Effects of the Offer" in Section 7 of the Offer to Purchase and "Fees and
Expenses" in Section 15 of the Offer to Purchase is incorporated herein by
reference.
Item 7. Financial Information.
(a) The information set forth in "Certain Information About the Company"
in Section 10 of the Offer to Purchase is incorporated herein by reference. The
information set forth in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, filed with the
Commission, is incorporated herein by reference.
(b) Not applicable.
Item 8. Additional Information.
(a) None.
(b) The information set forth in "Certain Legal Matters; Regulatory
Approvals" in Section 12 of the Offer to Purchase is incorporated herein by
reference.
(c) The information set forth in "Effects of the Offer on the Market for
the Shares; Registration Under the Exchange Act" in Section 11 of the Offer to
Purchase is herein incorporated by reference.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of forms of which are attached hereto as Exhibits
(a)(1) and (a)(2), respectively, is incorporated herein by reference.
Item 9. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase dated May 8, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(b)(1) Credit Agreement dated as of October 23, 1996, between the
Company and certain banks (previously filed with the
Commission as Exhibit 10-98 to the Company's Annual Report on
Form 10-K for year ended December 31, 1996).
(b)(2) Indenture, dated as of August 1, 1989, between the Company and
The Bank of New York, Trustee, relating to the Medium-Term
Notes (previously filed with the Commission, SEC Docket No.
33-29626).
(b)(3) First Supplemental Indenture, dated as of August 7, 1989,
relating to the Medium-Term Notes, Series A, and supplementing
the Indenture relating to the Medium-Term Notes (previously
filed with the Commission in the Company's Current Report on
Form 8-K dated August 16, 1989).
(b)(4) Second Supplemental Indenture, dated as of January 10, 1992,
relating to the Medium-Term Notes, Series B, and supplementing
the Indenture relating to the Medium-Term Notes (previously
filed with the Commission in the Company's Current Report on
Form 8-K, dated January 28, 1992).
(b)(5) Third Supplemental Indenture, dated as of December 15, 1994,
relating to the Medium-Term Notes, Series C, and supplementing
the Indenture relating to the Medium-Term Notes (previously
filed with the Commission as Exhibit 4.15.2 to the Company's
Annual Report on Form 10-K for year ended December 31, 1994).
(b)(6) Fourth Supplemental Indenture, dated as of February 26, 1998,
relating to the Medium-Term Notes, Series D, and supplementing
the Indenture relating to the Medium-Term Notes (previously
filed with the Commission, SEC Docket No. 333-35235).
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Part II, Item 7 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 under the heading
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" (previously filed with the
Commission and incorporated herein by reference).
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
May 8, 1998
____________________________
(Date)
____________________________
(Signature)
/D E Marsh/
____________________________
(Name and Title)
David E. Marsh
Chief Financial Officer
Exhibit (a)(1)
CENTRAL MAINE POWER COMPANY
OFFER TO PURCHASE FOR CASH UP TO 200,000 SHARES
OF ITS FLEXIBLE MONEY MARKET PREFERRED STOCK(TM), SERIES A,
7.999%, AT A PURCHASE PRICE OF $108.00 PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JUNE 8, 1998, UNLESS THE OFFER IS EXTENDED. THE TENDERED SHARES MAY ALSO BE
WITHDRAWN, IF NOT YET ACCEPTED FOR PAYMENT, AT ANY TIME AFTER 9:00 A.M., NEW
YORK CITY TIME, ON JULY 3, 1998.
THE BOARD OF DIRECTORS OF THE COMPANY HAS AUTHORIZED THE COMPANY TO MAKE THE
OFFER. HOWEVER, SHAREHOLDERS MUST MAKE THEIR OWN DECISIONS AS TO WHETHER TO
TENDER THEIR SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY
NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY SHAREHOLDER AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES AND NEITHER THE COMPANY NOR
THE BOARD OF DIRECTORS HAS AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. AS OF THE DATE OF THE OFFER, TO THE KNOWLEDGE OF THE COMPANY NO
DIRECTORS, EXECUTIVE OFFICERS OR AFFILIATES OF THE COMPANY OWN OR CONTROL ANY
SHARES.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE
OFFER IS, HOWEVER, SUBJECT TO SATISFACTION OF CERTAIN OTHER CONDITIONS. SEE
SECTION 5.
---------------------
Central Maine Power Company, a Maine corporation (the "Company"),
invites the holders (the "Shareholders") of the Company's Flexible Money Market
Preferred Stock(TM), Series A, 7.999%, par value $100 per share (the "Shares"),
to tender up to 200,000 Shares to the Company for purchase at the price of
$108.00 per Share in cash (the "Purchase Price"), upon the terms and subject to
the conditions set forth in this Offer to Purchase (the "Offer to Purchase") and
the related letter of transmittal (the "Letter of Transmittal") (which Offer to
Purchase and Letter of Transmittal, as amended from time to time, together
constitute the "Offer").
The Company will pay the Purchase Price for the Shares validly
tendered, upon the terms and subject to the conditions of the Offer. The Company
reserves the right, in its sole discretion, to purchase more than 200,000 Shares
pursuant to the Offer.
All of the Shares are registered in the name of The Depository Trust
Company ("DTC") or its nominee, and are beneficially owned in book-entry form.
ALTHOUGH THERE MAY HAVE BEEN A LIMITED NUMBER OF ISOLATED TRANSACTIONS IN THE
SHARES IN THE OVER-THE-COUNTER MARKET IN THE PAST, THE COMPANY BELIEVES THAT
THERE IS CURRENTLY NO ESTABLISHED TRADING MARKET FOR THE SHARES.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
---------------------
IMPORTANT
Any Shareholder desiring to tender all or any portion of its Shares
should complete and sign the Letter of Transmittal or a facsimile thereof in
accordance with the instructions in the Letter of Transmittal, mail or deliver
it with any required signature guarantee and any other required documents to
Boston EquiServe (the "Depositary"), and follow the procedure for book-entry
delivery set forth in Section 2. Shareholders who desire to tender Shares and
cannot comply with the procedure for book-entry transfer on a timely basis or
whose other required documentation cannot be delivered to the Depositary, in any
case, by the Expiration Time (as herein defined), should tender such Shares by
following the procedures for guaranteed delivery set forth in Section 2. TO
EFFECT A VALID TENDER OF THEIR SHARES, SHAREHOLDERS MUST PROPERLY COMPLETE THE
LETTER OF TRANSMITTAL.
---------------------
Questions or requests for assistance may be directed to Kathleen Powers
of the Company (the "Information Agent") at the Company's address and telephone
number set forth on the back cover of this Offer to Purchase. Requests for
additional copies of this Offer to Purchase, the Letter of Transmittal or the
notice of guaranteed delivery substantially in the form the Company has provided
with this Offer to Purchase (the "Notice of Guaranteed Delivery") may be
directed to the Information Agent at the aforementioned address and telephone
number, and such copies will be furnished promptly at the Company's expense. The
Information Agent is not authorized by the Company to make any recommendation
regarding the Offer.
SUMMARY
This general summary is provided for the convenience of Shareholders
and is qualified in its entirety by reference to the full text and more specific
details of this Offer to Purchase.
<TABLE>
<S> <C>
The Company......................... Central Maine Power Company, a Maine corporation organized in 1905,
and an investor-owned electric utility engaged primarily in the
generation, purchase, transmission, distribution and sale of electric
energy for the benefit of retail customers in southern and central
Maine and wholesale customers, principally other utilities. The
principal executive offices of the Company are located at 83 Edison
Drive, Augusta, Maine 04336, and the Company's telephone number is
(207) 623-3521. The Company serves approximately 528,000 customers in
its 11,000 square-mile service area in southern and central Maine.
The Company's service area contains most of Maine's industrial and
commercial centers and includes about 78 percent of the total
population of Maine. The Company's industrial and commercial
customers include major producers of pulp and paper products,
producers of chemicals, plastics, electric components, processed food
and footwear, and shipbuilders. The Company is also diversifying
into new lines of business, and is proposing to form a holding
company structure for reasons, among others, of separating its
regulated and unregulated lines of business in a manner consistent
with the recently enacted Maine electric restructuring law.
Number of Shares
to be Purchased................... 200,000 Shares (or such lesser number of Shares as are validly
tendered).
Purchase Price...................... $108.00 per Share.
Expiration Date.................... The later of: (i) June 8, 1998, or (ii) such other date to which the
Company may, in its sole discretion, extend the Offer (or to which
the Offer must be extended pursuant to any applicable rules and
regulations of the Securities and Exchange Commission (the
"Commission")).
Expiration Time.................... 5:00 P.M., New York City time, on the Expiration Date.
Payment Date........................ As soon as practicable after the Expiration Date, subject to Sections
12 and 14.
How to Tender the Shares............ See Section 2. For further information call the Information Agent,
the Depositary or DTC, or consult your broker for assistance.
Withdrawal Rights................... The tendered Shares may be withdrawn at any time until the Expiration
Time, and, if not yet accepted for payment, after 9:00 A.M., New York
City time, on July 3, 1998, in accordance with the withdrawal
procedure specified in Section 3.
Purpose of the Offer................ The Company believes that the Offer represents an attractive economic
opportunity and use of the Company's credit availability that should
benefit the Company as well as the Shareholders in that (i) the
Company may potentially improve its capital structure and lower its
cost of capital by replacing the Shares, to the extent necessary,
with comparatively less expensive financing alternatives, and (ii)
the Shareholders who desire liquidity will be given an opportunity to
sell Shares at a premium over the par value. However, neither the
Company nor its Board of Directors makes any recommendation regarding
the Offer.
Brokerage Commissions............... Not payable by Shareholders.
Stock Transfer Tax.................. Except as described herein, the Company will pay or cause to be paid
any applicable stock transfer taxes, except as set forth in
Instruction 6 in the Letter of Transmittal.
Position of the Company and
its Directors..................... Neither the Company nor its Board of Directors makes any
recommendation to any Shareholder as to whether to tender or refrain
from tendering Shares.
Further Developments
Regarding the Offer............... Call the Information Agent or consult your broker.
</TABLE>
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFER ON BEHALF OF THE COMPANY OTHER THAN
THAT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL. DO NOT
RELY ON ANY SUCH RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION, IF
GIVEN OR MADE, AS HAVING BEEN AUTHORIZED BY THE COMPANY.
TABLE OF CONTENTS
<TABLE>
SECTION PAGE
<S> <C>
INTRODUCTION.............................................................................. 1
THE OFFER................................................................................. 2
<S> <C> <C>
1. Number of Shares; Proration.................................................... 2
2. Procedure for Tendering Shares.................................................. 4
3. Withdrawal Rights............................................................... 6
4. Purchase of Shares and Payment of the Purchase Price............................ 7
5. Certain Conditions of the Offer................................................. 8
6. Price Range of the Shares; Dividends............................................ 9
7. Background and Purpose of the Offer; Certain Effects of the Offer............... 10
8. Interests of Directors and Executive Officers; Transactions and Arrangements
Concerning the Shares.......................................................... 11
9. Source and Amount of Funds....................................................... 11
10. Certain Information About the Company........................................... 12
11. Effects of the Offer on the Market for the Shares; Registration under the
Exchange Act................................................................... 15
12. Certain Legal Matters; Regulatory Approvals...................................... 15
13. Certain U.S. Federal Income Tax Consequences..................................... 16
14. Extension of the Offer; Termination; Amendments.................................. 18
15. Fees and Expenses................................................................ 19
16. Miscellaneous................................................................... 19
</TABLE>
To the holders of Central Maine Power Company's Flexible Money Market Preferred
Stock(TM), Series A, 7.999%:
INTRODUCTION
Central Maine Power Company, a Maine corporation (the "Company"),
invites the holders (the "Shareholders") of its Flexible Money Market Preferred
Stock(TM), Series A, 7.999% (the "Shares") to tender up to 200,000 Shares to the
Company for purchase at the price of $108.00 per Share (the "Purchase Price"),
upon the terms and subject to the conditions set forth in this Offer to Purchase
and the related Letter of Transmittal (which, as amended from time to time,
together constitute the "Offer").
The Company will pay the Purchase Price for Shares validly tendered and
not withdrawn prior to the later of: (i) June 8, 1998, or (ii) such other date
to which the Company may, in its sole discretion, extend the Offer (or to which
the Offer must be extended pursuant to any applicable rules and regulations of
the Commission (the "Expiration Date"), at 5:00 P.M., New York City time (the
"Expiration Time"), upon the terms and subject to the conditions of the Offer.
See Section 14 for a description of the Company's right to extend the time
during which the Offer is open, and to delay, terminate or amend the Offer. The
Company reserves the right, in its sole discretion, to purchase more than
200,000 Shares pursuant to the Offer.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES
BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO SATISFACTION OF CERTAIN
OTHER CONDITIONS. SEE SECTION 5.
If, at the Expiration Time, more than 200,000 Shares (or more than such
greater number of Shares as the Company may elect to purchase) are validly
tendered at the Purchase Price and not withdrawn, the Company will, upon the
terms and subject to the conditions of the Offer, purchase Shares on a pro rata
basis from all Shareholders who validly tender Shares at the Purchase Price (and
do not withdraw them prior to the Expiration Time). All Shares not purchased
pursuant to the Offer, including the Shares not purchased because of proration,
will be returned. The Purchase Price will be paid net to the tendering
Shareholder in cash for all Shares purchased. The tendering Shareholders will
not be obligated to pay brokerage commissions or, subject to Instruction 6 of
the Letter of Transmittal, stock transfer taxes on the Company's purchase of
Shares pursuant to the Offer. HOWEVER, ANY TENDERING SHAREHOLDER OR OTHER PAYEE
WHO FAILS TO COMPLETE, SIGN AND RETURN TO THE DEPOSITARY (AS DEFINED BELOW) THE
SUBSTITUTE FORM W-9 THAT IS INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS
PROCEEDS PAYABLE TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE
SECTION 13. In addition, the Company will pay all fees and expenses of the
Depositary in connection with the Offer. See Section 15.
THE BOARD OF DIRECTORS OF THE COMPANY HAS AUTHORIZED THE COMPANY TO
MAKE THE OFFER. HOWEVER, THE SHAREHOLDERS MUST MAKE THEIR OWN DECISIONS AS TO
WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NEITHER THE
COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY SHAREHOLDER
AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. AS OF THE DATE OF THE
OFFER, TO THE KNOWLEDGE OF THE COMPANY, NO DIRECTORS, EXECUTIVE OFFICERS OR
AFFILIATES OF THE COMPANY OWN OR CONTROL ANY SHARES.
As of the close of business on May 7, 1998, there were 395,275 Shares
outstanding. The Shares that the Company is offering to purchase represent
approximately 51% of the outstanding Shares.
ALTHOUGH THERE MAY HAVE BEEN A LIMITED NUMBER OF ISOLATED TRANSACTIONS
IN THE SHARES IN THE OVER-THE-COUNTER MARKET IN THE PAST, THE COMPANY BELIEVES
THAT THERE IS CURRENTLY NO ESTABLISHED TRADING MARKET FOR THE SHARES.
The Offer does not constitute a notice of redemption of the Shares
pursuant to the Company's Articles of Incorporation (the "Articles"), nor does
the Company intend to effect such a redemption by making the Offer. The
Shareholders are not under any obligation to accept the Offer or to remit the
Shares to the Company pursuant to the Offer. In accordance with the Articles,
the Shares are not currently redeemable at the option of the Company; however,
on each annual Sinking Fund Redemption Date (commencing October 1, 1999), the
Company is required to purchase 90,000 Shares, and has the noncumulative right
to purchase an additional 90,000 Shares, in each case at a price of $100.00 per
Share, plus any accrued and unpaid dividends.
The Company believes that the purchase of the Shares at this time
represents an attractive economic opportunity and use of the Company's credit
availability that should benefit the Company as well as the Shareholders in that
the Company may potentially improve its capital structure and lower its cost of
capital by replacing the Shares, to the extent necessary, with comparatively
less expensive financing alternatives. In addition, the Shareholders who desire
liquidity will be given an opportunity to sell Shares at a premium over the par
value. As indicated above, Sinking Fund Redemption commences on October 1, 1999,
at the price of $100.00 per share, plus any accrued and unpaid dividends.
However, neither the Company nor its Board of Directors makes any recommendation
regarding the Offer.
THE OFFER
1. NUMBER OF SHARES; PRORATION
Upon the terms and subject to the conditions of the Offer, the Company
will purchase up to 200,000 Shares, or such fewer number of Shares as are
validly tendered before the Expiration Time (and not withdrawn in accordance
with Section 3), at a net cash price of $108.00 per Share. Subject to this
Section 1, if the Offer is oversubscribed, the Shares tendered at the Purchase
Price before the Expiration Time will be eligible for proration.
The Company reserves the right, in its sole discretion, to purchase
more than 200,000 Shares pursuant to the Offer. See Section 14. In accordance
with applicable regulations of the Commission, the Company may purchase pursuant
to the Offer an additional amount of Shares not to exceed 2% of the outstanding
Shares without amending or extending the Offer. If (i) the Company increases or
decreases the price to be paid for Shares, the Company increases the number of
Shares being sought and such increase in the number of Shares being sought
exceeds 2% of the outstanding Shares, or the Company decreases the number of
Shares being sought and (ii) the Offer is scheduled to expire at any time
earlier than the expiration of a period ending ten business days from, and
including, the date that notice of such increase or decrease is first published,
sent or given in the manner specified in Section 14, the Offer will be extended
until the eleventh business day from, and including, the date of the notice. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or federal holiday.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES
BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO SATISFACTION OF CERTAIN
OTHER CONDITIONS. SEE SECTION 5.
The Company will pay the Purchase Price for Shares validly tendered
prior to the Expiration Time and not withdrawn, upon the terms and subject to
the conditions of the Offer. All Shares not purchased pursuant to the Offer,
including Shares not purchased because of proration, will be returned to the
tendering Shareholders at the Company's expense as promptly as practicable
following the Expiration Date.
If the number of Shares validly tendered at the Purchase Price and not
withdrawn prior to the Expiration Time is fewer than or equal to 200,000 Shares
(or such greater number of Shares as the Company may elect to purchase pursuant
to the Offer), the Company will, upon the terms and subject to the conditions of
the Offer, purchase at the Purchase Price all Shares so tendered.
Proration. Upon the terms and subject to the conditions of the Offer,
in the event that at the Expiration Time more than 200,000 Shares (or such
greater number of Shares as the Company may elect to purchase pursuant to the
Offer) are validly tendered at the Purchase Price and not withdrawn, the Company
will purchase such validly tendered Shares on a pro rata basis. In the event
that proration of tendered Shares is required, the Company will determine the
final proration factor as promptly as practicable after the Expiration Date.
Proration for each Shareholder tendering Shares shall be based on the ratio of
the number of Shares tendered by such Shareholder at the Purchase Price to the
total number of Shares tendered by all Shareholders at the Purchase Price. This
ratio will be applied to the Shareholders tendering Shares to determine the
number of Shares that will be purchased from each such Shareholder pursuant to
the Offer. Although the Company does not expect to be able to announce the final
results of such proration until approximately seven business days after the
Expiration Date, it will announce preliminary results of proration by press
release as promptly as practicable after the Expiration Date. Shareholders can
obtain such preliminary information, when available, from the Information Agent.
The Company's decision on the manner of proration, taking into account DTC
policies and procedures, will be final and binding on all parties.
As described in Section 13, the number of Shares that the Company will
purchase from a Shareholder may affect the United States federal income tax
consequences to the Shareholder of such purchase and therefore may be relevant
to a Shareholder's decision whether to tender Shares. The Letter of Transmittal
affords each tendering Shareholder the opportunity to designate the order of
priority in which Shares tendered are to be purchased in the event of proration.
This Offer to Purchase and the related Letter of Transmittal are being
transmitted to The Depository Trust Company ("DTC"), which is (or whose nominee
is) the record owner of the Shares, as of May 8, 1998 and will, in accordance
with DTC's procedures, be furnished to participants in DTC, for subsequent
transmittal to the Shareholders.
2. PROCEDURE FOR TENDERING SHARES
Proper Tender of Shares. For Shares to be validly tendered pursuant to
the Offer:
(i) confirmation of receipt of such Shares pursuant to the
procedures for book-entry transfer set forth below, together with a
properly completed and duly executed Letter of Transmittal with any
required signature guarantees, and any other documents required by the
Letter of Transmittal, must be received prior to the Expiration Time by
the Depositary at its address set forth on the back cover of this Offer
to Purchase; or
(ii) the tendering Shareholder must comply with the guaranteed
delivery procedure set forth below.
Signature Guarantees and Method of Delivery. Except as otherwise
provided below, all signatures on the Letter of Transmittal must be guaranteed
by a firm that is a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company (not a savings bank or savings and loan association)
having an office, branch or agency in the United States which is a participant
in an approved Signature Guarantee Medallion Program (each such entity being
hereinafter referred to as an "Eligible Institution"). Signatures on the Letter
of Transmittal need not be guaranteed if (i) the Letter of Transmittal is signed
by the registered holder(s) of the Shares (which term, for purposes of this
Section 2, shall include any participant in DTC whose name appears on a security
position listing as the holder of the Shares) tendered therewith and payment and
delivery are to be made directly to such registered holder, or (ii) the Shares
are tendered for the account of an Eligible Institution. In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 1 of the Letter of Transmittal. In all cases,
payment for the Shares tendered and accepted for payment pursuant to the Offer
will be made only after timely confirmation of a book-entry transfer of such
Shares into the Depositary's account at DTC as described below, a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) and any other documents required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF
THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Book-Entry Delivery. The Depositary will establish an account with
respect to the Shares at DTC for purposes of the Offer within two business days
after the date of this Offer to Purchase. Any financial institution that is a
participant in DTC's system may make book-entry delivery of the Shares by
causing DTC to transfer such Shares into the Depositary's account in accordance
with DTC's procedure for such transfer. Even though delivery of the Shares may
be effected through book-entry transfer into the Depositary's account at DTC, a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), with any required signature guarantees and other required
documents, must, in any case, be transmitted to and received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Time, or the guaranteed delivery procedure set forth
below must be followed. DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Guaranteed Delivery. If a Shareholder desires to tender the Shares
pursuant to the Offer and the procedures for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Depositary before the Expiration Time, such Shares may nevertheless be
tendered provided that all of the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) the Depositary receives (by hand, mail, overnight courier
or telegram), prior to the Expiration Time, a properly completed and
duly executed Notice of Guaranteed Delivery (indicating the price at
which the Shares are being tendered), including (where required) a
signature guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery; and
(iii) confirmation of book-entry transfer of such Shares into
the Depositary's account at DTC, together with a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile
thereof) and any required signature guarantees or other documents
required by the Letter of Transmittal, are received by the Depositary
no later than 5:00 p.m., New York City time, on the third business day
after the date the Depositary receives such Notice of Guaranteed
Delivery.
If any tendered Shares are not purchased, as promptly as practicable
after the expiration or termination of the Offer such Shares will be credited to
the appropriate account maintained by the tendering Shareholder at DTC, in each
case without expense to such Shareholder.
Tendering Shareholder's Representation and Warranty; Company's
Acceptance Constitutes an Agreement. It is a violation of Rule 14e-4 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
a person acting alone or in concert with others, directly or indirectly, to
tender Shares for such person's own account unless at the time of tender and at
the Expiration Time such person has a "net long position" equal to or greater
than the amount tendered in (a) the Shares and will deliver or cause to be
delivered such Shares for the purpose of tender to the Company within the period
specified in the Offer, or (b) other securities immediately convertible into,
exercisable for or exchangeable into Shares ("Equivalent Securities") and, upon
the acceptance of such tender, will acquire such Shares by conversion, exchange
or exercise of such Equivalent Securities to the extent required by the terms of
the Offer and will deliver or cause to be delivered such Shares so acquired for
the purpose of tender to the Company within the period specified in the Offer.
Rule 14e-4 also provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person. A tender of Shares made
pursuant to any method of delivery set forth herein will constitute the
tendering Shareholder's representation and warranty to the Company that (a) such
Shareholder has a "net long position" in Shares or Equivalent Securities being
tendered within the meaning of Rule 14e-4, and (b) such tender of Shares
complies with Rule 14e-4. The Company's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering Shareholder and the Company upon the terms and subject to the
conditions of the Offer.
Determinations of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of Shares
to be accepted, the price to be paid therefor and the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Company, in its sole discretion, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any or all tenders it determines not to be in
proper form or the acceptance of or payment for which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Offer and any defect or irregularity in the
tender of any particular Shares or from any particular Shareholder. No tender of
Shares will be deemed to be properly made until all defects or irregularities
have been cured or waived. None of the Company, the Depositary, the Information
Agent or any other person is or will be obligated to give notice of any defects
or irregularities in tenders, and none of them will incur any liability for
failure to give any such notice.
A PROPERLY COMPLETED LETTER OF TRANSMITTAL, AND ANY OTHER DOCUMENTS
REQUIRED BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO THE DEPOSITARY AND
NOT TO THE COMPANY. ANY SUCH DOCUMENTS DELIVERED TO THE COMPANY WILL NOT BE
FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE VALIDLY
TENDERED.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time before the Expiration Time and, unless accepted for
payment by the Company as provided in this Offer to Purchase, may also be
withdrawn after 9:00 A.M., New York City time, on July 3, 1998.
For a withdrawal to be effective, the Depositary must receive (at its
address set forth on the back cover of this Offer to Purchase) a notice of
withdrawal in written, telegraphic or facsimile transmission form on a timely
basis. Such notice of withdrawal must specify the name of the person who
tendered Shares to be withdrawn, the number of Shares tendered, the number of
Shares to be withdrawn and the name of the Shareholder, if different from that
of the person who tendered such Shares. If Shares have been tendered pursuant to
the procedure for book-entry transfer set forth in Section 2, the notice of
withdrawal must specify the name and the number of the account at DTC to be
credited with the withdrawn Shares and otherwise comply with DTC procedures. All
questions as to the form and validity, including time of receipt, of notices of
withdrawal will be determined by the Company, in its sole discretion, which
determination shall be final and binding on all parties. None of the Company,
the Depositary, the Information Agent or any other person is or will be
obligated to give any notice of any defects or irregularities in any notice of
withdrawal, and none of them will incur any liability for failure to give any
such notice. Withdrawals may not be rescinded and any Shares properly withdrawn
will thereafter be deemed not tendered for purposes of the Offer. However,
withdrawn Shares may be retendered before the Expiration Time by again following
the procedures described in Section 2.
If the Company extends the Offer, is delayed in its purchase of Shares
or is unable to purchase Shares pursuant to the Offer for any reason, then,
without prejudice to the Company's rights under the Offer, the Depositary may,
subject to applicable law, retain on behalf of the Company all tendered Shares,
and such Shares may not be withdrawn except to the extent tendering Shareholders
are entitled to withdrawal rights as described in this Section 3.
4. PURCHASE OF SHARES AND PAYMENT OF THE PURCHASE PRICE
The Company will, upon the terms and subject to the conditions of the
Offer, accept for payment and, as soon as practicable after the Expiration Date,
pay for (and thereby purchase) Shares validly tendered at the Purchase Price and
not withdrawn. For purposes of the Offer, the Company will be deemed to have
accepted for payment (and therefore purchased), subject to proration, Shares
that are validly tendered at the Purchase Price and not withdrawn when and if it
gives oral or written notice to the Depositary of its acceptance of such Shares
for payment pursuant to the Offer.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made promptly (subject to possible delay in the
event of proration) but only after timely confirmation of a book-entry transfer
of such Shares into the Depositary's account at DTC, and receipt by the
Depositary of a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other required documents.
Payment for Shares purchased pursuant to the Offer will be made by
depositing the aggregate Purchase Price therefor with the Depositary, which will
act as agent for the tendering Shareholders for the purpose of receiving payment
from the Company and transmitting payment to the tendering Shareholders. In the
event of proration, the Company will determine the proration factor and pay for
those tendered Shares accepted for payment as soon as practicable after the
Expiration Date. However, the Company does not expect to be able to announce the
final results of any such proration until approximately seven business days
after the Expiration Date. Under no circumstances will the Company pay interest
on the Purchase Price including, without limitation, by reason of any delay in
making payment. For all Shares not purchased, including all Shares tendered at
prices greater than the Purchase Price and Shares not purchased due to
proration, will be credited to the account maintained with DTC by the
participant who delivered such Shares, as soon as practicable following the
Expiration Date or termination of the Offer without expense to the tendering
Shareholder. In addition, if certain events occur, the Company may not be
obligated to purchase Shares pursuant to the Offer. See Section 5.
The Company will pay all stock transfer taxes, if any, payable on the
transfer to the Company of Shares purchased pursuant to the Offer, except as set
forth in Instruction 6 of the Letter of Transmittal. The Company will not pay
any other stock transfer taxes. In connection with the payment by the Company of
the Purchase Price or (in the circumstances permitted by the Offer) registration
of the unpurchased Shares, the amount of all such other stock transfer taxes, if
any, will be deducted from the Purchase Price unless evidence satisfactory to
the Company of the payment of such taxes or exemption therefrom is submitted.
See Instruction 6 of the Letter of Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY,
SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE
LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE
PURSUANT TO THE OFFER.
5. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company shall not
be required to accept for payment, purchase or pay for any Shares tendered, and
may terminate or amend the Offer or may postpone the acceptance for payment of,
or the purchase of and the payment for, Shares tendered, subject to Rule
13e-4(f) promulgated under the Exchange Act, if at any time on or after May 8,
1998 and prior to the Expiration Time, any of the following events shall have
occurred (or shall have been determined by the Company to have occurred) that,
in the Company's judgment in any such case and regardless of the circumstances
giving rise thereto (including any action or omission to act by the Company),
make it inadvisable to proceed with the Offer or with such acceptance for
payment, purchase or payment:
(a) there shall have been threatened, instituted or be pending
before any court, agency, authority or other tribunal any action, suit
or proceeding by any government or governmental, regulatory or
administrative agency or authority or by any other person, domestic or
foreign, or any judgment, order or injunction entered, enforced or
deemed applicable by any such court, agency, authority or tribunal,
which (i) challenges or seeks to make illegal, or to delay, or
otherwise directly or indirectly restrain, prohibit or otherwise
affect, the making of the Offer or the acquisition of Shares pursuant
to the Offer, or is otherwise related in any manner to, or otherwise
affects, the Offer; or (ii) could, in the sole judgment of the Company,
materially affect the business, condition (financial or other), income,
operations or prospects of the Company and its subsidiaries, taken as a
whole, or otherwise materially impair in any way the contemplated
future conduct of the business of the Company and its subsidiaries,
taken as a whole, or materially impair the Offer's contemplated
benefits to the Company; or
(b) there shall have been any action threatened or taken, or
any approval withheld, or any statute, rule or regulation invoked,
proposed, sought, promulgated, enacted, entered, amended, enforced or
deemed to be applicable to the Offer or the Company or any of its
subsidiaries, by any government or governmental, regulatory or
administrative authority or agency or tribunal, domestic or foreign,
which, in the sole judgment of the Company, would or might directly or
indirectly result in any of the consequences referred to in clause (i)
or (ii) of paragraph (a) above; or
(c) there shall have occurred (i) the declaration of any
banking moratorium or any suspension of payments in respect of banks in
the United States (whether or not mandatory); (ii) any general
suspension of trading in, or limitation on prices for, securities on
any United States national securities exchange or in the
over-the-counter market; (iii) the commencement of a war, armed
hostilities or any other national or international crisis directly or
indirectly involving the United States; (iv) any limitation (whether or
not mandatory) by any governmental, regulatory or administrative agency
or authority on, or any event which, in the sole judgment of the
Company, might materially affect, the extension of credit by banks or
other lending institutions in the United States; (v) any significant
decrease in the market prices of equity securities generally in the
United States or any change in the general political, market, economic
or financial conditions in the United States or abroad that could have,
in the sole judgment of the Company, a material adverse effect on the
business, condition (financial or otherwise), income, operations or
prospects of the Company and its subsidiaries, taken as a whole, or on
the trading in the Shares or on any financing of the Offer; or (vi) in
the case of any of the foregoing existing at the time of the
announcement of the Offer, a material acceleration or worsening
thereof; or
(d) any change shall occur or be threatened in the business,
condition (financial or other), income, operations or prospects of the
Company and its subsidiaries, taken as a whole, which, in the sole
judgment of the Company, is or may be material to the Company and its
subsidiaries taken as a whole.
The foregoing conditions are for the Company's sole benefit and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition (including any action or omission to act by the Company) or may be
waived by the Company in whole or in part. The Company's failure at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right, and each such right shall be deemed an ongoing right that may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above and any related judgment or decision by the Company
regarding the inadvisability of proceeding with the purchase of or payment for
any Shares tendered will be final and binding on all parties.
6. PRICE RANGE OF THE SHARES; DIVIDENDS
Although there may have been a limited number of isolated transactions
in the Shares in the over-the-counter market in the past, the Company believes
that there is currently no established trading market for the Shares.
Consequently, it is not possible for the Company to state the range of high and
low bid quotations for the Shares for each quarterly period during the past two
years and the source of such quotations.
April 1, 1998 was the most recent dividend payment date on the Shares.
The Company anticipates that the record date for the July 1, 1998
dividend payment for the Shares will be June 10, 1998. As a consequence, absent
an extension of the Expiration Date to a date on or after June 10, 1998,
tendering Shareholders will not receive further dividends on Shares tendered and
accepted by the Company pursuant to the Offer.
7. BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
The following discussion (and summaries of such discussion that appear
earlier in this Offer) contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Among the factors that
could cause actual results to differ materially are: electric utility
restructuring; weather, including the Company's ability to recover its costs
resulting from the January 1998 ice storm; regulatory matters pertaining to and
costs related to nuclear plants in which the Company has a direct or indirect
interest; and other matters referred to in the Company's filings with the
Commission under the Exchange Act. For certain historical financial information
about the Company and its consolidated subsidiaries, see "Certain Information
About the Company" in Section 10.
The Company is making the Offer to (i) potentially improve its capital
structure and lower its cost of capital by replacing the Shares with
comparatively less expensive financing alternatives, to the extent necessary,
and (ii) allow the Shareholders who desire liquidity an opportunity to sell
Shares at a premium over the par value.
Management believes that, given the Company's business, assets and
prospects, the purchase of Shares pursuant to the Offer is an attractive
investment that will benefit the Company as well as the Shareholders. The Offer
provides the Shareholders who are considering a sale of their Shares the
opportunity to sell Shares for cash to the Company at a premium over the par
value. The Offer also allows the Shareholders to sell only a portion of their
Shares while retaining a continuing equity interest in the Company if they so
desire.
The Company plans to retire Shares purchased pursuant to the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS AUTHORIZED THE COMPANY TO MAKE THE
OFFER. HOWEVER, SHAREHOLDERS MUST MAKE THEIR OWN DECISIONS AS TO WHETHER TO
TENDER THEIR SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY
NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY SHAREHOLDER AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES AND NEITHER THE COMPANY NOR
ITS BOARD OF DIRECTORS HAS AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. AS OF THE DATE OF THE OFFER, TO THE KNOWLEDGE OF THE COMPANY NO
DIRECTORS, EXECUTIVE OFFICERS OR AFFILIATES OF THE COMPANY OWN OR CONTROL ANY
SHARES.
The effect of the Offer, in addition to the matters discussed in
Section 11 of this Offer, is to reduce the amount of fixed rate preferred stock
of the Company. The Company is undergoing continuing analysis and restructuring
in connection with the restructuring of the electric utility industry. For
further information, see "Additional Information" under Section 10 below.
The Company may in the future purchase Shares in the market, if any
established, in private transactions, through tender offers or otherwise.
However, Rule 13e-4 under the Exchange Act prohibits the Company from making any
purchases of Shares until 10 business days after the Expiration Date, other than
pursuant to the Offer. Any purchases of Shares the Company may choose to make
may be on the same terms as, or on terms more or less favorable to the
Shareholders than, the terms of the Offer. Any possible future purchases by the
Company will depend on numerous factors, including the results of the Offer, the
Company's business and financial condition and general economic and market
conditions.
8. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE SHARES
Based on the Company's records and on information provided to the
Company by its directors, executive officers, associates and subsidiaries,
neither the Company nor any of its associates or subsidiaries, nor, to the best
of the Company's knowledge, any of the directors or executive officers of the
Company or any of its subsidiaries, nor any associates of any of the foregoing,
has effected any transactions in the Shares during the 40 business days prior to
the date hereof.
Neither the Company nor, to the best of the Company's knowledge, any of
its affiliates, directors or executive officers, or any of the executive
officers or directors of any of its subsidiaries, is a party to any contract,
arrangement, understanding or relationship relating, directly or indirectly, to
the Offer with any person with respect to any securities of the Company
(including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies, consents or
authorizations).
9. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 200,000 Shares pursuant to the
Offer at the purchase price of $108.00 per Share, the Company expects the
maximum aggregate cost, including all fees and expenses applicable to the Offer,
to be approximately $21,695,000. See Section 15. The Company anticipates that
the funds necessary to pay such amounts will be provided by borrowings under
existing credit facilities and the medium-term note program of the Company.
The credit facilities consist of the Company's $125,000,000 Credit
Agreement, dated as of October 23, 1996, among the Company and certain financial
institutions, as lenders, with BankBoston, N.A., and The Bank of New York acting
as agents for the lenders. The Credit Agreement provides for two credit
facilities: a $75 million, 364-day revolving credit facility that currently
matures on October 21, 1998, and a $50 million, 3-year revolving credit facility
that matures on October 22, 1999. Both credit facilities require annual fees on
the total credit lines. The fees are based on the Company'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, as a result of downgrading of the Company's 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 Company has $70 million outstanding as of May 5, 1998, under the
364-day revolving credit facility. The Credit Agreement includes representations
and warranties, covenants, events of default and other terms customary to
financing of this type.
The foregoing summary of the Credit Agreement should be read in
conjunction with, and is qualified in its entirety by reference to, the full
October 23, 1996 Credit Agreement, a copy of which has been filed with the
Commission as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
The Company has in effect a medium-term note program (the "Program")
pursuant to an Indenture between the Company and The Bank of New York, as
trustee, dated as of August 1, 1989, as supplemented (collectively, the
"Indenture"). Under the Indenture, the Company may issue from time to time its
notes, debentures or other evidences of indebtedness, in one or more series (the
"Securities"). The Indenture does not limit the amount of the Securities which
may be issued.
Under the terms of the Program, the Company may offer from time to time
Medium-Term Notes (the "Notes"), up to an aggregate principal amount outstanding
of $500,000,000. Maturities can range from nine months to 30 years; interest
rates pertaining to the Notes are established at the time of issuance. The Notes
are unsecured and rank equally with the Company's other unsecured senior
indebtedness.
Issuance of Notes in excess of $500,000,000 outstanding at any one time
would require additional regulatory and other approvals.
The statements made herein are a summary only, do not purport to be
complete, and are qualified in their entirety by the detailed provisions of the
Indenture.
The Company presently expects to repay any indebtedness incurred to
finance the Offer from its general funds and/or through future borrowings or
securities issuances.
10. CERTAIN INFORMATION ABOUT THE COMPANY
Set forth below is certain historical financial information about the
Company and its consolidated subsidiaries. The historical financial information
(other than the ratio of earnings to fixed charges) for, and as of the end of,
the 1997 and 1996 fiscal years was derived from the audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K")". The historical financial information for, and
as of the end of, the nine-month periods ended September 30, 1997 and 1996 was
derived from the Company's third quarter 1997 and 1996 Quarterly Reports on Form
10-Q (the "Form 10-Q's"). More comprehensive financial information is contained
in the 1997 Form 10-K, the Form 10-Q's and other documents filed by the Company
with the Commission. The financial and other information set forth herein is
qualified in its entirety by reference to the 1997 Form 10-K, the Form 10-Q's
and such other documents, including the financial statements and related notes
therein. The foregoing documents are available for inspection and copies thereof
can be obtained as indicated under "Additional Information" below.
CONDENSED INCOME STATEMENT DATA:
<TABLE>
For the Nine Months
For the Year Ended Ended
December 31, September 30,
----------------------- -----------------------
1997 1996 1997* 1996*
---- ---- ---- ----
(Dollars in thousands, except ratios and per-share amounts)
<S> <C> <C> <C> <C>
Electric Operating Revenues $954,176 $967,046 $704,575 $719,484
Total Operating Expenses 897,157 865,512 665,871 649,860
Equity in Earnings of Associated Companies 6,260 6,138 5,084 5.139
-------- -------- -------- --------
Operating Income $ 63,279 $107,672 $ 43,788 $ 74,763
Total Other Income 1,710 4,209 1,753 3,523
Total Interest Charges 51,567 51,652 37,898 37,941
-------- -------- -------- --------
Net Income $ 13,422 $ 60,229 $ 7,643 $ 40,345
Preferred Stock Dividend Requirements 8,209 9,452 6,312 7,244
-------- -------- -------- --------
Earnings Applicable to Common Stock $ 5,213 $ 50,777 $ 1,331 $ 33,101
======== ======== ======== ========
Ratio of Earnings to Fixed Charges** 1.4* 2.8* 1.3 2.8
Book value per share $ 15.03* $15.77* $15.13 $15.45
- ------------------
*.....Unaudited.
**....As computed in accordance with Item 503(d) of Regulation S-K of the Commission.
</TABLE>
CONDENSED BALANCE SHEET DATA:
<TABLE>
As of As of
December 31, September 30,
------------------------------ ------------------------------
1997 1996 1997* 1996*
---- ---- ---- ----
(Dollars in thousands)
ASSETS:
<S> <C> <C> <C> <C>
Total Net Electric Property and Nuclear Fuel..... $1,056,754 $1,067,183 $1,058,347 $1,063,651
Investments in Associated Companies, at Equity... 76,509 67,809 76,148 68,019
Cash and Cash Equivalents........................ 20,841 8,307 12,693 9,424
Other Current Assets............................. 234,350 238,338 213,784 208,999
Total Deferred Charges and Other Assets.......... 910,512 629,277 937,109 583,461
----------- ---------- ---------- ----------
Total Assets..................................... $2,298,966 $2,010,914 $2,298,081 $1,933,554
=========== ========== ========== ==========
STOCKHOLDERS' INVESTMENT
AND LIABILITIES:
Common Stock Investment....................... $487,594 $511,578 $491,011 $501,201
Preferred Stock.................................. 65,571 65,571 65,571 65,571
Redeemable Preferred Stock....................... 39,528 53,528 39,528 53,528
Long-Term Obligations (less amounts
due within one year)............................. 400,923 587,987 476,397 565,611
Current Liabilities and Interim Financing........ 383,657 177,536 279,445 184,615
Other Liabilities................................ 921,693 614,714 946,129 563,028
---------- ---------- ---------- ----------
Total Stockholders' Investment and Liabilities... $2,298,966 $2,010,914 $2,298,081 $1,933,554
========== ========== ========== ==========
- ------------------
*.....Unaudited.
</TABLE>
Additional Information. The Company is subject to the informational
filing requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports and other information with the Commission relating to
its business, financial condition and other matters. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, options granted to them, the principal holders of the Company's
securities and any material interest of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's shareholders and filed with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 2120, Washington, D.C. 20549 and at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade
Center, New York, New York 10048. Copies of such material may also be obtained
by mail, upon payment of the Commission's customary charges, from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding the registrants, such as the Company,
that file electronically with the Commission. Such reports, proxy statements and
other information concerning the Company can also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on
which the common stock of the Company is currently listed.
11. EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES; REGISTRATION
UNDER THE EXCHANGE ACT
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and is likely to reduce the
number of Shareholders. Although there may have been a limited number of
isolated transactions in the Shares in the over-the-counter market in the past,
the Company believes that there is currently no established trading market for
the Shares.
The Shares are not currently "margin securities" under the rules of the
Federal Reserve Board, and the Company believes that, following the purchase of
Shares pursuant to the Offer, the remaining Shares will not be "margin
securities."
The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to the Company's
shareholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's shareholders. The Company believes
that its purchase of Shares pursuant to the Offer will not result in the Shares
becoming eligible for deregistration under the Exchange Act.
12. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
The Company is not aware of any license or regulatory permit material
to its business that would be adversely affected by its acquisition of Shares as
contemplated in the Offer, or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that is required for the Company's acquisition or ownership of Shares
as contemplated by the Offer and that has not been obtained. Should any such
approval or other action be required, the Company currently contemplates that it
will seek such approval or other action. The Company cannot predict whether it
may determine that it is required to delay the acceptance for payment of, or
payment for, Shares tendered pursuant to the Offer pending the outcome of any
such matter. There can be no assurance that any such approval or other action,
if needed, would be obtained or would be obtained without substantial conditions
or that the failure to obtain any such approval or other action might not result
in adverse consequences to the Company's business. The Company's obligations
under the Offer to accept for payment and pay for Shares are subject to certain
conditions. See Section 5.
13. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes the material United States
federal income tax consequences of the Offer and is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Department regulations thereunder, judicial authority and current administrative
rulings and practice, all as in effect as of the date hereof. Future
legislation, regulations, administrative rulings or court decisions could
significantly change such authorities either prospectively or retroactively. The
following discussion does not address the consequences of the Offer under state,
local or foreign law nor does the discussion address all aspects of United
States federal income taxation that may be important to a Shareholder in light
of such Shareholder's particular circumstances or to a Shareholder subject to
special rules including, without limitation, S corporations, financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
taxpayers subject to alternative minimum tax, persons who acquired Company stock
pursuant to the exercise of an employee option (or otherwise as compensation),
persons holding Company stock as part of a hedging or conversion transaction or
a straddle or any other derivative security. This discussion assumes that the
Shareholders hold their respective Shares as capital assets within the meaning
of Section 1221 of the Code.
The following discussion is limited to the United States federal income
tax consequences relevant to a Shareholder that is a citizen or resident of the
United States, or any state thereof, or a corporation or other entity created or
organized under the laws of the United States, or any political subdivision
thereof, or an estate the income of which is subject to United States federal
income tax regardless of its source or a trust whose administration is subject
to the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust.
The Company has not sought and will not seek an opinion of counsel or
any rulings from the Internal Revenue Service (the "IRS") with respect to the
positions of the Company discussed herein, and there can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the Offer.
THE FOLLOWING IS A SUMMARY OF ONLY CERTAIN MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER, WITHOUT REFERENCE TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR SHAREHOLDER. IN ADDITION,
THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR
LOCAL TAX CONSEQUENCES OF THE OFFER. THIS DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE OFFER. ACCORDINGLY, EACH
SHAREHOLDER IS STRONGLY URGED TO CONSULT WITH SUCH SHAREHOLDER'S TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES OF THE OFFER TO SUCH SHAREHOLDER.
Shareholders Receiving Cash Pursuant to the Offer. Any amounts received
by a Shareholder attributable to a declared accrued unpaid dividend will be
treated as a payment of such dividend and is not part of the amount paid in
redemption of such stock.
In the case of a Shareholder who owns solely Shares and does not own,
actually or constructively applying the provisions of Code Section 318, any
other class of stock of the Company, gain or loss will be recognized in an
amount equal to the difference between the amount of cash received by such
Shareholder pursuant to the Offer (except to the extent attributable to a
declared accrued unpaid dividend) and such Shareholder's adjusted tax basis in
the Shares sold pursuant to the Offer. Code Section 318 generally treats a
person as owning stock owned directly or indirectly by certain related
individuals, corporations, partnerships, trusts or estates and stock subject to
certain options. Shareholders are advised to consult their tax advisors to
determine the application of Code Section 318 to their particular circumstances.
In the case of a Shareholder who owns Shares and actually or
constructively owns, applying the provisions of Code Section 318, any other
class of stock of the Company, gain or loss will be recognized in an amount
equal to the difference between the amount of cash received by such Shareholder
pursuant to the Offer (except to the extent attributable to a declared accrued
unpaid dividend) and such Shareholder's adjusted tax basis in the Shares sold
pursuant to the Offer provided the receipt of cash is not "essentially
equivalent to a dividend" with respect to that Shareholder. Cash received by a
Shareholder will not be characterized as "essentially equivalent to a dividend"
if such Shareholder's proportionate interest in the Company suffers a
"meaningful reduction" as a result of the Offer given such Shareholder's
particular facts and circumstances. The IRS has indicated in a published ruling
that any reduction in the percentage interest of common stock of a Shareholder
whose relative common stock interest in a publicly held corporation is minimal
and who exercises no control over corporate affairs should constitute a
"meaningful reduction." Cash received by a Shareholder who does not suffer a
"meaningful reduction" in such Shareholder's proportionate interest in the
Company will be treated as a dividend taxable as ordinary income to the extent
of the Company's current and accumulated earnings and profits attributable to
the Shares exchanged by such Shareholder with any excess characterized as a
return of capital to the extent of such Shareholder's basis in the exchanged
Shares and gain to the extent that such excess exceeds the Shareholder's basis
in the exchanged Shares. Shareholders who actually or constructively own,
applying the provisions of Code Section 318, any other class of stock of the
Company are advised to consult their tax advisors to determine the U.S. federal
income tax consequences of selling Shares pursuant to the Offer.
The net amount of capital gain recognized by an individual Shareholder
generally will be mid-term or long-term capital gain if the holding period for
the Shares tendered is more than one year or eighteen months, respectively.
Shareholders Not Receiving Cash Pursuant to the Offer. Shareholders
whose Shares are not purchased pursuant to the Offer will not incur any tax
liability as a result of the consummation of the Offer.
Backup Withholding. Backup withholding of United States federal income
tax at a rate of 31% may apply to the gross proceeds payable to a Shareholder or
other payee pursuant to the Offer, unless an exemption applies under the
applicable law and Treasury regulations or the Shareholder or other payee
provides such person's taxpayer identification number (employer identification
number or social security number) to the Depositary and certifies under
penalties of perjury that such number is correct. Therefore, each tendering
Shareholder should complete and sign the Substitute Form W-9 included as part of
the Letter of Transmittal so as to provide the information and certification
necessary to avoid backup withholding, unless such Shareholder otherwise
establishes to the satisfaction of the Depositary that the Shareholder is not
subject to backup withholding. Certain Shareholders (including, among others,
all corporations and certain foreign Shareholders, in addition to foreign
corporations) are not subject to these backup withholding and reporting
requirements. In order for a foreign Shareholder to qualify as an exempt
recipient, that Shareholder must submit an IRS Form W-8 or a Substitute Form
W-8, signed under penalties of perjury, attesting to that Shareholder's exempt
status. A Form W-8 or Substitute Form W-8 can be obtained from the Depositary.
See Instruction 8 of the Letter of Transmittal.
14. EXTENSION OF THE OFFER; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion, at
any time and from time to time, and regardless of whether or not any of the
events set forth in Section 5 shall have occurred or shall be deemed by the
Company to have occurred, to extend the period of time during which the Offer is
open and thereby delay acceptance for payment of, and payment for, any Shares,
by giving oral or written notice of such extension to the Depositary and making
a public announcement thereof. The Company also expressly reserves the right, in
its sole discretion, to terminate the Offer and not accept for payment or pay
for any Shares not theretofore accepted for payment or paid for or, subject to
applicable law, to postpone payment for Shares upon the occurrence of any of the
conditions specified in Section 5 hereof by giving oral or written notice of
such termination or postponement to the Depositary and making a public
announcement thereof. Additionally, in certain circumstances, if the Company
waives any of the conditions of the Offer set forth in Section 5, it may be
required to extend the Expiration Date of the Offer. The Company's reservation
of the right to delay payment for Shares that it has accepted for payment is
limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires
that the Company must pay the consideration offered or return the Shares
tendered promptly after termination or withdrawal of the Offer. Subject to
compliance with applicable law, the Company further reserves the right, in its
sole discretion, and regardless of whether any of the events set forth in
Section 5 shall have occurred or shall be deemed by the Company to have
occurred, to amend the Offer in any respect (including, without limitation, by
decreasing or increasing the consideration offered in the Offer or by decreasing
or increasing the number of Shares being sought in the Offer). Amendments to the
Offer may be made at any time and from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 A.M., New York City time, on the next business day
after the last previously scheduled or announced Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to the
Shareholders in a manner reasonably calculated to inform the Shareholders of
such change. Without limiting the manner in which the Company may choose to make
any public announcement, except as provided by applicable law (including Rule
13e-4(e)(2) promulgated under the Exchange Act), the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules
13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act, which require
that the minimum period during which the Offer must remain open following
material changes in the terms of the Offer or information concerning the Offer
(other than a change in price or a change in percentage of Shares sought) will
depend upon the facts and circumstances, including the relative materiality of
such terms or information. If (i) the Company increases or decreases the price
to be paid for Shares, the Company increases the number of Shares being sought
and such increase in the number of Shares being sought exceeds 2% of the
outstanding Shares, or the Company decreases the number of Shares being sought,
and (ii) the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including, the
date that notice of such increase or decrease is first published, sent or given,
the Offer will be extended until the eleventh business day from, and including,
the date of the notice.
15. FEES AND EXPENSES
The Company has not retained a dealer manager in connection with the
Offer. The Company has retained the Depositary in connection with the Offer. The
Depositary will receive reasonable and customary compensation for its services.
The Company will also reimburse the Depositary for out-of-pocket expenses,
including reasonable attorneys' fees, and has agreed to indemnify the Depositary
against certain liabilities in connection with the Offer, including certain
liabilities under the federal securities laws. The Information Agent may contact
Shareholders by mail, telephone, telex, telegraph and personal interviews, and
may request DTC participants, brokers and dealers to forward materials relating
to the Offer to the Shareholders. Neither the Information Agent nor the
Depositary has been authorized to make solicitations or recommendations in
connection with the Offer. The Company will not pay fees or commissions to any
broker, dealer, commercial bank, trust company or other person for soliciting
any Shares pursuant to the Offer. The Company will, however, on request,
reimburse such persons for customary handling and mailing expenses incurred in
forwarding materials in respect of the Offer to the Shareholders for which they
act as nominees. No such broker, dealer, commercial bank or trust company has
been authorized to act as the Company's agent for purposes of the Offer. The
Company will pay (or cause to be paid) any stock transfer taxes on its purchase
of Shares, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
The Company estimates that the total amount of fees and expenses that
it will incur in connection with the Offer will be approximately $95,000.
16. MISCELLANEOUS
The Company is not aware of any jurisdiction where the making of the
Offer is not in compliance with applicable law. If the Company becomes aware of
any jurisdiction where the making of the Offer is not in compliance with any
valid applicable law, the Company will make a good faith effort to comply with
such law. If, after such good faith effort, the Company cannot comply with such
law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the Shareholders residing in such jurisdiction.
Pursuant to Rule 13e-4 promulgated under the Exchange Act, the Company
has filed with the Commission an Issuer Tender Offer Statement on Schedule 13E-4
(the "Schedule 13E-4") which contains additional information with respect to the
Offer. The Schedule 13E-4, including the exhibits and any amendments thereto,
may be examined, and copies may be obtained, at the same places and in the same
manner as is set forth in Section 10 with respect to information concerning the
Company.
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON
BEHALF OF THE COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH
THE OFFER ON BEHALF OF THE COMPANY OTHER THAN THOSE CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL. DO NOT RELY ON ANY SUCH RECOMMENDATION
OR ANY SUCH INFORMATION OR REPRESENTATION, IF GIVEN OR MADE, AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
Central Maine Power Company
The Letter of Transmittal and any other required documents should be
sent or delivered by each Shareholder, the relevant DTC participant or such
Shareholder's broker, dealer, commercial bank, trust company or other nominee to
the Depositary at its address set forth below:
The Depositary for the Offer is:
Boston EquiServe
Delivery Addresses:
By Mail: By Hand: By Overnight Courier:
Boston EquiServe Securities Transfer & Boston EquiServe
Corporate Reorganization Reporting Services, Inc. Corporate Reorganization
Mail Stop: 45-01-40 (STARS) Mail Stop: 45-01-40
P. O. Box 8029 1 Exchange Plaza 150 Royall Street
Boston, MA 02266 55 Broadway - 3rd Floor Canton, MA 02021
New York, NY
To Confirm:
800-736-3001
Any questions or requests for assistance or for additional copies of
this Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone number and
address below. Shareholders may also contact the relevant DTC participant or
their broker, dealer, commercial bank or trust company for assistance concerning
the Offer.
The Information Agent for the Offer is:
Kathleen Powers
c/o Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Tel: 207-626-9793
Fax: 207-626-9588
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
TO TENDER
SHARES OF FLEXIBLE MONEY MARKET PREFERRED STOCK(TM),
SERIES A, 7.999%
OF
CENTRAL MAINE POWER COMPANY
PURSUANT TO THE OFFER TO PURCHASE DATED MAY 8, 1998
AT A PURCHASE PRICE OF $108.00 PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JUNE 8, 1998, UNLESS THE
OFFER IS EXTENDED. THE TENDERED SHARES MAY ALSO BE
WITHDRAWN, IF NOT YET ACCEPTED FOR PAYMENT, AT ANY TIME
AFTER 9:00 A.M., NEW YORK CITY TIME, ON JULY 3, 1998.
To: Boston EquiServe, the Depositary
By Mail: By Hand: By Overnight Courier:
Boston EquiServe Securities Transfer & Boston EquiServe
Corporate Reorganization Reporting Services, Inc. Corporate Reorganization
Mail Stop: 45-01-40 (STARS) Mail Stop: 45-01-40
P. O. Box 8029 1 Exchange Plaza 150 Royall Street
Boston, MA 02266 55 Broadway - 3rd Floor Canton, MA 02021
New York, NY
To Confirm:
800-736-3001
THIS LETTER OF TRANSMITTAL IS TO BE USED BY SHAREHOLDERS WHO ARE
TENDERING SHARES PURSUANT TO THE OFFER.
DO NOT SEND THIS LETTER OF TRANSMITTAL OR ANY DOCUMENT TO THE
INFORMATION AGENT OR TO CENTRAL MAINE POWER COMPANY.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE
THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR
A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION"
BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. QUESTIONS AS TO HOW TO
COMPLETE THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO KATHLEEN POWERS, THE
INFORMATION AGENT, AT CENTRAL MAINE POWER COMPANY, TELEPHONE 207-626-9793.
Shareholders who wish to tender Shares but cannot deliver their Shares
and all other documents required hereby to the Depositary on or prior to the
Expiration Time must tender their Shares pursuant to the guaranteed delivery
procedure set forth in Section 2 in the Offer to Purchase. See Instruction 2.
All capitalized terms used herein and not defined herein have the meanings
ascribed to them in the Offer to Purchase.
PLEASE COMPLETE:
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
Shares Tendered
- --------------------------- ----------------------------------------------------
- --------------------------- ------------ ---------------------- ----------------
Total Number of Shares
Name(s) and Address(es) of Certificate Represented by Number of Shares
Registered Holder(s) Number(s) Certificates* Tendered**
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
CEDE & CO. N/A N/A
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
- --------------------------- ------------ ---------------------- ----------------
* Need not be completed by Shareholders tendering by book-entry transfer.
** Unless otherwise indicated in this column, it will be assumed
that all Shares represented by any certificate delivered to the
Depositary are being tendered. See Instruction 4.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT DTC, AND COMPLETE THE
FOLLOWING:
Name of tendering institution:
-------------------------------------------------------
Account Number:
-------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY, AND COMPLETE THE
FOLLOWING:
Name(s) of tendering Shareholder(s):
-------------------------------------------------------
Date of execution of Notice of Guaranteed Delivery:
-------------------------------------------------------
Name of institution that guaranteed delivery:
-------------------------------------------------------
If delivery is by book-entry transfer:
Name of tendering institution:
-------------------------------------------------------
Account Number at DTC:
-------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE PRECEDING AND FOLLOWING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to Central Maine Power Company's (the "Company's") offer to
purchase up to 200,000 shares of its Flexible Money Market Preferred Stock(TM),
Series A, 7.999% (the "Shares") as to which this Letter of Transmittal is
applicable, the undersigned hereby tenders to the Company the Shares in the
amount set forth in the box entitled "Description of Shares Tendered," at
$108.00 per Share (the "Purchase Price"), net to the undersigned in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated May 8, 1998 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which Offer to Purchase and
Letter of Transmittal together constitute the "Offer"). THE OFFER IS NOT
CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS,
HOWEVER, SUBJECT TO SATISFACTION OF CERTAIN OTHER CONDITIONS. See Section 5 in
the Offer to Purchase.
Subject to, and effective upon, acceptance for payment of and payment
for the Shares tendered hereby in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby and
hereby constitutes and appoints Boston EquiServe (the "Depositary") the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Shares, with full power of substitution (such power of attorney being an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Shares, or transfer ownership of such Shares on the account books
maintained by The Depository Trust Company ("DTC"), together, in any such case,
with all accompanying evidences of transfer and authenticity, to or upon the
order of the Company, (b) present such Shares for registration and transfer on
the books of the Company and (c) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares, all in accordance with the terms
of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and that, when and to the extent the same are accepted for
payment by the Company, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to the
sale or transfer thereof, and the same will not be subject to any adverse
claims. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Depositary or the Company to be necessary or desirable
to complete the sale, assignment and transfer of the Shares tendered hereby.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive, the death or incapacity of the undersigned, and
any obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any of
the procedures described in Section 2 in the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (a) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (b) the tender of
such Shares complies with Rule 14e-4. The Company's acceptance for payment of
Shares tendered pursuant to the Offer will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth
in the Offer to Purchase, the Company may terminate or amend the Offer or may
not be required to purchase any of the Shares tendered hereby.
Unless otherwise indicated in the box below under the heading "Special
Payment Instructions," please issue the check for the Purchase Price of any
Shares purchased, and/or return any Shares not tendered, by credit to the
account at DTC. Unless otherwise indicated in the box below under the heading
"Special Delivery Instructions," please mail the check for the Purchase Price of
any Shares purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below. In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
the check for the Purchase Price of any Shares purchased and/or return any
Shares not tendered or not purchased in the name(s) of, and mail said check
and/or any certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation, pursuant to the "Special Payment
Instructions," to transfer any Shares from the name of the registered holder(s)
thereof if the Company does not accept for payment any of the Shares so
tendered.
SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if the check for the Purchase Price of Shares
purchased is to be ISSUED in the name of someone other than the undersigned.
Issue Check and/or Certificate(s) to:
Name:
---------------------------------
(Please Print)
Address:
---------------------------------
---------------------------------
---------------------------------
(include zip code)
Tax identification or social security
number:*
---------------------------------
* SEE SUBSTITUTE FORM W-9 BELOW.
SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 4 ,5, AND 7)
To be completed ONLY if the check for the Purchase Price of Shares
purchased and/or certificates for Shares not tendered or not purchased are to be
MAILED to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail Check to:
Name:
---------------------------------
(Please Print)
Address:
---------------------------------
---------------------------------
---------------------------------
(include zip code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN
AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. SEE INSTRUCTION 11.
Number of shares represented by the lost, destroyed or stolen
certificates:
--------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company (not a savings bank or savings and loan association) having an office,
branch or agency in the United States which is a participant in an approved
Signature Guarantee Medallion Program (each such entity being hereinafter
referred to as an "Eligible Institution"). Signatures on this Letter of
Transmittal need not be guaranteed if (i) this Letter of Transmittal is signed
by the registered holder(s) of the Shares (which term, for purposes of this
document, shall include any participant in DTC whose name appears on a security
position listing as the holder of the Shares) tendered hereby and such holder(s)
has not completed the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal, or (b)
if such Shares are tendered for the account of an Eligible Institution. In all
other cases, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be used either if share
certificates are to be forwarded herewith or if delivery of Shares is to be made
by book-entry transfer pursuant to the procedures set forth in Section 2 of the
Offer to Purchase. Certificates for all physically delivered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at DTC of
all Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal and any other documents required by this Letter
of Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal prior to the Expiration
Time. If certificates are forwarded to the Depositary in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery.
Shareholders who wish to tender their Shares, but their share
certificates are not immediately available, who cannot deliver their Shares and
all other required documents to the Depositary or who cannot complete the
procedure for delivery by book-entry transfer prior to the Expiration Time must
tender their Shares pursuant to the guaranteed delivery procedure set forth in
Section 2 of the Offer to Purchase. Pursuant to such procedure: (i) such tender
must be made by or through an Eligible Institution, (ii) a properly completed
and duly executed Notice of Guaranteed Delivery substantially in the form
provided by the Company (with any required signature guarantees) must be
received by the Depositary prior to the Expiration Time and (iii) the
certificates for all physically delivered Shares in proper form for transfer by
delivery, or a confirmation of a book-entry transfer into the Depositary's
account at DTC of all Shares delivered electronically, in each case together
with a properly completed and duly executed Letter of Transmittal and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three business days after the date the Depositary receives
such Notice of Guaranteed Delivery, all as provided in Section 2 of the Offer to
Purchase.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES,
THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION
AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal, the tendering Shareholder waives any right
to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS (Not Applicable to Shareholders Who Tender by
Book-Entry Transfer). If fewer than all the Shares represented by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In such case, a new certificate for the remainder of the Shares
represented by the old certificate will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the "Special Payment
Instructions" or "Special Delivery Instructions" boxes on this Letter of
Transmittal, as promptly as practicable following the expiration or termination
of the Offer. All Shares represented by certificates delivered to the Depositary
will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL AND NOTICE OF GUARANTEED
DELIVERY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal or
the Notice of Guaranteed Delivery (each a "Tender Document" and together, the
"Tender Documents") is signed by the registered holder(s) of the Shares tendered
hereby, the signatures(s) must correspond with the name(s) as written on the
face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered under either Tender Document is held of
record by two or more persons, all such persons must sign such Tender Document.
If any of the Shares tendered under either Tender Document are registered in
different names on different certificates, it will be necessary to complete,
sign and submit as many separate Tender Documents as there are different
registrations of certificates.
If either Tender Document is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s), in which case the certificate(s) evidencing
the Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appear(s) on such certificates. Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution. See Instruction 1.
If either Tender Document is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates evidencing the
Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the name(s) of the registered
holder(s) appear(s) on such certificate(s). Signature(s) on any such
certificates or stock powers must be guaranteed by an Eligible Institution. See
Instruction 1.
If either Tender Document or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. Except as provided in this Instruction 6, the
Company will pay or cause to be paid any stock transfer taxes with respect to
the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the Purchase Price is to be made to, or Shares not
tendered or not purchased are to be registered in the name of, any person other
than the registered holder(s), or if tendered Shares are registered in the name
of any person other than the person(s) signing this Letter of Transmittal, the
amount of any stock transfer taxes (whether imposed on the registered holder(s),
such other person or otherwise) payable on account of the transfer to such
person will be deducted from the Purchase Price unless satisfactory evidence of
the payment of such taxes, or exemption therefrom, is submitted. Each
Shareholder will be responsible for paying any income or gross receipts taxes
imposed by any jurisdiction by reason of the sale of the Shares in the Offer.
See Section 4 in the Offer to Purchase.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the
Purchase Price of any Shares tendered hereby is to be issued in the name of,
and/or any Shares not tendered or not purchased are to be returned to, a person
other than the person(s) signing this Letter of Transmittal, or if the check
and/or any certificates for Shares not tendered or not purchased are to be
mailed to someone other than the person(s) signing this Letter of Transmittal or
to an address other than that shown above in the box captioned "Description of
Shares Tendered," then the boxes captioned "Special Payment Instructions" and/or
"Special Delivery Instructions" in this Letter of Transmittal should be
completed. Shareholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such Shareholder at DTC.
8. SUBSTITUTE FORM W-9 AND FORM W-8. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
Shareholder or other payee pursuant to the Offer must be withheld and remitted
to the United States Treasury, unless the Shareholder or other payee provides
such person's taxpayer identification number (employer identification number or
social security number) to the Depositary and certifies that such number is
correct. Therefore, each tendering Shareholder should complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal so as to
provide the information and certification necessary to avoid backup withholding,
unless such Shareholder otherwise establishes to the satisfaction of the
Depositary that it is not subject to backup withholding. Certain Shareholders
(including, among others, all corporations and certain foreign Shareholders (in
addition to foreign corporations)) are not subject to these backup withholding
and reporting requirements. In order for a foreign Shareholder to qualify as an
exempt recipient, that Shareholder must submit an IRS Form W-8 or a Substitute
Form W-9, signed under penalties of perjury, attesting to that Shareholder's
exempt status. Such statements may be obtained from the Depositary.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or
requests for assistance may be directed to the Information Agent at the
telephone number and address listed at the end of this Letter of Transmittal.
Requests for additional copies of the Offer to Purchase, this Letter of
Transmittal or other tender offer materials may be directed to the Information
Agent, and such copies will be furnished promptly at the Company's expense.
Shareholders may also contact their broker, dealer, commercial bank or trust
company for documents relating to, or assistance concerning, the Offer.
10. IRREGULARITIES. All questions as to the number of Shares to be
accepted, the price to be paid therefor and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Company, in its sole discretion, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders that it determines to be in improper form or
the acceptance of or payment for which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive any
of the conditions of the Offer and any defect or irregularity in the tender of
any particular Shares or any particular Shareholder. No tender of Shares will be
deemed to be validly made until all defects or irregularities have been cured or
waived. None of the Company, the Depositary, the Information Agent or any other
person is or will be obligated to give notice of any defects or irregularities
in tenders, and none of them will incur any liability for failure to give any
such notice. Tenders will not be deemed to have been made until all defects and
irregularities have been cured or waived.
11. LOST, STOLEN OR DESTROYED CERTIFICATES. If your certificate(s)
representing Shares have been lost, stolen or destroyed, indicate the occurrence
of such event on the front of this Letter of Transmittal. The Depositary will
send you additional documentation that will need to be completed to effectively
surrender such lost, stolen or destroyed certificates.
12. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1
of the Offer to Purchase, Shareholders may designate the order in which their
Shares are to be purchased in the event of proration. The order of purchase may
affect whether any capital gain or loss recognized on the Shares purchased is
long-term or short-term (depending on the holding period for the Shares
purchased) and the amount of gain or loss recognized for federal income tax
purposes. See Sections 1 and 13 of the Offer to Purchase.
IMPORTANT: THIS LETTER OF TRANSMITTAL TOGETHER WITH SHARE CERTIFICATES OR
CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION TIME. SHAREHOLDERS ARE
ENCOURAGED TO RETURN A COMPLETED SUBSTITUTE FORM W-9 WITH THEIR LETTER OF
TRANSMITTAL.
IMPORTANT TAX INFORMATION
Under Federal income tax law, a Shareholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such Shareholder's correct taxpayer identification number ("TIN") on
Substitute Form W-9 below or a properly completed Form W-8. If such Shareholder
is an individual, the TIN is such Shareholder's social security number. For
businesses and other entities, the number is the Federal employer identification
number. If the Depositary is not provided with the correct TIN or properly
completed Form W-8, the Shareholder may be subject to a $50 penalty imposed by
the Internal Revenue Service. In addition, payments that are made to such
Shareholder with respect to Shares purchased pursuant to the Offer may be
subject to Federal income tax backup withholding. The Form W-8 can be obtained
from the Depositary. For additional instructions, see the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9," a copy
of which can be obtained from the Depositary.
If Federal income tax backup withholding applies, the Depositary is
required to withhold 31% of any payments made to the Shareholder. Backup
withholding is not an additional tax. Rather, the Federal income tax liability
of persons subject to backup withholding will be reduced by the amount of the
tax withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid Federal income tax backup withholding on payments that are
made to a Shareholder with respect to Shares purchased pursuant to the Offer,
the Shareholder is required to notify the Depositary of his or her correct TIN
by completing the Substitute Form W-9 below certifying that the TIN provided on
Substitute Form W-9 is correct and that (a) the Shareholder has not been
notified by the Internal Revenue Service that he or she is subject to Federal
income tax backup withholding as a result of failure to report all interest or
dividends or (b) the Internal Revenue Service has notified the Shareholder that
he or she is no longer subject to Federal income tax backup withholding. Foreign
Shareholders must submit a properly completed Form W-8 in order to avoid the
applicable backup withholding; provided, however, that Federal income tax backup
withholding will not apply to foreign Shareholders subject to 30% (or lower
treaty rate) withholding on gross payments received pursuant to the Offer.
Foreign Shareholders that submit a properly completed Form W-8 may nevertheless
be subject to withholding under other provisions of the Internal Revenue Code of
1986, as amended, relating to payments received by them.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Shareholder is required to give the Depositary the social security
number or employer identification number of the registered owner of the Shares.
IF THE SHARES ARE IN MORE THAN ONE NAME OR ARE NOT IN THE NAME OF THE ACTUAL
OWNER, CONSULT THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9," A COPY OF WHICH CAN BE OBTAINED FROM THE
DEPOSITARY, FOR ADDITIONAL GUIDANCE ON WHICH NUMBER TO REPORT.
SUBSTITUTE FORM W-9
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION
PAYER'S NAME: BOSTON EQUISERVE, AS DEPOSITARY
PAYEE INFORMATION:
Check appropriate box:
Individual/Sole Proprietor
Corporation
Partnership
Other _______________
Address (number, street, and apt. or suite no.): _______________________________
City, state, and zip code: _____________________________________________________
PART I: TAXPAYER IDENTIFICATION NUMBER ("TIN")
Enter your TIN below. For individuals, this is your social security number. For
other entities, it is your employer identification number. Refer to the chart on
page 1 of the "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" (the "Guidelines") for further clarification. If you do not
have a TIN, see instructions on how to obtain a TIN on page 2 of the Guidelines,
check the appropriate box below indicating that you have applied for a TIN and,
in addition to the Part III Certification, sign the attached Certification of
Awaiting Taxpayer Identification Number.
Social Security Number: ________________
Employer Identification Number: ________________
Applied For:
PART II: PAYEES EXEMPT FROM BACKUP WITHHOLDING
Check box (See page 2 of the Guidelines for further clarification. Even if you
are exempt from backup withholding, you should still complete and sign the
certification below):
Exempt:
PART III: CERTIFICATION:
Certification Instructions: You must cross out item (2) below if you have been
notified by the IRS that you are currently subject to backup withholding because
of under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). Also, see instructions in the
Guidelines.
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
SIGNATURE: __________________________________ DATE: ______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver such an application in the near future. I understand
that if I do not provide a taxpayer identification number within sixty (60)
days, 31% of all reportable payments made to me thereafter in connection with
the Offer will be withheld until I provide a number.
SIGNATURE: __________________________________ DATE: ______________
Any questions or requests for assistance or additional copies of the
Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery
or other materials may be directed to the Information Agent at the address and
telephone number set forth below.
The Information Agent for the Offer is:
Kathleen Powers
c/o Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Tel: 207-626-9793
Fax: 207-626-9588
Shareholders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
EXHIBIT (a)(3)
NOTICE OF GUARANTEED DELIVERY
FOR
CENTRAL MAINE POWER COMPANY
OFFER TO PURCHASE FOR CASH UP TO 200,000 SHARES
OF ITS FLEXIBLE MONEY MARKET PREFERRED STOCK(TM), SERIES A,
7.999%, AT A PURCHASE PRICE OF $108.00 PER SHARE
This form, or a form substantially equivalent to this form, must be
used to accept the Offer (as defined below) if certificates for the Flexible
Money Market Preferred Stock(TM), Series A, 7.999%, par value $100 per share
(the "Shares") of Central Maine Power Company, a Maine corporation (the
"Company"), to be tendered pursuant to the Offer are not immediately available,
or if the procedure for book-entry transfer cannot be completed on a timely
basis, or if time will not permit all other documents required by the Letter of
Transmittal to be delivered to the Depositary on or prior to the Expiration
Time. Such form may be delivered by hand or transmitted by mail to the
Depositary. See Section 2 in the Offer to Purchase. All capitalized terms used
herein and not defined herein have the meanings ascribed to them in the Offer to
Purchase.
To: Boston EquiServe, the Depositary
By Mail: By Hand: By Overnight Courier:
Boston EquiServe Securities Transfer & Boston EquiServe
Corporate Reorganization Reporting Services, Inc. Corporate Reorganization
Mail Stop: 45-01-40 (STARS) Mail Stop: 45-01-40
P. O. Box 8029 1 Exchange Plaza 150 Royall Street
Boston, MA 02266 55 Broadway - 3rd Floor Canton, MA 02021
New York, NY
To Confirm:
800-736-3001
THE ELIGIBLE INSTITUTION WHICH COMPLETES THIS FORM MUST DELIVER THE LETTER
OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME
SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE
INSTITUTION.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated May 8, 1998
(the "Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, the number of
Shares listed below, pursuant to the guaranteed delivery procedure set forth in
Section 2 in the Offer to Purchase.
Number of Shares: ______________________________________
Certificate Nos. (if available): ______________________________________
______________________________________
Signature(s) of Registered Holder(s)*:_________________________________
(SIGNATURE)
_________________________________
(SIGNATURE)
Name(s): ______________________________________
______________________________________
Capacity (full title): ______________________________________
______________________________________
Address: ______________________________________
______________________________________
Area Code and Telephone Number: ______________________________________
* Must be signed by the registered holder(s) exactly as name(s) appear(s)
on the stock certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or
other person acting in a fiduciary or representative capacity, please
set forth full title and see Instruction 5 to the Letter of
Transmittal.
ELIGIBLE INSTITUTIONS OR BROKERS TO COMPLETE
If Shares will be delivered by book-entry transfer through DTC:
Name of Tendering Institution: _______________________________
DTC Account No.: _______________________________
Signature(s): _______________________________
_______________________________
Name(s) of Record Holder(s): _______________________________
_______________________________
Address: _______________________________
_______________________________
Area Code and Telephone No.: _______________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5 OF THE LETTER OF TRANSMITTAL)
Authorized Signature: __________________________________
Name: __________________________________
Capacity (Full Title): __________________________________
Name of Firm: __________________________________
Address of Firm: __________________________________
__________________________________
Area Code and Telephone No.:__________________________________
Dated: __________________________________
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company (not a savings bank or savings and
loan association) having an office, branch, or agency in the United States which
is a participant in an approved Signature Guarantee Medallion Program,
guarantees (a) that the above-named person(s) has a net long position in the
Shares being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended, (b) that such tender of Shares
complies with such Rule 14e-4 and (c) to deliver to the Depositary at one of its
addresses set forth above certificate(s) for the Shares tendered hereby, in
proper form for transfer, or a confirmation of the book-entry transfer of the
Shares tendered hereby into the Depositary's account at The Depository Trust
Company, in any case together with a properly completed and duly executed
Letter(s) of Transmittal, with any required signature guarantee(s) and any other
required documents, all within three New York Stock Exchange ("NYSE") trading
days after the date hereof. A NYSE trading day is any day on which the NYSE is
open for business.
- -------------------------------------- ------------------------------------
Name of Firm Authorized Signature
- -------------------------------------- ------------------------------------
Address Name
- -------------------------------------- ------------------------------------
City, State, Zip Code Title
- -------------------------------------- ------------------------------------
Area Code and Telephone Number Dated
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK CERTIFICATES MUST BE
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EXHIBIT (g)(1)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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. The Company
undertakes 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 also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the facts which affect the Company's business.
Factors that could cause actual results to differ materially include,
among other matters, the permanent closure and decommissioning of the Maine
Yankee nuclear generating plant and resulting regulatory proceedings; the actual
costs of decommissioning the Maine Yankee plant; outages at the other generating
units in which the Company holds interests; electric utility restructuring,
including the ongoing state and federal activities; the results of the Company's
planned sale of its generating assets; the Company's ability to recover its
costs resulting from the January 1998 ice storms; future economic conditions;
earnings-retention and dividend-payout policies; developments in the
legislative, regulatory, and competitive environments in which the Company
operates, including regulatory treatment of stranded costs; the Company's
investments 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.
Overview
As in 1996, the Company experienced higher-than-normal operations costs in 1997
from its interest in nuclear generation, particularly its 38 percent interest in
the now-closed Maine Yankee Plant, and incurred significant costs replacing
their energy. Maine Yankee went off-line for repairs in December 1996. On August
6, 1997 the Maine Yankee Atomic Power Company Board of Directors voted
unanimously to close the plant permanently for economic reasons. The Company
incurred additional expenses of $46.0 million in 1997 to replace Maine Yankee
energy and pay its share of increased repair and other operations at the plant.
These costs were the major factor in the deterioration of the per-share earnings
from $1.57 in 1996 to $0.16 in 1997. The Company expects its share of Maine
Yankee costs to decrease by approximately $30.0 million in 1998 as the plant
moves toward decommissioning. See "Permanent Shutdown of Maine Yankee Plant"
below for further discussion. In addition, $5.0 million of increased expense
over 1996 was incurred to replace energy for the Millstone Unit 3 plant in
Connecticut, which was taken off-line for safety modifications and requires U.S.
Nuclear Regulatory Commission approval to restart and the Connecticut Yankee
Plant, closed permanently on December 4, 1996, and now being decommissioned.
The increased expenses could have a minor ratemaking impact. The Company's
earnings level will trigger the sharing provision of the Alternative Rate Plan
(ARP). The ARP, which took effect January 1, 1995, with regulatory approval,
provides for annual July 1 adjustments to price caps on the Company rates. The
adjustments are keyed to prior-year inflation and to measures of utility
performance.
Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points,
above or below the 10.55 percent rate of return allowance, triggers the profit
sharing mechanism. A return below the low end of the range provides for
additional revenue through rates equal to one-half of the difference between the
actual earned rate of return, 1.04 percent in 1997, and the 7.05 percent (10.55
- - 3.50) low end of the bandwidth. The Company remains committed nonetheless to
its public pledge to hold price increases at or below the rate of inflation. In
its annual ARP compliance filing in March 1998, the Company requested a
price-cap increase of 1.8 percent consistent with that pledge, which includes
only a small component related to earnings sharing.
The Company also plans to seek reimbursement for its costs of restoring service
to its customers after the severe ice storm of January 7 through 9, 1998 and a
second storm that struck part of the Company's service territory on January 24,
1998. The incremental costs of the repair efforts estimate is $60 to $65
million. Most of the expense was labor-related. The Company used hundreds of
crews from out-of-state utilities, tree companies, and construction firms to
repair unprecedented damage that included more than 2,500 broken utility poles.
The two storms required more than 400,000 service restorations.
A January 15, 1998 order of the MPUC allowed the Company to defer such
incremental costs on its books pending the Company's filing under the ARP, which
allows the PUC to consider and provide recovery for costs of "extraordinary
events" that have a significant impact on the utility and are not reflected in
the general indexing formula. The Company's basic rates include a provision for
"average" levels of tree trimming and outage repair as a normal cost of
supplying service. The basic rates do not include rainy-day provisions for
once-in-a-century-or-worse disasters like the January ice storms. The Company is
pursuing available means of mitigating the cost impact of the storms, including
any federal assistance that may be available.
CMP announced on January 6 that it had agreed to sell its hydro, oil-fired, and
biomass generation to Florida-based FPL Group for $846 million. If the
regulatory agencies approve the sale, approximately $500 million of the value
received could be applied to CMP's estimated $1.3 billion of stranded costs or
other obligations, reducing the amount of revenue that must be produced from
each unit of kilowatt-hour sales to recover those costs. The asset sale was
required by Maine's 1997 electric-restructuring law, which mandated retail
competition in electricity in March 2000. The utility is still seeking buyers
for its storage dams, non-utility-power contract energy, and its share of a
regional transmission tie to Quebec.
The Company continues to face the challenges of competition and industry
restructuring, and must achieve and maintain financial performance and resources
commensurate with both the provision of service demanded by customers and the
obligation to achieve competitive returns on investor capital.
Results of Operations
The Company generated net income of $13.4 million in 1997, compared to $60.2
million in 1996, and $38.0 million in 1995. Earnings applicable to common stock
were $5.2 million in 1997 or $0.16 per share, compared to $50.8 million or $1.57
per share in 1996 and $27.8 million or $0.86 per share in 1995. Once again the
replacement power and other costs related to the now-closed Maine Yankee nuclear
plant were the main factors that eroded per-share earnings in 1997.
The Company incurred additional expenses of $46.0 million in 1997 to replace
Maine Yankee energy and to pay its share of increased repair and other
operations at the Plant. In addition, shutdowns at the Millstone Unit No. 3 and
Connecticut Yankee Plants increased 1997 replacement-power cost by $5.0 million.
The Company's 1996 after-tax financial results benefited by approximately $15.3
million, or $0.47 per share, from non-recurring items related to settlement of
federal income-tax issues, an extended outage at a non-utility generator under
contract to sell energy to CMP, and other items not applicable to 1997.
Dividends declared per common share have remained at $0.90 on an annual basis
for the three years ended December 31, 1997.
Revenues and Sales
Electric operating revenues decreased by $12.9 million or 1.3% to $954.2 million
in 1997, and increased by $51.0 million or 5.6% to $967.0 million in 1996. Lower
non-territorial energy sales - a consequence of Maine Yankees being off-line and
reducing the Company's total energy supply - were the main factor in the revenue
decline in 1997. However, service-area revenues did rise 2.2 percent to $890.2
million. The components of the change in electric operating revenues are as
follows:
<TABLE>
(Dollars in millions) 1997 1996
---- ----
<S> <C> <C>
Revenues from Company service-area kilowatt-hour sales $17.9 $15.0
Revenues from non-territorial sales (27.1) 33.4
Other Company operating revenues (1.5) 3.0
Maine Electric Power Company, Inc. fuel cost recovery and other revenues
(2.2) (0.4)
Total Change in Electric Operating Revenues $(12.9) $51.0
==== ====
</TABLE>
Refer to "Alternative Rate Plan" section, for a discussion of new rates and
their impact on revenues.
The Company's service-area sales for the years 1997, 1996 and 1995 are shown in
the following table:
<TABLE>
(Kilowatt-hours in millions)
1997 1996 1995
---- ---- ----
% % %
KWH change KWH change KWH change
<S> <C> <C> <C> <C> <C> <C>
Residential 2,817 (0.4)% 2,829 1.0% 2,802 (2.0)%
Commercial 2,529 1.6 2,489 0.5 2,477 1.6
Industrial 3,784 2.6 3,689 4.0 3,547 (4.7)
Wholesale and
lighting 228 5.3 217 58.9 136 (8.7)
----- --- ------ ---- ------ ----
Total Service-
Area Sales 9,358 1.5 % 9,224 2.9% 8,962 (2.2)%
===== === ===== === ===== ====
</TABLE>
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 the Company's water-heating programs, increased sales in the
pulp and paper industry, and the addition of a wholesale customer. The decrease
in 1995 was attributed to low economic growth, the loss of a major industrial
customer in September 1994, energy management, and loss of sales due to
conversions from electricity to alternative fuels for such purposes as space and
water heating.
The average number of residential customers increased by 4,822 in 1997, 5,157 in
1996, and 5,076 in 1995, while average usage per residential customer declined
1.5% in 1997, 0.15% in 1996 and 3.1% in 1995.
The 1997 increase in commercial sales reflects increases in transportation,
retail trade and service sectors. Combined, these sectors comprise approximately
79% of commercial sales. Sales to all others in the commercial sector were lower
than 1996. Sales to Maine Yankee increased by 1.7 million kilowatt hours in 1997
and by 4 million kilowatt hours in 1996 due to the Plant's extended outages in
both periods and the ultimate permanent shutdown of the plant in August 1997.
Industrial sales levels are significantly affected by sales to the
pulp-and-paper industry, which accounts for approximately 60% of industrial
sales and approximately 24% of total service-area sales. Sales to the
pulp-and-paper sector decreased by 0.8% in 1997 and increased by 3.7% in 1996,
and decreased by 8.6% in 1995. 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 the Company has made with several paper companies
to back down some of their self-generation and buy electricity from the Company
at a discounted rate. The 1995 decrease reflects lower sales levels primarily
due to the late-1994 loss of a major customer that had previously purchased
approximately 280 million kilowatt-hours annually. 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 the Company's actions to
preserve its remaining large-industrial-customer base and other customer groups.
Sales to all other industrial customers as a group increased 8.2% in 1997, 4.5%
in 1996 and 2.7% in 1995.
Alternative Rate Plan
In December 1994, the MPUC approved a stipulation, signed by most of the parties
to the Company's ARP proceeding, which took effect January 1, 1995. This
follow-up proceeding to the Company's 1993 base-rate case was ordered by the
MPUC in an effort to develop a five-year plan containing price-cap,
profit-sharing, and pricing-flexibility components. The price-cap mechanism
provides for adjusting the Company's retail rates annually on July 1, commencing
in 1995, at 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 the Company's retail rates, and includes
fuel-and-purchased-power costs that previously had been treated separately. The
components of the July 1, 1995, price-cap increase of 2.43% are the inflation
index of 2.92%, reduced by a productivity offset of 0.5%, and increased by 0.01%
for flow-through items and mandated costs. The components of the July 1, 1996,
price-cap increase of 1.26% consisted of an inflation index of 2.55% and
earnings sharing and mandated cost items of 0.64%, reduced by a productivity
offset of 1.0%, and sharing of contract restructuring and buyout savings of
0.93%. The components of the July 1, 1997 price cap increase of 1.10% consisted
of an inflation index of 2.12% reduced by a productivity and qualified facility
("QF") offset of 1.42% and increased by 0.40% for flowthrough items and mandated
costs. As originally stated in the MPUC's order approving the ARP, operation
under the ARP continues to meet the criteria of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS No. 71). As a result, the Company will continue to apply the
provisions of SFAS No. 71 to its accounting transactions and to its financial
statements.
The Company believes the ARP provides the benefits of needed pricing flexibility
to set prices between defined floor and ceiling levels in three service
categories: (1) existing customer classes, (2) new customer classes for optional
targeted services, and (3) special-rate contracts. The Company believes that the
added flexibility will position it more favorably to meet the competition from
other energy sources that has eroded segments of its customer base. Some price
adjustments can be implemented upon 30-days' notice by the Company, while
certain others are subject to expedited review by the MPUC. The Company has
utilized this feature in providing new rates to approximately 29,000 customers
representing approximately 45% of annual kilowatt-hour sales and 32% of
service-area revenues. 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.
The ARP also contains provisions to protect the Company and ratepayers against
unforeseen adverse results from its operation. These include review by the MPUC
if the Company's actual return on equity falls outside a designated range, a
mid-period review of the ARP by the MPUC in 1997 (including possible
modification or termination), and a "final" review by the MPUC in 1999 to
determine whether or with what changes the ARP should continue after 1999.
Significant results of the 1997 mid-period review were an increase to 11.5% in
the ROE used for earnings sharing (effective with the July 1999 price change)
and reaffirmation by the MPUC to allow the Company to meet the requirements
established by SFAS No. 71. The Company submitted its 1998 compliance filing in
March 1998.
While the ARP provides the Company with an expanded opportunity to be rewarded
for efficiency, it also presents the risk of reduced rates of return if costs
rise unexpectedly, like those that have resulted from the recent outages at
Maine Yankee, or if revenues from sales decline or are not adequate to fund
costs. The Company believes the ARP continues to be a competitive advantage.
For a detailed discussion of the ARP, refer to Note 3 to Consolidated Financial
Statements, "Regulatory Matters" - "Alternative Rate Plan," and "Meeting the
Requirements of SFAS 71."
Restructuring Legislation
MPUC Proceeding to Set Prices for Transmission and Distribution Business
The MPUC initiated a proceeding for the Company in which the MPUC would
determine the prices to be charged by the transmission and distribution business
beginning in March 2000. See Note 3 "Regulatory Matters" - "Industry
Restructuring and Strandable Costs." On December 5, 1997, the Company presented
its revenue requirement justification, including stranded costs, to the MPUC.
The Company's filing reflected an annual transmission and distribution revenue
requirement of $295.2 million and also reflected recovery of an estimated net
present value $1.3 billion in stranded costs. The Company's estimated stranded
costs amount did not include the effects of the sale of generating assets
discussed below.
Subsequently, the Company supplemented its filing by updating its revenue
requirement calculations, including recovery of stranded costs, on February 10,
1998, to reflect an estimate of the effect of the sale of generating assets on
stranded costs and other items. Additionally, the Company's February 10, 1998
filing included its proposal for the design of prices for the transmission and
distribution business, beginning March 2000. The Company's supplemental filing
reflects an annual transmission and distribution revenue requirement of $280.5
million and recovery of an estimated net present value $0.8 billion in stranded
costs. The total annual revenue amount requested to be included in transmission
and distribution prices beginning March 2000 is $449.5 million. The sale of
generating assets should allow the Company to reduce its stranded costs
obligations from the previously estimated $1.3 billion to the now anticipated
$0.8 billion. The Company is requesting a return on equity of 12.5% and an
increase in the common equity ratio from the current 40% to a desired 55%. The
Company's rate design proposal reflects an approach that is expected to minimize
customer confusion and bill impacts as retail choice begins in March 2000.
However, the Company does recommend a movement to less variable and more fixed
rate components over time as stranded cost recovery decreases and in a manner
that will not significantly impact any customers. The Company is unable to
predict with certainty the outcome of the MPUC proceeding establishing prices
for its transmission and distribution business. The MPUC is expected to reach a
decision in late 1998 and provide for a limited update for certain items closer
to March 2000.
Agreement for Sale of Company's Generation Assets
On April 28, 1997, the Company announced a plan to seek proposals to purchase
its generating assets and, as part of an auction process, received final bids on
December 10, 1997. On January 6, 1998, the Company 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 $18 million for assets sold by Union Water Power Company, a subsidiary
of the Company, to Florida-based FPL Group, the winning bidder in the auction
process.
The hydropower assets to be included in the sale represent approximately 373
megawatts of generating capacity. The fossil-fueled assets included in the sale
consist of the Company's interest in the William F. Wyman steam plant in
Yarmouth, Maine, the largest of the Company's three fossil-fueled generating
assets at 594 megawatts, Mason Station in Wiscasset, Maine, at 145 megawatts,
and Cape Station in South Portland, Maine, at 42 megawatts. The sole biomass
plant is the 31-megawatt unit in Fort Fairfield, Maine, owned by a wholly-owned
subsidiary of the Company.
The Company'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 present sale. The Company
will continue to seek buyers for those assets. The Company 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.
The electric utility restructuring law passed by the Maine Legislature in the
spring of 1997 requires the Company to divest its generating plants and
power-purchase agreements by March 1, 2000, when its customers will be free to
choose among competitive energy suppliers, but the Company elected to conduct an
earlier sale. In addition, as part of its agreement with FPL Group, the Company
entered into energy buy-back agreements to assist in fulfilling its obligation
to supply its customers with power until March 1, 2000.
Substantially all of the generating assets included in the sale are subject to
the lien of the Company'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 with the trustee under the Indenture at the closing
of the sale to free the generating assets from the lien of the Indenture.
Proceeds on deposit with the trustee may be used by the Company to redeem or
repurchase bonds under the terms of the Indenture, including the possible
discharge of the Indenture. In addition, the proceeds could provide the
flexibility to redeem or repurchase outstanding equity securities. The Company
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,
market conditions and terms of outstanding securities.
The bid value in excess of the remaining investment in the power plants will
reduce the Company's stranded costs and other costs, which could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars. However, the Company will incur incremental costs as a result of the
power buy-back arrangements in excess of the pre-sale costs of capacity and
energy from the plants being sold, which will effectively lower the amount of
sale proceeds available to reduce stranded and other costs. The Company believes
that the reduction in stranded and other costs could permit a reduction in rates
for the Company's customers.
The sale is subject to various closing conditions, including the approval of
state and federal regulatory agencies, which approval process the Company
expects could take approximately four to twelve months, and is subject to
consents or covenant waivers from certain of the Company's lenders. The Company
cannot predict whether or in what form such approvals, consents or waivers will
be obtained.
The Company believes that consummation of the asset sale described above would
constitute significant progress in resolving some of the uncertainties regarding
the effects of electric-utility industry restructuring on the Company's
investors; however, significant risks and uncertainties would remain. These
include, in addition to those enumerated above under "Note Re Forward-Looking
Statements," but are not limited to: (1) the possibility that a state or federal
regulatory agency will impose adverse conditions on its approval of the asset
sale; (2) the possibility that new state or federal legislation will be
implemented that will increase the risks to such investors from those
contemplated by current legislation; and (3) the possibility of legislative,
regulatory or judicial decisions that would reduce the ability of the Company to
recover its stranded costs from that contemplated by existing law.
Proposed Formation of Holding Company
To prepare further for the restructured electric utility industry contemplated
by the legislation, on December 8, 1997, the Company filed an application with
the MPUC for authorization to create a holding company that would have as
subsidiaries the Company, the Company's existing non-utility subsidiaries and
other entities. The Company believes that a holding company structure will
facilitate the Company's transition to a partially deregulated electricity
market that is scheduled to open access to electricity for Maine consumers
beginning on March 1, 2000. Competing as an electric energy provider in that
market as of that date will require the creation of an energy company that is
legally separate from the Company. The Company also proposed the creation of an
affiliated energy marketing affiliate in the MPUC filing.
The Company's application to the MPUC also requested approval of the creation of
a limited liability company in which a proposed new subsidiary of the holding
company would hold a fifty percent member-ship interest to participate in the
natural gas distribution business in Maine, with the remaining fifty percent
interest being held by New York State Electric & Gas Corporation ("NYSEG") or
its affiliate. For further discussion of the NYSEG joint venture, see "Expansion
of Lines of Business," below.
The proposed holding company formation must also be approved by federal
regulators, including the Securities and Exchange Commission and the FERC, and
by the holders of the Company's common stock and 6% Preferred Stock. The Company
is taking steps to pursue these approvals, but cannot predict the outcome.
Expansion of Lines of Business
The Company is preparing for competition by expanding its business opportunities
through subsidiaries that capitalize on core competencies. One subsidiary,
MaineCom Services, 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 credit and collections subsidiary. Another wholly-owned subsidiary,
CMP International Consultants, provides utility consulting (domestic and
international) and research, and engineering and environmental services. The
100-percent 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, and utility
construction services. The subsidiaries often utilize skills of former Company
employees and regularly compete for business with other companies. In addition,
a division of the Company is focusing on retail competition by developing
effective marketing techniques and energy-efficient services and products.
As noted above, the Company and NYSEG have signed a joint-venture agreement to
distribute natural gas to many Maine communities that are not currently served
with that fuel. The Company and NYSEG propose to offer natural-gas service in
five areas of Maine, primarily the Augusta, Bangor, Bath-Brunswick, Rumford and
Waterville areas. None of the 60 towns in those areas 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, after receipt of additional regulatory approvals, through
Maine and into the regional energy market using substantial portions of electric
transmission-line corridors owned by the Company and MEPCO under agreements
entered into on March 16, 1998. On March 9, 1998, the MPUC gave preliminary
approval to the Company-NYSEG proposal, subject to final approval after
submission of detailed plans on financing, construction, and other matters.
Competing applications to serve some of the areas have been filed. The Company
cannot predict the outcome of the MPUC proceeding. The Company will continue to
evaluate the opportunity to be a provider of natural gas to Maine customers, and
the economics thereof, including monitoring progress of the planned pipelines,
competitive considerations and relevant regulatory decisions.
FiveCom LLC ("FiveCom"), a majority-owned subsidiary of the Company's
wholly-owned MaineCom Services, is building a fiber-optic cable network
connecting cities in New England and plans to sell capacity on the network to
telephone companies, Internet providers, and other telecommunications
businesses. FiveCom has used transmission-line corridors owned by the Company,
and a substantial part of the expanded network in Connecticut and Massachusetts
will occupy utility corridors of Northeast Utilities, which owns a minority
interest in FiveCom. The Company's equity investment in MaineCom Services at the
end of 1997 was $15.9 million. In addition, the Company is providing up to $30
million to FiveCom through a loan arrangement for the development and
construction of the expanded network, and for working capital. The Company
believes there is a growing need for such a fiber-optic network in New England,
but cannot predict the results of this venture.
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 the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, it
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997 and its Current Reports on Form 8-K dated May 15,
1997 and August 1, 1997, and reported in more condensed form below, the Plant
experienced a number of operational and regulatory problems and has been shut
down since 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 Nuclear Regulatory
Commission ("NRC") was scheduled to expire on October 21, 2008.
Recent Operating History. The Plant provided reliable and low-cost power from
the time it commenced operations in late 1972 to 1995. Beginning in early 1995,
however, Maine Yankee encountered various operational and regulatory
difficulties with the Plant. In 1995, the Plant was shut down for almost the
entire year to repair a large number of steam generator tubes that were
exhibiting defects. Shortly before the Plant was to go back on-line in December
1995, a group with a history of opposing nuclear power released an undated,
unsigned, anonymous letter alleging that in 1988 Yankee Atomic (then an
affiliated consultant of Maine Yankee) and Maine Yankee had used the results of
a faulty computer code as a basis to apply to the NRC for an increase in the
Plant's power output. In response to the allegation, on January 3, 1996, the NRC
issued a Confirmatory Order that restricted the Plant to 90 percent of its
licensed thermal operation level, which restriction was still in effect when the
Plant was permanently shut down.
As a result of the controversy associated with the allegations, the NRC, at the
request of the Governor of Maine, conducted an intensive Independent Safety
Assessment ("ISA") of the Plant in the summer and fall of 1996. On October 7,
1996, the NRC issued its ISA report, which found that while the Plant had been
operated safely and could continue to operate, there were weaknesses that needed
to be addressed, which would require substantial additional spending by Maine
Yankee. On December 10, 1996, Maine Yankee responded to the ISA report,
acknowledged many of the weaknesses, and committed to revising its operations
and procedures to address the NRC's criticisms.
Another result of the controversy associated with the allegations was an
investigation of Maine Yankee initiated by the NRC's Office of Investigations
("OI"), which, in turn, referred certain issues to the United States Department
of Justice ("DOJ") for possible criminal prosecution. Subsequently, on September
27, 1997, the DOJ, through the United States Attorney for Maine, announced that
its review had revealed insufficient grounds for criminal prosecution. The
Company believes that the OI investigation, however, could ultimately result in
the imposition of civil penalties, including fines, on Maine Yankee, and expects
resolution of outstanding NRC enforcement action in 1998.
In 1996 the Plant was generally in operation at the 90-percent level from late
January to early December, except for a two-month outage from mid-July to
mid-September. The Plant was shut down again on December 6, 1996, to address
several concerns, and has not operated since then. The precipitating event
causing the shutdown was the need to evaluate and resolve cable-separation
compliance issues, and on December 18, 1996, the NRC issued a Confirmatory
Action Letter requiring the Plant to remain shut down until Maine Yankee's plan
for resolving the cable-separation issues was accepted by the NRC. Subsequently,
Maine Yankee uncovered additional issues, including among others the possibility
of having to replace defective fuel assemblies, address additional
cable-separation issues, and determine the condition of the Plant's steam
generators, which contributed to further operational uncertainty. On January 29,
1997, the Plant was placed on the NRC's Watch List, and on January 30, 1997, the
NRC issued a supplemental Confirmatory Action Letter requiring the resolution of
additional concerns before the Plant could be restarted.
In December 1996 Maine Yankee requested proposals from several utilities with
large and successful nuclear programs to provide a management team, and
ultimately contracted with Entergy Nuclear, Inc., effective February 13, 1997,
for management services that included providing a new president and regulatory
compliance officer. The Entergy-provided management team made progress in
addressing technical issues, but a number of operational and regulatory
uncertainties remained. On May 27, 1997, the Board of Directors of Maine Yankee
voted to minimize spending while preserving the options of restarting the Plant
or conveying ownership interests to a third party. After unsuccessful
negotiations with one prospective purchaser, Maine Yankee found no other
interest in purchasing the Plant and, based on its economic analysis, closed the
Plant permanently.
As required by the NRC, on August 7, 1997, Maine Yankee certified to the NRC
that Maine Yankee had permanently ceased operations and that all fuel assemblies
had been permanently removed from the Plant's reactor vessel. On August 27,
1997, Maine Yankee filed the required Post-Shutdown Activities Report with the
NRC, describing its planned post-shutdown activities and a proposed schedule.
Costs. The Company has been incurring substantial costs in connection with its
38-percent share of Maine Yankee costs, as well as additional costs for
replacement power while the Plant has been out of service. For the twelve months
ended December 31, 1997, such costs amounted to approximately $132.3 million for
the Company: $72.8 million due to basic operations and maintenance costs, $54.0
million due to replacement power costs and $5.5 million associated with
incremental costs of operations and maintenance. The Maine Yankee Board's
decision to close the Plant mitigated the costs the Company would otherwise have
incurred in 1997 through a phasing down of Maine Yankee's operations and
maintenance costs, with Maine Yankee's workforce having been reduced from
approximately 475 to 214 employees as of December 31, 1997, and further
reductions planned, but did not reduce the need to buy replacement energy and
capacity. The amount of costs for replacement energy and capacity varies based
on the Company's power requirements and market conditions, but the Company
expects such costs to be within a range of approximately $5.0 million to $5.5
million per month during 1998, based on current energy and capacity needs and
market conditions. Under the electric utility restructuring legislation enacted
by the Maine Legislature in May 1997 discussed below, the Company's obligations
to provide replacement power will terminate on March 1, 2000, along with its
other power-supply obligations. The impact of the nuclear-related costs on the
Company was the major obstacle to achieving satisfactory results in 1997,
despite the approximately $75 million in annual Maine Yankee-related costs
embedded in the current determination of the Company's required revenues for
ratemaking purposes and despite success in controlling other operating costs.
See "Results of Operations" above.
The Company's 38-percent ownership interest in Maine Yankee's common equity
amounted to $29.8 million as of December 31, 1997, and under Maine Yankee's
Power Contracts and Additional Power Contracts, the Company is responsible for
38-percent 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). 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, 1997, Maine Yankee had collected approximately
$199.5 million for its decommissioning obligations.
On November 6, 1997, Maine Yankee submitted the new estimate to the FERC as part
of a rate case reflecting the fact that the Plant is no longer operating and has
entered the decommissioning phase. If the FERC accepts the new estimate, the
amount of Maine Yankee's collections for decommissioning would rise from the
$14.9 million previously allowed by the FERC to approximately $36 million per
year. Several interested parties have intervened in the FERC proceeding,
including the MPUC.
On September 1, 1997, Maine Yankee estimated the sum of the future payments for
the closing, decommissioning and recovery of the remaining investment in Maine
Yankee to be approximately $930 million, of which the Company's 38-percent share
would be approximately $353 million. Legislation enacted in Maine in 1997
calling for restructuring the electric utility industry provides for recovery of
decommissioning costs, to the extent allowed by federal regulation, through the
rates charged by the transmission and distribution companies. Based on the
legislation and regulatory precedent established by the FERC in its opinion
relating to the decommissioning of the Yankee Atomic nuclear plant, the Company
believes that it is entitled to recover substantially all of its share of such
costs from its customers and as of December 31, 1997, is carrying on its
consolidated balance sheet a regulatory asset and a corresponding liability in
the amount of $329 million, which is the $353 million discussed above net of the
Company's post-September 1, 1997 cost-of-service payments to Maine Yankee.
Management Audit. On September 2, 1997, the MPUC released the report of a
consultant it had retained to perform a management audit of Maine Yankee for the
period January 1, 1994, to June 30, 1997. The report contained both positive and
negative conclusions, the latter including: that Maine Yankee's decision in
December 1996 to proceed with the steps necessary to restart the Plant was
"imprudent", that Maine Yankee's May 27, 1997 decision to reduce restart
expenses while exploring a possible sale of the Plant was "inappropriate", based
on the consultant's finding that a more objective and comprehensive competitive
analysis at that time "might have indicated a benefit for restarting" the Plant;
and that those decisions resulted in Maine Yankee incurring $95.9 million in
"unreasonable" costs. On October 24, 1997, the MPUC issued a Notice of
Investigation initiating an investigation of the shutdown decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company believes the
report's negative conclusions are unfounded and may be contradictory. The
Company has been charging its share of the Maine Yankee expenses to income, and
believes it would have substantial constitutional and jurisdictional grounds to
challenge any effort in an MPUC proceeding to alter wholesale Maine Yankee rates
made effective by the FERC. On November 7, 1997, Maine Yankee initiated a legal
challenge to the MPUC investigation in the Maine Supreme Judicial Court alleging
that such an investigation falls exclusively within the jurisdiction of the FERC
and that the MPUC investigation is therefore barred on constitutional grounds.
The Company filed a similar legal challenge on the same day. The MPUC
subsequently stayed its investigation pending the outcome of Maine Yankee's FERC
rate case, in which the MPUC is participating, while indicating that its
consultant would continue its extended review. Based on preliminary indications
from the consultant, the Company expects the report on the extended review to
call for additional disallowances, which Maine Yankee has said it expects to
contest vigorously.
Maine Yankee Debt Restructuring and FERC Rate Proceeding: Maine Yankee entered
into agreements in August 1997 with the holders of its outstanding First
Mortgage Bonds and its lender banks (the "Standstill Agreements") under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit agreements. The
parties also agreed in the Standstill Agreements to maintain Maine Yankee's bank
borrowings at a level below that of the prior aggregate bank commitments, which
level Maine Yankee considered adequate for its foreseeable needs. The Standstill
Agreements, as extended in October 1997, were to terminate on January 15, 1998,
by which date Maine Yankee was to have reached agreement on restructured debit
arrangements reflecting its decommissioning status. Maine Yankee's rate filing
with the FERC reflected the Plant's decommissioning status and requested an
effective date of January 15, 1998, for the amendments to Maine Yankee's Power
Contracts and Additional Power Contracts, which revise Maine Yankee's wholesale
rates and clarify and confirm the obligations of Maine Yankee's sponsors to
continue to pay their shares of Maine Yankee's costs during the decommissioning
period.
On January 14, 1998, the FERC issued an "Order Accepting for Filing and
Suspending Power Sales Contract Amendment, and Establishing Hearing Procedures"
(the "FERC Order") in which the FERC accepted for filing the rates associated
with the amended Power Contracts and made them effective January 15, 1998,
subject to refund. The FERC also granted intervention requests, including among
others those of the MPUC, Maine Yankee's largest bondholder, and two of its
lender banks, denied the request of an intervenor group to summarily dismiss
part of the filing, and ordered that a public hearing be held concerning the
prudence of Maine Yankee's decision to shut down the Plant and on the justness
and reasonableness of Maine Yankee's proposed rate amendments. The Company
expects the prudence issue to be pursued vigorously by several intervenors,
including among others the MPUC, which stayed its own prudence investigation
pending the outcome of the FERC proceeding after the jurisdictional challenge by
Maine Yankee and the Company discussed above. The hearing in the FERC rate
proceeding is scheduled to begin on December 1, 1998. The Company cannot predict
the outcome of the FERC proceeding.
On January 15, 1998, Maine Yankee, its bondholders and lender banks revised the
Standstill Agreements and extended their term to April 15, 1998, subject to
satisfying certain milestone obligations during the term of the extension. One
such obligation was that Maine Yankee must have accepted, by February 12, 1998,
an underwritten commitment to refinance its bonds and bank debt, subject only to
closing conditions reasonably capable of being satisfied by April 15, 1998, and
reasonably satisfactory to the bondholders and banks. Maine Yankee accepted such
a commitment prior to the deadline, received regulatory approval of the
refinancing on March 9, 1998, and is negotiating final loan documentation, and
preparing for a closing before April 15. The proposed refinancing consists of an
extendible three-year bank credit facility and an eight-year term loan facility.
Other Maine Yankee Shareholders: Higher nuclear-related costs are also affecting
other stockholders of Maine Yankee in varying degrees. Bangor Hydro-Electric
Company, a Maine-based 7% stockholder, cited its "deteriorating" financial
condition, suspended its common stock dividend, and eventually obtained rate
relief. Maine Public Service Company, a 5% stockholder, cited problems in
satisfying financial covenants in loan documents, reduced its common stock
dividend substantially in early March 1997 and obtained rate relief. Northeast
Utilities (20% stockholder through three subsidiaries), which is also adversely
affected by the substantial additional costs associated with the three shut-down
Millstone nuclear units and the permanently shut-down Connecticut Yankee unit,
as well as significant regulatory issues in Connecticut and New Hampshire, has
implemented an indefinite suspension of its quarterly common stock dividends.
Largely as a result of nuclear-related costs, Northeast Utilities reported a
loss of $135 million for 1997 and continues to experience difficulty in
satisfying loan covenants. 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, and would constitute a default under Maine Yankee's bond indenture and
its two major credit agreements unless cured within applicable grace periods by
the defaulting stockholder or other stockholders. The Company cannot predict,
however, what effect, if any, the financial difficulties being experienced by
some Maine Yankee stockholders will have on Maine Yankee or the Company.
Interests in Other Nuclear Plants
On December 4, 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company voted to permanently shut down the Connecticut Yankee plant for economic
reasons, and to decommission the unit, which had not operated since July of
1996. The Company has a 6% equity interest in Connecticut Yankee, totaling
approximately $6.6 million at December 31, 1997. The Company incurred
replacement power costs of approximately $5.2 million during the twelve months
ended December 31, 1997. Based on cost estimates provided by Connecticut Yankee,
the Company determined 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 $36.9 and is carrying
a regulatory asset and a corresponding liability in that amount on its
consolidated balance sheet as of December 31, 1997. The Company is currently
recovering through rates an amount adequate to recover these expenses.
The Company has a 2.5% direct ownership interest in Millstone Unit No. 3, which
is operated by Northeast Utilities. This facility has been off-line since April
1996 due to Nuclear Regulatory Commission ("NRC") concerns regarding license
requirements and the Company cannot predict when it will return to service.
Millstone Unit No. 3, along with two other units at the same site owned by
Northeast Utilities, is on the NRC's "watch list" in "Category 3", which
requires formal NRC action before a unit can be restarted. The Company incurred
replacement power costs related to Millstone Unit No. 3 of approximately $4.9
million during the twelve months ended December 31, 1997. On August 7, 1997, the
Company and other minority owners of Millstone Unit No. 3 filed suite and
initiated an arbitration claim against Northeast Utilities, its trustees, and
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. The Company cannot
predict the outcome of the litigation and arbitration.
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 the Company's electric power generating facilities,
which are to be sold to FPL Group, as discussed above. The purchase agreement
contemplates that CMP would retain the liabilities and obligations which
occurred prior to the transfer of those assets and those incurred subsequent to
the transfer will become the obligation of FPL. 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 see Note 4
"Commitments and Contingencies" - "Legal and Environmental Matters".
Open-Access Transmission Service Ruling
On April 24, 1996, the Federal Energy Regulatory Commission (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 take
wholesale transmission service they provide themselves 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.
On July 9, 1996, the Company and MEPCO submitted compliance filings to meet the
new pro forma tariff non-price minimum terms and conditions of
non-discriminatory transmission service. Since then CMP and MEPCO have made
additional filings revising their tariffs in response to subsequent FERC Orders.
In addition, CMP filed on February 21, 1997, a revised tariff to comport with
the NEPOOL Open Access Transmission Tariff. Since July 9, 1996, the Company and
MEPCO have been transmitting energy pursuant to their filed tariffs, subject to
refund. FERC subsequently issued Orders No. 888-A and 888-B which generally
reaffirm Order No. 888 and clarify certain terms.
Also on April 24, 1996, FERC 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. The Company participated in efforts to develop a
regional OASIS for New England, which was operational January 3, 1997. FERC
subsequently approved a New England Power Pool-wide Open Access Tariff, subject
to refund and issuance of further orders. The Company also participated in
revising the New England Power Pool Agreement, which is pending FERC approval.
Competition and Economic Development
The Company faces competition in several aspects of its traditional business and
anticipates that competition will continue to put pressure on both sales and the
price the Company can charge for its product. Alternative fuels and recent
modifications to regulations that had restricted competition from suppliers
outside of the Company's service territory have expanded customers' energy
options. As a result, the Company continues to pursue retention of its customer
base. This increasingly competitive environment has resulted in the Company's
entering into contracts 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, the Company
redesigned some rates to encourage off-peak usage and discourage switching to
alternative fuels. These include water-heat and space-heat retention rates,
Super-Saver rates, which discount off-peak usage, Diesel Deferral rates,
Economic Development rates, and the Maine Made Incentive program, which target
small businesses. 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 45%
of annual service area kilowatt-hour sales and 32% 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. Refer to Note 4 to
Consolidated Financial Statements, "Commitments and Contingencies -
Competition," for additional information.
Non-Utility Generators
In accordance with prior MPUC policy and the ARP, $92 million of buy-out or
contract-restructuring costs incurred since January 1992 were included in
Deferred Charges and Other Assets on the Company's balance sheet and will be
amortized over their respective fuel savings periods. The Company restructured
42 contracts representing 349 megawatts of capacity that should result in
approximately $258 million in fuel savings over the next five years.
In 1997 the Company also replaced a purchased power contract for energy from a
wood-fired power plant in Ashland, Maine. The existing purchased power contract
was terminated and a new agreement for 40 megawatts, at lower rates was signed,
which is estimated to save CMP customers the equivalent of $21 million in net
present value. Refer to Note 6 to Consolidated Financial Statements, "Capacity
Arrangements - Non-Utility Generators," for more information.
On October 31, 1997, a contract with a major NUG from which the Company was
obligated to purchase electricity at substantially above-market prices expired.
As a result, the Company expects annual operating income to increase by
approximately $25 million. Two months of this benefit, or approximately $4
million, are reflected in 1997 results.
Expenses and Taxes
Fuel expense, comprised of fuel used for company generation and the energy
portion of purchased power, increased by approximately $29 million in 1997. The
increase is due primarily to increased fuel cost for company owned facilities
and additional purchased power to replace the loss of output from the nuclear
facilities. Fuel expense fluctuates with changes in the price of oil, the level
of energy generated and purchased, and changes in the Company's own generation
mix.
The extended outage and ultimate closing of Maine Yankee (see "Permanent
Shutdown of Maine Yankee Plant") resulted in significant increases in fuel
expense, including purchased-power energy and purchased-power capacity expense,
and affected the Company's generation mix in 1997 and 1996. The Company replaced
this power through short-term agreements.
The Company's oil-fired generation increased to 35.1% of the Company's net
generation in 1997, compared to 16.3% in 1996 net generation, and 21.6% in 1995.
The NUG component of the energy mix increased to 35.2% in 1997 from 31.4% in
1996, as a result of the ongoing outage and ultimate closing of Maine Yankee
(see "Permanent Shutdown of Maine Yankee Plant"). The average price of NUG
energy of 8.4 cents per kilowatt-hour is significantly higher than the Company's
own cost of generation, and much higher than the price of energy on today's open
market. The Company continues to try to moderate the cost of non-utility
generation by pursuing renegotiation of contracts, by supporting legislative
bills that would promote that objective, and by other means such as strict
contract-term enforcement.
Purchased-power capacity expense is the non-fuel operation, maintenance, and
cost-of-capital expense associated with power purchases, primarily from the
Company's share of the Yankee nuclear generating facilities. In 1997,
purchased-power capacity expense increased by $4.1 million. The increase is due
primarily to the costs associated with the Maine Yankee plant and the need to
replace the capacity when the Maine Yankee plant shut-down permanently in August
1997.
In December 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company announced a permanent shutdown of the Connecticut Yankee plant for
economic reasons and their intent to decommission the plant. The Company has a
6% equity interest in Connecticut Yankee, totaling approximately $6.6 million at
December 31, 1997. Purchased power capacity expense in 1997, 1996 and 1995
includes $7.4, $11.5 million and $11.5 million, respectively, of costs related
to this facility. During 1992, Yankee Atomic Electric Company, in which the
Company is a 9.5% equity owner, discontinued power generation and prepared a
plan for decommissioning. Purchased-power capacity expense in 1997, 1996 and
1995 contained approximately $4.6, $4.8 million and $3.9 million, respectively,
of costs related to this facility. The level of purchased-power capacity expense
also fluctuates with the timing of the maintenance and refueling outages at the
Vermont Yankee nuclear generating facility in which the Company has a 4% equity
interest. The cost of capacity increases during refueling periods. Refer to Note
6 to Consolidated Financial Statements, "Capacity Arrangements - Power
Agreements," and "Interests in Other Nuclear Plants" above for a more detailed
discussion.
In 1997, other operations expense increased by approximately $23.6 million as
compared to the year ended December 31, 1996. The major contributors to the
increase were the absence of the effect of a $6.4 million reversal in 1996 for a
reserve established in 1995, $3.7 million of amortization and costs associated
with a large purchased-power contract buyout, $4.3 million of additional
transmission and distribution expenses, and $1.9 million of expense for
post-retirement benefits being collected in rates under the ARP. Previously
post-retirement benefits were deferred for future recovery. In addition, various
other operations expenses of $7.3 million contributed to the 1997 increase.
The 1996 reduction in other operation and maintenance expense is attributed to
the reversal of a reserve of $6.4 million established in 1995 for the Company's
workers compensation regulatory asset for which recovery was not certain. In the
June 1996 ARP decision, the MPUC approved recovery of this regulatory asset.
Also in 1996, the Company increased the workers compensation obligation and
charged the increase of $1.6 million to expense. As a result, a net
year-over-year reduction of $11.2 million for workers compensation was recorded.
The Company did incur an increase in distribution expenses of $4.1 million,
mainly due to line-clearance activities. The Company has contractual obligations
related to demand-side energy-management programs which increased expense by
$2.8 million in 1996. Maintenance expense other than distribution increased $3.5
million, of which $1.4 million was for repairs at the Millstone Unit No. 3
nuclear facility.
Maintenance expense decreased by $3.5 primarily due to decreased storm activity
in 1997 versus 1996, as well as the lower costs involved with a
turbine/generator project at a Company steam station when comparing 1997 to
1996.
Federal and State income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. This expense decreased by $22.7
million as compared to the year ended December 31, 1996. The decrease is due
primarily to lower pre-tax earnings for the 12 months ended December 31, 1997.
Other income decreased by $2.5 million in 1997 as compared to 1996 primarily due
to excess expenses over revenue associated with a non-operating division of the
Company, and resulting lower taxes due to this occurrence.
Other interest expense increased in 1997 over 1996 primarily due to additional
interest incurred for tax audit settlements and amended returns interest.
In 1997, interest expense reflected a net decrease of $100 thousand as compared
to the year ended December 31, 1996. Other interest increased due to a higher
level of short-term borrowings and interest expenses associated with various IRS
issues. The long-term debt interest expense decrease was due primarily to the
lower level of Medium-Term Notes outstanding than in 1996. Interest expense
decreased in 1996 by $1.4 million due to lower levels of Medium-Term Notes and
the repurchase of $11.5 million of Series N General and Refunding Mortgage
Bonds. Long-term debt interest expense includes $1 million of accelerated
amortization of loss on reacquired debt, as specified in the 1996 ARP.
Short-term interest costs over the period 1995 through 1997 fluctuated with the
levels of rates and outstanding balances of short-term debt.
In July 1997 and 1996, the Company redeemed $14 million of its 8 7/8% Series
Preferred Stock at par, under the mandatory and optional sinking-fund provisions
of that series. This reduced dividends by approximately $1,860,000 in 1977 and
$620,000 in 1996.
State and federal income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. A settlement with the Internal
Revenue Service on audits for the years 1992-1994 provided an increase to income
tax expense of approximately $1.4 million in 1997. In 1996, the settlement with
the Internal Revenue Service on audits for the years 1988-1991 provided a
decrease to income tax expense of approximately $4.8 million. See Note 2 to
Consolidated Financial Statements, "Income Taxes" and Note 4, "Commitments and
Contingencies," for more information.
Year 2000 Computer Issues
In the next two years, most large companies will face a potentially serious
information systems (computer) problem because most software application and
operational programs written in the past will not properly recognize calendar
dates beginning in the year 2000. This could force computers to either shut down
or lead to incorrect calculations. The Company began the process of identifying
the changes required to their computer programs and hardware during the year
1996. The majority of the necessary modifications to the Company's centralized
financial, customer, and operational information systems are expected to be
completed by the end of 1998. The Company believes it will incur approximately
$3.0 million of costs by March 31, 2000, associated with making the necessary
modifications identified to date to the centralized systems. As of December 31,
1997 approximately $1.5 million of costs have been incurred. Noncentralized
systems are currently being reviewed for Year 2000 problems. The Company is
unable to predict the costs to be incurred for correction of such noncentralized
systems, but expects the scope and schedule for such work to be less complex
than for its centralized information systems. In addition, the Company cannot
predict the extent of its vulnerability to third parties noncompliance and their
failure to remediate year 2000 issues.
Liquidity and Capital Resources
The MPUC approved increases in electric retail rates of 1.10%, 1.26% and 2.43%
in 1997, 1996 and 1995, respectively, that produced additional cash pursuant to
the price cap mechanism in the ARP. Increases in rates under the ARP were based
on increases in the related price index, the sharing mechanism and provisions
for certain mandated costs. Prior rate increases were provided to fund costs of
fuel, energy-management programs, operations, maintenance, systems improvements,
and investments in generation needed to ensure the Company's continued ability
to provide reliable electric service.
Approximately $89.0 million of cash was provided from net income after adding
back non-cash items. Approximately $7.8 million of cash was used for
fluctuations in working capital. Other operating activities, including the
financing of deferred energy-management programs required cash resources of
approximately $4.6 million.
The level of cash balances and activity in capital investment programs have
required little investment-related activity during 1997 and 1996. The redemption
of Medium-Term Notes and the purchase of 8 7/8% Series Preferred Stock used $25
million and $14 million, respectively, of cash during 1997. Dividends paid on
common stock were $29.2 million, while preferred-stock dividends were $8.5
million.
Capital-investment activities, primarily construction expenditures, utilized
$45.8 million in cash during 1997. Construction expenditures comprised
approximately $3.7 million for generating projects, $2.6 million for
transmission, $24.6 million for distribution, and $9.4 million for general
facilities and other construction expenditures for a total of $40.3 million. The
Company invested $4.8 million in affiliates in 1997. The two major components of
the investments were the $5.8 million invested in MaineCom Services and
Aroostook Valley Electric Company's repayment of an advance of $1.2 million.
The Company estimates its capital expenditures for the period 1998 through 2002
at approximately $275 million. Actual capital expenditures will depend upon the
availability of capital and other resources, load forecasts, customer growth,
and general business conditions. During the five-year period, the Company also
anticipates incurring approximately $434 million for sinking funds, and debt and
equity maturities.
The Company estimates that for the period 1998 through 2002, internally
generated funds from operating activities should provide a substantial portion
of the construction-program requirements. However, the availability at any
particular time of internally generated funds for such requirements will depend
on working-capital needs, market conditions, and other relevant factors.
Replacement power costs and increased operation and maintenance expenses had a
significant negative effect on cash and liquidity in 1997. The Company incurred
additional expenses of $46 million in 1997 over 1996 to replace Maine Yankee
power and pay its share of increased repair and other operations at the plant.
The Company expects its share of Maine Yankee costs to decrease by approximately
$30 million in 1998 as the plant moves toward decommissioning. In addition,
shutdowns at other nuclear facilities increased 1997 replacement-power costs by
$5 million; these facilities include Millstone Unit 3 in Connecticut, which was
taken off-line for safety modifications and requires U.S. Nuclear Regulatory
Commission approval to restart, and the Connecticut Yankee plant, which closed
permanently on December 4, 1996, and is now being decommissioned.
At the annual meeting of the stockholders of the Company on May 15, 1997, the
holders of the Company's outstanding preferred stock consented to the issuance
of $350 million in principal amount of the Company'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 is being implemented
to increase the Company's financing flexibility in anticipation of restructuring
and increased competition. As of December 31, 1997, $43 million of Medium-Term
Notes were outstanding which, under the terms of the program, will permit
issuance of an additional $457 million of such notes. On February 24, 1998, the
Company issued a two-year 6.38% Medium-Term Note in the principal amount of $30
million, and on March 20, 1998, issued 18-month 6.35% Medium-Term Notes in the
aggregate principal amount of $30 million, raising the total outstanding to $103
million.
To support its short-term capital requirements, on October 23, 1996, the Company
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 has two credit facilities: a $75 million, 364-day revolving credit
facility that currently matures on October 21, 1998, and a $50-million, 3-year
revolving credit facility that matures on October 22, 1999. Both credit
facilities require annual fees on the total credit lines. The fees are based on
the Company's credit ratings and allow for various borrowing options including
LIBOR-pried, base-rate-priced and competitive-bid-priced loans. Access to
commercial paper markets has been substantially precluded, as a result of
downgrading of the Company's 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 Company had $60
million outstanding as of December 31, 1997 under the 364-day revolving credit
facility, all of which had been paid as of March 25, 1998.
In 1997, the Company deposited approximately $2.2 million in cash, net of
withdrawals, with the Trustee under the Company's General and Refunding Mortgage
Indenture in satisfaction of the renewal and replacement fund and other
obligations under the Indenture. The total of such cash on deposit with the
Trustee as of December 31, 1997, was approximately $61.7 million. Under the
Indenture such cash may be applied at any time, at the direction of the Company,
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
the Company by substitution of allocated property additions or available bonds.
On February 26, 1998, the Company called for redemption on March 30, 1998, all
of the outstanding $11 million principal amount of its General and Refunding
Mortgage Bonds, Series N 8.50% Due 2001, at a redemption price equal to their
principal amount plus accrued interest to the date fixed for redemption. On the
same day the Company also called for redemption on March 30, 1998, all of the
outstanding $50 million principal amount of its General and Refunding Mortgage
Bonds, Series R 7-7/8% Due 2023, also at a redemption price equal to their
principal amount plus accrued interest. The bond redemptions are being funded
from the approximately $61.7 million on deposit with the trustee under the
renewal and replacement fund and release provisions of the Company's General and
Refunding Mortgage Indenture. On February 27, 1998, the Company called for
redemption on April 1, 1998, 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 are being paid on the preferred stock since the redemption
date is a regular dividend payment date.
Impact of New Accounting Standards
In February 1997, FASB issued SFAS No. 128, "Earnings per Share." This
statement, which is effective for fiscal years ending after December 15, 1997,
establishes simplified standards for computing and presenting earnings per share
("EPS"). In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which is effective for fiscal years beginning after
December 15, establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company anticipates
that adoption of these standards will not have a significant impact on its
financial statements.
